ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
The following discussion and
analysis should be read in conjunction with our accompanying consolidated financial statements and the notes to those consolidated financial
statements included elsewhere in this Annual Report. Some of our discussion is forward-looking and involves risks and uncertainties. For
information regarding factors that could have a material adverse effect on our business, refer to Risk Factors under Item 1A of
this Report.
Overview
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 Market under the symbol “ZNOG” and our Common Stock warrant
under the symbol “ZNOGW.”
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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 out of the approximately 99,000 acres covered by our New Megiddo License 428 (“NML
428”) which expired on February 1, 2023. Zion applied for a replacement license for NML 428 months prior to its expiration. This
Exploration License 434 will be 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.
The NMVL 434 lies onshore,
south and west of the Sea of Galilee, and 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.
See Item 1 for a detailed
listing of our exploration activities, milestones and/or timelines.
I-35
Drilling Rig & Associated Equipment
On March 12, 2020, Zion entered
into a Purchase and Sale Agreement with Central European Drilling kft, a Hungarian corporation, to purchase an onshore oil and gas drilling
rig, drilling pipe, related equipment and spare parts for a purchase price of $5.6 million in cash, subject to acceptance testing and
potential downward adjustment. We remitted to the Seller $250,000 on February 6, 2020 as earnest money towards the Purchase Price. The
Closing anticipated by the Agreement took place on March 12, 2020 by the Seller’s execution and delivery of a Bill of Sale to us.
On March 13, 2020, the Seller retained the earnest money deposit, and the Company remitted $4,350,000 to the seller towards the purchase
price and $1,000,000 (the “Holdback Amount”) was deposited in escrow with American Stock Transfer and Trust Company LLC. On
January 6, 2021, Zion completed its acceptance testing of the I-35 drilling rig and the Holdback Amount was remitted to Central European
Drilling on January 8, 2021.
I-35 Drilling Rig Rig Spare Parts Other Drilling Assets Total
US$ thousands US$ thousands US$ thousands US$ thousands
Asset Disposals for Self-Consumption - (202 ) - (202 )
Asset Additions - - - -
Asset Disposals for Self-Consumption - (11 ) - (11 )
Zion’s ability to fully
undertake all of these aforementioned activities was subject to its raising the needed capital through the issuance of our securities,
and we anticipate we will continue to need to raise funds through the issuance of equity securities (or securities convertible into or
exchangeable for equity securities). No assurance can be provided that we will be successful in raising the needed equity on favorable
terms (or at all).
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Our executive offices are
located at 12655 N Central Expressway, Suite 1000, Dallas, Texas 75243, and our telephone number is (214) 221-4610. Our field office in
Israel is located at 9 Halamish Street, North Industrial Park, Caesarea 3088900, and the telephone number is +972-4-623-8500.
Principal
Components of our Cost Structure
Our operating and other expenses
primarily consist of the following:
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. The consolidated financial
statements do not include any adjustments that might result from the outcome of this uncertainty.
Critical Accounting Policies
Management’s discussion
and analysis of financial condition and results of operations is based upon our 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.
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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 fourth quarter
of 2022, the Company testing protocol was concluded at the MJ-02 well. The test results confirmed that the MJ-02 well did not contain
hydrocarbons in commercial quantities in the zones tested. As a result, in the year ended December 31, 2022, the Company recorded a non-cash
impairment charge to its unproved oil and gas properties of $45,615,000.
During the year ended December
31, 2023, the Company recorded a non-cash post-impairment charge to its unproved oil and gas properties of $135,000. During the year ended
December 31, 2022, the Company did not record any post-impairment charges (see Note 4).
The total net book value of
our unproved oil and gas properties under the full cost method is $16,637,000 and $15,889,000 at December 31, 2023 and 2022, respectively.
Currency
Utilized
Although our oil & gas
properties and our principal operations are in Israel, we report all our transactions in United States dollars. Certain dollar amounts
in the consolidated financial statements may represent the dollar equivalent of other currencies.
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Valuation
of Deferred Taxes
We record a valuation allowance
to reduce our deferred tax asset to the amount that we believe is likely to be realized in the future. In assessing the need for the valuation
allowance, we have considered not only future taxable income but also feasible and prudent tax planning strategies. In the event that
we were to determine that it would be likely that we would, in the future, realize our deferred tax assets in excess of the net recorded
amount, an adjustment to the deferred tax asset would be made. In the period that such a determination was made, the adjustment to the
deferred tax asset would produce an increase in our net income.
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.
RESULTS OF OPERATIONS
The following table sets forth
our Statements of Operations data for the years ended December 31 (all data is in thousands of USD) for 2023 and 2022:
Operating costs and expenses:
General and administrative expenses 5,193 6,243
Impairment of unproved oil and gas properties 135 45,615
Other expense, net 2 127
FOR THE YEAR ENDED DECEMBER 31, 2023 COMPARED
TO DECEMBER 31, 2022
Revenue. We currently
have no revenue generating operations.
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Operating
costs and expenses. Operating costs and expenses for the year ended December 31, 2023 were $7,955,000 compared to $54,950,000 for
the year ended December 31, 2022. The decrease in costs in 2023 is primarily attributable to the recognition of an impairment charge of
$45,615,000 during Q4 2022. When impairment charges are excluded from both years, expenses decreased $1,515,000, or about 16%, in 2023.
General and administrative
expenses. General and administrative expenses for the year ended December 31, 2023 were $5,193,000 compared to $6,243,000 for the
year ended December 31, 2022. This represents a reduction of $1,050,000, or 17%, year over year. A major component of general and administrative
expenses is non-cash stock compensation expense in the form of stock options granted to employees, management and directors. As stated
in this filing, Zion does not have revenue generating operations. Historically, we have compensated our staff in part by granting stock
options in lieu of cash balances. However, though stock option grants are intended to provide a financial incentive, there are no guarantees
that stock options will be “in the money” and, in that event, would maintain no value.
Zion granted the following
number of stock options during the quarters of 2023 and 2022:
● Total Decrease in Options Granted During 2023: 9,718,000
The primary driver of this
variance was stock option expense. The number of stock options granted was 9,718,000 lower during 2023, and therefore expenses were significantly
lower.
Other
expenses. Other expenses during the year ended December 31, 2023 were $2,627,000 compared to $3,092,000 for the year ended December
31, 2022. This is a variance of $465,000 or 15%. The expenses in this category are comprised of non-compensation and non-professional
expenses incurred. Investor relations, corporate insurance, franchise taxes and travel were approximately $250,000 lower in 2023.
Impairment
of unproved oil and gas properties. Impairment of unproved oil and gas properties expenses during the year ended December 31,
2023 was $135,000 compared to $45,615,000 for the year ended December 31, 2022. The expense recorded in 2022 is attributable to the impairment
charge of $45,615,000 related to the MJ-2 well.
Other expense,
net. Other expense, net for the year ended December 31, 2023 was $2,000 compared to $127,000 for the year ended December 31, 2022.
This is a variance of $125,000 or 98%. The decrease in these expenses in 2023 is primarily attributable to exchange rate of the NIS fluctuations
to the USD.
Net
Loss. Net loss for the year ended December 31, 2023 was $7,957,000 compared to $55,077,000 for the year ended December 31, 2022.
The primary driver of the lower net loss in 2023 is the recognition of an impairment charge of $45,615,000 during Q4 2022.
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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 in doubt. Our consolidated financial
statements for the year ended December 31, 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.
During the past two completed
fiscal years, we have financed our operations primarily from the proceeds of sales of our stock under the Dividend Reinvestment and Stock
Purchase Plan. For the years ended December 31, 2023 and 2022, we raised approximately $6,949,000 and $19,129,000, respectively, under
the Plan. Of the amounts raised, approximately 54% of the amounts raised in 2023 were attributable to one participant and 77% of
the amounts raised in 2022 were attributable to two participants. The cessation of funding from these participants may result in adverse
consequences to our business, such as a delay in our testing efforts, until we locate alternate sources for this funding.
At December 31, 2023, we had
approximately $615,000 in cash and cash equivalents compared to $1,735,000 at December 31, 2022. Our working capital (current assets minus
current liabilities) was ($349,000) at December 31, 2023 and $661,000 at December 31, 2022.
As
of December 31, 2023, and 2022, the Company provided Israeli-required bank guarantees to various governmental bodies (approximately $944,000
and $1,278,000, respectively) and others (approximately $90,000 and $79,000, respectively) with respect to its drilling operation in
an aggregate amount of approximately $1,034,000 and $1,357,000, respectively. The cash funds backing these guarantees are held in restricted
interest-bearing accounts and are reported on the Company’s balance sheets as fixed short-term bank deposits – restricted.
During
the years ended December 31, 2023 and 2022, cash used in operating activities totaled $5,133,000 and $5,704,000, respectively. Cash
provided by financing activities during the years ended December 31, 2023 and 2022 was $6,008,000 and $19,133,000, respectively, and
is primarily attributable to proceeds received from the Dividend Reinvestment and Stock Purchase Plan (the “DSPP” or “Plan”).
Net cash used in investing activities such as drilling costs for our MJ-02 exploratory well, purchase of equipment and spare parts was
$2,354,000 and $16,267,000 for the years ended December 31, 2023 and 2022, respectively.
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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 the consolidated financial statements. We expect to incur additional significant expenditures to further our exploration
and development programs. While we raised approximately $2,052,000 during the period January 1, 2024 through March 20, 2024, we
will need to raise additional funds in order to continue our exploration and development activities. 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 March 2024.
The outbreak of the coronavirus,
together with its subsequent variants, has significantly disrupted business 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.
The same kind of uncertainty and inability to predict or plan has occurred
since the outset of the Israel-Hamas war on October 7, 2023. To date, there is no indication when this uncertainty will be resolved.
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 drilling
and planned non-drilling exploratory work, 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 and extended delays obtaining regulatory
approvals since the outset of the Israel-Hamas war.
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,
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 financial statements do not include any adjustments that may result from the outcome of this
uncertainty.
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.
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On September 15, 2020, the
Company extended the termination date of the ZNWAE Warrant by two (2) years from the expiration date of May 1, 2021 to May 1, 2023. Zion
considers this warrant as permanent equity per ASC 815-40-35-2. As such, there is no value assigned to this extension.
As of May 1, 2023, any outstanding
ZNWAE warrants expired.
On September 15, 2020, the
Company extended the termination date of the ZNWAF Warrant by two (2) years from the expiration date of August 14, 2021 to August 14,
2023. Zion considers this warrant as permanent equity per ASC 815-40-35-2. As such, there is no value assigned to this extension.
As of August 14, 2023, any
outstanding ZNWAF warrants expired.
Under Amendment No. 2, the
Company initiated another unit offering which terminated on December 6, 2017. This unit offering enabled participants to purchase Units
of the Company’s securities where each Unit (priced at $250.00 each) was comprised of (i) a certain number of shares of Common Stock
determined by dividing $250.00 (the price of one Unit) by the average of the high and low sale prices of the Company’s Common Stock
as reported on the NASDAQ on the unit purchase date and (ii) Common Stock purchase warrants to purchase an additional 15 shares of Common
Stock at a warrant exercise price of $1.00 per share. The warrant is referred to as “ZNWAG.”
The warrants became exercisable
on January 8, 2018 and continued to be exercisable through January 8, 2024 at a revised per share exercise price of $.25. The warrant
terms provided that if the Company’s Common Stock trades above $5.00 per share as the closing price for 15 consecutive trading days
at any time prior to the expiration date of the warrant, the Company had the sole discretion to accelerate the termination date of the
warrant upon providing 60 days advanced notice to the warrant holders.
On December 14, 2022, the
Company extended the termination date of the ZNWAG warrant by one (1) year from the expiration date of January 8, 2023 to January 8, 2024.
Zion considers this warrant as permanent equity per ASC 815-40-35-2. As such, there is no value assigned to this extension.
As of January 8, 2024, any outstanding ZNWAG warrants expired.
On September 15, 2020, the
Company extended the termination date of the ZNWAH Warrant by two (2) years from the expiration date of April 2, 2021 to April 2, 2023.
Zion considers this warrant as permanent equity per ASC 815-40-35-2. As such, there is no value assigned to this extension.
As of April 2, 2023, any outstanding
ZNWAH warrants expired.
On September 15, 2020, the
Company extended the termination date of the ZNWAJ Warrant by two (2) years from the expiration date of October 29, 2021 to October 29,
2023. Zion considers this warrant as permanent equity per ASC 815-40-35-2. As such, there is no value assigned to this extension.
As of October 29, 2023, any outstanding ZNWAJ warrants expired.
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On September 15, 2020, the
Company extended the termination date of the ZNWAK warrant by two (2) years from the expiration date of February 25, 2021 to February
25, 2023. Zion considers this warrant as permanent equity per ASC 815-40-35-2. As such, there is no value assigned to this extension.
As of February 25, 2023, any
outstanding ZNWAK warrants expired.
On September 15, 2020, the
Company extended the termination date of the ZNWAL warrant by two (2) years from the expiration date of August 26, 2021 to August 26,
2023. Zion considers this warrant as permanent equity per ASC 815-40-35-2. As such, there is no value assigned to this extension.
As of August 26, 2023, any
outstanding ZNWAL warrants expired.
Under our Plan, the Company under a Request For Waiver Program executed
Waiver Term Sheets of a unit option program consisting of a Unit (shares of stock and warrants) of its securities and subsequently an
option program consisting of shares of stock to a participant. The participant’s Plan account was credited with the number of shares
of the Company’s Common Stock and Warrants that were acquired. Each warrant affords the participant the opportunity to purchase
one share of our Common Stock at a warrant exercise price of $1.00. The warrant shall have the company notation of “ZNWAM.”
The warrants will not be registered for trading on the OTCQB or any other stock market or trading market. The warrants became exercisable
on January 15, 2021 and continue to be exercisable through July 15, 2022.
On March 21, 2022, the Company
extended the termination date of the ZNWAM warrant by one (1) year from the expiration date of July 15, 2022 to July 15, 2023 and revised
the exercise price to $0.05. Zion considers this warrant as permanent equity per ASC 815-40-35-2. As such, there is no value assigned
to this extension.
On June 16, 2023, the Company
extended the termination date of the ZNWAM warrant from July 15, 2023 to September 6, 2023. Zion considers this warrant as permanent equity
per ASC 815-40-35-2. As such, there is no value assigned to this extension.
On August 21, 2023, the Company
extended the termination date of the ZNWAM warrant from September 6, 2023 to October 31, 2023. Zion considers this warrant as permanent
equity per ASC 815-40-35-2. As such, there is no value assigned to this extension.
On October 19, 2023, the Company
extended the termination date of the ZNWAM warrant from October 31, 2023 to December 31, 2023. Zion considers this warrant as permanent
equity per ASC 815-40-35-2. As such, there is no value assigned to this extension.
On December 18, 2023, the
Company extended the termination date of the ZNWAM warrant from December 31, 2023 to March 31, 2024. Zion considers this warrant as permanent
equity per ASC 815-40-35-2. As such, there is no value assigned to this extension.
The ZNWAN warrants became
exercisable on May 16, 2021 and continued to be exercisable through May 16, 2023 at a per share exercise price of $1.00.
As of May 16, 2023, any outstanding
ZNWAN warrants expired.
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The ZNWAO warrants became
exercisable on June 12, 2021 and continued to be exercisable through June 12, 2023 at a per share exercise price of $.25.
As of June 12, 2023, any outstanding
ZNWAO warrants expired.
Under our Plan, the Company
under a Request For Waiver Program executed a Waiver Term Sheet for a program consisting of Zion securities to a participant. After conclusion
of the program on June 17, 2021, the participant’s Plan account was credited with the number of shares of the Company’s Common
Stock that were acquired. Under our Plan, the Company under a Request For Waiver Program executed a Waiver Term Sheet for a unit
program consisting of a Unit (shares of stock and warrants) to a participant. After conclusion of the program on May 28, 2021, the participant’s
Plan account was credited with the number of shares of the Company’s Common Stock and Warrants that were acquired. Each warrant
affords the participant the opportunity to purchase one share of our Common Stock at a warrant exercise price of $.25. The warrant has
the company notation of “ZNWAP.” The warrants were not registered for trading on the OTCQB or any other stock market or trading
market. The warrants were issued and became exercisable on June 2, 2021 and continue to be exercisable through June 2, 2022 at a per share
exercise price of $.25.
On March 21, 2022, the
Company extended the termination date of the ZNWAP Warrant by one (1) year from the expiration date of June 2, 2022 to June 2, 2023. Zion
considers this warrant as permanent equity per ASC 815-40-35-2. As such, there is no value assigned to this extension.
Under our Plan, the Company under a Request For Waiver Program executed
a Waiver Term Sheet of a unit program consisting of units of shares of stock and warrants to a participant. After conclusion of the program
on June 18, 2021, the participant’s Plan account was credited with the number of shares of the Company’s Common Stock and
warrants that were acquired. Each warrant affords the participant the opportunity to purchase one share of our Common Stock at a warrant
exercise price of $.25. The warrant shall have the company notation of “ZNWAQ.” The warrants will not be registered for trading
on the OTCQB or any other stock market or trading market. The warrants were issued on May 5, 2022 and were exercisable through July 15,
2023 at a revised per share exercise price of $.05.
Zion considers this
warrant as permanent equity per ASC 815-40-35-2. As such, there is no value assigned to this extension.
On June 16, 2023, the Company
extended the termination date of the ZNWAQ warrant from July 15, 2023 to September 6, 2023. Zion considers this warrant as permanent equity
per ASC 815-40-35-2. As such, there is no value assigned to this extension.
On August 21, 2023, the Company
extended the termination date of the ZNWAQ warrant from September 6, 2023 to October 31, 2023. Zion considers this warrant as permanent
equity per ASC 815-40-35-2. As such, there is no value assigned to this extension.
On October 19, 2023, the Company
extended the termination date of the ZNWAQ warrant from October 31, 2023 to December 31, 2023. Zion considers this warrant as permanent
equity per ASC 815-40-35-2. As such, there is no value assigned to this extension.
On December 18, 2023, the
Company extended the termination date of the ZNWAQ warrant from December 31, 2023 to March 31, 2024. Zion considers this warrant as permanent
equity per ASC 815-40-35-2. As such, there is no value assigned to this extension.
Under our Plan, the Company
under a Request For Waiver Program executed a Waiver Term Sheet to a participant. After conclusion of the program on September 15, 2021,
the participant’s Plan account was credited with the number of shares of the Company’s Common Stock that were acquired.
Under our Plan, the
Company under a Request For Waiver Program executed a Waiver Term Sheet of a unit program consisting of units of shares of stock and
warrants to a participant. After conclusion of the program on June 18, 2021, the participant’s Plan account was credited with
the number of shares of the Company’s Common Stock and Warrants that were acquired. Each warrant affords the participant the
opportunity to purchase one share of our Common Stock at a warrant exercise price of $.25. The warrant shall have the company
notation of “ZNWAR.” The warrants were not to be registered for trading on the OTCQB or any other stock market or
trading market. The warrants were issued and became exercisable on June 22, 2021 and continued to be exercisable through June 22,
2022 at a per share exercise price of $.25. Additionally, Zion incurred $115,000 during 2021 in equity issuance costs to an outside
party related to this waiver program.
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On March 21, 2022, the Company
extended the termination date of the ZNWAR Warrant by one (1) year from the expiration date of June 22, 2022 to June 22, 2023. Zion considers
this warrant as permanent equity per ASC 815-40-35-2. As such, there is no value assigned to this extension.
During the second quarter
of 2022, all warrants represented by ZNWAP and ZNWAR were exercised resulting in a net cash inflow of approximately $365,000.
Under our Plan, the Company
under a Request For Waiver Program executed a Waiver Term Sheet to a participant. After conclusion of the program on September 15, 2021,
the participant’s Plan account was credited with the number of shares of the Company’s Common Stock that were acquired.
Under our Plan, the Company under a Request For Waiver Program executed
a Waiver Term Sheet of a unit program consisting of units of shares of stock and warrants to a participant. After conclusion of the program
on November 15, 2021, the participant’s Plan account was credited with the number of shares of the Company’s Common Stock
and Warrants that were acquired. Each warrant affords the participant the opportunity to purchase one share of our Common Stock at a warrant
exercise price of $1.00. The warrant shall have the company notation of “ZNWAS.” The warrants will not be registered for trading
on the OTCQB or any other stock market or trading market. The warrants will be issued and become exercisable on November 15, 2025 and
continue to be exercisable through December 31, 2025 at a per share exercise price of $.25.
Under our Plan, the Company
under a Request For Waiver Program executed a Waiver Term Sheet of a unit program consisting of units of shares of stock and warrants
to a participant. After conclusion of the program on September 30, 2022, the participant’s Plan account was credited with the number
of shares of the Company’s Common Stock and Warrants that were acquired. Each warrant affords the participant the opportunity to
purchase one share of our Common Stock at a warrant exercise price of $.25. The warrant shall have the company notation of “ZNWAT.”
The warrants will not be registered for trading on the OTCQB or any other stock market or trading market. The warrants will be issued
and become exercisable on November 15, 2025 and continue to be exercisable through December 31, 2025 at a per share exercise price of
$.25.
Under our Plan, the Company
under a Request For Waiver Program executed a Waiver Term Sheet of a unit program consisting of units of shares of stock and warrants
to a participant. After conclusion of the program on December 31, 2022, the participant’s Plan account was credited with the number
of shares of the Company’s Common Stock and Warrants that were acquired. Each warrant affords the participant the opportunity to
purchase one share of our Common Stock at a warrant exercise price of $.25. The warrant shall have the company notation of “ZNWAU.”
The warrants will not be registered for trading on the OTCQB or any other stock market or trading market. The warrants will be issued
and become exercisable on November 15, 2025 and continue to be exercisable through December 31, 2025 at a per share exercise price of
$.25.
Under our Plan, the Company
under a Request For Waiver Program executed a Waiver Term Sheet of a program consisting of shares of stock to a participant. After conclusion
of the program on August 31, 2023, the participant’s Plan account was credited with the number of shares of the Company’s
Common Stock that were acquired. Zion incurred $173,000 in equity issuance costs to an outside party related to this waiver program. The
Company executed two additional Waiver Term Sheets with the same participant consisting of shares of stock. After conclusion of the program
on December 31, 2023, the participant’s Plan account will be credited with the number of shares of the Company’s Common Stock
that were acquired. During the year ended December 31, 2023, Zion incurred a total of $1,120,000 in equity issuance costs.
During 2023, one participant
who participated in the “Request for Waiver” aspect of the DSPP contributed approximately 54% of the cash raised through
the DSPP. During 2022, two participants in the “Request for Waiver” aspect of the DSPP contributed approximately 77% of the
cash raised through the DSPP.
36
On March 13, 2023, Zion filed
with the Securities and Exchange Commission an Amendment No. 2 to the Prospectus Supplement dated as of December 15, 2021 and accompanying
base prospectus dated December 1, 2021 relating to the Company’s Dividend Reinvestment and Direct Stock Purchase Plan. The Prospectus
forms a part of the Company’s Registration Statement on Form S-3 (File No. 333-261452), as amended, which was declared
effective by the SEC on December 15, 2021.
Amendment No. 2 - New Unit Option under
the Unit Program
Under our Plan, we provided
a Unit Option under Amendment No. 2. Our Unit Program consisted of the combination of Common Stock and warrants with basic Unit Program
features, conditions and terms outlined in the Original Prospectus Supplement and Amendment No. 1. Amendment No. 2 provided the option
period, unit price and the determination of the number of shares of Common Stock and warrants per unit. This Unit Option had up to three
tranches of investment, in which the second and third tranches were each subject to termination upon a total of $7,500,000 received from
participants by the Company during the first or second tranche. The first tranche period began on March 13, 2023 and terminated on March
26, 2023. The second tranche began on March 27, 2023 and terminated on April 9, 2023 and the third tranche began on April 10, 2023 and
terminated on April 27, 2023.
The Unit Option consisted of Units of our securities where each Unit
(priced at $250.00 each) was comprised of (i) a certain number of shares of Common Stock determined by dividing $250.00 (the price of
one Unit) by the average of the high and low sale prices of the Company’s publicly traded common stock as reported on the OTCQB
on the Unit Purchase Date and (ii) Common Stock purchase warrants to purchase an additional five hundred (500) shares of Common Stock
at a per share exercise price of $0.05. The participant’s Plan account was credited with the number of shares of the Company’s
Common Stock and Warrants that were acquired under the Units purchased. Each warrant affords the participant the opportunity to purchase
one share of our Common Stock at a warrant exercise price of $0.05. The warrant shall have the Company notation of “ZNWAV”
under the first tranche, “ZNWAW” under the second tranche and “ZNWAX” under the third tranche.
Plan participants, who enrolled
into the Unit Program with the purchase of at least one Unit and enrolled in the separate Automatic Monthly Investments (“AMI”)
program at a minimum of $50.00 per month, received an additional fifty (50) warrants at an exercise price of $0.05 during this Unit Option
Program. The fifty (50) additional warrants were for enrolling into the AMI program and shall have the Company notation of “ZNWAY.”
Existing subscribers to the AMI were entitled to the additional fifty (50) warrants, if they purchased at least one (1) Unit during the
Unit program. Plan participants, who enrolled in the AMI at a minimum of $100 per month, received one hundred (100) ZNWAY warrants. Plan
participants, who enrolled in the AMI at a minimum of $250 per month, received two hundred and fifty (250) ZNWAY warrants. Plan participants,
who enrolled in the AMI at a minimum of $500 per month, received five hundred (500) ZNWAY warrants. The AMI program required 90 days of
participation to receive the ZNWAY warrants. Existing AMI participants were entitled to participate in this monthly program by increasing
their monthly amount above the minimum $50.00 per month.
The ZNWAV warrants became
exercisable on March 31, 2023 and continued to be exercisable through June 28, 2023 at a per share exercise price of $0.05.
As of June 28, 2023, any outstanding
ZNWAV warrants expired.
The ZNWAW warrants became
exercisable on April 14, 2023 and continued to be exercisable through July 13, 2023 at a per share exercise price of $0.05.
As of July 13, 2023, any outstanding
ZNWAW warrants expired.
The ZNWAX warrants became
exercisable on May 2, 2023 and continued to be exercisable through July 31, 2023 at a per share exercise price of $0.05.
On July 31, 2023, any outstanding
ZNWAX warrants expired.
The ZNWAY warrants became
exercisable on June 12, 2023 and continued to be exercisable through September 10, 2023 at a per share exercise price of $0.05.
On September 10, 2023, any
outstanding ZNWAY warrants expired.
37
Amendment No. 3 –
New Unit Option under the Unit Program
Under our Plan, we
provided a Unit Option under Amendment No. 3. This Unit Option period began on May 15, 2023 and terminated on June 15, 2023.
Our Unit Program consisted of the combination of Common Stock and warrants
with basic Unit Program features, conditions and terms outlined in the Original Prospectus Supplement and Amendment No. 1 and Amendment
No.2. Amendment No. 3 provided the option period, unit price and the determination of the number of shares of Common Stock and warrants
per unit. As mentioned above, this Unit Option began on May 15, 2023 and terminated on June 15, 2023. The Unit Option consisted of Units
of our securities where each Unit (priced at $250.00 each) was comprised of (i) a certain number of shares of Common Stock determined
by dividing $250.00 (the price of one Unit) by the average of the high and low sale prices of the Company’s publicly traded common
stock as reported on the OTCQB on the Unit Purchase Date and (ii) Common Stock purchase warrants to purchase an additional two hundred
(200) shares of Common Stock at a per share exercise price of $0.25. The participant’s Plan account was credited with the number
of shares of the Company’s Common Stock and Warrants that were acquired under the Units purchased. Each warrant affords the participant
the opportunity to purchase one share of our Common Stock at a warrant exercise price of $0.25. The warrant shall have the Company notation
of “ZNWAZ” and will not be registered for trading on the OTCQB or any other stock market or trading market.
Plan participants, who enrolled
into the Unit Program with the purchase of at least one Unit and enrolled in the separate Automatic Monthly Investments (“AMI”)
program at a minimum of $50.00 per month, received an additional three hundred (300) warrants at an exercise price of $0.25 during this
Unit Option Program. The three hundred (300) additional warrants were for enrolling into the AMI program and received the above warrant
with the Company notation of “ZNWAZ.” Existing subscribers to the AMI were entitled to the additional three hundred (300)
warrants, if they purchased at least one (1) Unit during the Unit program.
The ZNWAZ warrants became
exercisable on July 17, 2023 and continue to be exercisable through July 17, 2024 at a per share exercise price of $0.25.
Amendment No. 4 – New Unit Option
under the Unit Program
Under our Plan, we provided
a Unit Option under our Unit Program with this Amendment No. 4. This Unit Option period began on November 6, 2023 and terminated on December
31, 2023.
Our Unit Program consists of the combination of Common Stock and warrants
with basic Unit Program features, conditions and terms outlined in the Original Prospectus Supplement and Amendment No. 1. Amendment No.
4 provides the option period, unit price and the determination of the number of shares of Common Stock and warrants per unit. This Unit
Option began on November 6, 2023 and is scheduled to terminate on December 31, 2023, unless extended at the sole discretion of Zion Oil
& Gas, Inc. The Unit Option consists of Units of our securities where each Unit (priced at $250.00 each) is comprised of (i) a certain
number of shares of Common Stock determined by dividing $250.00 (the price of one Unit) by the average of the high and low sale prices
of the Company’s publicly traded common stock as reported on the OTCQB on the Unit Purchase Date and (ii) Common Stock purchase
warrants to purchase an additional fifty (50) shares of Common Stock at a per share exercise price of $0.25. The participant’s Plan
account will be credited with the number of shares of the Company’s Common Stock and Warrants that are acquired under the Units
purchased. Each warrant affords the participant the opportunity to purchase one share of our Common Stock at a warrant exercise price
of $0.25. The warrant shall have the Company notation of “ZNWBA” and will not be registered for trading on the OTCQB or any
other stock market or trading market.
Plan participants, who enroll
into the Unit Program with the purchase of at least one Unit and enroll in the separate Automatic Monthly Investments (“AMI”)
program at a minimum of $50.00 per month, received an additional fifty (50) warrants at an exercise price of $0.25 during this Unit Option
Program. The fifty (50) additional warrants re for enrolling into the AMI program and shall receive the above warrant with the Company
notation of “ZNWBA.” Existing subscribers to the AMI are entitled to the additional fifty (50) warrants, if they purchase
at least one (1) Unit during the Unit program.
The ZNWBA warrants will become
exercisable on January 15, 2024, unless extended, and continue to be exercisable through January 15, 2025, unless extended, at a per share
exercise price of $0.25.
38
Amendment No. 5 – Extension of Termination
Date to January 31, 2024
Under our Dividend Reinvestment
and Common Stock Purchase Plan (the “Plan”), we extended the current Unit Option that was filed under Amendment No. 4, dated
November 6, 2023. Our Unit Program consisted of the combination of Common Stock and warrants with an extended time period, but otherwise
the same Unit Program features, conditions and terms in the Prospectus Supplement and Amendment No. 4 apply. We extended the Unit
Program that was to terminate December 31, 2023, but now was scheduled to terminate on January 31, 2024, and we extended the exercise
and termination dates of the related ZNWBA warrants.
For Plan participants who
enrolled into the Unit Program with the purchase of at least one Unit and also enroll in the separate Automatic Monthly Investments (“AMI”)
program at a minimum of $50.00 per month or more, will receive an additional fifty (50) Warrants at an exercise price of $0.25 during
this Unit Option Program. The fifty (50) additional warrants are for enrolling into the AMI program. Existing subscribers to the AMI are
entitled to the additional fifty (50) warrants once, if they purchase at least one (1) Unit during the Unit program.
The ZNWBA warrants will be first exercisable on February 15, 2024,
instead of January 15, 2024 and continue to be exercisable through February 15, 2025, instead of January 15, 2025, unless extended, at
a per share exercise price of $0.25. Zion considers this warrant as permanent equity per ASC 815-40-35-2. As such, there is no value assigned
to this extension.
Accordingly, all references
in the Original Prospectus Supplement and Amendment No. 1 and Amendment No. 4, concerning the Unit Option, continue, except for the substitution
of the revised Unit Option dates and features above. All other Plan features, conditions and terms remain unchanged.
The date of this Amendment
No. 5 to Prospectus Supplement was December 20, 2023.
Amendment No. 6 – Extension of Termination Date to February
29, 2024
Under our Dividend Reinvestment
and Common Stock Purchase Plan (the “Plan”), we extended the current Unit Option that was filed under Amendment No. 4, dated
November 6, 2023. Our Unit Program consists of the combination of Common Stock and warrants with an extended time period, but otherwise
the same Unit Program features, conditions and terms in the Prospectus Supplement and Amendment No. 4 apply. We extended the Unit
Program that was to terminate January 31, 2024, but now will terminate February 29, 2024, and we extended the exercise and termination
dates of the related ZNWBA warrants.
For Plan participants who enroll into the Unit
Program with the purchase of at least one Unit and also enroll in the separate Automatic Monthly Investments (“AMI”) program
at a minimum of $50.00 per month or more, will receive an additional fifty (50) Warrants at an exercise price of $0.25 during this Unit
Option Program. The fifty (50) additional warrants are for enrolling into the AMI program. Existing subscribers to the AMI are entitled
to the additional fifty (50) warrants once, if they purchase at least one (1) Unit during the Unit program.
The ZNWBA warrants will be first exercisable on March 15, 2024, instead
of February 15, 2024 and continue to be exercisable through March 15, 2025, instead of February 15, 2025, unless extended, at a per share
exercise price of $0.25. Zion considers this warrant as permanent equity per ASC 815-40-35-2. As such, there is no value assigned to this
extension.
Accordingly, all references in the Original Prospectus
Supplement and Amendment No. 1 and Amendment No. 4, concerning the Unit Option, continue, except for the substitution of the revised Unit
Option dates and features above. All other Plan features, conditions and terms remain unchanged.
The date of this Amendment No. 6 to Prospectus
Supplement is January 29, 2024.
For the years ended December
31, 2023, and 2022, approximately $6,949,000, and $19,129,000 were raised under the DSPP program, respectively. The $6,949,000 figure
was reduced by $1,120,000 in equity issuance costs to an outside party.
The company raised approximately
$2,052,000 from the period January 1, 2024 through March 20, 2024, under the DSPP program.
The warrants represented by the company notation
ZNWAA are tradeable on the OTCQB market under the symbol ZNOGW. However, all of the other warrants characterized above, in the table below,
and throughout this Form 10-K, are not tradeable and are used internally for classification and accounting purposes only.
39
2018 Subscription Rights Offering
On April 2, 2018, the Company
announced an offering (“2018 Subscription Rights Offering”) through American Stock Transfer & Trust Company, LLC (the
“Subscription Agent”), at no cost to the shareholders, of non-transferable Subscription Rights (each “Right” and
collectively, the “Rights”) to purchase its securities to persons who owned shares of our Common Stock on April 13, 2018 (“the
Record Date”). Pursuant to the 2018 Subscription Rights Offering, each holder of shares of common stock on the Record Date received
non-transferable Subscription Rights, with each Right comprised of one share of the Company Common Stock, par value $0.01 per
share (the “Common Stock”) and one Common Stock Purchase Warrant to purchase an additional one share of Common Stock. Each
Right could be exercised or subscribed at a per Right subscription price of $5.00. Each Warrant affords the investor the opportunity
to purchase one share of the Company Common Stock at a warrant exercise price of $3.00. The warrant is referred to as “ZNWAI.”
The warrants became exercisable
on June 29, 2018 and continued to be exercisable through June 29, 2020 at a per share exercise price of $3.00, after the Company, on December
4, 2018, extended the termination date of the Warrant by one (1) year from the expiration date of June 29, 2019 to June 29, 2020.
On May 29, 2019, the Company
extended the termination date of the ZNWAI Warrant by one (1) year from the expiration date of June 29, 2020 to June 29, 2021.
On September 15, 2020, the
Company extended the termination date of the ZNWAI Warrant by two (2) years from the expiration date of June 29, 2021 to June 29, 2023.
Zion considers this warrant as permanent equity per ASC 815-40-35-2. As such, there is no value assigned to this extension.
As of June 29, 2023, any outstanding
ZNWAI warrants expired.
Each shareholder received
.10 (one tenth) of a Subscription Right (i.e. one Subscription Right for each 10 shares owned) for each share of the Company’s Common
Stock owned on the Record Date.
The 2018 Subscription Rights
Offering terminated on May 31, 2018. The Company raised net proceeds of approximately $3,038,000, from the subscription of Rights, after
deducting fees and expenses of $243,000 incurred in connection with the rights offering.
Warrants Table
The
warrant activity and balances for the year 2022 are shown in the table below:
40
Changes
during 2023 to:
Tabular
Disclosure of Contractual Obligations
The following summarizes our
contractual consolidated financial obligations for continuing operations at December 31, 2023, and the effect such obligations are
expected to have on our liquidity and cash flow in future periods.
Payment due by period (in Thousands of USD)