# Zion Oil & Gas Inc: Form 10-Q for the period ended Jun 30, 2024

- Company: [Zion Oil & Gas Inc](/companies/znog.md) (CIK 1131312)
- Form: 10-Q
- Filed: 2024-08-06
- Accepted by EDGAR: Aug 6, 2024, 16:30 ET
- Period: 2024-06-30
- Accession: 0001213900-24-065697
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1131312/000121390024065697/ea0209756-10q_zionoil.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1131312/000121390024065697/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Operating income | 3 months, 2024-04-01 to 2024-06-30 | −$2.1m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2024-01-01 to 2024-06-30 | −$3.9m | us-gaap:OperatingIncomeLoss |
| Net income | 3 months, 2024-04-01 to 2024-06-30 | −$2.1m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2024-01-01 to 2024-06-30 | −$3.8m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-04-01 to 2024-06-30 | $0.00 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2024-01-01 to 2024-06-30 | −$0.01 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-04-01 to 2024-06-30 | $0.00 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2024-01-01 to 2024-06-30 | −$0.01 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-04-01 to 2024-06-30 | 745,565 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2024-01-01 to 2024-06-30 | 706,294 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2024-01-01 to 2024-06-30 | −$3.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2024-01-01 to 2024-06-30 | $43.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2024-06-30 | $2.5m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-06-30 | $4.5m | us-gaap:AssetsCurrent |
| Total assets | at 2024-06-30 | $28.8m | us-gaap:Assets |
| Current liabilities | at 2024-06-30 | $2.5m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-06-30 | $3.7m | us-gaap:Liabilities |
| Shareholders' equity | at 2024-06-30 | $25.1m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 32,995 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, 2023, 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 Israel-Hamas war which began in October 2023 and its effect on our exploration program;
- The going concern qualification in our consolidated condensed financial statements;
- Our ability to obtain new license areas to continue our 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 OTCQB;
- interruptions, increased financial costs and other adverse impacts of the covid 19 coronavirus pandemic, the Israel-Hamas war and the Russia-Ukraine war 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 future license areas with regard to, among other things, the existence of 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 24 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 OTCQB marketplace of OTC Markets, Inc. under the symbol “ZNOG” and our Common Stock warrant under the symbol “ZNOGW.” 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.

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 is valid for three years until September 13, 2026 with four potential 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. As previously announced, Zion is deploying new technologies and stimulation methods for its current re-entry into the MJ-01 well with the objective of potentially unlocking hydrocarbon flows in several identified key zones.

On February 21, 2024, members of the Supervisory Committee visited our rig site. During this visit, they interacted with staff from Zion Oil & Gas, and our consultants and potential service providers. Some of these interactions occurred at Kibbutz Sde Eliyahu, while others were conducted through video conferencing with participants from the United States, Europe and the Middle East. Following these discussions, the Committee has officially accepted our work plan for the MJ-01 project. This acceptance allows us to sign agreements and secure mobilization dates with our service providers required to commence and complete the project.

Field operations remain on schedule, and our rig is now positioned over the MJ-01 wellbore. Repairs and maintenance, as well as the inspection of the rig, have all been completed successfully. All necessary wireline equipment for the project has been mobilized with additional essential items from India, China, Romania and Greece currently in transit for the final stages of operation.

The initial phase of the MJ-01 recompletion project involves drilling out the plugs and nearly 625 meters (approximately 2,050 feet) of cement in the well. Following the drilling out of the cement plugs, we will next run a series of wireline tests and casing integrity tests to ensure that the wellbore has withstood the past six years of high temperatures.

The next phase of the MJ-01 recompletion project, provided all goes as expected from the initial phase, involves perforating, stimulating and well testing previously identified zones of interest.

### I-35 Drilling Rig & Associated Equipment

|  | Six-month period ended June 30, 2024 I-35 Drilling Rig US$ thousands | Rig Spare Parts US$ thousands | Other Drilling Assets US$ thousands | Total US$ thousands |
| --- | ---: | ---: | ---: | ---: |
| December 31, 2023 | 4,591 | 608 | 311 | 5,510 |
| Asset Additions | - | 22 | - | 22 |
| Asset Depreciation | (318) | - | (96) | (414) |
| Asset Disposals | - | - | (93) | (93) |
| Asset Disposals for Self-Consumption | - | (8) | - | (8) |
| June 30, 2024 | 4,273 | 622 | 122 | 5,017 |

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, 2024.

### 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 was 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 2023 and 2024.

For the three and six months ended June 30, 2024, approximately $5,896,000 and $9,453,000 were raised under the DSPP program, respectively. The $5,896,000 and $9,453,000 figures were reduced by $947,000 and $1,763,000, respectively, in equity issuance costs to an outside party resulting in net cash provided of $4,949,000 and $7,690,000, respectively.

For the three and six months ended June 30, 2024, approximately $985,000 and $985,000 were recorded under the Company’s Statement of Changes in Stockholders’ Equity as Subscriptions Receivables.

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.

The warrants balances at December 31, 2023 and transactions since January 1, 2024 are shown in the table below:

| Warrants | Exercise Price | Warrant Termination Date | Outstanding Balance, 12/31/2023 | Warrants Issued | Warrants Exercised | Warrants Expired | Outstanding Balance, 06/30/2024 |
| --- | ---: | --- | ---: | ---: | ---: | ---: | ---: |
| ZNWAA | $2.00 | 01/31/2025 | 1,498,804 | - | - | - | 1,498,804 |
| ZNWAG | $1.00 | 01/08/2024 | 240,068 | - | - | (240,068) | - |
| ZNWAM | $0.05 | 12/31/2024 | 4,376,000 | - | - | - | 4,376,000 |
| ZNWAQ | $0.05 | 12/31/2024 | 23,428,348 | - | - | - | 23,428,348 |
| ZNWAZ | $0.25 | 07/17/2024 | 153,800 | - | - | - | 153,800 |
| Outstanding warrants |  |  | 29,697,020 | - | - | (240,068) | 29,456,952 |

39

### 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 condensed 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 condensed financial statements do not include any adjustments that might result from the outcome of this uncertainty.

### Israel-Hamas War

On October 7, 2023, Hamas, a militant terrorist organization in Gaza, infiltrated southern Israel, killing and injuring at least one thousand Israeli citizens. Roughly 250 Israeli hostages were then taken back to Gaza. This unprovoked attack led the nation of Israel to declare war on Hamas approximately one week later. As of the date of this report, Israel remains at war and there are daily battles inside the Gaza strip. Israel’s stated goals are to completely dismantle the terror infrastructure of Gaza, including its extensive tunnel network and to bring back safely all of the hostages.

There is uncertainty as to how long the war inside the Gaza strip will last and whether the war will expand to other hostile parties in the region. While we acknowledge that uncertainty and its potential adverse effects on Zion’s business, the Company is moving forward with its re-completion activities at the MJ-01 wellsite. It is important to note that Zion’s license area is not located near any current combat zones.

### Russia – Ukraine War

Due to Russia’s invasion of Ukraine, which began in February 2022, and the resulting sanctions and other actions against Russia and Belarus, there has been uncertainty and disruption in the global economy. Although the Russian war against Ukraine did not have a material adverse impact on the Company’s financial results for the year ended December 31, 2023, at this time the Company is unable to fully assess the aggregate impact the Russian war against Ukraine will have on its business due to various uncertainties, which include, but are not limited to, the duration of the war, the war’s effect on the global economy, future energy pricing, its impact to the businesses of the Company’s, and actions that may be taken by governmental authorities related to the war.

### Critical Accounting Policies

Management’s discussion and analysis of financial condition and results of operations is based upon our consolidated condensed financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated condensed 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 condensed 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, 2024, and 2023, respectively, the Company recorded $nil and $48,000 in post-impairment charges.

During the six months ended June 30, 2024, and 2023, respectively, the Company recorded $nil and $93,000 post-impairment charges.

The total net book value of our unproved oil and gas properties under the full cost method is $17,815,000 and $16,637,000 at June 30, 2024 and at December 31, 2023, 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, 2024 | 2023 | For the six months ended June 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| General and administrative expenses | 1,201 | 1,271 | 2,376 | 2,774 |
| Other | 882 | 1,016 | 1,481 | 1,599 |
| Impairment of unproved oil and gas properties | - | 48 | - | 93 |
| Subtotal Operating costs and expenses | 2,083 | 2,335 | 3,857 | 4,466 |
| Other expense (income), net | (19) | (1) | (31) | 7 |
| Net loss | 2,064 | 2,334 | 3,826 | 4,473 |

*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, 2024 were $2,083,000 and $3,857,000, respectively, compared to $2,335,000 and $4,466,000, respectively, for the three and six months ended June 30, 2023. Operating costs and expenses for the three months ended June 30, 2024 were $252,000 (10.8%) lower compared to the three months ended June 30, 2023. Operating costs for the six months ended June 30, 2024 were $609,000 (13.6%) lower compared to the six months ended June 30, 2023.

*General and administrative expenses.* General and administrative expenses (“G&A expenses”) for the three and six months ended June 30, 2024 were $1,201,000 and $2,376,000, respectively, compared to $1,271,000 and $2,774,000, respectively, for the three and six months ended June 30, 2023. This expense grouping includes salaries, benefits, stock option expenses and professional fees. G&A expenses decreased $70,000, or 5.5%, during the most recent quarter versus the prior year primarily due to lower salaries expenses and expenses associated with stock option grants. G&A expenses decreased $398,000, or 14.3%, during the first six months of 2024 as compared to the six months of 2023, primarily due to lower expenses associated with stock option grants.

*Other expense.* Other expenses during the three and six months ended June 30, 2024 were $882,000 and $1,481,000, respectively, compared to $1,016,000 and $1,599,000, respectively, for the three and six months ended June 30, 2023. Other general and administrative expenses are comprised of non-compensation and non-professional expenses incurred. Other expenses decreased by $134,000, or about 13.2%, and by $118,000, or about 7.4%, for the three and six months ended June 30, 2024, respectively. Zion incurred lower annual meeting and insurance premium expenses, but this was partially offset by higher marketing and investor relations expenses.

*Impairment of unproved oil and gas properties.* Impairment of unproved oil and gas properties expenses during the three and six months ended June 30, 2024 were $nil and $nil compared to $48,000 and $93,000 for the three and six months ended June 30, 2024. The expenses recorded in 2023 are post impairment charges to the impairment recorded during 2023 related to the MJ-2 well.

*Other expense (income), net*. Other expenses (income) during the three and six months ended June 30, 2024 were ($19,000) and ($31,000), respectively, compared to ($1,000) and $7,000, respectively, for the three and six months ended June 30, 2023. 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.

*Net Loss*. Net loss for the three and six months ended June 30, 2024 were $2,064,000 and $3,826,000 compared to $2,334,000 and $4,473,000 for the three and six months ended June 30, 2023.

### 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. As disclosed on our Balance Sheet, the company has 1,200,000,000 shares of authorized common stock and 818,873,764 shares issued as of June 30, 2024. We are considering increasing our authorized shares during the next proxy season in 2025. However, we are presently engaged on our MJ-01 re-entry project and, pending the discovery of hydrocarbons later this year, may decide to forego increasing authorized shares if our ZNOG share price increases sufficiently so as to reduce the monthly issuance of common shares. In the event of a hydrocarbon discovery, the company would consider raising capital outside of our DSPP program.

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, 2024 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, 2024, we had approximately $2,461,000 in cash and cash equivalents compared to $615,000 at December 31, 2023, which does not include any restricted funds. Our working capital (current assets minus current liabilities) was $2,000,000 at June 30, 2024 and ($349,000) at December 31, 2023.

As of June 30, 2024, we provided bank guarantees to various governmental bodies (approximately $970,000) and others (approximately $89,000) in respect of our drilling operation in the aggregate amount of approximately $1,059,000. 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, 2024, cash used in operating activities totaled $3,775,000. Cash provided by financing activities during the six months ended June 30, 2024 was $6,547,000 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 $882,000 for the six months ended June 30, 2024.

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.

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 $1,797,000 during the period July 1, 2024 through August 6, 2024, we will need to raise additional funds in order to continue our exploration and development activities in our license area. Of this amount, approximately $1,122,000 represents cash received for receivables on our books at June 30, 2024. The difference of $675,000 represents new investments during July and August 2024. 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, coupled with anticipated proceeds under the DSPP, will be sufficient to finance our plan of operations through October 2024.

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. However, as of the date of this report, most of our employees are working at our physical offices, but have the ability to work from home as needed.

Similar uncertainties are posed by the Israel Hamas war and its duration and whether the war expands regionally to include other hostile parties. It is important to note that Zion’s license area is not located near any current combat zone.

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), the potential impact of the Israel-Hamas war, the potential actions of other hostile parties in the region, 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 condensed 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 consolidated condensed 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 2024 had a significant impact on our financial position, results of operations, or cash flow.

## Market risk

As filed, 2,582 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, 2024 through June 30, 2024, the USD has fluctuated by approximately 3.6% against the NIS (the USD strengthened relative to the NIS). Also, during the period January 1, 2023 through December 31, 2023, the USD fluctuated by approximately 3.1% 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, 2024 we had cash, cash equivalents and short-term and long-term bank deposits of approximately $3,525,000. The weighted average annual interest rate related to our cash and cash equivalents for the three and six months ended June 30, 2024, exclusive of funds at US banks that earn no interest, was approximately 2.8% and 2.9% 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, 2024, 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, 2024.

### 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, 2024 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, 2024, 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, 2023.

Filed Aug 6, 2024.
Source: SEC EDGAR, the filing index for accession 0001213900-24-065697. Last ingested by Listed: Oct 24, 2026, 15:05 ET. No prices; not investment advice.