Zion Oil & Gas Inc: Form 10-Q for the period ended Sep 30, 2025

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, 2024, 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 the impact of the negotiated October 2025 ceasefire will have on our exploration program;
• the Israel-Iran war which began and ended in June 2025 and its effect on our exploration program;
• the Israel-Hezbollah war which began in 2024, along with wider regional hostilities towards Israel, and their 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, the Israel-Hezbollah war, the Israel-Iran 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 existing and 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 Texas 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 Texas corporation, is an oil and gas exploration company with a history of 25 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. The shareholders of Zion Oil & Gas, Inc. approved the redomestication of its incorporation to Texas on June 4, 2025. 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., originally as a Delaware corporation, but now a Texas 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., originally as a Delaware corporation, but now a Texas 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 October 19, 2022, Zion incorporated a wholly owned subsidiary in Israel, Zion Drilling Israel Ltd, for the purpose of owning a drilling rig and related equipment and spare parts. On this date, the entity was created as a placeholder only. A bank account was created in November 2024 and a tax file was created in January 2025. Zion Drilling Israel LTD did not have any activities during the nine months ended September 30, 2025.

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, 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 officially accepted our work plan for the MJ-01 re-completion project. This acceptance allowed us to sign agreements and secure mobilization dates with our service providers to commence and complete the project.

The initial phase of our recompletion project consisted of a category three inspection of the drilling rig, rigging down from MJ-02 and moving and rigging up over the MJ-01 well.

Stage two of the operation involved drilling out both the steel plugs along with 625 meters (about 2,050 feet) of cement plugs and re-conditioning the wellbore to allow unhindered access to the selected zones for testing.

After six years of inactivity in a well over three miles deep, the MJ-01 wellbore presented a challenging environment. The wellbore appeared to have experienced elastic and partial collapse of the casing in some areas. This led to the bottom hole assembly (“BHA”) becoming stuck over 4,000 meters from surface. Attempts to overpull the BHA were unsuccessful, and the crew completed a backoff operation which left over 500 meters of the BHA remaining downhole. This is not an uncommon occurrence with oil and gas drilling operations, and the crew was unsuccessful in retrieving the remaining BHA with the tools that were on location.

Another delay arose out of the logistical challenges we face. The ongoing conflict in the region has impacted shipping routes, the timely arrival of necessary equipment, and created travel difficulties for our rig crews. Our operations require specialized rig crews who are not available in Israel.

An even further delay was created by many of our rig crew members reaching the limit of their work visas. This requires us to reset visas, which is not a simple process, and it adds another layer of delay and complexity. Moreover, the recent changes to visa eligibility have further complicated the process, as Israel has changed their 90-day visa renewals from resetting at the end of the year to resetting six months after expiration. We are working with the Ministry of Interior on this issue. As a side note, the crew had to enter Israel under 90-day visas and not six months visas in order to comply with the labor law requirements in place at the time the operations commenced.

In light of the combination of downhole, logistical, and crew challenges, as well as holidays, and the one-year remembrance of October 7, we temporarily paused active operations during Q4 2024. This was a necessary step to ensure the safety of our personnel and to ensure proper engineering and tools are brought to location to avoid lengthy delays waiting for additional tools should any be required once the job resumes.

Zion’s rig crew arrived in Israel in February 2025 and completed critical maintenance and preparatory work. The rig, which was safely “warm stacked” in September 2024, underwent necessary checks for maintenance, including fluid changes, lubrication and greasing, and mechanical, electrical, and safety audits to ensure peak functionality. The rig crew drilled out the temporary plug at approximately 1,100 meters and set a permanent plug at the deeper part of the well, allowing for isolation of targeted zones for testing. Perforation and stimulation operations were successfully completed, with gas observed at surface during early flowback.

On June 10, 2025, we completed flowback operations at our Megiddo-Jezreel #1 well and have since temporarily shut it in and demobilized our crew. The last of our crew left the country just hours before the 12-day war with Iran. We analyzed the initial gas composition data which confirmed that our targeted perforation and stimulation procedures were successful. Gas reached the surface and shows characteristics consistent with a productive reservoir.

Since our July update, we have advanced planning for the next phase of operations in Israel. Our technical objective remains unchanged, which is to sidetrack the well and drill a lateral section into the identified target interval to enable multi-stage stimulation across multiple zones. The principal operational refinement is to begin this campaign from the MJ-02 well, located on the same pad as the MJ-01 well, just 7.5 meters away on surface and approximately 300 meters offset at depth. Both wellbores access the same target zone. Starting from MJ-02 allows us to begin in larger casing, use larger-diameter tools, and execute a two-stage drilling plan—providing greater flexibility to manage downhole contingencies and improving our chance of operational success.

Logistics remain challenging in Israel’s onshore market, where most services and equipment must be imported with added time and cost. Despite providers being heavily contracted, we have secured key services such as drilling, mud, and cementing. Recent visa reforms and progress with ministry approvals are also positive steps forward.

We are preparing to mobilize the rig crew in January 2026, complete upgrades and site work in February, and begin drilling in March. Leveraging the existing wellbore gives us a strong head start, and while this type of lateral drilling is new to onshore Israel, our team is well-positioned to execute it successfully.

While our MJ-01 re-completion project has faced a multitude of hurdles, including recent hostilities with Hamas, Hezbollah, Iran and Yemen, downhole issues and logistical challenges, we continue to move forward each time a safe opportunity permits continuation of operations. However, we will only move forward in coordination with Israeli authorities. We are actively monitoring the port situation to import the items needed to complete the current work program. We remain optimistic about making significant progress in the coming months.

I-35 Drilling Rig & Associated Equipment

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 434 as of September 30, 2025.

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 2024 and 2025.

For the three and nine months ended September 30, 2025, approximately $180,000 and $359,000, respectively, were recorded under the Company’s Statement of Changes in Stockholders’ Equity as Subscriptions Receivables. Approximately $156,000 of the $359,000 receivable at September 30, 2025 pertains to an exercise of stock options by a former director. These funds were later received in October 2025.

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

For the three and nine months ended September 30, 2025, approximately $4,791,000 and $18,571,000, respectively, were raised under the DSPP program. The Company did not pay any equity issuance costs for the three and nine months ended September 30, 2025

For the three and nine months ended September 30, 2024, approximately $3,692,000 and $12,160,000 were raised under the DSPP program, respectively. The $3,692,000 and $12,160,000 figures were reduced by $536,000 and $2,299,000, respectively, in equity issuance costs to an outside party resulting in net cash provided of $3,156,000 and $9,861,000, respectively.

The warrants balances at December 31, 2024 and transactions since January 1, 2025 are shown in the table below:

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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

The nation of Israel declared war on Hamas following the October 7, 2023 invasion by Hamas into many southern Israeli communities, killing and injuring thousands and taking of over 200 Israeli hostages into Gaza. Israel formed a war time emergency government with its primary focus on defending its homeland. As part of the war effort, Israel activated a large number of reservists. Our geologist in Israel, Nadav Navon, was called into service for a month or two in late 2023. In 2024, he was called up again to serve for a period of months. He has since returned back to work. As a result of Nadav’s absence, his workload was handled by our US based geologist Lee Russell. We have been able to keep up with the geological workload without any issues.

Our operations in Israel take place at the wellsite in north central Israel, away from the primary location of the war in southern Israel. Our drilling rig, pad site, employees and service providers were safe throughout 2024 and through the date of this report in November 2025.

Throughout 2024, there were daily battles occurring in the Gaza Strip. Israel was largely successful in winning the battles, including taking operational control of nearly all areas of Gaza and killing many top leaders of Hamas.

On or about January 19, 2025, Israel and Hamas agreed to a ceasefire. After that date, various agreements have been reached between Israel and Hamas regarding the release of Israeli hostages and the simultaneous release of Hamas prisoners while maintaining a ceasefire. However, hostilities began again pending release of the remaining Israeli hostages.

On or around October 13, 2025, following more than two years after the initial invasion by Hamas, a ceasefire was negotiated between Israel and Hamas. The ceasefire deal contains three phases and the first phase involves the release of all living and dead Israeli hostages held by Hamas, along with the release of approximately 1,950 Palestinian prisoners being held in Israel prisons. All of the 20 living hostages were released and some, but not all, of the remains of the dead hostages have been released to Israeli families. The next phase (phase 2) of the ceasefire deal is underway and involves the disarmament of Hamas.

There is uncertainty as to the degree of stability that will be seen in the Gaza strip and the wider impact on hostilities in the region.

Israel-Hezbollah War

Throughout the first 4-6 months of 2024, the IDF (“Israeli Defense Forces”) and Hezbollah (a terrorist organization based in Lebanon) exchanged near daily missile and rocket fire at Israel’s northern border. During Q3 2024, the IDF carried out multiple strikes against the Hezbollah leadership and was very successful.

On October 1, 2024, Israel invaded Lebanon to attack Hezbollah directly. Israel and the IDF were successful including killing much of the top leadership of Hezbollah.

On November 27, 2024, Israel and Hezbollah signed a ceasefire agreement.

So far in 2025, the ceasefire is holding with only occasional minor rocket fire being exchanged.

Israel-Iran War

On June 13, 2025, Israel launched Operation Rising Lion by surprise attacks on key military and nuclear facilities in Iran. This was a targeted operation to roll back the Iranian threat to Israel’s very survival In the opening hours of the war, Israeli air force assassinated some of Iran's prominent military leaders and nuclear scientists, and damaged or destroyed Iran's air defenses and some of its nuclear and military facilities. Israel launched hundreds of airstrikes throughout the war. Iran retaliated with waves of missile and drone strikes against Israeli cities and military sites; over 550 ballistic missiles and more than 1,000 explosive drones were launched by Iran during the war. The Iran-allied Houthis in Yemen also fired several missiles at Israel. On the ninth day of the war the United States bombed three Iranian nuclear sites. On June 24, 2025, Israel and Iran agreed to a ceasefire.

As of the date of this report, both sides are holding to its terms.

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, 2024, and the quarter ended September 30, 2025, 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, 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 nine months ended September 30, 2025 and 2024, the Company did not record any post-impairment charges.

The total net book value of our unproved oil and gas properties under the full cost method is $26,967,000 and $21,682,000 at September 30, 2025 and at December 31, 2024, 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 did not use unobservable (level 3) inputs for fair value measurements at September 30, 2025 and at December 31, 2024, respectively.

RESULTS OF OPERATIONS

(US $ in thousands)

(US $ in thousands)

Revenue. We currently have no revenue generating operations.

Operating costs and expenses. Operating costs and expenses for the three and nine months ended September 30, 2025 were $1,693,000 and $5,389,000, respectively, compared to $1,775,000 and $5,632,000, respectively, for the three and nine months ended September 30, 2024. Operating costs and expenses for the three months ended September 30, 2025 were $82,000 (4.6%) lower compared to the three months ended September 30, 2024. Operating costs and expenses for the nine months ended September 30, 2025 were $243,000 (4.3%) lower compared to the nine months ended September 30, 2024.

General and administrative expenses. General and administrative expenses (“G&A expenses”) for the three and nine months ended September 30, 2025 were $1,117,000 and $3,319,000, respectively, compared to $1,143,000 and $3,519,000, respectively, for the three and nine months ended September 30, 2024. This expense grouping includes salaries, benefits, stock option expenses and professional fees. G&A expenses were lower by $26,000, or (2.3%), during the most recent quarter versus the prior year quarter primarily due to lower expenses associated with stock option grants. G&A expenses decreased $200,000, or (5.7%), during the first nine months of 2025 as compared to the nine months of 2024, primarily due to lower expenses associated with stock option grants.

Other expense. Other expenses during the three and nine months ended September 30, 2025 were $576,000 and $2,070,000, respectively, compared to $632,000 and $2,113,000, respectively, for the three and nine months ended September 30, 2024. Other general and administrative expenses are comprised of non-cash compensation and non-professional expenses incurred. Other expenses decreased by $56,000, or about (8.9%), and by $43,000, or about (2.0%), for the three and nine months ended September 30, 2025, respectively. Zion incurred lower marketing and investor relations expenses and lower insurance premium expenses.

Other expense (income), net. Other expense (income) during the three and nine months ended September 30, 2025 were $26,000 and ($84,000), respectively, compared to $16,000 and ($15,000), respectively, for the three and nine months ended September 30, 2024. The expenses/income 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. Zion earned higher interest income during the three and nine months ended September 30, 2025, due to higher average cash balances.

Net Loss. Net losses for the three and nine months ended September 30, 2025 were $1,719,000 and $5,305,000 compared to $1,791,000 and $5,617,000 for the three and nine months ended September 30, 2024.

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 1,600,000,000 shares of authorized common stock and 1,139,174,393 shares issued as of September 30, 2025. We increased our authorized shares during the past proxy season in 2025.

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 nine months ended September 30, 2025 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 September 30, 2025, we had approximately $10,373,000 in cash and cash equivalents compared to $2,272,000 at December 31, 2024, which does not include any restricted funds. Our working capital (current assets minus current liabilities) was $10,187,000 at September 30, 2025 and $1,702,000 at December 31, 2024.

As of September 30, 2025, we provided bank guarantees to various governmental bodies (approximately $977,000) and others (approximately $105,000) in respect of our drilling operation in the aggregate amount of approximately $1,082,000. 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 cash and cash equivalents - restricted.

During the nine months ended September 30, 2025, cash used in operating activities totaled $4,613,000. Cash provided by financing activities during the nine months ended September 30, 2025 was $18,126,000 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 $5,392,000 for the nine months ended September 30, 2025.

During the nine months ended September 30, 2024, cash used in operating activities totaled $4,745,000. Cash provided by financing activities during the nine months ended September 30, 2024 was $9,346,000 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 $4,389,000 for the nine months ended September 30, 2024.

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 $931,000 during the period October 1, 2025 through November 5, 2025, which includes collection of the $359,000 stock subscription receivable at September 30, 2025, 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, coupled with anticipated proceeds under the DSPP, will be sufficient to finance our plan of operations through June 2026.

Similar uncertainties are posed by the Israel-Hamas war, the Israel-Hezbollah war, as well as the Israel-Iran war. The duration of those wars and the impacts on the region and world are not fully known at this point in time.

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 Israel-Hezbollah war, and Israel-Iran war, the potential actions of other hostile parties in the region, unexpected or unforeseen cost overruns in 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

In November 2023, the FASB issued ASU No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures”. The ASU improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses among other disclosure requirements. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments will be applied retrospectively to all prior periods presented in the financial statements. Zion adopted this ASU effective January 1, 2023. The adoption of this ASU did not have any impact on its consolidated financial statements.

Other Recent Accounting Pronouncements

The Company does not believe that the adoption of any recently issued accounting pronouncements in 2025 had a significant impact on our financial position, results of operations, or cash flow.

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, 2025 through September 30, 2025, the USD has fluctuated by approximately 9.4% against the NIS (the USD weakened relative to the NIS). In the contrast, during the period January 1, 2024 through December 31, 2024, the USD fluctuated by approximately 3.1% against the NIS (the USD strengthened relative to the NIS). Continued weakening of the US dollar against the NIS will result in higher 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 September 30, 2025 we had cash, cash equivalents, and restricted cash of approximately $11,457,000. The weighted average annual interest rate related to our cash and cash equivalents for the three and nine months ended September 30, 2025, exclusive of funds at US banks that earn no interest, was approximately 3.0% 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.

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 September 30, 2025, 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 not effective as of September 30, 2025, due to a significant deficiency in our controls and procedures related solely to the prohibited advance by the Company of a $30,000 hardship loan to an executive vice president referred to in Note 2G of the financial statements accompanying this report. The chief executive officer and the chief financial officer intend to consult with an external advisor to take steps to avoid any future recurrence of a prohibited action.

Changes in Internal Control over Financial Reporting

There were no changes in internal controls over financial reporting that occurred during the quarter ended September 30, 2025 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

During the quarter ended September 30, 2025, 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, 2024.