# Zion Oil & Gas Inc: Form 10-Q for the period ended Jun 30, 2023

- Company: [Zion Oil & Gas Inc](/companies/znog.md) (CIK 1131312)
- Form: 10-Q
- Filed: 2023-08-10
- Accepted by EDGAR: Aug 10, 2023, 16:30 ET
- Period: 2023-06-30
- Accession: 0001213900-23-065636
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1131312/000121390023065636/f10q0623_zionoil.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1131312/000121390023065636/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-04-01 to 2023-06-30 | $4.0k | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2023-01-01 to 2023-06-30 | $38.0k | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Operating income | 3 months, 2023-04-01 to 2023-06-30 | −$2.3m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2023-01-01 to 2023-06-30 | −$4.5m | us-gaap:OperatingIncomeLoss |
| Net income | 3 months, 2023-04-01 to 2023-06-30 | −$2.3m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2023-01-01 to 2023-06-30 | −$4.5m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-04-01 to 2023-06-30 | −$4.00 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2023-01-01 to 2023-06-30 | −$8.00 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-04-01 to 2023-06-30 | −$4.00 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2023-01-01 to 2023-06-30 | −$8.00 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-04-01 to 2023-06-30 | 542,812,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2023-01-01 to 2023-06-30 | 536,950,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2023-01-01 to 2023-06-30 | −$2.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Cash and equivalents | at 2023-06-30 | $518.0k | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-06-30 | $2.1m | us-gaap:AssetsCurrent |
| Total assets | at 2023-06-30 | $24.8m | us-gaap:Assets |
| Current liabilities | at 2023-06-30 | $2.5m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-06-30 | $3.0m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-06-30 | $21.9m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 30,713 characters.

THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED NOTES TO THOSE STATEMENTS INCLUDED IN THIS FORM 10-Q. SOME OF OUR DISCUSSION IS FORWARD-LOOKING AND INVOLVES RISKS AND UNCERTAINTIES. FOR INFORMATION REGARDING RISK FACTORS THAT COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, REFER TO THE DISCUSSION OF RISK FACTORS IN THE “DESCRIPTION OF BUSINESS” SECTION OF OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2022, FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.

### Forward-Looking Statements

Certain statements made in this discussion are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may materially differ from actual results.

Forward-looking statements can be identified by terminology such as “may”, “should”, “expects”, “intends”, “anticipates”, “believes”, “estimates”, “predicts”, or “continue” or the negative of these terms or other comparable terminology and include, without limitation, statements regarding:

- The going concern qualification in our consolidated financial statements;
- our ability to obtain new license areas to continue our petroleum exploration program; ·
- our liquidity and our ability to raise capital to finance our overall exploration and development activities within our license area;
- our ability to continue meeting the requisite continued listing requirements by OTCQX;
- business interruptions from COVID-19 pandemic;
- interruptions, increased consolidated financial costs and other adverse impacts of the coronavirus pandemic on the drilling and testing of our petroleum exploration program and our capital raising efforts;
- our ability to explore for and develop natural gas and oil resources successfully and economically within a license area;
- our ability to maintain the exploration license rights to continue our petroleum exploration program;
- the availability of equipment, such as seismic equipment, drilling rigs, and production equipment as well as access to qualified personnel;
- the impact of governmental regulations, permitting and other legal requirements in Israel relating to onshore exploratory drilling;
- our estimates of the time frame within which future exploratory activities will be undertaken;
- changes in our exploration plans and related budgets;
- the quality of existing and future license areas with regard to, among other things, the existence of hydrocarbon reserves in economic quantities;
- anticipated trends in our business;
- our future results of operations;
- our capital expenditure program;
- future market conditions in the oil and gas industry
- the demand for oil and natural gas, both locally in Israel and globally; and
- the impact of fluctuating oil and gas prices on our exploration efforts

All references in this Quarterly Report to the “Company”, “Zion”, “we”, “us”, or “our”, are to Zion Oil and Gas, Inc., a Delaware corporation, and its wholly-owned subsidiaries, Zion Drilling, Inc. and Zion Drilling Services, Inc. described below.

### Current Exploration and Operation Efforts

Zion Oil and Gas, Inc., a Delaware corporation, is an oil and gas exploration company with a history of 23 years of oil and gas exploration in Israel. We were incorporated in Florida on April 6, 2000 and reincorporated in Delaware on July 9, 2003. We completed our initial public offering in January 2007. Our common stock, par value $0.01 per share (the “Common Stock”) currently trades on the OTCQX marketplace of OTC Markets, Inc. under the symbol “ZNOG” and our Common Stock warrant under the symbol “ZNOGW.” On January 24, 2020, the Company 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, the Company incorporated another wholly owned subsidiary, Zion Drilling Services, Inc., a Delaware corporation, to act as the contractor providing such drilling services. When the Company 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.

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.

### I-35 Drilling Rig & Associated Equipment

|  | Six-month period ended June 30, 2023 I-35 Drilling Rig US$ thousands | Rig Spare Parts US$ thousands | Other Drilling Assets US$ thousands | Total US$ thousands |
| --- | ---: | ---: | ---: | ---: |
| **December 31, 2022** | 5,225 | 619 | 437 | 6,281 |
| Asset Additions | **-** | **-** | **-** | **-** |
| Asset Depreciation | **(317)** | **-** | **(63)** | **(380)** |
| Asset Disposals for Self-Consumption | **-** | **(11)** | **-** | **(11)** |
| **June 30, 2023** | **4,908** | **608** | **374** | **5,890** |

Zion’s ability to fully undertake all of these aforementioned activities is subject to its raising the needed capital from its continuing offerings, of which no assurance can be provided.

### Map 1. Zion’s New Megiddo License 428 as of June 30, 2023.

### Onshore Licensing, Oil and Gas Exploration and Environmental Guidelines

The Company is engaged in oil and gas exploration and production and may become subject to certain liabilities as they relate to environmental cleanup of well sites or other environmental restoration procedures and other obligations as they relate to the drilling of oil and gas wells or the operation thereof. Various guidelines have been published in Israel by the State of Israel’s Petroleum Commissioner, the Energy Ministry, and the Environmental Ministry in recent years as it pertains to oil and gas activities. Mention of these guidelines was included in previous Zion Oil & Gas filings.

We acknowledge that these new regulations are likely to increase the expenditures associated with obtaining new exploration rights and drilling new wells. The Company expects that additional financial burdens could occur as a result of the Ministry requiring cash reserves that could otherwise be used for operational purposes.

### Capital Resources Highlights

We need to raise significant funds to finance the continued exploration efforts and maintain orderly operations. To date, we have funded our operations through the issuance of our securities and convertible debt. We will need to continue to raise funds through the issuance of equity and/or debt securities (or securities convertible into or exchangeable for equity securities). No assurance can be provided that we will be successful in raising the needed capital on terms favorable to us (or at all).

#### The Dividend Reinvestment and Stock Purchase Plan

On March 13, 2014 Zion filed a registration statement on Form S-3 that is part of a replacement registration statement that was filed with the SEC using a “shelf” registration process. The registration statement was declared effective by the SEC on March 31, 2014. On February 23, 2017, the Company filed a Form S-3 with the SEC (Registration No. 333-216191) as a replacement for the Form S-3 (Registration No. 333-193336), for which the three year period ended March 31, 2017, along with the base Prospectus and Supplemental Prospectus. The Form S-3, as amended, and 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.

Please see Footnote 3D (“Dividend Reinvestment and Stock Purchase Plan (“DSPP”)), which is a part of this Form 10-Q filing, for details about specific stock purchase and unit programs, dates, and filings during the years 2016 through 2023.

For the three and six months ended June 30, 2023, approximately $1,761,000, and $2,553,000 were raised under the DSPP program, respectively. The $2,553,000 figure is net of $173,000 in equity issuance costs to an outside party.

For the three and six months ended June 30, 2022, approximately $1,566,000, and $12,993,000 were raised under the DSPP program, respectively.

The warrants balances at December 31, 2022 and transactions since January 1, 2023 are shown in the table below:

| Warrants Exercise Price | Warrant Termination Date | Outstanding Balance, 12/31/2022 | Warrants Issued | Warrants Exercised | Warrants Expired | Outstanding Balance, 6/30/2023 |
| --- | --- | ---: | ---: | ---: | ---: | ---: |
| ZNWAA $2.00 | 01/31/2024 | 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 | 01/08/2024 | 240,068 | - | - | - | 240,068 |
| ZNWAH $5.00 | 04/19/2023 | 372,400 | - | - | (372,400) | - |
| ZNWAI $3.00 | 06/29/2023 | 640,710 | - | (100) | (640,610) | - |
| ZNWAJ $1.00 | 10/29/2023 | 545,900 | - | - | - | 545,900 |
| ZNWAK $0.01 | 02/25/2023 | 424,225 | - | (9,050) | (415,175) | - |
| ZNWAL $2.00 | 08/26/2023 | 517,875 | - | - | - | 517,875 |
| ZNWAM $0.05 | 09/06/2023 | 4,376,000 | - | - | - | 4,376,000 |
| ZNWAN $1.00 | 05/16/2023 | 267,760 | - | (75) | (267,685) | - |
| ZNWAO $0.25 | 06/12/2023 | 174,660 | - | - | (174,660) | - |
| ZNWAQ $0.05 | 09/06/2023 | 23,428,348 | - | - | - | 23,428,348 |
| ZNWAV $0.05 | 06/28/2023 | - | 288,500 | (167,730) | (120,770) | - |
| ZNWAW $0.05 | 07/13/2023 | - | 199,000 | (124,500) | - | 74,500 |
| ZNWAX $0.05 | 07/31/2023 | - | 818,500 | (173,253) | - | 645,247 |
| ZNWAY $0.05 | 09/10/2023 | - | 17,450 | (1,650) | - | 15,800 |
| Outstanding warrants |  | 35,234,137 | 1,323,450 | (476,358) | (4,379,252) | 31,701,977 |

37

### Principal Components of our Cost Structure

Our operating and other expenses primarily consist of the following:

- Impairment of Unproved Oil and Gas Properties: 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 Expenses: 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 Accretion: 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 for one year from the date the financials were issued. 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 significantly impacted the economic conditions in the United States and Israel, as federal, state and local governments reacted 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, the Company adopted a hybrid model whereby many of our employees are working from corporate office two to three days per week and then working remotely two to three days per week. While there are various uncertainties to navigate, the Company’s business activities are continuing.

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 condensed 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.

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 months ended June 30, 2023, and 2022, respectively, the Company recorded $48,000 and nil post-impairment charges.

During the six months ended June 30, 2023, and 2022, respectively, the Company recorded $93,000 and nil post-impairment charges.

The total net book value of our unproved oil and gas properties under the full cost method is $16,191,000 and $15,889,000 at June 30, 2023 and at December 31, 2022, 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.

### RESULTS OF OPERATIONS

*(US $ in thousands)*

*(US $ in thousands)*

| Operating costs and expenses: | For the three months ended June 30, 2023 | 2022 | For the six months ended June 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| General and administrative expenses | **1,271** | **1,550** | **2,774** | **2,985** |
| Other | **1,016** | **946** | **1,599** | **1,657** |
| Impairment of unproved oil and gas properties | **48** | **-** | **93** | **-** |
| Subtotal Operating costs and expenses | **2,335** | **2,496** | **4,466** | **4,642** |
| Other expense (income), net | **(1)** | **101** | **7** | **121** |
| Net loss | **2,334** | **2,597** | **4,473** | **4,763** |

*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, 2023 were $2,335,000 and $4,466,000, respectively, compared to $2,496,000 and $4,642,000, respectively, for the three and six months ended June 30, 2022.

*General and administrative expenses.* General and administrative expenses (“G&A expenses”) for the three and six months ended June 30, 2023 were $1,271,000 and $2,774,000, respectively, compared to $1,550,000 and $2,985,000, respectively, for the three and six months ended June 30, 2022. This expense grouping includes salaries, benefits, stock option expenses and professional fees. G&A expenses decreased $279,000, or 18%, during the most recent quarter versus the prior year primarily due to lower salaries expenses, legal fees and expenses associated with stock option grants. G&A expenses decreased $211,000, or 7%, during the first six months of 2023 as compared to the six months of 2022, primarily due to lower salaries expenses and expenses associated with stock option grants.

*Other expense.* Other expenses during the three and six months ended June 30, 2023 were $1,016,000 and $1,599,000, respectively, compared to $946,000 and $1,657,000, respectively, for the three and six months ended June 30, 2022. Other general and administrative expenses are comprised of non-compensation and non-professional expenses incurred. Other expenses increased $70,000, or about 7%, for the three months ended June 30, 2023 as a result of higher annual meeting expenses in 2023 with a partial offset of lower travel expenses. Other expenses for the six months ended June 30, 2023 were lower by $58,000, or about 3.5%, and this variance is fairly minimal.

*Impairment of unproved oil and gas properties.* Impairment of unproved oil and gas properties expenses during the three and six months ended June 30, 2023 were $48,000 and $93,000 compared to nil and nil for the three and six months ended June 30, 2022. The expenses recorded in 2023 are post impairment charges to the impairment recorded during 2022 related to the MJ-2 well.

*Other expense (income), net.* Other expenses (income) during the three and six months ended June 30, 2023 were ($1,000) and $7,000, respectively, compared to $101,000 and $121,000, respectively, for the three and six months ended June 30, 2022. The expenses in this category are comprised of foreign currency exchange costs, primarily the New Israeli Shekel (NIS) to the US dollar, and the financial expenses/income. Overall, for the six months ended June 30, 2022, total expenses in this category are $114,000 lower due to the relative strengthening of the USD to the NIS during 2023.

*Net Loss.* Net loss for the three and six months ended June 30, 2023 were $2,334,000 and $4,473,000 compared to $2,597,000 and $4,763,000 for the three and six months ended June 30, 2022.

### Liquidity and Capital Resources

Liquidity is a measure of a company’s ability to meet potential cash requirements. As discussed above, we have historically met our capital requirements through the issuance of common stock as well as proceeds from the exercise of warrants and options to purchase common shares.

Our ability to continue as a going concern is dependent upon obtaining the necessary financing to complete further exploration and development activities and generate profitable operations from our oil and natural gas interests in the future. Our current operations are dependent upon the adequacy of our current assets to meet our current expenditure requirements and the accuracy of management’s estimates of those requirements. Should those estimates be materially incorrect, our ability to continue as a going concern will be impaired. Our financial statements for the six months ended June 30, 2023 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. We have incurred a history of operating losses and negative cash flows from operations. Therefore, there is substantial doubt about our ability to continue as a going concern for one year from the date the financials were issued.

At June 30, 2023, we had approximately $518,000 in cash and cash equivalents compared to $1,735,000 at December 31, 2022, which does not include any restricted funds. Our working capital (current assets minus current liabilities) was ($362,000) at June 30, 2023 and $661,000 at December 31, 2022.

As of June 30, 2023, we provided bank guarantees to various governmental bodies (approximately $930,000) and others (approximately $88,000) in respect of our drilling operation in the aggregate amount of approximately $1,018,000. The (cash) funds backing these guarantees are held in restricted interest-bearing accounts in Israel and are reported on the Company’s balance sheets as fixed short-term bank deposits restricted.

During the six months ended June 30, 2023, cash used in operating activities totaled $2,392,000. Cash provided by financing activities during the six months ended June 30, 2023 was $2,565,000 and is primarily attributable to proceeds received from the Dividend Reinvestment and Stock Purchase Plan (the “DSPP” or the “Plan”). Net cash used in investing activities such as unproved oil and gas properties, equipment and spare parts was $1,729,000 for the six months ended June 30, 2023.

During the six months ended June 30, 2022, cash used in operating activities totaled $3,424,000. Cash provided by financing activities during the six months ended June 30, 2022 was $12,994,000 and is primarily attributable to proceeds received from the Dividend Reinvestment and Stock Purchase Plan (the “DSPP” or the “Plan”). Net cash used in investing activities such as unproved oil and gas properties, equipment and spare parts was $8,448,000 for the six months ended June 30, 2022.

Accounting standards require management to evaluate our ability to continue as a going concern for a period of one year subsequent to the date of the filing of this Form 10-Q. We expect to incur additional significant expenditures to further our exploration and development programs. While we raised approximately $921,000 during the period July 1, 2023 through August 8, 2023, we will need to raise additional funds in order to continue our exploration and development activities in our license area. Additionally, we estimate that, when we are not actively drilling a well, our expenditures are approximately $600,000 per month excluding exploratory operational activities. However, when we are actively drilling a well, we estimate an additional minimum expenditure of approximately $2,500,000 per month. The above estimates are subject to change. Subject to the qualifications specified below, management believes that our existing cash balance, excluding anticipated proceeds under the DSPP, will be sufficient to finance our plan of operations through August 2023.

The outbreak of the coronavirus has to date significantly disrupted business operations, including our operations, and resulted in significantly increased unemployment in the general economy. The extent to which the coronavirus impacts our operations, specifically our capital raising efforts, as well as our ability to continue our exploratory efforts, will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others.

No assurance can be provided that we will be able to raise the needed operating capital.

Even if we raise the needed funds, there are factors that can nevertheless adversely impact our ability to fund our operating needs, including (without limitation), unexpected or unforeseen cost overruns in planned non-drilling exploratory work in existing license areas, the costs associated with extended delays in undertaking the required exploratory work, and plugging and abandonment activities which is typical of what we have experienced in the past.

The financial information contained in these consolidated financial statements has been prepared on a basis that assumes that we will continue as a going concern for one year from the date the financials were issued, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. This financial information and these condensed consolidated financial statements do not include any adjustments that may result from the outcome of this uncertainty.

### Off-Balance Sheet Arrangements

We do not currently use any off-balance sheet arrangements to enhance our liquidity or capital resource position, or for any other purpose.

### Recently Issued Accounting Pronouncements

The Company does not believe that the adoption of any recently issued accounting pronouncements in 2023 had a significant impact on our financial position, results of operations, or cash flow.

## Market risk

As filed, 2,624 characters.

Market risk is a broad term for the risk of economic loss due to adverse changes in the fair value of a financial instrument. These changes may be the result of various factors, including interest rates, foreign exchange rates, commodity prices and/or equity prices. In the normal course of doing business, we are exposed to the risks associated with foreign currency exchange rates and changes in interest rates.

*Foreign Currency Exchange Rate Risks.* A portion of our expenses, primarily labor expenses and certain supplier contracts, are denominated in New Israeli Shekels (“NIS”). As a result, we have significant exposure to the risk of fluctuating exchange rates with the U.S. Dollar (“USD”), our primary reporting currency. During the period January 1, 2023 through June 30, 2023, the USD has fluctuated by approximately 5.1% against the NIS (the USD strengthened relative to the NIS). Also, during the period January 1, 2022 through December 31, 2022, the USD fluctuated by approximately 13.2% against the NIS (the USD strengthened relative to the NIS). Continued strengthening of the US dollar against the NIS will result in lower operating costs from NIS denominated expenses. To date, we have not hedged any of our currency exchange rate risks, but we may do so in the future.

Interest Rate Risk. Our exposure to market risk relates to our cash and investments. We maintain an investment portfolio of short-term bank deposits and money market funds. The securities in our investment 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.

## Controls and procedures

As filed, 948 characters.

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.

## Risk factors

As filed, 182 characters.

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.

Filed Aug 10, 2023.
Source: SEC EDGAR, the filing index for accession 0001213900-23-065636. Last ingested by Listed: Oct 24, 2026, 15:05 ET. No prices; not investment advice.