UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
MARK ONE
for
the Quarterly Period ended
for the transition period from ________ to ________
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) | |
| (Address of principal executive offices) | Zip Code |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☐ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of August 5, 2024, Zion Oil & Gas, Inc. had outstanding
INDEX PAGE
i
Zion Oil & Gas, Inc.
Consolidated Condensed Balance Sheets as of
| June 30, 2024 | December 31, 2023 | |||||||
| US$ thousands | US$ thousands | |||||||
| (unaudited) | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | ||||||||
| Fixed short term bank and escrow deposits – restricted | ||||||||
| Prepaid expenses and other | ||||||||
| Governmental receivables | ||||||||
| Other receivables | ||||||||
| Total current assets | ||||||||
| Unproved oil and gas properties, full cost method (see Note 4) | ||||||||
| Property and equipment at cost | ||||||||
| Drilling rig and related equipment, net of accumulated depreciation of $ | ||||||||
| Property and equipment, net of accumulated depreciation of $ | ||||||||
| Right of Use Lease Assets (see Note 5) | ||||||||
| Other assets | ||||||||
| Assets held for severance benefits | ||||||||
| Total other assets | ||||||||
| Total assets | ||||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable | ||||||||
| Insurance financing (see note 6D) | ||||||||
| Lease obligation – current (see Note 5) | ||||||||
| Asset retirement obligation | ||||||||
| Accrued liabilities | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities | ||||||||
| Lease obligation – non-current (see Note 5) | ||||||||
| Provision for severance pay | ||||||||
| Total long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (see Note 6) | ||||||||
| Stockholders’ equity | ||||||||
| Common stock, par value $ | ||||||||
| Additional paid-in capital | ||||||||
| Stock subscription receivable | ( | ) | - | |||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | ||||||||
The accompanying notes are an integral part of the unaudited interim consolidated condensed financial statements.
1
Zion Oil & Gas, Inc.
Consolidated Condensed Statements of Operations (Unaudited)
| For the three months ended | For the six months ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| US$ thousands | US$ thousands | US$ thousands | US$ thousands | |||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
| General and administrative | ||||||||||||||||
| Post impairment of unproved oil and gas properties | ||||||||||||||||
| Other | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense), net | ||||||||||||||||
| Foreign exchange income (loss) | ( | ) | ( | ) | ||||||||||||
| Financial income (expenses), net | ( | ) | ||||||||||||||
| Loss, before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income taxes | ||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss per share of common stock | ||||||||||||||||
| ( | ) | ( | ) | ( | ) | ( | ) | |||||||||
| Weighted-average shares outstanding | ||||||||||||||||
The accompanying notes are an integral part of the unaudited interim consolidated condensed financial statements.
2
Zion Oil & Gas, Inc.
Consolidated Condensed Statement of Changes in Stockholders’ Equity (Unaudited)
For the three and six months ended June 30, 2024
| Common Stock | Additional paid-in | Subscription | Accumulated | |||||||||||||||||||||
| Shares | Amounts | Capital | Receivables | deficit | Total | |||||||||||||||||||
| thousands | US$ thousands | US$ thousands | US$ thousands | US$ thousands | US$ thousands | |||||||||||||||||||
| Balances as of December 31, 2023 | ( | ) | ||||||||||||||||||||||
| Funds received from sale of DSPP units and shares and exercise of warrants | ( | ) | ||||||||||||||||||||||
| Funds received from option exercises | ||||||||||||||||||||||||
| Costs associated with the issuance of shares | — | ( | ) | ( | ) | |||||||||||||||||||
| Value of options granted to employees, directors and others as non-cash compensation | — | |||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Balances as of June 30, 2024 | ( | ) | ( | ) | ||||||||||||||||||||
| Common Stock | Additional paid-in | Subscription | Accumulated | |||||||||||||||||||||
| Shares | Amounts | Capital | Receivables | deficit | Total | |||||||||||||||||||
| thousands | US$ thousands | US$ thousands | US$ thousands | US$ thousands | US$ thousands | |||||||||||||||||||
| Balances as of March 31, 2024 | ( | ) | ||||||||||||||||||||||
| Funds received from sale of DSPP units and shares and exercise of warrants | ( | ) | ||||||||||||||||||||||
| Funds received from option exercises | ||||||||||||||||||||||||
| Costs associated with the issuance of shares | — | ( | ) | ( | ) | |||||||||||||||||||
| Value of options granted to employees, directors and others as non-cash compensation | — | |||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Balances as of June 30, 2024 | ( | ) | ( | ) | ||||||||||||||||||||
3
Consolidated Condensed Statement of Changes in Stockholders’ Equity (Unaudited)
For the three and six months ended June 30, 2023
| Common Stock | Additional paid-in | Accumulated | ||||||||||||||||||
| Shares | Amounts | Capital | deficit | Total | ||||||||||||||||
| thousands | US$ thousands | US$ thousands | US$ thousands | US$ thousands | ||||||||||||||||
| Balances as of December 31, 2022 | ( | ) | ||||||||||||||||||
| Funds received from sale of DSPP units and shares and exercise of warrants | ||||||||||||||||||||
| Funds received from option exercises | ||||||||||||||||||||
| Costs associated with the issuance of shares | — | ( | ) | ( | ) | |||||||||||||||
| Value of options granted to employees, directors and others as non-cash compensation | — | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balances as of June 30, 2023 | ( | ) | ||||||||||||||||||
| Common Stock | Additional paid-in | Accumulated | ||||||||||||||||||
| Shares | Amounts | Capital | deficit | Total | ||||||||||||||||
| thousands | US$ thousands | US$ thousands | US$ thousands | US$ thousands | ||||||||||||||||
| Balances as of March 31, 2023 | ( | ) | ||||||||||||||||||
| Funds received from sale of DSPP units and shares and exercise of warrants | ||||||||||||||||||||
| Funds received from option exercises | ||||||||||||||||||||
| Costs associated with the issuance of shares | — | ( | ) | ( | ) | |||||||||||||||
| Value of options granted to employees, directors and others as non-cash compensation | — | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balances as of June 30, 2023 | ( | ) | ||||||||||||||||||
The accompanying notes are an integral part of the unaudited interim consolidated condensed financial statements.
4
Zion Oil & Gas, Inc.
Consolidated Condensed Statements of Cash Flows (Unaudited)
| For the six months ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| US$ thousands | US$ thousands | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | ( | ) | ( | ) | ||||
| Adjustments required to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | ||||||||
| Amortization of Right of Use Lease Assets | ||||||||
| Cost of options issued to employees, directors and others as non-cash compensation | ||||||||
| Post impairment of unproved oil and gas properties | ||||||||
| Capital loss on sale of Property and equipment | ||||||||
| Change in assets and liabilities, net: | ||||||||
| Other deposits | ||||||||
| Prepaid expenses and other | ( | ) | ||||||
| Governmental receivables | ( | ) | ||||||
| Lease obligation – current and non-current | ( | ) | ( | ) | ||||
| Other receivables | ( | ) | ( | ) | ||||
| Severance payable, net | ( | ) | ( | ) | ||||
| Accounts payable | ( | ) | ( | ) | ||||
| Accrued liabilities | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Acquisition of property and equipment | ( | ) | ||||||
| Proceeds from sale of property and equipment | ||||||||
| Acquisition of drilling rig and related equipment | ( | ) | ||||||
| Investment in unproved oil and gas properties | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities | ||||||||
| Proceeds from exercise of stock options | ||||||||
| Costs paid related to the issuance of new shares | ( | ) | ( | ) | ||||
| Proceeds from issuance of stock and exercise of warrants | ||||||||
| Net cash provided by financing activities | ||||||||
| Net (decrease)/increase in cash, cash equivalents and restricted cash | ( | ) | ||||||
| Cash, cash equivalents and restricted cash – beginning of period | ||||||||
| Cash, cash equivalents and restricted cash – end of period | ||||||||
| Supplemental schedule of cash flow information | ||||||||
| Non-cash investing and financing activities: | ||||||||
| Unpaid investments in oil & gas properties | ||||||||
| Unpaid Costs associated with the issuance of shares | ||||||||
| Subscription Receivables | ||||||||
| Depreciation of oil and gas equipment | ||||||||
| Addition of right of use lease assets and lease obligations | ||||||||
The accompanying notes are an integral part of the unaudited interim consolidated condensed financial statements.
5
Cash, cash equivalents and restricted cash, are comprised as follows:
| June 30, 2024 | December 31, 2023 | |||||||
| US$ thousands | US$ thousands | |||||||
| Cash and cash equivalents | ||||||||
| Restricted cash included in fixed long-term bank deposits | ||||||||
6
Zion Oil & Gas, Inc.
Consolidated Condensed Notes to Financial Statements (Unaudited)
Note 1 - Nature of Operations, Basis of Presentation and Going Concern
A. Nature of Operations
Zion Oil & Gas, Inc., a Delaware corporation (“we,” “our,” “Zion” or the “Company”) is an oil and gas exploration company with a history of 24 years of oil & gas exploration in Israel. As of June 30, 2024, the Company has no revenues from its oil and gas operations.
Zion maintains its corporate headquarters in Dallas, Texas. The Company also has branch offices in Caesarea, Israel and Geneva, Switzerland. The purpose of the Israel branch is to support the Company’s operations in Israel, and the purpose of the Switzerland branch is to operate a foreign treasury center for the Company.
On January 24, 2020, Zion incorporated a wholly owned subsidiary, Zion Drilling, Inc., a Delaware corporation, for the purpose of owning a drilling rig, related equipment and spare parts, and on January 31, 2020, Zion incorporated another wholly owned subsidiary, Zion Drilling Services, Inc., a Delaware corporation, to act as the contractor providing such drilling services. When Zion is not using the rig for its own exploration activities, Zion Drilling Services may contract with other operators in Israel to provide drilling services at market rates then in effect.
Zion has the trademark “ZION DRILLING” filed with the United States Patent and Trademark Office. Zion has the trademark filed with the World Intellectual Property Organization in Geneva, Switzerland, pursuant to the Madrid Agreement and Protocol. In addition, Zion has the trademark filed with the Israeli Trademark Office in Israel.
Exploration Rights/Exploration Activities
New Megiddo Valleys License 434 (“NMVL 434”) – Megiddo-Jezreel #1 Re-Entry (“MJ-01”)
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
On February 21, 2024, members of the Supervisory Committee visited our rig site. During this visit, they interacted with staff from Zion Oil & Gas, and our consultants and potential service providers. Some of these interactions occurred at Kibbutz Sde Eliyahu, while others were conducted through video conferencing with participants from the United States, Europe and the Middle East. Following these discussions, the Committee has officially accepted our work plan for the MJ-01 project. This acceptance allowed us to sign agreements and secure mobilization dates with our service providers required to commence and complete the project.
Field operations remain on schedule, and our rig is now positioned over the MJ-01 wellbore. Repairs and maintenance, as well as the inspection of the rig, have all been completed successfully. All necessary wireline equipment for the project has been mobilized with additional essential items from India, China, Romania and Greece currently in transit for the final stages of operation.
The
initial phase of the MJ-01 recompletion project involves drilling out the plugs and nearly 625 meters (approximately
The next phase of the MJ-01 recompletion project, provided all goes as expected from the initial phase, involves perforating, stimulating and well testing previously identified zones of interest.
7
Zion Oil & Gas, Inc.
Consolidated Condensed Notes to Financial Statements (Unaudited)
Note 1 - Nature of Operations, Basis of Presentation and Going Concern (cont’d)
B. Basis of Presentation
The accompanying unaudited interim consolidated condensed financial statements of Zion Oil & Gas, Inc. have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with Article 8-03 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring accruals necessary for a fair statement of financial position, results of operations and cash flows, have been included. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the financial statements and the accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. The year-end balance sheet data presented for comparative purposes was derived from audited financial statements, but does not include all disclosures required by GAAP. The results of operations for the three and six months ended June 30, 2024 are not necessarily indicative of the operating results for the year ending December 31, 2024 or for any other subsequent interim period.
C. Going Concern
The Company incurs cash outflows from operations, and all exploration activities and overhead expenses to date have been financed by way of equity or debt financing. The recoverability of the costs incurred to date is uncertain and dependent upon achieving significant commercial production of hydrocarbons.
The
Company’s ability to continue as a going concern is dependent upon obtaining the necessary financing to undertake further exploration
and development activities and ultimately generating profitable operations from its oil and natural gas interests in the future. The
Company’s current operations are dependent upon the adequacy of its current assets to meet its current expenditure requirements
and the accuracy of management’s estimates of those requirements. Should those estimates be materially incorrect, the Company’s
ability to continue as a going concern may be in doubt. The 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. During the
six months ended June 30, 2024, the Company incurred a net loss of approximately $
To carry out planned operations, the Company must raise additional funds through additional equity and/or debt issuances or through profitable operations. There can be no assurance that this capital or positive operational income will be available to the Company, and if it is not, the Company may be forced to curtail or cease exploration and development activities. The consolidated condensed financial statements do not include any adjustments that might result from the outcome of this uncertainty.
8
Zion Oil & Gas, Inc.
Consolidated Condensed Notes to Financial Statements (Unaudited)
Note 2 - Summary of Significant Accounting Policies
A. Net Loss per Share Data
Basic
and diluted net loss per share of common stock, par value $
Diluted
net loss per share is the same as basic net loss per share for 2023 as the inclusion of
B. Use of Estimates
The preparation of the accompanying unaudited consolidated condensed financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of expenses. Such estimates include the valuation of unproved oil and gas properties, deferred tax assets, asset retirement obligations, borrowing rate of interest consideration for leases, accounting and legal contingencies. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. The Company adjusts such estimates and assumptions when facts and circumstances dictate. Illiquid credit markets, volatile equity, foreign currency, political instability and energy markets have combined to increase the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in those estimates resulting from continuing changes in the economic environment will be reflected in the consolidated condensed financial statements in future periods.
During March 2020, a global pandemic was declared by the World Health Organization related to the rapidly growing outbreak of a novel strain of coronavirus (“COVID-19”). The pandemic significantly impacted the economic conditions in the United States and Israel, as federal, state and local governments reacted to the public health crisis, creating significant uncertainties in the United States, Israel and world economies. In the interest of public health and safety, jurisdictions (international, national, state and local) where we have operations, restricted travel and required workforces to work from home. However, as of the date of this report, most of our employees are working at our physical offices, but have the ability to work from home as needed.
Similar uncertainties are posed by the Israel-Hamas war and its duration and whether the war expands regionally to include other hostile parties. It is important to note that Zion’s license area is not located near current combat zone.
Actual results may differ from these estimates.
C. Oil and Gas Properties and Impairment
The Company follows the full-cost method of accounting for oil and gas properties. Accordingly, all costs associated with acquisition, exploration and development of oil and gas reserves, including directly related overhead costs, are capitalized.
All capitalized costs of oil and gas properties, including the estimated future costs to develop proved reserves, are amortized on the unit-of-production method using estimates of proved reserves. Investments in unproved properties and major development projects are not amortized until proved reserves associated with the projects can be determined or until impairment occurs. If the results of an assessment indicate that the properties are impaired, the amount of the impairment is included in loss from continuing operations before income taxes, and the adjusted carrying amount of the proved properties is amortized on the unit-of-production method.
9
Zion Oil & Gas, Inc.
Consolidated Condensed Notes to Financial Statements (Unaudited)
Note 2 - Summary of Significant Accounting Policies (cont’d)
The Company’s oil and gas property represents 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. Impairment requiring a charge to expense may be indicated through evaluation of drilling results, relinquishing drilling rights or other information.
During the three and six months ended June 30, 2024, the Company did not record any post-impairment charges.
During
the three and six months ended June 30, 2023, the Company recorded post-impairment charges of $
Currently,
the Company has no economically recoverable reserves and no amortization base. The Company’s unproved oil and gas properties consist
of capitalized exploration costs of $
D. Fair Value Measurements
The Company follows Accounting Standards Codification (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 to sell 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.
The Company uses a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement. The hierarchy requires the Company to use observable inputs when available, and to minimize the use of unobservable inputs, when determining fair value. The three tiers are defined as follows:
| ● | Level 1—Observable inputs that reflect quoted market prices (unadjusted) for identical assets or liabilities in active markets; |
| ● | Level 2—Observable inputs other than quoted prices in active markets that are observable either directly or indirectly in the marketplace for identical or similar assets and liabilities; and |
| ● | Level 3—Unobservable inputs that are supported by little or no market data, which require the Company to develop its own assumptions. |
The Company’s financial instruments, including cash and cash equivalents, other receivables. accounts payable and accrued liabilities, are carried at historical cost. At June 30, 2024, and December 31, 2023, the carrying amounts of these instruments approximated their fair values because of the short-term nature of these instruments.
10
Zion Oil & Gas, Inc.
Consolidated Condensed Notes to Financial Statements (Unaudited)
Note 2 - Summary of Significant Accounting Policies (cont’d)
E. Stock-Based Compensation
ASC 718, “Compensation – Stock Compensation,” prescribes accounting and reporting standards for all share-based payment transactions in which employee services are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares, options, and other equity instruments such as employee stock ownership plans and stock appreciation rights. Share-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the consolidated condensed financial statements based on their fair values. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).
The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50, “Equity – Based Payments to Non-Employees.” Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of performance commitment date or performance completion date.
F. Warrants
In connection with the Dividend Reinvestment and Stock Purchase Plan (“DSPP”) financing arrangements, the Company has issued warrants to purchase shares of its common stock. The outstanding warrants are stand-alone instruments that are not puttable or mandatorily redeemable by the holder and are classified as equity awards. The Company measures the fair value of the awards using the Black-Scholes option pricing model as of the measurement date. Warrants issued in conjunction with the issuance of common stock are initially recorded and accounted as a part of the DSPP investment as additional paid-in capital of the common stock issued. All other warrants are recorded at fair value and expensed over the requisite service period or at the date of issuance, if there is not a service period. Warrants granted in connection with ongoing arrangements are more fully described in Note 3, Stockholders’ Equity.
G. Related parties
Parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. All transactions with related parties are recorded at fair value of the goods or services exchanged.
Zion did not have any related party transactions for the periods covered in this report.
11
Zion Oil & Gas, Inc.
Consolidated Condensed Notes to Financial Statements (Unaudited)
Note 2 - Summary of Significant Accounting Policies (cont’d)
H. Recently Adopted Accounting Pronouncements
The Company does not believe that the adoption of any recently issued accounting pronouncements in 2024 had a significant impact on our consolidated condensed financial position, results of operations, or cash flow.
12
Zion Oil & Gas, Inc.
Consolidated Condensed Notes to Financial Statements (Unaudited)
Note 2 - Summary of Significant Accounting Policies (cont’d)
I. Depreciation and Accounting for Drilling Rig and Related Equipment
On
March 12, 2020, Zion purchased an onshore oil and gas drilling rig, drilling pipe, related equipment and spare parts for a purchase
price of $
Zion uses the First In First Out (“FIFO”) method of accounting for the spare parts, meaning that the earliest items purchased will be the first item charged to the well in which the spare parts gets consumed.
It
is also noteworthy that various components and systems on the rig will be subject to certifications by the manufacturer to ensure that
the rig is maintained at optimal levels. Per standard practice in upstream oil and gas, each certification performed on our drilling
rig increases the useful life of the rig by
Zion
purchased rig spare parts totaling approximately $
Zion
sold some excess scrap drilling pipe and accessories for approximately $
I-35 Drilling Rig & Associated Equipment:
| Six-month period ended June 30, 2024 | ||||||||||||||||
| I-35 Drilling Rig | Rig Spare Parts | Other Drilling Assets | Total | |||||||||||||
| US$ thousands | US$ thousands | US$ thousands | US$ thousands | |||||||||||||
| December 31, 2023 | ||||||||||||||||
| Asset Additions | ||||||||||||||||
| Asset Depreciation | ( | ) | ( | ) | ( | ) | ||||||||||
| Asset Disposals | ( | ) | ( | ) | ||||||||||||
| Asset Disposals for Self-Consumption | ( | ) | ( | ) | ||||||||||||
| June 30, 2024 | ||||||||||||||||
13
Zion Oil & Gas, Inc.
Consolidated Condensed Notes to Financial Statements (Unaudited)
Note 3 - Stockholders’ Equity
The
Company’s shareholders approved the amendment of the Company’s Amended and Restated Certificate of Incorporation to increase
the number of shares of common stock, par value $
A. 2021 Omnibus Incentive Stock Option Plan
Effective
June 9, 2021, the Company’s shareholders authorized the adoption of the Zion Oil & Gas, Inc. 2021 Omnibus Incentive Stock Option
Plan (“Omnibus Plan”) for employees, directors and consultants, initially reserving for issuance thereunder
The Omnibus Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, bonus stock, awards in lieu of cash obligations, other stock-based awards and performance units. The plan also permits cash payments under certain conditions.
The
compensation committee of the Board of Directors (comprised of independent directors) is responsible for determining the type of award,
when and to whom awards are granted, the number of shares and the terms of the awards and exercise prices. The options are exercisable
for a period
During the six months ended June 30, 2024, the Company granted the following options from the Omnibus Plan for employees, directors and consultants, to purchase shares of common stock as non-cash compensation:
| i. | Options to purchase |
| ii. | Options to purchase |
During the six months ended June 30, 2023, the Company granted the following options from the Omnibus Plan for employees, directors and consultants, to purchase shares of common stock as non-cash compensation:
| i. | Options to purchase |
| ii. | Options to purchase |
| iii. | Options to purchase |
14
Zion Oil & Gas, Inc.
Consolidated Condensed Notes to Financial Statements (Unaudited)
Note 3 - Stockholders’ Equity (cont’d)
B. Stock Options
| Number of shares | Weighted Average exercise price | |||||||
| US$ | ||||||||
| Outstanding, December 31, 2023 | ||||||||
| Changes during 2024 to: | ||||||||
| Granted to employees, officers, directors and others | ||||||||
| Expired/Cancelled/Forfeited | ( | ) | ||||||
| Exercised | ( | ) | ||||||
| Outstanding, June 30, 2024 | ||||||||
| Exercisable, June 30, 2024 | ||||||||
15
Zion Oil & Gas, Inc.
Consolidated Condensed Notes to Financial Statements (Unaudited)
Note 3 - Stockholders’ Equity (cont’d)
| Shares underlying outstanding options (non-vested) | Shares underlying outstanding options (fully vested) | |||||||||||||||||||||||||||||
| Range of exercise price | Number outstanding | Weighted average remaining contractual life (years) | Weighted Average Exercise price | Range of exercise price | Number Outstanding | Weighted average remaining contractual life (years) | Weighted Average Exercise price | |||||||||||||||||||||||
| US$ | US$ | US$ | US$ | |||||||||||||||||||||||||||
| — | — | |||||||||||||||||||||||||||||
16
Zion Oil & Gas, Inc.
Consolidated Condensed Notes to Financial Statements (Unaudited)
Note 3 - Stockholders’ Equity (cont’d)
Granted to employees
| For the six months ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Weighted-average fair value of underlying stock at grant date | $ | $ | ||||||
| Dividend yields | ||||||||
| Expected volatility | % | % | ||||||
| Risk-free interest rates | % | % | ||||||
| Expected lives (in years) | ||||||||
| Weighted-average grant date fair value | $ | $ | ||||||
17
Zion Oil & Gas, Inc.
Consolidated Condensed Notes to Financial Statements (Unaudited)
Note 3 - Stockholders’ Equity (cont’d)
C. Compensation Cost for Warrant and Option Issuances
| For the three months ended June 30, | ||||||
| 2024 | 2023 | |||||
| US$ thousands | US$ thousands | |||||
| For the six months ended June 30, | ||||||
| 2024 | 2023 | |||||
| US$ thousands | US$ thousands | |||||
| For the three months ended June 30, | ||||||
| 2024 | 2023 | |||||
| US$ thousands | US$ thousands | |||||
| For the six months ended June 30, | ||||||
| 2024 | 2023 | |||||
| US$ thousands | US$ thousands | |||||
| For the three months ended June 30, | ||||||
| 2024 | 2023 | |||||
| US$ thousands | US$ thousands | |||||
| For the six months ended June 30, | ||||||
| 2024 | 2023 | |||||
| US$ thousands | US$ thousands | |||||
As
of June 30, 2024, there was $
18
Zion Oil & Gas, Inc.
Consolidated Condensed Notes to Financial Statements (Unaudited)
Note 3 - Stockholders’ Equity (cont’d)
D. Dividend Reinvestment and Stock Purchase Plan (“DSPP”)
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
September 15, 2020, the Company extended the termination date of the ZNWAD Warrant by two (
As of May 2, 2023, any outstanding ZNWAD warrants expired.
On
September 15, 2020, the Company extended the termination date of the ZNWAE Warrant by two (
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 (
As of August 14, 2023, any outstanding ZNWAF warrants expired.
On
December 14, 2022, the Company extended the termination date of the ZNWAG warrant by one (
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 (
As of April 2, 2023, any outstanding ZNWAH warrants expired.
19
Zion Oil & Gas, Inc.
Consolidated Condensed Notes to Financial Statements (Unaudited)
Note 3 - Stockholders’ Equity (cont’d)
On
September 15, 2020, the Company extended the termination date of the ZNWAJ Warrant by two (
On October 29, 2023, any outstanding ZNWAJ warrants expired.
On
September 15, 2020, the Company extended the termination date of the ZNWAK warrant by two (
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 $
On
March 21, 2022, the Company extended the termination date of the ZNWAM warrant by one (
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.
20
Zion Oil & Gas, Inc.
Consolidated Condensed Notes to Financial Statements (Unaudited)
Note 3 - Stockholders’ Equity (cont’d)
On March 28, 2024, the Company extended the termination date of the ZNWAM warrant from March 31, 2024 to December 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 continue to be exercisable through May 16, 2023 at a per share exercise price of
$
As of May 16, 2023, any outstanding ZNWAN warrants expired.
The
ZNWAO warrants became exercisable on June 12, 2021 and continue to be exercisable through June 12, 2023 at a per share exercise price
of $
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 $
On
March 21, 2022, the Company extended the termination date of the ZNWAP Warrant by one (
During
the second quarter of 2022, all warrants represented by ZNWAP and ZNWAR were exercised resulting in a net cash inflow of approximately
$
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 $
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,
On
August 21, 2023,
On
October 19, 2023,
On
December 18, 2023,
On
March 28, 2024,
21
Zion Oil & Gas, Inc.
Consolidated Condensed Notes to Financial Statements (Unaudited)
Note 3 - Stockholders’ Equity (cont’d)
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 $
On
March 21, 2022, the Company extended the termination date of the ZNWAR Warrant by one (
During
the second quarter of 2022, all warrants represented by ZNWAP and ZNWAR were exercised resulting in a net cash inflow of approximately
$
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 will be acquired. Each warrant affords the participant
the opportunity to purchase one share of our Common Stock at a warrant exercise price of $
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 $
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 $
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 $
On January 1, 2024, the Company executed a Waiver Term Sheet with a participant consisting of shares of stock. After conclusion of the program on March 31, 2024, the participant’s Plan account was credited with the number of shares of the Company’s Common Stock that were acquired.
During
the three and six months ended June 30, 2024, Zion incurred $
On
April 1, 2024, the Company executed its latest Waiver Term Sheet with a participant consisting of shares of stock. This latest Waiver
Term Sheet terminates at the earlier of: (a) a maximum purchase of $
22
Zion Oil & Gas, Inc.
Consolidated Condensed Notes to Financial Statements (Unaudited)
Note 3 - Stockholders’ Equity (cont’d)
During
2024, one participant who participated in the “Request for Waiver” aspect of the DSPP contributed approximately
During
2023, one participant who participated in the “Request for Waiver” aspect of the DSPP contributed approximately
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 $
The
Unit Option consisted of Units of our securities where each Unit (priced at $
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 $
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 $
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 $
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 $
23
Zion Oil & Gas, Inc.
Consolidated Condensed Notes to Financial Statements (Unaudited)
Note 3 - Stockholders’ Equity (cont’d)
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 $
On September 10, 2023, any outstanding ZNWAY warrants expired.
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 $
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 $
The
ZNWAZ warrants became exercisable on July 17, 2023 and continued to be exercisable through July 17, 2024 at a per share exercise price
of $
On July 17, 2024, any outstanding ZNWAZ warranted expired.
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 was scheduled to terminate on December 31, 2023. See Amendment No 5 below for data on an extension.
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 provided 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 terminated on December
31, 2023. The Unit Option consisted of Units of our securities where each Unit (priced at $
Plan
participants, who enrolled 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 $ per month, received an additional fifty (50) warrants at an exercise price
of $
The
ZNWBA warrants became exercisable on January 15, 2024, and continue to be exercisable through January 15, 2025, unless extended, at a
per share exercise price of $
24
Zion Oil & Gas, Inc.
Consolidated Condensed Notes to Financial Statements (Unaudited)
Note 3 - Stockholders’ Equity (cont’d)
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 $
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 $
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 was scheduled to 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 $
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 $
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 was January 29, 2024.
25
Zion Oil & Gas, Inc.
Consolidated Condensed Notes to Financial Statements (Unaudited)
Note 3 - Stockholders’ Equity (cont’d)
Amendment No. 7 – Extension of Termination Date to March 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 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 under our Unit Program that was to terminate February 29, 2024, but now will terminate March 31, 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 $
The
ZNWBA warrants will be first exercisable on April 15, 2024, instead of March 15, 2024, and continue to be exercisable through April 15,
2025, instead of March 15, 2025, unless extended, at a per share exercise price of $
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. 7 to Prospectus Supplement was February 26, 2024.
Amendment No. 8 – Extension of Termination Date to April 30, 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 under our Unit Program that was to terminate March 31, 2024, but now will terminate April 30, 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 $
The
ZNWBA warrants will be first exercisable on May 15, 2024, instead of April 15, 2024, and continue to be exercisable through May 15, 2025,
instead of April 15, 2025, unless extended, at a per share exercise price of $
26
Zion Oil & Gas, Inc.
Consolidated Condensed Notes to Financial Statements (Unaudited)
Note 3 - Stockholders’ Equity (cont’d)
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. 8 to Prospectus Supplement was March 23, 2024.
Amendment No. 9 – Extension of Termination Date to May 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 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 under our Unit Program that was to terminate April 30, 2024, but now will terminate May 31, 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 $
The
ZNWBA warrants will be first exercisable on June 15, 2024, instead of May 15, 2024, and continue to be exercisable through June 15, 2025,
instead of May 15, 2025, unless extended, at a per share exercise price of $
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. 9 to Prospectus Supplement was April 24, 2024.
Amendment No. 10 – Extension of Termination Date to August 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 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 under our Unit Program that was to terminate May 31, 2024, but now will terminate August 31, 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 $
The
ZNWBA warrants will be first exercisable on September 15, 2024, instead of June 15, 2024, and continue to be exercisable through September
14, 2025, instead of June 15, 2025, unless extended, at a per share exercise price of $
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.
27
Zion Oil & Gas, Inc.
Consolidated Condensed Notes to Financial Statements (Unaudited)
Note 3 - Stockholders’ Equity (cont’d)
The date of this Amendment No. 10 to Prospectus Supplement was May 29, 2024 .
For the three and six months ended June 30, 2024,
approximately $
For the three and six months ended June 30, 2024, approximately $
For
the three and six months ended June 30, 2023, approximately $
The company raised approximately $
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-Q, are not tradeable and are used internally for classification and accounting purposes only.
E. 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 $
The
warrants became exercisable on June 29, 2018 and continued to be exercisable through June 29, 2020 at a per share exercise price of $
On
May 29, 2019, the Company extended the termination date of the ZNWAI Warrant by one (
On
September 15, 2020, the Company extended the termination date of the ZNWAI Warrant by two (
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
The
2018 Subscription Rights Offering terminated on May 31, 2018. The Company raised net proceeds of approximately $
F. Warrant Table
The warrants balances at December 31, 2023 and transactions since January 1, 2024 are shown in the table below:
| Warrants | Exercise Price | Warrant Termination Date | Outstanding Balance, 12/31/2023 | Warrants Issued | Warrants Exercised | Warrants Expired | Outstanding Balance, 06/30/2024 | |||||||||||||||||||
| ZNWAA | $ | |||||||||||||||||||||||||
| ZNWAG | $ | ( | ) | |||||||||||||||||||||||
| ZNWAM | $ | |||||||||||||||||||||||||
| ZNWAQ | $ | |||||||||||||||||||||||||
| ZNWAZ | $ | |||||||||||||||||||||||||
| Outstanding warrants | ( | ) | ||||||||||||||||||||||||
28
Zion Oil & Gas, Inc.
Consolidated Condensed Notes to Financial Statements (Unaudited)
Note 3 - Stockholders’ Equity (cont’d)
G. Warrant Descriptions of Current Warrants
The price and the expiration dates for the series of warrants to investors are shown in the table below. The listing contains only those warrants with a future expiration date.
| Period of Grant | US$ | Expiration Date | ||||||||
| ZNWAA Warrants | A,B,E,I | |||||||||
| ZNWAM Warrants | C,F,J,K | |||||||||
| ZNWAQ Warrants | C,F,J,K | |||||||||
| ZNWAS Warrants | D | |||||||||
| ZNWAT Warrants | D | |||||||||
| ZNWAU Warrants | D | |||||||||
| ZNWAZ Warrants | G,L | |||||||||
| ZNWBA Warrants | H,M | |||||||||
| A | |
| B | |
| C | |
| D | |
| E | |
| F | |
| G |
| H |
| I |
| J |
| K | |
| L | |
| M |
29
Zion Oil & Gas, Inc.
Consolidated Condensed Notes to Financial Statements (Unaudited)
Note 4 - Unproved Oil and Gas Properties, Full Cost Method
| June 30, 2024 | December 31, 2023 | |||||||
| US$ thousands | US$ thousands | |||||||
| Excluded from amortization base: | ||||||||
| Drilling costs, and other operational related costs | ||||||||
| Capitalized salary costs | ||||||||
| Capitalized interest costs | ||||||||
| Legal and seismic costs, license fees and other preparation costs | ||||||||
| Other costs | ||||||||
| For the three months ended June 30, | For the six months ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| US$ thousands | US$ thousands | US$ thousands | US$ thousands | |||||||||||||
| Excluded from amortization base: | ||||||||||||||||
| Drilling costs, and other operational related costs | ||||||||||||||||
| Capitalized salary costs | ||||||||||||||||
| Capitalized interest costs | ||||||||||||||||
| Legal costs, license fees and other preparation costs | ||||||||||||||||
| Other costs | ||||||||||||||||
| For the three months ended June 30, | For the six months ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| US$ thousands | US$ thousands | US$ thousands | US$ thousands | |||||||||||||
| Excluded from amortization base: | ||||||||||||||||
| Drilling costs, and other operational related costs | ||||||||||||||||
| Capitalized salary costs | ||||||||||||||||
| Capitalized interest costs | ||||||||||||||||
| Legal costs, license fees and other preparation costs | ||||||||||||||||
| Other costs | ||||||||||||||||
| Impairment of unproved oil and gas properties | ( | ) | ( | ) | ||||||||||||
| * | * | * | * | |||||||||||||
| * | |
| * | Inclusive of non-cash amounts of approximately $ |
Please refer to Footnote 1 – Nature of Operations and Going Concern for more information about Zion’s exploration activities.
30
Zion Oil & Gas, Inc.
Consolidated Condensed Notes to Financial Statements (Unaudited)
Note 5 - Right of use lease assets and lease obligations
The Company is a lessee in several non-cancellable operating leases for transportation and office space.
| June 30, 2024 | December 31, 2023 | |||||||
| US$ thousands | US$ thousands | |||||||
| Operating lease assets | $ | $ | ||||||
| Operating lease liabilities: | ||||||||
| Current operating lease liabilities | $ | $ | ||||||
| Non-current operating lease liabilities | $ | $ | ||||||
| Total operating lease liabilities | $ | $ | ||||||
The depreciable lives of operating lease assets and leasehold improvements are limited by the expected lease term.
The Company’s leases generally do not provide an implicit rate, and therefore the Company uses its incremental borrowing rate as the discount rate when measuring operating lease liabilities. The incremental borrowing rate represents an estimate of the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease within a particular currency environment. The Company used incremental borrowing rates as of January 1, 2019 for operating leases that commenced prior to that date.
The
Company’s field office in Caesarea, Israel is under lease for
| June 30, 2024 | ||||
| Weighted average remaining lease term (years) | ||||
| Weighted average discount rate | % | |||
31
Zion Oil & Gas, Inc.
Consolidated Condensed Notes to Financial Statements (Unaudited)
Note 5 - Right of use lease assets and leases obligations (cont’d)
| US$ thousands | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total undiscounted future minimum lease payments | ||||
| Less: portion representing imputed interest | ( | ) | ||
| Total undiscounted future minimum lease payments | ||||
Operating
lease costs were $
Operating
lease costs were $
Cash paid for amounts included in the measurement of operating lease liabilities
was $
Right-of-use
assets obtained in exchange for new operating lease liabilities were $ and $
Right-of-use assets obtained in exchange for new operating lease liabilities were $ and $ for the three and six months ended June 30, 2023, respectively.
32
Zion Oil & Gas, Inc.
Consolidated Condensed Notes to Financial Statements (Unaudited)
Note 6 - Commitments and Contingencies
A. Litigation
From time to time, the Company may be subject to routine litigation, claims or disputes in the ordinary course of business. The Company defends itself vigorously in all such matters. However, we cannot predict the outcome or effect of any of the potential litigation, claims or disputes.
The Company is not subject to any litigation at the present time.
B. Market Conditions – Coronavirus, Israel-Hamas War and Russia-Ukraine War
During March 2020, a global pandemic was declared by the World Health Organization related to the rapidly growing outbreak of a novel strain of coronavirus (“COVID-19”). The pandemic significantly impacted the economic conditions in the United States and Israel, as federal, state and local governments reacted to the public health crisis, creating significant uncertainties in the United States, Israel and world economies. In the interest of public health and safety, jurisdictions (international, national, state and local) where we have operations, restricted travel and required workforces to work from home. However, as of the date of this report, most of our employees are working at our physical offices, but have the ability to work from home as needed.
On October 7, 2023, Hamas, a militant terrorist organization in Gaza, infiltrated southern Israel, killing and injuring at least one thousand Israeli citizens. Roughly 250 Israeli hostages were then taken back to Gaza. This unprovoked attack led the nation of Israel to declare war on Hamas approximately one week later. As of the date of this report, Israel remains at war and there are daily battles inside the Gaza strip. Israel’s stated goals are to completely dismantle the terror infrastructure of Gaza, including its extensive tunnel network and to bring back safely all of the hostages.
There is uncertainty as to how long the war inside the Gaza strip will last and whether the war will expand to other hostile parties in the region. While we acknowledge that uncertainty and its potential adverse effects on Zion’s business, the Company is moving forward with its re-completion activities at the MJ-01 wellsite. It is important to note that Zion’s license area is not located near any current combat zones.
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 quarter ended June 30, 2024, at this time the Company is unable to fully assess the aggregate impact the Russian war against Ukraine will have on its business due to various uncertainties, which include, but are not limited to, the duration of the war, the war’s effect on the global economy, future energy pricing, its impact to the businesses of the Company’s, and actions that may be taken by governmental authorities related to the war.
C. Environmental and Onshore Licensing Regulatory Matters
The Company is engaged in oil and gas exploration and production and may become subject to certain liabilities as they relate to environmental clean-up 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 and Energy and Environmental Ministries as it pertains to oil and gas activities. Mention of these older guidelines was included in previous Zion filings.
33
Zion Oil & Gas, Inc.
Consolidated Condensed Notes to Financial Statements (Unaudited)
Note 6 - Commitments and Contingencies (cont’d)
The Company believes that these regulations will result in an increase in the expenditures associated with obtaining new exploration rights and drilling new wells. The Company expects that an additional financial burden could occur as a result of requiring cash reserves that could otherwise be used for operational purposes. In addition, these regulations are likely to continue to increase the time needed to obtain all of the necessary authorizations and approvals to drill and production test exploration wells.
As of June 30, 2024, and December 31, 2023, the Company accrued $ and $ for license regulatory matters.
D. Insurance Financing
Effective November 16,
2023, the Company renewed its third-party liability (“TPL”) insurance policy in Israel with total premiums, taxes and fees
for $
Effective December 28,
2023, the Company renewed its D&O insurance policy with total premiums, taxes and fees for $
Effective March 12, 2024,
2024, the Company renewed its rig insurance policy with total premiums, taxes and fees for $
As of June 30, 2024 and December 31, 2023, the Company had contractual
obligations to pay for various lines of insurance, including directors and officers, rig and third-party liability. The balances for insurance
financing were $
We haven’t experienced any resistance from our insurance carriers as a result of the Israel-Hamas war, but we acknowledge the uncertainty the war creates in that respect.
E. Bank Guarantees
As of June 30, 2024, the Company provided Israeli-required
bank guarantees to various governmental bodies (approximately $
F. Vendor Concentration
The Company’s financial instruments that
are exposed to a concentration of credit risk are accounts payable. At June 30, 2024, there were three suppliers that represent
34
Zion Oil & Gas, Inc.
Consolidated Condensed Notes to Financial Statements (Unaudited)
Note 6 - Commitments and Contingencies (cont’d)
G. Risks
Market risk is a broad term for the risk of economic loss due to adverse changes in the fair value of a financial instrument. These changes may be the result of various factors, including interest rates, foreign exchange rates, commodity prices and/or equity prices. In the normal course of doing business, we are exposed to the risks associated with foreign currency exchange rates and changes in interest rates.
Foreign Currency Exchange Rate Risks. A
portion of our expenses, primarily labor expenses and certain supplier contracts, are denominated in New Israeli Shekels (“NIS”).
As a result, we have significant exposure to the risk of fluctuating exchange rates with the U.S. Dollar (“USD”), our primary
reporting currency. During the period January 1, 2024 through June 30, 2024, the USD has fluctuated by approximately
Interest Rate Risk. Our exposure to market
risk relates to our cash and investments. We maintain an investment portfolio of short-term bank deposits and money market funds. The
securities in our investment portfolio are not leveraged, and are, due to their very short-term nature, subject to minimal interest rate
risk. We currently do not hedge interest rate exposure. Because of the short-term maturities of our investments, we do not believe that
a change in market interest rates would have a significant negative impact on the value of our investment portfolio except for reduced
income in a low interest rate environment. At June 30, 2024, we had cash, cash equivalents and short-term bank deposits of approximately
$
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.
Note 7 - Subsequent Events
(i) Approximately $
35
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED NOTES TO THOSE STATEMENTS INCLUDED IN THIS FORM 10-Q. SOME OF OUR DISCUSSION IS FORWARD-LOOKING AND INVOLVES RISKS AND UNCERTAINTIES. FOR INFORMATION REGARDING RISK FACTORS THAT COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, REFER TO THE DISCUSSION OF RISK FACTORS IN THE “DESCRIPTION OF BUSINESS” SECTION OF OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2023, FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
Forward-Looking Statements
Certain statements made in this discussion are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may materially differ from actual results.
Forward-looking statements can be identified by terminology such as “may”, “should”, “expects”, “intends”, “anticipates”, “believes”, “estimates”, “predicts”, or “continue” or the negative of these terms or other comparable terminology and include, without limitation, statements regarding:
| ● | The Israel-Hamas war which began in October 2023 and its effect on our exploration program; |
| ● | The going concern qualification in our consolidated condensed financial statements; |
| ● | Our ability to obtain new license areas to continue our exploration program; |
| ● | our liquidity and our ability to raise capital to finance our overall exploration and development activities within our license area; |
| ● | our ability to continue meeting the requisite continued listing requirements by OTCQB; |
| ● | interruptions, increased financial costs and other adverse impacts of the covid 19 coronavirus pandemic, the Israel-Hamas war and the Russia-Ukraine war on the drilling and testing of our petroleum exploration program and our capital raising efforts; |
| ● | our ability to explore for and develop natural gas and oil resources successfully and economically within a license area; |
| ● | our ability to maintain the exploration license rights to continue our petroleum exploration program; |
| ● | the availability of equipment, such as seismic equipment, drilling rigs, and production equipment as well as access to qualified personnel; |
| ● | the impact of governmental regulations, permitting and other legal requirements in Israel relating to onshore exploratory drilling; |
| ● | our estimates of the time frame within which future exploratory activities will be undertaken; |
| ● | changes in our exploration plans and related budgets; |
| ● | the quality of future license areas with regard to, among other things, the existence of reserves in economic quantities; |
| ● | anticipated trends in our business; |
| ● | our future results of operations; |
| ● | our capital expenditure program; |
| ● | future market conditions in the oil and gas industry |
| ● | the demand for oil and natural gas, both locally in Israel and globally; and |
| ● | the impact of fluctuating oil and gas prices on our exploration efforts |
36
All references in this Quarterly Report to the “Company”, “Zion”, “we”, “us”, or “our”, are to Zion Oil and Gas, Inc., a Delaware corporation, and its wholly-owned subsidiaries, Zion Drilling, Inc. and Zion Drilling Services, Inc. described below.
Current Exploration and Operation Efforts
Zion Oil and Gas, Inc., a Delaware corporation, is an oil and gas exploration company with a history of 24 years of oil and gas exploration in Israel. We were incorporated in Florida on April 6, 2000 and reincorporated in Delaware on July 9, 2003. We completed our initial public offering in January 2007. Our common stock, par value $0.01 per share (the “Common Stock”) currently trades on the OTCQB marketplace of OTC Markets, Inc. under the symbol “ZNOG” and our Common Stock warrant under the symbol “ZNOGW.” On January 24, 2020, Zion incorporated a wholly owned subsidiary, Zion Drilling, Inc., a Delaware corporation, for the purpose of owning a drilling rig, related equipment and spare parts, and on January 31, 2020, Zion incorporated another wholly owned subsidiary, Zion Drilling Services, Inc., a Delaware corporation, to act as the contractor providing such drilling services. When Zion is not using the rig for its own exploration activities, Zion Drilling Services may contract with other operators in Israel to provide drilling services at market rates then in effect.
On September 14, 2023, the Israel Ministry of Energy approved a new Megiddo Valleys License 434 (“NMVL 434”), allowing for oil and gas exploration on approximately 75,000 acres or 302 square kilometers. This Exploration License 434 is valid for three years until September 13, 2026 with four potential 1-year extensions for a total of seven years until September 13, 2030. This NMVL 434 effectively supersedes our previous NML 428.
We continue our exploration focus here based on our studies as it appears to possess the key geologic ingredients of an active petroleum system with significant exploration potential. As previously announced, Zion is deploying new technologies and stimulation methods for its current re-entry into the MJ-01 well with the objective of potentially unlocking hydrocarbon flows in several identified key zones.
On February 21, 2024, members of the Supervisory Committee visited our rig site. During this visit, they interacted with staff from Zion Oil & Gas, and our consultants and potential service providers. Some of these interactions occurred at Kibbutz Sde Eliyahu, while others were conducted through video conferencing with participants from the United States, Europe and the Middle East. Following these discussions, the Committee has officially accepted our work plan for the MJ-01 project. This acceptance allows us to sign agreements and secure mobilization dates with our service providers required to commence and complete the project.
Field operations remain on schedule, and our rig is now positioned over the MJ-01 wellbore. Repairs and maintenance, as well as the inspection of the rig, have all been completed successfully. All necessary wireline equipment for the project has been mobilized with additional essential items from India, China, Romania and Greece currently in transit for the final stages of operation.
The initial phase of the MJ-01 recompletion project involves drilling out the plugs and nearly 625 meters (approximately 2,050 feet) of cement in the well. Following the drilling out of the cement plugs, we will next run a series of wireline tests and casing integrity tests to ensure that the wellbore has withstood the past six years of high temperatures.
The next phase of the MJ-01 recompletion project, provided all goes as expected from the initial phase, involves perforating, stimulating and well testing previously identified zones of interest.
I-35 Drilling Rig & Associated Equipment
| Six-month period ended June 30, 2024 | ||||||||||||||||
| I-35 Drilling Rig | Rig Spare Parts | Other Drilling Assets | Total | |||||||||||||
| US$ thousands | US$ thousands | US$ thousands | US$ thousands | |||||||||||||
| December 31, 2023 | 4,591 | 608 | 311 | 5,510 | ||||||||||||
| Asset Additions | - | 22 | - | 22 | ||||||||||||
| Asset Depreciation | (318 | ) | - | (96 | ) | (414 | ) | |||||||||
| Asset Disposals | - | - | (93 | ) | (93 | ) | ||||||||||
| Asset Disposals for Self-Consumption | - | (8 | ) | - | (8 | ) | ||||||||||
| June 30, 2024 | 4,273 | 622 | 122 | 5,017 | ||||||||||||
Zion’s ability to fully undertake all of these aforementioned activities is subject to its raising the needed capital from its continuing offerings, of which no assurance can be provided.
37
Map 1. Zion’s New Megiddo License 428 as of June 30, 2024.
38
Onshore Licensing, Oil and Gas Exploration and Environmental Guidelines
The Company is engaged in oil and gas exploration and production and may become subject to certain liabilities as they relate to environmental cleanup of well sites or other environmental restoration procedures and other obligations as they relate to the drilling of oil and gas wells or the operation thereof. Various guidelines have been published in Israel by the State of Israel’s Petroleum Commissioner, the Energy Ministry, and the Environmental Ministry in recent years as it pertains to oil and gas activities. Mention of these guidelines was included in previous Zion Oil & Gas filings.
We acknowledge that these new regulations are likely to increase the expenditures associated with obtaining new exploration rights and drilling new wells. The Company expects that additional financial burdens could occur as a result of the Ministry requiring cash reserves that could otherwise be used for operational purposes.
Capital Resources Highlights
We need to raise significant funds to finance the continued exploration efforts and maintain orderly operations. To date, we have funded our operations through the issuance of our securities and convertible debt. We will need to continue to raise funds through the issuance of equity and/or debt securities (or securities convertible into or exchangeable for equity securities). No assurance can be provided that we will be successful in raising the needed capital on terms favorable to us (or at all).
The Dividend Reinvestment and Stock Purchase Plan
On March 13, 2014, Zion filed a registration statement on Form S-3 that was part of a replacement registration statement that was filed with the SEC using a “shelf” registration process. The registration statement was declared effective by the SEC on March 31, 2014. On February 23, 2017, the Company filed a Form S-3 with the SEC (Registration No. 333-216191) as a replacement for the Form S-3 (Registration No. 333-193336), for which the three-year period ended March 31, 2017, along with the base Prospectus and Supplemental Prospectus. The Form S-3, as amended, and the new base Prospectus became effective on March 10, 2017, along with the Prospectus Supplement that was filed and became effective on March 10, 2017. The Prospectus Supplement under Registration No. 333-216191 describes the terms of the DSPP and replaces the prior Prospectus Supplement, as amended, under the prior Registration No. 333-193336.
On March 27, 2014, we launched our Dividend Reinvestment and Stock Purchase Plan (the “DSPP”) pursuant to which stockholders and interested investors can purchase shares of the Company’s Common Stock as well as units of the Company’s securities directly from the Company. The terms of the DSPP are described in the Prospectus Supplement originally filed on March 31, 2014 (the “Original Prospectus Supplement”) with the Securities and Exchange Commission (“SEC”) under the Company’s effective registration Statement on Form S-3, as thereafter amended.
Please see Footnote 3D (“Dividend Reinvestment and Stock Purchase Plan (“DSPP”)), which is a part of this Form 10-Q filing, for details about specific stock purchase and unit programs, dates, and filings during the years 2023 and 2024.
For the three and six months ended June 30, 2024, approximately $5,896,000 and $9,453,000 were raised under the DSPP program, respectively. The $5,896,000 and $9,453,000 figures were reduced by $947,000 and $1,763,000, respectively, in equity issuance costs to an outside party resulting in net cash provided of $4,949,000 and $7,690,000, respectively.
For the three and six months ended June 30, 2024, approximately $985,000 and $985,000 were recorded under the Company’s Statement of Changes in Stockholders’ Equity as Subscriptions Receivables.
For the three and six months ended June 30, 2023, approximately $1,761,000, and $2,553,000 were raised under the DSPP program, respectively. The $2,553,000 figure is net of $173,000 in equity issuance costs to an outside party.
The warrants balances at December 31, 2023 and transactions since January 1, 2024 are shown in the table below:
| Warrants | Exercise Price | Warrant Termination Date | Outstanding Balance, 12/31/2023 | Warrants Issued | Warrants Exercised | Warrants Expired | Outstanding Balance, 06/30/2024 | |||||||||||||||||||
| ZNWAA | $ | 2.00 | 01/31/2025 | 1,498,804 | - | - | - | 1,498,804 | ||||||||||||||||||
| ZNWAG | $ | 1.00 | 01/08/2024 | 240,068 | - | - | (240,068 | ) | - | |||||||||||||||||
| ZNWAM | $ | 0.05 | 12/31/2024 | 4,376,000 | - | - | - | 4,376,000 | ||||||||||||||||||
| ZNWAQ | $ | 0.05 | 12/31/2024 | 23,428,348 | - | - | - | 23,428,348 | ||||||||||||||||||
| ZNWAZ | $ | 0.25 | 07/17/2024 | 153,800 | - | - | - | 153,800 | ||||||||||||||||||
| Outstanding warrants | 29,697,020 | - | - | (240,068 | ) | 29,456,952 | ||||||||||||||||||||
39
Principal Components of our Cost Structure
Our operating and other expenses primarily consist of the following:
| ● | Impairment of Unproved Oil and Gas Properties: Impairment expense is recognized if a determination is made that a well will not be commercially productive. The amounts include amounts paid in respect of the drilling operations as well as geological and geophysical costs and various amounts that were paid to Israeli regulatory authorities. |
| ● | General and Administrative Expenses: Overhead, including payroll and benefits for our corporate staff, costs of managing our exploratory operations, audit and other professional fees, and legal compliance is included in general and administrative expenses. General and administrative expenses also include non-cash stock-based compensation expense, investor relations related expenses, lease and insurance and related expenses. |
| ● | Depreciation, Depletion, Amortization and Accretion: The systematic expensing of the capital costs incurred to explore for natural gas and oil represents a principal component of our cost structure. As a full cost company, we capitalize all costs associated with our exploration, and apportion these costs to each unit of production, if any, through depreciation, depletion and amortization expense. As we have yet to have production, the costs of abandoned wells are written off immediately versus being included in this amortization pool. |
Going Concern Basis
Since we have limited capital resources, no revenue to date and a loss from operations, our consolidated condensed financial statements have been prepared on a going concern basis, which contemplates realization of assets and liquidation of liabilities in the ordinary course of business. The appropriateness of using the going concern basis is dependent upon our ability to obtain additional financing or equity capital and, ultimately, to achieve profitable operations. Therefore, there is substantial doubt about our ability to continue as a going concern for one year from the date the financials were issued. The consolidated condensed financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Israel-Hamas War
On October 7, 2023, Hamas, a militant terrorist organization in Gaza, infiltrated southern Israel, killing and injuring at least one thousand Israeli citizens. Roughly 250 Israeli hostages were then taken back to Gaza. This unprovoked attack led the nation of Israel to declare war on Hamas approximately one week later. As of the date of this report, Israel remains at war and there are daily battles inside the Gaza strip. Israel’s stated goals are to completely dismantle the terror infrastructure of Gaza, including its extensive tunnel network and to bring back safely all of the hostages.
There is uncertainty as to how long the war inside the Gaza strip will last and whether the war will expand to other hostile parties in the region. While we acknowledge that uncertainty and its potential adverse effects on Zion’s business, the Company is moving forward with its re-completion activities at the MJ-01 wellsite. It is important to note that Zion’s license area is not located near any current combat zones.
Russia – Ukraine War
Due to Russia’s invasion of Ukraine, which began in February 2022, and the resulting sanctions and other actions against Russia and Belarus, there has been uncertainty and disruption in the global economy. Although the Russian war against Ukraine did not have a material adverse impact on the Company’s financial results for the year ended December 31, 2023, at this time the Company is unable to fully assess the aggregate impact the Russian war against Ukraine will have on its business due to various uncertainties, which include, but are not limited to, the duration of the war, the war’s effect on the global economy, future energy pricing, its impact to the businesses of the Company’s, and actions that may be taken by governmental authorities related to the war.
Critical Accounting Policies
Management’s discussion and analysis of financial condition and results of operations is based upon our consolidated condensed financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated condensed financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated condensed financial statements and the reported amounts of revenues and expense during the reporting period.
We have identified the accounting principles which we believe are most critical to the reported financial status by considering accounting policies that involve the most complex of subjective decisions or assessment.
40
Impairment of Oil and Gas Properties
We follow the full-cost method of accounting for oil and gas properties. Accordingly, all costs associated with acquisition, exploration and development of oil and gas reserves, including directly related overhead costs, are capitalized.
All capitalized costs of oil and gas properties, including the estimated future costs to develop proved reserves, are amortized on the unit-of-production method using estimates of proved reserves. Investments in unproved properties and major development projects are not amortized until proved reserves associated with the projects can be determined or until impairment occurs. If the results of an assessment indicate that the properties are impaired, the amount of the impairment is included in income from continuing operations before income taxes, and the adjusted carrying amount of the unproved properties is amortized on the unit-of-production method.
Our oil and gas properties represent an investment in unproved properties. These costs are excluded from the amortized cost pool until proved reserves are found or until it is determined that the costs are impaired. All costs excluded are reviewed at least quarterly to determine if impairment has occurred. The amount of any impairment is charged to expense since a reserve base has not yet been established. A further impairment requiring a charge to expense may be indicated through evaluation of drilling results, relinquishing drilling rights or other information.
Abandonment of properties is accounted for as adjustments to capitalized costs. The net capitalized costs are subject to a “ceiling test” which limits such costs to the aggregate of the estimated present value of future net revenues from proved reserves discounted at ten percent based on current economic and operating conditions, plus the lower of cost or fair market value of unproved properties. The recoverability of amounts capitalized for oil and gas properties is dependent upon the identification of economically recoverable reserves, together with obtaining the necessary financing to exploit such reserves and the achievement of profitable operations.
During the three months ended June 30, 2024, and 2023, respectively, the Company recorded $nil and $48,000 in post-impairment charges.
During the six months ended June 30, 2024, and 2023, respectively, the Company recorded $nil and $93,000 post-impairment charges.
The total net book value of our unproved oil and gas properties under the full cost method is $17,815,000 and $16,637,000 at June 30, 2024 and at December 31, 2023, respectively.
Asset Retirement Obligation
We record a liability for asset retirement obligation at fair value in the period in which it is incurred and a corresponding increase in the carrying amount of the related long-lived assets.
Fair Value Considerations
We follow ASC 820, “Fair Value Measurements and Disclosures,” as amended by Financial Accounting Standards Board (FASB) Financial Staff Position (FSP) No. 157 and related guidance. Those provisions relate to the Company’s financial assets and liabilities carried at fair value and the fair value disclosures related to financial assets and liabilities. ASC 820 defines fair value, expands related disclosure requirements, and specifies a hierarchy of valuation techniques based on the nature of the inputs used to develop the fair value measures. Fair value is defined as the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, assuming the transaction occurs in the principal or most advantageous market for that asset or liability.
There are three levels of inputs to fair value measurements - Level 1, meaning the use of quoted prices for identical instruments in active markets; Level 2, meaning the use of quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active or are directly or indirectly observable; and Level 3, meaning the use of unobservable inputs. We use Level 1 inputs for fair value measurements whenever there is an active market, with actual quotes, market prices, and observable inputs on the measurement date. We use Level 2 inputs for fair value measurements whenever there are quoted prices for similar securities in an active market or quoted prices for identical securities in an inactive market. We use observable market data whenever available.
41
RESULTS OF OPERATIONS
| For the three months ended June 30, | For the six months ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| (US $ in thousands) | (US $ in thousands) | |||||||||||||||
| Operating costs and expenses: | ||||||||||||||||
| General and administrative expenses | 1,201 | 1,271 | 2,376 | 2,774 | ||||||||||||
| Other | 882 | 1,016 | 1,481 | 1,599 | ||||||||||||
| Impairment of unproved oil and gas properties | - | 48 | - | 93 | ||||||||||||
| Subtotal Operating costs and expenses | 2,083 | 2,335 | 3,857 | 4,466 | ||||||||||||
| Other expense (income), net | (19 | ) | (1 | ) | (31 | ) | 7 | |||||||||
| Net loss | 2,064 | 2,334 | 3,826 | 4,473 | ||||||||||||
Revenue. We currently have no revenue generating operations.
Operating costs and expenses. Operating costs and expenses for the three and six months ended June 30, 2024 were $2,083,000 and $3,857,000, respectively, compared to $2,335,000 and $4,466,000, respectively, for the three and six months ended June 30, 2023. Operating costs and expenses for the three months ended June 30, 2024 were $252,000 (10.8%) lower compared to the three months ended June 30, 2023. Operating costs for the six months ended June 30, 2024 were $609,000 (13.6%) lower compared to the six months ended June 30, 2023.
General and administrative expenses. General and administrative expenses (“G&A expenses”) for the three and six months ended June 30, 2024 were $1,201,000 and $2,376,000, respectively, compared to $1,271,000 and $2,774,000, respectively, for the three and six months ended June 30, 2023. This expense grouping includes salaries, benefits, stock option expenses and professional fees. G&A expenses decreased $70,000, or 5.5%, during the most recent quarter versus the prior year primarily due to lower salaries expenses and expenses associated with stock option grants. G&A expenses decreased $398,000, or 14.3%, during the first six months of 2024 as compared to the six months of 2023, primarily due to lower expenses associated with stock option grants.
Other expense. Other expenses during the three and six months ended June 30, 2024 were $882,000 and $1,481,000, respectively, compared to $1,016,000 and $1,599,000, respectively, for the three and six months ended June 30, 2023. Other general and administrative expenses are comprised of non-compensation and non-professional expenses incurred. Other expenses decreased by $134,000, or about 13.2%, and by $118,000, or about 7.4%, for the three and six months ended June 30, 2024, respectively. Zion incurred lower annual meeting and insurance premium expenses, but this was partially offset by higher marketing and investor relations expenses.
Impairment of unproved oil and gas properties. Impairment of unproved oil and gas properties expenses during the three and six months ended June 30, 2024 were $nil and $nil compared to $48,000 and $93,000 for the three and six months ended June 30, 2024. The expenses recorded in 2023 are post impairment charges to the impairment recorded during 2023 related to the MJ-2 well.
Other expense (income), net. Other expenses (income) during the three and six months ended June 30, 2024 were ($19,000) and ($31,000), respectively, compared to ($1,000) and $7,000, respectively, for the three and six months ended June 30, 2023. The expenses in this category are comprised of foreign currency exchange costs, primarily the New Israeli Shekel (NIS) to the US dollar, and the financial expenses/income.
Net Loss. Net loss for the three and six months ended June 30, 2024 were $2,064,000 and $3,826,000 compared to $2,334,000 and $4,473,000 for the three and six months ended June 30, 2023.
Liquidity and Capital Resources
Liquidity is a measure of a company’s ability to meet potential cash requirements. As discussed above, we have historically met our capital requirements through the issuance of common stock as well as proceeds from the exercise of warrants and options to purchase common shares. As disclosed on our Balance Sheet, the company has 1,200,000,000 shares of authorized common stock and 818,873,764 shares issued as of June 30, 2024. We are considering increasing our authorized shares during the next proxy season in 2025. However, we are presently engaged on our MJ-01 re-entry project and, pending the discovery of hydrocarbons later this year, may decide to forego increasing authorized shares if our ZNOG share price increases sufficiently so as to reduce the monthly issuance of common shares. In the event of a hydrocarbon discovery, the company would consider raising capital outside of our DSPP program.
Our ability to continue as a going concern is dependent upon obtaining the necessary financing to complete further exploration and development activities and generate profitable operations from our oil and natural gas interests in the future. Our current operations are dependent upon the adequacy of our current assets to meet our current expenditure requirements and the accuracy of management’s estimates of those requirements. Should those estimates be materially incorrect, our ability to continue as a going concern will be impaired. Our financial statements for the six months ended June 30, 2024 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. We have incurred a history of operating losses and negative cash flows from operations. Therefore, there is substantial doubt about our ability to continue as a going concern for one year from the date the financials were issued.
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At June 30, 2024, we had approximately $2,461,000 in cash and cash equivalents compared to $615,000 at December 31, 2023, which does not include any restricted funds. Our working capital (current assets minus current liabilities) was $2,000,000 at June 30, 2024 and ($349,000) at December 31, 2023.
As of June 30, 2024, we provided bank guarantees to various governmental bodies (approximately $970,000) and others (approximately $89,000) in respect of our drilling operation in the aggregate amount of approximately $1,059,000. The (cash) funds backing these guarantees are held in restricted interest-bearing accounts in Israel and are reported on the Company’s balance sheets as fixed short-term bank deposits restricted.
During the six months ended June 30, 2024, cash used in operating activities totaled $3,775,000. Cash provided by financing activities during the six months ended June 30, 2024 was $6,547,000 and is primarily attributable to proceeds received from the Dividend Reinvestment and Stock Purchase Plan (the “DSPP” or the “Plan”). Net cash used in investing activities such as unproved oil and gas properties, equipment and spare parts was $882,000 for the six months ended June 30, 2024.
During the six months ended June 30, 2023, cash used in operating activities totaled $2,392,000. Cash provided by financing activities during the six months ended June 30, 2023 was $2,565,000 and is primarily attributable to proceeds received from the Dividend Reinvestment and Stock Purchase Plan (the “DSPP” or the “Plan”). Net cash used in investing activities such as unproved oil and gas properties, equipment and spare parts was $1,729,000 for the six months ended June 30, 2023.
Accounting standards require management to evaluate our ability to continue as a going concern for a period of one year subsequent to the date of the filing of this Form 10-Q. We expect to incur additional significant expenditures to further our exploration and development programs. While we raised approximately $1,797,000 during the period July 1, 2024 through August 6, 2024, we will need to raise additional funds in order to continue our exploration and development activities in our license area. Of this amount, approximately $1,122,000 represents cash received for receivables on our books at June 30, 2024. The difference of $675,000 represents new investments during July and August 2024. Additionally, we estimate that, when we are not actively drilling a well, our expenditures are approximately $600,000 per month excluding exploratory operational activities. However, when we are actively drilling a well, we estimate an additional minimum expenditure of approximately $2,500,000 per month. The above estimates are subject to change. Subject to the qualifications specified below, management believes that our existing cash balance, coupled with anticipated proceeds under the DSPP, will be sufficient to finance our plan of operations through October 2024.
During March 2020, a global pandemic was declared by the World Health Organization related to the rapidly growing outbreak of a novel strain of coronavirus (“COVID-19”). The pandemic significantly impacted the economic conditions in the United States and Israel, as federal, state and local governments reacted to the public health crisis, creating significant uncertainties in the United States, Israel and world economies. In the interest of public health and safety, jurisdictions (international, national, state and local) where we have operations, restricted travel and required workforces to work from home. However, as of the date of this report, most of our employees are working at our physical offices, but have the ability to work from home as needed.
Similar uncertainties are posed by the Israel Hamas war and its duration and whether the war expands regionally to include other hostile parties. It is important to note that Zion’s license area is not located near any current combat zone.
No assurance can be provided that we will be able to raise the needed operating capital.
Even if we raise the needed funds, there are factors that can nevertheless adversely impact our ability to fund our operating needs, including (without limitation), the potential impact of the Israel-Hamas war, the potential actions of other hostile parties in the region, unexpected or unforeseen cost overruns in planned non-drilling exploratory work in existing license areas, the costs associated with extended delays in undertaking the required exploratory work, and plugging and abandonment activities which is typical of what we have experienced in the past.
The financial information contained in these consolidated condensed financial statements has been prepared on a basis that assumes that we will continue as a going concern for one year from the date the financials were issued, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. This financial information and these consolidated condensed financial statements do not include any adjustments that may result from the outcome of this uncertainty.
Off-Balance Sheet Arrangements
We do not currently use any off-balance sheet arrangements to enhance our liquidity or capital resource position, or for any other purpose.
Recently Issued Accounting Pronouncements
The Company does not believe that the adoption of any recently issued accounting pronouncements in 2024 had a significant impact on our financial position, results of operations, or cash flow.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is a broad term for the risk of economic loss due to adverse changes in the fair value of a financial instrument. These changes may be the result of various factors, including interest rates, foreign exchange rates, commodity prices and/or equity prices. In the normal course of doing business, we are exposed to the risks associated with foreign currency exchange rates and changes in interest rates.
Foreign Currency Exchange Rate Risks. A portion of our expenses, primarily labor expenses and certain supplier contracts, are denominated in New Israeli Shekels (“NIS”). As a result, we have significant exposure to the risk of fluctuating exchange rates with the U.S. Dollar (“USD”), our primary reporting currency. During the period January 1, 2024 through June 30, 2024, the USD has fluctuated by approximately 3.6% against the NIS (the USD strengthened relative to the NIS). Also, during the period January 1, 2023 through December 31, 2023, the USD fluctuated by approximately 3.1% against the NIS (the USD strengthened relative to the NIS). Continued strengthening of the US dollar against the NIS will result in lower operating costs from NIS denominated expenses. To date, we have not hedged any of our currency exchange rate risks, but we may do so in the future.
Interest Rate Risk. Our exposure to market risk relates to our cash and investments. We maintain an investment portfolio of short-term bank deposits and money market funds. The securities in our investment portfolio are not leveraged, and are, due to their very short-term nature, subject to minimal interest rate risk. We currently do not hedge interest rate exposure. Because of the short-term maturities of our investments, we do not believe that a change in market interest rates would have a significant negative impact on the value of our investment portfolio except for reduced income in a low interest rate environment. At June 30, 2024 we had cash, cash equivalents and short-term and long-term bank deposits of approximately $3,525,000. The weighted average annual interest rate related to our cash and cash equivalents for the three and six months ended June 30, 2024, exclusive of funds at US banks that earn no interest, was approximately 2.8% and 2.9% respectively.
The primary objective of our investment activities is to preserve principal while at the same time maximizing yields without significantly increasing risk. To achieve this objective, we invest our excess cash in short-term bank deposits and money market funds that may invest in high quality debt instruments.
ITEM 4. CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms. As of June 30, 2024, our chief executive officer and our chief financial officer conducted an evaluation of the effectiveness of our disclosure controls and procedures. Based on this evaluation, our chief executive officer and our chief financial officer concluded that our disclosure controls and procedures were effective as of June 30, 2024.
Changes in Internal Control over Financial Reporting
There were no changes in internal controls over financial reporting that occurred during the quarter ended June 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
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PART II—OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Litigation
From time to time, the Company may be subject to routine litigation, claims or disputes in the ordinary course of business. The Company defends itself vigorously in all such matters. However, we cannot predict the outcome or effect of any of the potential litigation, claims or disputes.
The Company is not subject to any litigation at the present time.
ITEM 1A. RISK FACTORS
During the quarter ended June 30, 2024, there were no material changes to the risk factors previously reported in our Annual Report on Form 10-K for the year ended December 31, 2023.
ITEM 2. UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION:
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ITEM 6. EXHIBITS
Exhibit Index:
| 31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 under the Exchange Act | |
| 31.2 | Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 under the Exchange Act | |
| 32.1 | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished only) | |
| 32.2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished only) | |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| ZION OIL & GAS, INC. | ||||
| (Registrant) | ||||
| By: | /s/ Robert W.A. Dunn | By: | /s/ Michael B. Croswell Jr. | |
| Robert W. A. Dunn | Michael B. Croswell Jr. | |||
| Chief Executive Officer | Chief Financial Officer | |||
| (Principal Executive Officer) | (Principal Financial and Accounting Officer) | |||
| Date: | August 6, 2024 | Date: | August 6, 2024 | |
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