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Zion Oil & Gas Inc – ‘SB-2’ on 7/15/03

On:  Tuesday, 7/15/03, at 1:16pm ET   ·   Accession #:  1131312-3-4   ·   File #:  333-107042

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  As Of                Filer                Filing    For·On·As Docs:Size

 7/15/03  Zion Oil & Gas Inc                SB-2                   8:1.0M

Document/Exhibit                   Description                      Pages   Size 

 1: SB-2        Registration of Securities by a Small-Business      HTML    516K 
                          Issuer -- formsb2                                      
 2: EX-3.I      Exhibit 3.1 for Form Sb-2                           HTML     37K 
 3: EX-3.II     Exhibit 3.2 for Form Sb-2                           HTML    109K 
 4: EX-9.I      Exhibit 9.1 for Form Sb-2                           HTML     69K 
 5: EX-9.II     Exhibit 9.2 for Form Sb-2                           HTML     55K 
 6: EX-10       Exhibit 10.1 for Form Sb-2                          HTML     25K 
 7: EX-23       Exhibit 23.2 for Form Sb-2                          HTML      8K 
 8: EX-24       Exhibit 24.1 for Form Sb-2                          HTML      7K 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

Zion Oil & Gas, Inc. is offering to sell to the public a minimum of 1,200,000 up to a maximum of 5,000,000 shares of our common stock, par value $.01 per share, at a price of $5.00 per share. Your minimum purchase must be at least 100 shares. Offers and sales may be made by officers and directors of the Company and by participating Placement Agents. The officers, directors and Placement Agents as a group must sell a minimum of 1,200,000 shares if any are sold. The Placement Agents will be required to use only their best efforts to sell the shares. We will hold the proceeds of the offering in an escrow account until we receive and accept funds representing at least $6,000,000 (1,200,000 shares). If we do not accept an investor, we will return such funds within fifteen (15) days. If we do not sell 1,200,000 shares on or before December 31, 2003 (which may be extended for sixty days), we will terminate the offering and refund the money raised within ten (10) business days. If we receive and accept funds for at least 1,200,000 shares before the end of such period, we will continue the offering until the earlier of (i) December 31, 2004, or (ii) the date on which 5,000,000 shares have been sold.

This is our initial public offering and no public market currently exists for our common stock. We have applied to list our common stock on the NASDAQ Small Cap Market, but we must raise at least $6,000,000 in this offering in order to qualify for the listing.

(1) Maximum amount of commissions payable to Placement Agents, because no commissions will be paid with respect to shares directly placed by us through our officers and directors. In addition, we have agreed to indemnify the Placement Agents against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the "Securities Act").

(2) Before deducting estimated offering expenses of up to $240,000 in the minimum offering and $400,000 in the maximum offering.

                                                                The date of this preliminary prospectus is _____________, 2003.

[Map of Seismic Lines of the Joseph Project]

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PROSPECTUS SUMMARY *

RISK FACTORS *

USE OF PROCEEDS *

CAPITALIZATION *

DETERMINATION OF OFFERING PRICE *

DILUTION *

DIVIDEND POLICY *

PLAN OF DISTRIBUTION *

LEGAL PROCEEDINGS *

MANAGEMENT *

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT *

DESCRIPTION OF SECURITIES *

SHARES ELIGIBLE FOR FUTURE SALE *

INTEREST OF NAMED EXPERTS AND COUNSEL *

BUSINESS AND PROPERTIES *

PLAN OF OPERATION AND MANAGEMENT'S DISCUSSION *

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS *

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS *

MARKET FOR SECURITIES *

EXECUTIVE COMPENSATION *

TAX CONSEQUENCES *

LEGAL MATTERS *

EXPERTS *

WHERE YOU CAN FIND MORE INFORMATION *

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All references in this prospectus to the "Company", "Zion", "we", "us" or "our" are to Zion Oil & Gas, Inc., a Delaware corporation, and its predecessor, Zion Oil & Gas, Inc., a Florida corporation. Because this is a summary, it does not contain all of the information that may be important to you as a prospective purchaser of our common stock. You should read the entire prospectus carefully, including the risk factors and financial statements, before you decide to purchase our common stock. You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus.

Zion is a development stage oil and gas exploration company with a limited operating history and limited financial resources. Our executive offices are located at 6510 Abrams Road, Suite 300, Dallas, Texas 75231 and our telephone number is (214) 221-4610. Our office in Israel is located at 9 Yair Stern Street, Herzliya, Israel 46412 and the telephone number is +972 (9) 955-2619. We were incorporated in Florida in April 2000 and reincorporated in Delaware in July 2003. For the past three years we have been conducting data accumulation, research and analysis related to onshore oil and gas potential in the north central coastal plain of Israel. In October 2002 we submitted a detailed exploration report to the Oil Commissioner of the Ministry of National Infrastructures of the State of Israel, identifying our recommended prospect areas for deep drilling (to a depth of approximately 16,000 feet). Effective January 1, 2003, the Israeli government approved our prospects for drilling and consolidated our existing petroleum rights into a single exploration license covering approximately 95,800 acres as shown on the map on the inside cover of this prospectus. The license expires April 30, 2005. If we begin deepening an existing well or begin drilling a new well by July 1, 2004 and diligently attempt to drill to the target depth we will be entitled to request a two-year additional extension of our license to April 30, 2007. If we do not begin the work by July 1, 2004, the government could begin proceedings to cancel the license for failure to meet the work program.

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___________

(1) Assumes minimum amount raised in the offering

(2) Assumes maximum amount is raised in the offering

(3) Assumes each share of outstanding preferred stock is converted into 12 shares of common stock (which occurred during July 2003)

Zion was incorporated in April 2000 and is still in its development stage. Our operations are subject to all of the risks inherent in establishing a new business enterprise. Our potential for success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with a new business, especially an oil and gas exploration business. We do not have any proved reserves or current production. We incurred operating losses of $166,753 for the year ended December 31, 2001, and $387,152 for the year ended December 31, 2002. The accumulated deficit as of December 31, 2002 was $559,269. We cannot assure you that any wells will be completed or produce oil or gas in commercially profitable quantities.

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Our planned work program is expensive. A new well could cost as much as $5 million for a dry hole and $7 million for a completed producer, assuming there are no drilling or completion problems.

We intend to finance our initial exploratory drilling with the proceeds from this offering. If we do not raise enough to drill the first well by ourselves (currently estimated at $5 million), we will have to seek other forms of financing, including the sale (if possible) of a portion of our license rights and obligations to one or more other petroleum exploration companies. Any additional financing could cause your relative interest in our assets and potential to be significantly diluted. Even if we have exploration success, we may not be able to generate sufficient revenues to offset the cost of dry holes and general and administrative expenses.

All of our audited financial statements since inception have contained a statement by the auditors that raise the question about us being able to continue as a "going concern" unless we are able to raise additional capital.

Depending upon the total amount raised in this offering, your investment will be immediately diluted in terms of net tangible asset value per share. If the minimum amount of $6,000,000 is raised, your dilution will be 78%. If the maximum amount of $25,000,000 million is raised, your dilution will be 48%. See "Dilution," page 16 for more details.

Exploratory drilling involves enormous risks, including the risk that no commercially productive natural gas or oil reservoirs will be discovered. Even when properly used and interpreted, seismic data analysis and other computer simulation techniques are only tools used to assist geoscientists in trying to identify subsurface structures and hydrocarbon indicators. They do not allow the interpreter to know conclusively if hydrocarbons are present or economically available. The risk analysis techniques we use in evaluating potential drilling sites rely on subjective judgments of our personnel and consultants. There is no assurance that other companies with superior financial resources, larger technical infrastructure and more experience will agree with our analysis and recommendations. The prospects we intend to drill may be significantly more risky than we think they are, and your investment could be at greater risk than if you invested with an established oil and gas exploration company.

The cost of drilling, completing and operating wells is often uncertain, and drilling operations may be curtailed, delayed or canceled as a result of a variety of factors, including:

• unexpected drilling conditions;

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• blowouts, fires or explosions;
• pressure or irregularities in formations;
• uncontrollable flows of oil, gas, formation water or drilling fluids;
• equipment failures or accidents;
• adverse weather conditions;
• compliance with governmental requirements and laws, present and future; and
• shortages or delays in the availability of drilling rigs and the delivery of equipment.

If any of these events occur, we could incur substantial losses from personal injury, death, property damage, and/or work stoppage. We do not currently have insurance for these risks, and not all of these risks are insurable. Poor results from our operations could cause us to fail and all your investment would be lost.

Our operations are concentrated in Israel and are directly affected by political, economic and military conditions in Israel. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its Arab neighbors and the Palestinians in the West Bank and the Gaza Strip and a state of hostility, varying in degree and intensity, has led to security and economic problems for Israel. Despite the progress towards peace between Israel and its Arab neighbors, the future of these peace efforts is uncertain. Since October 2000, there has been a significant increase in violence primarily in the West Bank and the Gaza Strip, and negotiations between Israel and Palestinian representatives ceased for a period of over thirty months. Negotiations recommenced in June 2003 with the internationally sponsored "Road Map" plan, to which there is significant opposition from extremists on both sides. The chances for this renewed peace process cannot be predicted.

The Ma'anit Reef where we intend to drill our first well is in an area adjacent to Israeli Arab villages where anti-Israeli rioting broke out in late 2000 and near bus routes and Israeli towns which have suffered terrorist attacks. Any future armed conflict, political instability or continued violence in the region would likely have a negative effect on our operations and business conditions in Israel, as well as our ability to raise additional capital necessary for completion of our exploration program. Such armed conflict would likely adversely affect the share price of publicly traded companies with operations concentrated in Israel. Furthermore, several countries and companies still restrict trade with Israel, a situation which may limit our ability to import required goods and services into Israel.

Following Knesset (Israel's parliament) elections in Israel in January 2003, a new government was formed in February 2003. No one can predict how the new government will deal with the security and political situation or what effect the policies of the new government will have on the political and security conditions, even though the government has endorsed the Road Map.

Our operations in Israel may be subject to:

• political and economic uncertainties, including changes in governmental energy policies or the personnel administering them;

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• loss of revenue, property and equipment as a result of expropriation, nationalization, war, insurrection or terrorist activities, especially in light of the current violence in the Middle East between Israel and the Palestinians and recent terrorist activities against United States interests;
• currency restrictions and exchange rate fluctuations;
• changes in laws and policies affecting operations of foreign-based companies in Israel;
• modification of license rights; and
• royalty and tax increases and other risks arising out of Israeli State sovereignty over the mineral rights in Israel and its taxing authority.

Consequently, our operations may be substantially affected by factors beyond our control, any of which could negatively affect our financial performance. Further, in the event of a legal dispute in Israel, we may be subject to the exclusive jurisdiction of Israeli courts or we may not be successful in subjecting persons who are not United States residents to the jurisdiction of courts in the United States, either of which could adversely affect the outcome of a dispute.

Our license is granted for a fixed period and requires the compliance with a work program detailed in the license. If we do not fulfill the work program, the Israeli government may cancel or terminate the license before its scheduled expiration date.

There are limitations on the transfer of portions of the license.

The Israeli government has the right to approve any transfer of rights and interests in our license and any mortgage of the license to borrow money. If we try to raise additional funds through borrowings or joint ventures with other companies and are unable to obtain some of these approvals from the government, the value of your investment could be significantly diluted or even lost.

We are dependent on contractors, equipment and professional services.

In Israel now there is only one drilling contractor, one provider of seismic services and one provider of logging services. The drilling contractor has only one drilling rig in Israel capable of drilling to our target depth. We do not know if we will be able to locate and encourage any other drilling and service contractors to come into the country. Consequently, costs for our operations are likely to be more expensive than costs for similar operations in other parts of the world. We are also more likely to incur material delays in our drilling schedule and have increased risk of failing to meet our required work schedule.

Similarly, some of the oil field personnel we need to undertake our planned operations are not necessarily available in Israel or available on short notice for work in Israel, a situation that may result in increased costs and material delays in the work schedule.

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We are subject to a number of local licenses and permits. Some of these are issued by the Israeli security forces, the Ministry of the Environment, the Civil Aviation Authority, the Israeli national water company, the Israel Lands Authority, the holders of the surface rights in the lands on which we intend to conduct drilling operations, including Kibbutz Ma'anit, the Department of Public Works, local and regional Planning Commissions, and Regional and Town Councils. In order to obtain necessary licenses and permits, more money than the amounts budgeted for those purposes may be required, and we may have to delay the planned work schedule.

John M. Brown, our founder and our chairman of the board and chief executive officer, and Mr. Ralph F. DeVore, one of our directors, hold proxies to vote the shares of common stock of some of our shareholders. Including their own shares of common stock, Mr. Brown holds 65%, and Mr. DeVore holds 14%, of our voting rights outstanding prior to this offering.

After the completion of this offering, assuming the minimum shares offered are issued, each of Mr. Brown and Mr. DeVore will have control of 51% and 11%, respectively, of our outstanding voting rights. If the maximum shares are issued they will each hold 31% and 7%, respectively, of our outstanding votes. The ability of Mr. Brown and Mr. DeVore to exercise significant control over us may discourage, delay or prevent a takeover attempt that a shareholder might consider in his or her best interest and that might result in a shareholder receiving a premium for his or her common stock. Also, Mr. Brown and Mr. DeVore (if they vote the same way) may have the ability to:

• control the vote of most matters submitted to our shareholders, including any merger, consolidation or sale of all or substantially all of our assets;
• elect all of the members of our board of directors;
• prevent or cause a change in control of our Company; and
• decide whether to issue additional common stock or other securities or declare dividends.

Some of the shares of common stock owned by the other officers and directors are not subject to the proxies held by Mr. Brown and Mr. DeVore. When those shares are added in, the management of Zion holds 82% of the voting control prior to the completion of this offering and would have 65% of the voting control if the minimum amount of the offering is placed and 39% of the voting control if the maximum is placed.

You will not be entitled to accumulate your votes for the election of directors or any other matter. Accordingly, the holders of a majority of the shares of common stock present at a meeting of shareholders will be able to elect the full board of directors and make all corporate decisions, and the minority shareholders will not be able to successfully oppose such actions.

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We depend upon a relatively small number of management personnel and key employees, and the loss of any of these management personnel and employees could affect us adversely. Competition for qualified employees is intense, and our success depends upon our ability to retain and attract qualified individuals. We cannot assure you that we will be able to attract and retain such individuals currently or in the future on acceptable terms, or at all. In addition, we do not maintain "key person" life insurance on any officer, employee or consultant of Zion.

If we find any commercial oil and gas, we will have to implement and improve our operational, financial, and management information systems and to expand, train, manage and motivate our employees. These demands may require us to add new management personnel and new training programs for current personnel. This additional burden to an already limited number of people on staff may cause significant mistakes to occur.

We are involved in a speculative and often hazardous business, which can result in lawsuits and claims. Our certificate of incorporation provide for indemnification of our officers and directors. Any limitation on the liability of any director, or indemnification of directors, officers, or employees, could cause us to spend substantial sums to cover any liability of such persons or indemnify them.

You may receive little or no dividends on your shares of common stock. The board of directors has not directed the payment of any dividends, and does not anticipate paying dividends on the shares for the foreseeable future and intends to retain any future earnings to finance our growth. Payment of dividends, if any, will depend, among other factors, on our earnings, capital requirements, and the general operating and financial condition, and will be subject to legal limitations on the payment of dividends out of paid-in capital.

There is no public market for the shares of common stock being offered. We cannot assure you that a sufficient active trading market will develop or that you will be able to resell your shares at prices equal to or greater than your respective initial purchase price. The market prices for the securities of energy companies have historically been highly volatile. The market has from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of any particular company. The market price of the shares may be affected significantly by factors such as announcements by us or by our competitors, variations in our results of operations, and market conditions in the extractive industries in general. The market

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price may also be affected by movements in prices of stock in general. As a result of these factors, you may not be able to liquidate an investment in the shares readily or at all.

The value of your investment would be impaired if we are not listed on a national exchange and are unable to obtain or maintain at least one NASD market maker. This would mean fewer shares of common stock being bought and sold, delays in transactions, and lower prices than might otherwise prevail. Furthermore, the lack of market makers could result in persons being unable to buy or sell shares of the common stock on any secondary market. We cannot assure you that we will be able to obtain or maintain market makers.

Shares currently outstanding may soon be eligible for future sale.

All of the shares of common stock that are currently held are restricted securities and were purchased at prices significantly lower than the price of this offering. Such shares cannot be sold in the open market without a separate registration except in reliance upon Rule 144 under the Securities Act of 1933. However, most of these shares have been held for more than the minimum holding period under Rule 144, and the holders may sell those shares into the public market, which might put downward pressure on the price.

To the best of our knowledge, as of the date hereof, there are four primary competitors for the sale of natural gas to the Israeli market. The source of the gas is from the recently discovered large gas fields offshore Israel and the Gaza Strip and the very large gas fields offshore Egypt. In light of the relatively small size of the current Israeli market for natural gas, in the event that we and other groups exploring for natural gas in Israel succeed in discovering significant new reserves of natural gas, such discoveries may result in a decrease in the market price for natural gas and impede our ability to sell any reserves of natural gas we discover until such time as the Israeli market for natural gas increases to an extent where it is able to accommodate additional reserves.

Although our projects are for oil reserves, we may find significant volumes of natural gas. If, as we develop and expand production of our Israeli gas reserves, the Israeli market for gas does not also develop and grow, there may be too much gas for the market to absorb, causing natural gas prices to significantly decrease, which would negatively impact the results of our operations and our financial condition. Unlike the United States, Israel's market for natural gas is in the early stage of development and is now primarily based on electric power generation and industrial use. At present, there is no pipeline and there are limited other means available to transport large amounts of gas from our areas of operation to major power plants or industrial and population centers.

In the event of a discovery of natural gas, our ability to supply the gas discovered to the potential market will to a large extent be dependent on the establishment of the Israeli national natural gas

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pipeline. As of the date hereof, it is uncertain who will construct and operate this pipeline and, as a result, it is uncertain when the pipeline will be completed or exactly where it will be routed with respect to our license.

Our operations are subject to laws and regulations relating to the generation, storage, handling, emission, transportation and discharge of materials into the environment, which can adversely affect the cost, manner or feasibility of our doing business. Many laws and regulations require permits for the operation of various facilities, and these permits are subject to revocation, modification and renewal. Governmental authorities have the power to enforce compliance with their regulations, and violations could subject us to fines, injunctions or both. These laws and regulations increase the costs of planning, designing, drilling, installing and operating oil and gas facilities. Risks of substantial costs and liabilities related to environmental compliance issues are inherent in oil and gas operations. It is possible that other developments, such as stricter environmental laws and regulations, and claims for damages to property or persons resulting from oil and gas production, would result in substantial costs and liabilities.

This offering is being made on a "best efforts" basis. Failure to raise funds beyond the minimum subscription of 1,200,000 shares will limit the activities of the Company. We cannot assure you that all of the shares will be sold. Subscriptions are irrevocable, but we have the right to accept or not accept a subscription. We currently intend not to accept any subscriptions for less than $500 per subscriber.

The oil and gas exploration business is highly competitive and has few barriers to entry. We will be competing with other oil and gas companies and investment partnerships to develop oil and gas properties in Israel and to purchase equipment and obtain labor necessary to complete wells. Many of our competitors are larger than we and have substantially greater access to capital and technical resources than we do and may therefore have a significant competitive advantage.

Our revenues, operating results, financial condition and ability to borrow funds or obtain additional capital may depend substantially on prevailing prices for oil and natural gas. Declines in oil and gas prices may materially adversely affect our financial condition, liquidity, ability to obtain financing and operating results. Lower oil and gas prices also may reduce the amount of oil and gas that we can produce economically. Historically, oil and gas prices and markets have been volatile, with prices fluctuating widely, and they are likely to continue to be volatile. Depressed prices in the future would have a negative impact on our future financial results. The volatile nature of the energy markets make it impossible to predict with any certainty the future prices of oil and gas.

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In addition, we assess the carrying value of our assets annually in accordance with generally accepted accounting principles under the full cost method. If oil and gas prices decline, the carrying value of our assets could be subject to downward revision.

We are committed to donating 6% of our gross sales revenues to two charitable trusts and allocating 1.5% to a key employees incentive plan. As our expenses increase with respect to the amount of sales, these donations and allocation could significantly dilute future earnings, and thus depress the price of the common stock.

The price of the common stock you would be purchasing from us has been arbitrarily set without regard to our tangible book value per share.

The net proceeds to us from the sale of a minimum of 1,200,000 and a maximum of 5,000,000 shares of common stock at an offering price of $5.00 per share are estimated to be approximately $5,400,000 and $23,100,000, respectively, after deducting estimated placement agent commissions and offering expenses. If shares are sold by officers and directors of the Company, no commissions will be paid; therefore, more funds will be available for use by the Company as working capital.

We intend to use most of the net proceeds of this offering for exploration and development drilling on our Israeli license area. Our work program calls for either re-entering and deepening an existing well (the Ma'anit #1) in the license area at an estimated cost of $3,300,000 or drilling a new well in the license area at an estimated cost of $5,500,000. Estimated completion costs for the re-entry of the new well would be $800,000. We cannot assure you that any wells will be completed or produce oil or gas in commercial quantities. If the minimum $5,400,000 net proceeds are raised, we will re-enter the Ma'anit #1. If the maximum $23,100,000 net proceeds are raised, we plan to re-enter the Ma'anit #1 as our first well and then proceed to drill two additional wells. See "Plan of Operation and Management's Discussion".

The remaining net proceeds will be used for general and administrative expenses and working capital. We intend to invest the net proceeds of this offering in short-term, investment grade obligations or bank certificates of deposit until they are used.

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If the minimum amount is raised, the proceeds from this offering will satisfy our cash requirements through December 2004, including the re-entry of the first well. This assumes that our officers would be willing, as they have done in the past, to defer most of their salaries until more cash is available. Thereafter, it will be necessary to raise additional funds for subsequent drilling. To the extent this offering is successful in raising the maximum funds, we expect to have sufficient money to drill and complete at least three wells and pay overhead through December 2006.

The following table sets forth the use of the proceeds from this offering:

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The following table sets forth our total consolidated capitalization as of December 31, 2002, as reflected in our audited financial statements, and our pro forma capitalization as of December 31, 2002 giving effect to the sale of a minimum of 1,200,000 shares and a maximum of 5,000,000 shares at $5.00 per share in this offering and application of the estimated net proceeds as described in this prospectus. The first pro forma column of the table shows the pro forma result of the exchange of 43,100 shares of preferred stock for 517,200 shares of common stock that occurred during July 2003. You should read the information presented below together with our consolidated financial statements and notes and "Plan of Operation and Management's Discussion" included elsewhere in this prospectus.

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Prior to this offering, there has been no public market for our common stock. The initial public offering price of our common stock was determined solely by us. The factors considered in determining the public offering price include the initial cost by others for the technical data made available to us by the Israeli government or otherwise available to us from publicly accessible sources, our business potential and earnings prospects, the oil and gas industry and the general condition of the securities markets at the time of the offering. The offering price does not bear any relationship to our assets, revenue, book value, net worth or other recognized objective criteria of value. The estimated initial public offering price set forth on the cover page of this prospectus is subject to change as a result of market conditions and other factors.

As of December 31, 2002, our audited net tangible book value was $440,256 or $0.11 per share of common stock, assuming all outstanding shares of preferred stock were converted into common stock at the ratios that occurred during July 2003. Net tangible book value is the aggregate amount of our tangible assets less our total liabilities. Net tangible book value per share represents our total tangible assets less our total liabilities, divided by the number of shares of common stock outstanding.

After giving effect to the sale of a minimum of 1,200,000 shares of common stock at an offering price $5.00 per share of common stock and after deducting placement agent commissions and other offering expenses, our net tangible book value as of December 31, 2002 would increase from $440,256 to $5,840,256, and the net tangible book value per share would increase from $0.11 to $1.11. This represents an immediate increase in net tangible book value of $1.00 per share to current shareholders, and immediate dilution of $3.89 per share to new investors or 78%, as illustrated in the following table:

Another view of dilution is to look at the differences in shares purchase price (assuming conversion of existing preferred stock) as of December 31,2002:

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After giving effect to the sale of a maximum of 5,000,000 shares of common stock at an offering price $5.00 per share and (after deducting placement agent commissions and other offering expenses), our net tangible book value as of December 31, 2002 would increase from $440,256 to $23,540,256, and the net tangible book value per share would increase from $0.11 to $2.60. This represents an immediate increase in net tangible book value of $2.49 per share to current shareholders, and immediate dilution of $2.40 per share to new investors or 48%, as illustrated in the following table:

Another view of dilution is to look at the differences in shares purchase price (assuming conversion of existing preferred stock) as of December 31,2002:

We have never paid dividends on our common stock and do not plan to pay dividends in the foreseeable future. Whether dividends will be paid in the future will be in the discretion of our board of directors and will depend on various factors, including our earnings and financial condition and other factors our board of directors considers relevant. We currently intend to retain earnings to develop and expand our business. See "Plan of Operation and Management's Discussion" for more information on our business plans.

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Placement Agents

We will offer our shares through our officers and directors and through licensed securities dealers ("Placement Agents") in the United States who are members of the National Association of Securities Dealers, Inc. ("NASD") or who reside outside the United States and agree to be bound by NASD guidelines. We will have a Placement Agent Agreement between us and the Placement Agents. A six percent (6%) commission will be paid to the Placement Agents.

We will not pay the Placement Agents a non-accountable expense allowance. Each Placement Agent's expenses will be for his own account. The names and addresses of all Placement Agents and the jurisdictions from which investors may purchase common stock will be posted on our website at www.zionoil.com.

We anticipate that the Placement Agent Agreement will provide for indemnification by us of the Placement Agents against certain civil liabilities, including liabilities under the Securities Act.

We will establish an escrow account with a bank in Dallas, Texas. All checks from investors will be deposited into such account until we receive and accept funds representing the minimum offering amount. Funds in the escrow account may be invested in obligations of, or obligations guaranteed by, the United States government or bank money market accounts, or certificates of deposit of national or state banks that have deposits insured by the Federal Deposit Insurance Corporation (including certificates of deposit of any bank acting as depositary or custodian for any such funds).

As soon as the minimum offering amount has been deposited into the escrow account, an initial closing will take place and the funds will be transferred into one of our operating accounts. Following the initial closing, funds will continue to be deposited with the escrow bank until the final closing at the end of this offering.

If the minimum offering amount is not reached by the termination date of this offering (which is now set at December 31, 2003, but which maybe extended for sixty days), we will refund and return all monies to investors, without interest or deduction for service charges. You will therefore receive 100% of your money back if the minimum offering is not subscribed.

We may also offer our shares from time to time directly to one or more purchasers or through brokers, dealers or underwriters who may act solely as agents or may acquire shares as principals, at market prices prevailing at the time of sale, at prices related to such prevailing market prices, at negotiated prices, or at fixed prices, which may be changed. One or more of the following methods may be used to distribute the shares:

• ordinary brokers' transactions, which may include long or short sales;

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• transactions involving cross or block trades or otherwise on any national securities exchange or quotation service on which our common stock may be listed or quoted at the time of sale, in the over-the-counter market or in any other market for our shares;
• purchases by agents, brokers, dealers, or underwriters as principals and resale by such purchasers for their own accounts pursuant to this prospectus;
• "at the market" to or through market makers or into an existing market for our common stock and warrants;
• in other ways not involving market makers or established trading markets, including direct sales to purchasers or sales effected through agents;
• through transactions in options, swaps or other derivatives (whether exchange-listed or otherwise); or
• any combination of the foregoing or by any other legally available means.

In addition, we may enter into hedging transactions with broker-dealers who may engage in short sales of our shares in the course of hedging the positions they assume with us. We may also enter into options or other transactions with broker-dealers that require the delivery to such broker-dealers of our shares, which shares may be resold thereafter pursuant to this prospectus.

Brokers, dealers, underwriters or agents participating in the distribution of our shares acting as agents for us may receive compensation in the form of discounts, concessions or commissions from us (and, if they act as agent for the purchaser of such shares, from such purchaser). Such discounts, concessions or commissions as to a particular broker, dealer, underwriter or agent might be greater or less than those customary in the type of transaction involved. We and any brokers, dealers, underwriters or agents that participate in the distribution of our shares may be deemed to be "underwriters" within the meaning of the Securities Act, and any discounts, commissions or concessions received by any such persons might be deemed to be underwriting discounts and commissions under the Securities Act. We cannot presently estimate the amount of such compensation. Except for the contemplated arrangements with Placement Agents as described above, we do not currently have any existing arrangements with any broker, dealer, underwriter or agent relating to the sale or distribution of our shares.

Any underwriter may engage in stabilizing transactions in accordance with Rule 104 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Rule 104 permits stabilizing bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum. Any underwriters may over-allot shares in connection with an offering of our shares, thereby creating a short position in the underwriters' account. These transactions, if commenced, may be discontinued at any time.

To the extent required, we will file, during any period in which offers or sales are being made, a supplement to this prospectus which sets forth, with respect to a particular offering, the specific number of shares to be sold, the sale price, the name of any participating broker, dealer, underwriter or agent, any applicable commission or discount and any other material information with respect to the plan of distribution not previously disclosed.

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In order to comply with certain states' securities laws, if applicable, our shares will be sold in such jurisdictions only through registered or licensed brokers or dealers. In addition, in certain states our shares may not be sold unless the shares have been registered or qualified for sale in such state or an exemption from registration or qualification is available and is satisfied. Our website provides information on a current basis as to those states and foreign jurisdictions in which we have qualified or in which we have an opinion of counsel that our shares are exempt from registration.

The Company is not a party to any legal proceedings.

Our directors, executive officers and key employees, their present positions and their ages are as follows:

The following biographies describe the business experience of our directors, executive officers and key employees. Positions and experience with the Company include positions and experience with our predecessor, Zion Oil & Gas, Inc., a Florida corporation.

John M. Brown is the founder of the Company and has been a director, chairman of the board of directors and chief executive officer of the Company since its organization in April 2000. He also served as president of the Company until October 2001, when Mr. Soltero was elected to that position. Mr. Brown has extensive management, marketing and sales experience, having held

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senior management positions in two Fortune 100 companies - GTE Valenite, a subsidiary of GTE Corporation and a manufacturer of cutting tools, where he was employed from 1966-86, and Magnetek, Inc., a manufacturer of digital power supplies, systems and controls, where he was employed from 1988-89. Mr. Brown has been a director and principal stockholder in M&B Concrete Construction, Inc. since 1996. He also oversees the day-to-day administration and financial operations as an officer and director of M&B Concrete, Inc., M& B Contracting Inc., and M&B Poured Wall, Inc. Prior to founding the Company, Mr. Brown had been actively pursuing a license for oil and gas exploration in Israel for many years. He has led the efforts leading to the Company obtaining in May 2000 the Ma'anit License in the Joseph Project. Mr. Brown holds a BBA degree from Fullerton College.

Eugene A. Soltero has been a director of the Company since June 2001, and was elected president and chief operating officer in October 2001. Previously, he was a financial consultant to the Company since June 2000 and served as treasurer from February 2002 to January 2003. Mr. Soltero is also president and chief executive officer of Cimarron Resources, Inc., an independent private energy production and consulting company he formed in 1985. He also served, during the period 1995-1999, as a director, chairman and chief executive officer of Cotton Valley Resources Corporation [ASE:KTN], which is now Aspen Group Resources Corporation [OTCBB:ASPG and TSE:ASR]. During 1991-1994, he was chairman of the board, president and chief executive officer of Aztec Energy Corporation [NASDAQ:AZCE] and during 1989-1991 he was president and chief operating officer of American International Petroleum Corporation [NASDAQ:AIPN]. Mr. Soltero has served as chief operating officer and/or chief executive officer for private and public oil and gas exploration and production companies for the past 20 years, including directing the formation and growth of a number of start-up companies. Early in his career, he was trained at Sinclair Oil Corporation in exploration and production management, served as manager of planning for Texas International Petroleum Corporation, and Petroleum Economist for DeGolyer and MacNaughton, petroleum consultants. For nine years he managed all the oil and gas subsidiaries of Moore McCormack Resources. Mr. Soltero is a member of the Society of Petroleum Engineers, and a former director of the Independent Petroleum Association of America and the Texas Independent Producers and Royalty Owners. He has also served as a director of the Independent Petroleum Refiners Association of America. He is a master's graduate of the Massachusetts Institute of Technology in business (where he was awarded the Sinclair Research Fellowship in Petroleum Economics) with an undergraduate bachelor of engineering degree from The Cooper Union. Mr. Soltero is a registered professional engineer in the State of Texas.

Glen H. Perry has been executive vice president of the Company since April 2000 and was elected a director in November 2000. During 1998 and 1999 Mr. Perry was a consultant to Delek Drilling, Ltd., with respect to its participation in the major gas discoveries offshore Israel. From 1993-98 he worked for National Petroleum Limited, an international oil and gas company with representative offices in Geneva, Switzerland. In this capacity, Mr. Perry served as manager of project development, seeking viable projects and negotiating contracts in the C.I.S. Republics, and general director of an oil and gas project in the Republic of Georgia. Previously, he was an officer and director of Prairie Producing Company ("Prairie"), an independent oil company operating mainly in Louisiana and Texas, from 1985 until Prairie was sold in 1990 to UNOCAL

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for approximately $330 million. While with Prairie, Mr. Perry had responsibility for design, construction and operation of all operational projects, including production facilities, pipelines, and plants. In addition to all engineering, drilling and production functions, he also had responsibility for marketing. Mr. Perry joined Prairie in December 1976 as a production engineer, was appointed chief engineer in October 1979, and served as vice president, production and operations from 1985-89, and senior vice president from 1989-90. Prior to joining Prairie, Mr. Perry's experience was in drilling and production for Exxon Company, USA (now ExxonMobil Corporation) and Energy Reserves Group (now BHP). Mr. Perry holds a Masters in Petroleum Engineering from the University of Texas and a Bachelor of Science from the University of Tennessee.

Philip Mandelker has been general counsel of the Company since April 2000 and was elected as director in June 2001. He was elected secretary of the Company in February 2002. He holds a Doctor of Jurisprudence degree (1971, cum laude) from Columbia University School of Law and was of counsel to I. Amihud Ben-Porath, Hamou and Company, a law firm in Tel-Aviv, Israel, from May 2000 through April 2003, a position he also held in1994-96. He is currently of counsel to ADAM Law Firm in Tel Aviv. Mr. Mandelker is admitted to practice in both the United States and Israel. He has practiced in New York, Jerusalem and Tel-Aviv and has extensive experience with the oil and gas exploration industry in both the United States and Israel. While at the Israeli Ministry of Finance (1974-76), Mr. Mandelker acted inter alia as Legal Advisor to the Israeli Petroleum Commissioner and represented the Israeli Government in negotiating the Petroleum Concessions and Production Sharing Agreements in the Sinai Peninsula and Gulf of Suez. In New York between 1981 and 1993, as counsel to the firm of Rosenman and Colin, Mr. Mandelker advised oil and gas exploration companies and sponsors of oil and gas drilling programs in structuring public and private investment vehicles; he has also advised investors in such programs. From 1992-94, Mr. Mandelker served as an advisory director of Aztec Energy Corp., then an independent oil and gas exploration and production company listed on NASDAQ. He has published and lectured on subjects related to investment in oil and gas exploration activities in Israel and in the United States. As Deputy and then Acting Legal Advisor to the Military Government of the Judea and Samaria Area (1978-80), he drafted a model oil and gas exploration and production concession agreement for use in the Area. From 1997-99, Mr. Mandelker was Chief Legal Advisor of the United Mizrahi Bank, Ltd., a major Israeli banking group headquartered in Tel-Aviv. Mr. Mandelker has been associated with Mr. Brown and the Joseph Project since February 2000.

Ralph F. DeVore has been a director of the Company since June 2001, and served as secretary and treasurer from that time until February 2002. Since 1984 he has served as president and director of Christian Commerce Corporation, a nonprofit private foundation which serves the community through Christian based education and counseling. Mr. DeVore holds a BS degree from Wayland Baptist University and an A. Div. Degree from Southwestern Baptist Theological Seminary. He brings over forty years of business experience to the Company having served in senior management positions in a number of companies specializing in innovative marketing/advertising and sales. He is also a director of Hal Lindsey Ministries, an international Christian ministry.

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Z. Sheldon Fink has served as a director since July 2003. Since 2002 he has served as the chief executive officer of PBI Aqaba Industrial LLP, a developer of industrial real estate at Aqaba, Jordan. He has also been the chairman of IPPS Ltd., a developer of a seawater desalination plant, since 2001. For the period 1995 through 2000, Mr. Fink was chief executive officer of Ashcogen Ltd., an independent electric power generating company in Israel. During the 1980's he served as CEO of Carmel Containers Ltd., and was responsible for that company's initial public offering on the American Stock Exchange. From 1970-1982 Mr. Fink worked at E. Landau Law Offices in Jerusalem, first as an associate, then as a partner. He specialized in shipping law, energy law and private international law. Mr. Fink holds a Bachelor of Arts degree from Yeshiva University in New York and a Doctor of Jurisprudence degree from the Harvard Law School.

Eitan Lubitch has served as a director since July 2003. Since March of 2000 he has served as managing director and principal of Dar-Style Consultants & More Ltd., an independent consulting engineering firm in Tel Aviv. For the previous twenty-three years he was the founder, principal stockholder, chairman and CEO of Ludan Engineering Co. Ltd., one of the leading multidisciplinary engineering organizations in Israel, employing, in its group, over 300 persons and owning subsidiaries in infrastructure, buildings and environmental software. Ludan's main customers operate plants in the process industries, specifically oil refineries, petrochemicals, chemicals, pharmaceuticals, food and microelectronics. In 1997 Ludan went public on the Tel Aviv Stock Exchange. Mr. Lubitch holds Bachelors and Masters of Science degrees in mechanical engineering from the Technion-Israel Institute of Technology. He has also taken advanced finance and management courses from the University of Tel-Aviv and the HAMIL-Israel Center for Management.

William H. Avery was elected Vice President - Finance and Treasurer in January 2003. For the past nine years he has practiced as independent attorney in transactional work, concentrating in the area of real property law, including oil and gas transactions. Before that he was a partner for seventeen years and an associate for four years at Storey, Armstrong, Stegar and Martin, a full-range Dallas law firm, concentrating his practice in the representation of financial institutions in loan transactions. In addition he has more than twenty years as an oil and gas property investor and investment manager for his own account and for members of his family. Mr. Avery holds a Bachelor of Business Administration degree in Finance from Southern Methodist University and a Doctor of Jurisprudence degree from Duke University Law School

Elisha Roih has served as Vice President - Administration of Israeli Operations of the Company since April 2000. Mr. Roih holds a BA degree in Political Science and Oriental Studies from Hebrew University, Jerusalem, and has continuing educational course certificates in Business Administration, Production Technology and Offshore Operations. Mr. Roih has over forty years experience in senior management positions in the Israeli petroleum industry. Most recently, between 1997-1998, he served as acting general manager of Lapidoth, Israel Oil Prospectors Company, Ltd. and its subsidiary Metsada, United Drilling Co., companies of which, together with Naphta-Israel Petroleum Corp., Mr. Roih served as general manager between 1983-1989. Prior to 1983, Mr. Roih served as: deputy general manager of the Israel National Oil Company, general manager of Southern Sinai Petroleum, Exploration and Production Project in the Gulf of Suez, operations manager for Sinai Oil Fields in the Gulf of Suez and various management

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positions with Naphtha - Israel Petroleum Corporation Ltd. Between 1990-1996 and from 1998 to 2000, Mr. Roih was a management consultant to the petroleum industry in Israel, during which periods he also consulted for Mr. Brown in connection with the Joseph Project.

Dr. Eliezer Kashai, has been Vice President - Israeli Exploration of the Company since October 2000. Dr. Kashai studied geology in the University of Sciences, Budapest, Hungary and holds Masters and Ph.D. degrees from Hebrew University, Jerusalem and is a widely recognized authority on the Triassic formation of Israel. Dr. Kashai has over fifty years of geological experience in Israel working until his retirement in 1987 for the national petroleum companies of Israel, including almost thirty years for Lapidoth Israel Oil Prospectors Company, Ltd. and Oil Exploration Investment, Ltd., where he served in progressively responsible positions, including deputy managing director responsible for all of that company's exploration efforts. Following his retirement in 1987 and through 1998, Dr. Kashai worked as an exploration consultant for various companies active in petroleum exploration in Israel, including Israel National Oil Company, Lapidoth, Naphta Petroleum, ABJAC-Mazal Ltd., Nordan Oil and Gas, and Sedot Neft, Ltd. where he was responsible for the original geological interpretation of Ma'anit. He began consulting for Mr. Brown in connection with the Joseph Project in late 1999 and for the Company in April 2000. Dr. Kashai has served as president of the Israel Geological Society and is responsible for five geological publications and nearly one hundred unpublished company reports on exploration projects, drilling recommendations, subsurface geological analysis and well evaluations.

Our board of directors is divided into three classes of directors, with each class (except for the initial classes) elected to a three-year term every third year and holding office until their successors are elected and qualified. The class whose term of office will expire at our 2004 Annual Meeting of Shareholders consists of Philip Mandelker and Glen H. Perry. The class whose term of office will expire at our 2005 Annual Meeting of Shareholders consists of Eugene A. Soltero and Eitan Lubitch. The class whose term of office will expire at our 2006 Annual Meeting of Shareholders consists of John M. Brown, Ralph F. DeVore and Z. Sheldon Fink.

Of the seven current members of our board of directors, three meet the criteria of independence set by the SEC. These are Ralph F. DeVore, Eitan Lubitch and Z. Sheldon Fink.

As described below our board of directors has established two committees, an audit committee and a compensation committee. Members of the committees are appointed annually by the board of directors to serve at the discretion of the board until their successors are appointed or the earlier of their resignation or removal.

Audit Committee. Following the effective date of the merger of the Company and its predecessor Florida corporation on July 9, 2003 and with the expansion of our board of directors to seven with the appointment of Mr. Lubitch and Mr. Fink on July 11, 2003, the board of directors established an audit committee comprised of three directors as follows: Mr. Eugene A. Soltero, our president and chief operating officer, and Mr. DeVore and Mr. Fink, both of whom

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are independent. Mr. Soltero and Mr. Fink each satisfy the criteria of audit committee financial experts as set by the SEC.

The audit committee has been charged by our board of directors with the following responsibilities and granted the following authority:

• the appointment, compensation and retention commencing with the Company's fiscal year 2004, and oversight of the work, of registered public accounting firms engaged (including resolution of disagreements between management and the auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Company;

• establishment of procedures for (a) the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters and (b) the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters;

• authority to engage independent counsel and other advisors, as it determines necessary to carry out its duties.

The audit committee has also been charged with recommending to our board of directors for adoption no later than October 31, 2003, a formal written audit committee charter that complies with the requirements of the Exchange Act, the rules and regulations of the SEC and the listing and corporate governance requirements of the NASD.

In establishing the audit committee, our board of directors provided that no later than 90 days from the date of effectiveness of this registration statement (the "Effective Date"), Mr. Soltero would be replaced as a member of the audit committee by a director meeting both the independence and financial expertise requirements of both the SEC and the NASD.

In establishing the audit committee to include Mr. Soltero, we relied on an exemption provided for new issuers under Exchange Act Rule 10A-3 section (b)(1)(iv)(A). The Company believes that Mr. Soltero's service as a member of the audit committee will not adversely affect the ability of the audit committee to act independently and to satisfy the other requirements of the Exchange Act Rule 10A-3 for the following reasons:

• the early stage of the Company's development;
• the very limited scope of our current activities;
• the Company has no income at the current time and is unlikely to have any material income prior to the ninetieth day following the Effective Date, the day by which the Company intends to replace Mr. Soltero as a member of the audit committee;
• we do not expect to commence drilling activities or incur any other substantial expenses prior to the ninetieth day following the Effective Date;
• the Company has already retained independent auditors for 2003; and

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• it is not likely that we will need to retain independent auditors for 2004 prior to Mr. Soltero's intended retirement from the audit committee.

Compensation Committee. Our board of directors also established a compensation committee to be comprised of three directors, two of whom satisfy the independence requirements of the SEC and the third is John Brown, our chairman and chief executive officer. The independent directors are Eitan Lubitch and Ralph DeVore.

The compensation committee is charged with the following responsibilities:

• the review and recommendation to the board of directors of the terms of compensation, including incentive compensation and employee benefits of the senior officers of the Company;

• determination of the terms of employee benefit plans (including stock incentive and stock option plans,) the granting of awards under the plans and the supervision of plan administrators.

It is our intention, prior to October 31, 2003, to adopt a formal, written compensation committee charter that complies with the requirements of the Exchange Act, SEC rules and regulations and the listing and corporate governance requirements of the NASD.

The following table provides information regarding beneficial ownership of our common stock as of July 11, 2003, and as adjusted to reflect the sale of shares in this offering, by:

• each person who beneficially owns more than 5% of all outstanding shares of common stock,
• each of our directors and executive officers individually, and
• all of our directors and executive officers as a group.

Except as otherwise indicated, to our knowledge, all persons listed below have sole voting power and investment power and record and beneficial ownership of their shares, except to the extent that authority is shared by spouses under applicable law. Except as noted below, all persons listed have an address in care of our principal executive offices.

The information contained in this table reflects "beneficial ownership" as defined in Rule 13d-3 of the Exchange Act. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to options and warrants held by that person (and/or pursuant to proxies held by that person) that were exercisable on July 11, 2003, or became exercisable within 60 days following that date are considered outstanding. However, such shares are not considered outstanding for the purpose of computing the percentage ownership of any other person. Percentages in the table under "After Minimum Offering" "After Maximum Offering" also assume exercise of a person's warrants. Percentage of

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ownership is based on 4,566,268 shares of common stock outstanding as of July 11, 2003, and 5,766,268 and 9,566,268 shares of common stock outstanding after the completion of the minimum offering and maximum offering, respectively. As of July 11, 2003, we had 72 holders of record of our common stock.

1. Includes warrants to purchase 59,583 shares of common stock until December 31, 2004 at an average price of $1.22 per share and the following additional securities, of which additional securities Mr. Brown disclaims beneficial ownership: (a) 100,000 shares of common stock owned by Mr. Brown's wife; (b) 2,360,000 shares of common stock owned by others for which Mr. Brown holds voting proxies; and (c) warrants owned by others to purchase 275,834 shares of common stock until December 31, 2004 at an average price of $1.00 per share for which Mr. Brown holds voting proxies effective upon the purchase of such common stock.
2. Includes warrants to purchase 31,583 shares of common stock until December 31, 2004 at an average price of $1.17 per share and the following additional securities, of which additional securities Mr. DeVore disclaims beneficial ownership: (a) 442,700 shares of common stock owned by others for which Mr. DeVore holds voting proxies; and (b) warrants owned by others to purchase221,417 shares of common stock until December 31, 2004 at an average price of $1.12 per share for which Mr. DeVore holds voting proxies effective upon the purchase of such common stock.
3. Includes warrants to purchase 37,250 shares of common stock until December 31, 2004 at an average price of $1.20 per share and an option to convert any outstanding amount of a $50,000 line of credit facility into shares of common stock at the average price of $1.00 per share.

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4. Includes warrants to purchase 25,000 shares of common stock until December 31, 2004 at an average price of $1.50 per share.
5. Includes warrants to purchase 18,333 shares of common stock until December 31, 2004 at an average price of $1.37 per share and 400,000 shares of common stock owned by a trust for Mr. Mandelker and his family.
6. Includes warrants to purchase 112,500 shares of common stock until December 31, 2004 at an average price of $1.00 per share.
7. Includes warrants to purchase 205,000 shares of common stock until December 31, 2004 at an average price of $1.01 per share.
8. Includes warrants to purchase 75,000 shares of common stock until December 31, 2004 at an average price of $1.50 per share.
9. Includes options to purchase 25,000 shares of common stock until December 31, 2005 of the exercise price of $3.00 per share and warrants to purchase 2,500 shares of common stock until December 31, 2004 at an average price of $1.50 per share.
10. Includes options to purchase 25,000 shares of common stock until December 31, 2005 of the exercise price of $3.00 per share.
11. Includes warrants and options to purchase 589,250 shares of common stock until December 31, 2004 and warrants to purchase 50,000 shares of common stock until December 31, 2005.

Shareholders holding approximately 62% of the outstanding shares of our common stock prior to this offering have granted irrevocable proxies under two Stockholders' Voting Agreements. Shareholders holding approximately 52% of such shares have granted an irrevocable proxy to John M. Brown, our chairman of the board and chief executive officer (or his designee, Eugene Soltero, our president, in Mr. Brown's absence) to vote shares beneficially owned by them at any shareholders meeting. Shareholders holding approximately 10% of our common stock have granted an irrevocable proxy to Ralph F. DeVore (or Brenda DeVore in Mr. DeVore's absence) to vote shares beneficially owned by them at any shareholders meeting.

The voting agreements terminate on July 9, 2008 or earlier with respect to any shareholder given written notice by the holder of his proxy (Mr. Brown or Mr. DeVore, as the case may be). Under the terms of the voting agreements, Mr. Brown can vote a majority of the shares outstanding prior to this offering at any shareholders meeting. These voting agreements would therefore allow Mr. Brown to elect all our directors and approve any proposal at a shareholder's meeting. Including their own shares, Mr. Brown and Mr. DeVore now hold 65% and 14%, respectively, of our voting rights. In the event of a minimum offering, Mr. Brown and Mr. DeVore would hold 51% and 11%, respectively, of our voting rights. If we were successful in completing the maximum amount of the offering, Mr. Brown and Mr. DeVore would hold 31% and 7%, respectively, of our voting rights.

Mr. Brown and Mr. DeVore also hold voting rights with respect to the shares of common stock they and others who are parties to the Voting Agreements may purchase according to warrants they hold. If Mr. Brown were to exercise all his warrants, and the holders of warrants who have

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given their proxies to Mr. Brown exercise all their warrants, then Mr. Brown would hold voting rights currently, after the minimum offering and after the maximum offering, in the amounts of 70%, 56% and 34%, respectively. If Mr. DeVore were to exercise all his warrants and the holders of warrants who have given their proxies to Mr. DeVore exercise all their warrants, then Mr. DeVore would hold voting rights currently, after the minimum offering and after the maximum offering, in the amounts of 18%, 14% and 9%, respectively.

Our certificate of incorporation provides for the authorization of 20,000,000 shares of common stock, par value $.01 per share. As of July 11, 2003, our issued and outstanding capital securities consist of 4,566,268 shares of common stock, all of which are fully paid and non-assessable, and options and warrants to acquire 1,061,103 shares of common stock. After giving effect to this offering, our capitalization will consist of a minimum of 5,766,268 shares of common stock, a maximum of 9,566,268 shares of common stock and, in both cases, options and warrants to purchase 1,061,103 shares of common stock. Of the outstanding options and warrants, there are currently outstanding options and warrants to purchase 250,000 shares of common stock issued to officers and directors in connection with their compensation. Warrants to purchase 761,103 shares of common stock were issued primarily in connection with private placements, or directly issued for consulting services. 50,000 shares of common stock are reserved for an option to convert a note. We do not intend to issue any warrants or options to Placement Agents.

Our shareholders are entitled to one vote per share on all matters submitted to a vote of shareholders. They are entitled to receive dividends when and as declared by the board of directors out of legally available funds and to share ratably in our assets legally available for distribution upon liquidation, dissolution or winding up. Shareholders do not have subscription, redemption or conversion rights, or preemptive rights. The common stock will be, when issued and paid for, fully paid and nonassessable.

Our shareholders do not have cumulative voting rights, the effect of which is that the holders of more than half of all voting rights with respect to common stock can elect all of our directors. The board of directors is empowered to fill any vacancies on the board of directors created by expansion of the board or resignations, subject to quorum requirements.

Except as otherwise discussed below at "Business Combination Provision" and "Amendments", all shareholder action is taken by vote of a majority of voting shares of our capital stock present at a meeting of shareholders at which a quorum (a majority of the issued and outstanding shares of the voting capital stock) is present in person or by proxy. Directors are elected by a plurality vote.

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Our predecessor Florida corporation had authorized 2,000,000 shares of preferred stock, of which it had issued 63,564 shares in a private placement and as stock dividends. Upon the merger of the Florida corporation into the Delaware subsidiary on July 9, 2003, all of the shares of outstanding preferred stock of the Florida corporation were converted into 762,768 shares of our common stock. As a Delaware corporation, we have not authorized any preferred stock and would not be able to do so without an affirmative vote of the shareholders.

The Company issued warrants to purchase 200,000 shares of common stock at $1.00 per share until December 31, 2004 to our vice-president, finance in connection with his employment. The Company issued options to purchase 50,000 shares of common stock at $3.00 per share until December 31, 2005 to two outside directors upon their election to the board of directors. While he was a director, but before he became and officer in 2001, Mr. Soltero, our president, was granted an option to purchase 10,000 shares of common stock at $1.00 per share until December 31, 2004. There are no other officer and director compensation related options or warrants outstanding. Our president holds an option to convert up to $50,000 in our notes payable to a private corporation controlled by him into shares of common stock at $1.00 per share. Any other warrants held by officers or directors were acquired by them in connection with the purchase of common stock or preferred stock (at the same price as unrelated third party purchasers) or for reduction of amounts due them for consulting services.

In addition to the options and warrants specifically listed above, we have issued and outstanding as of July 11, 2003 warrants to purchase 315,833 shares of common stock at $1.00 per share until December 31, 2004 and warrants to purchase 485,270 shares of common stock at $1.50 per share until December 31, 2004.

The following summary describes provisions of our certificate of incorporation and bylaws which may have the effect of making more difficult or discouraging a tender offer, proxy contest or other takeover attempt that is opposed by our board of directors. These provisions include:

• restrictions on the rights of shareholders to remove directors;
• limitations against shareholders calling a special meeting of shareholders or acting by unanimous written consent in lieu of a meeting;
• requirements for advance notice of actions proposed by shareholders for consideration at meetings of the shareholders; and
• restrictions on business combination transactions with "related persons."

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Classified board of directors and removal. Our certificate of incorporation provides that the board of directors shall be divided into three classes, designated Class I, Class II and Class III, with the classes to be as nearly equal in number as possible. The term of office of each class expires at the third annual meeting of shareholders for the election of directors following the election of such class (except for the initial classes). Directors may be removed only for cause and only upon the affirmative vote of holders of at least 66 2/3% of our voting stock at a special meeting of shareholders called expressly for that purpose. The classification of directors could have the effect of making it more difficult for shareholders to change the composition of the board of directors. At least two annual meetings of shareholders, instead of one, are generally required to effect a change in a majority of the board of directors.

The classification provisions could also have the effect of discouraging a third party from initiating a proxy contest, making a tender offer or otherwise attempting to obtain control of the Company, even though such an attempt might be beneficial to us and our shareholders. The classification of the board of directors could thus increase the likelihood that incumbent directors will retain their positions. In addition, because the classification provisions may discourage accumulations of large blocks of stock by purchasers whose objective is to take control of the Company and remove a majority of the board of directors, the classification of the board of directors could tend to reduce the likelihood of fluctuations in the market price of the common stock that might result from accumulations of large blocks. Accordingly, shareholders could be deprived of opportunities to sell their shares of common stock at a higher market price than might otherwise be the case.

Shareholder action by written consent and special meetings. Our bylaws provide that shareholder action can be taken only at an annual or special meeting of shareholders and may not be taken by written consent in lieu of a meeting once our number of shareholders exceeded sixty, which occurred in the first quarter of 2003. Special meetings of shareholders can be called only upon a resolution adopted by a majority of the board of directors. Moreover, the business permitted to be conducted at any special meeting of shareholders is limited to the business brought before the meeting under the notice of meeting given by us. These provisions may have the effect of delaying consideration of a shareholder proposal until the next annual meeting. These provisions would also prevent the holders of a majority of our voting stock from unilaterally using the written consent or special meeting procedure to take shareholder action.

Advance notice provisions for shareholder nominations and shareholder proposals. Our bylaws establish an advance notice procedure for shareholders to make nominations of candidates for election as directors or bring other business before a meeting of shareholders. The shareholder notice procedure provides that only persons who are nominated by, or at the direction of, the board of directors, or by a shareholder who has given timely written notice containing specified information to our secretary prior to the meeting at which directors are to be elected, will be eligible for election as our directors. The shareholder notice procedure also provides that at a meeting of the shareholders only such business may be conducted as has been brought before the meeting by, or at the direction of, the chairman of the board of directors, or in the absence of the chairman of the board, the president, or by a shareholder who has given timely written notice

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containing specified information to our secretary of such shareholder's intention to bring such business before such meeting.

Although our bylaws do not give the board of directors any power to approve or disapprove shareholder nominations for the election of directors or proposals for action, they may have the effect of precluding a contest for the election of directors or the consideration of shareholder proposals if the proper procedures are not followed, and of discouraging or deterring a third party from conducting a solicitation of proxies to elect its own slate of directors or to approve its own proposal, without regard to whether consideration of such nominees or proposals might be harmful or beneficial to the Company and our shareholders.

Business combination provision. Our certificate of incorporation contains provision that applies to specified business combination transactions involving any person, entity or group that beneficially owns at least 10% of our aggregate voting stock. Such person, entity or group is sometimes referred to as a "related person". This provision requires the affirmative vote of the holders of not less than 66 2/3% of our voting stock to approve specified transactions between a related person and the Company, including:

• any merger or consolidation;
• any sale, lease, exchange, mortgage, pledge, transfer or other disposition of our assets having a fair market value of more than 10% of our total consolidated assets, or assets representing more than 10% of our earning power, which is referred to as a "substantial part";
• any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with us of all or a substantial part of the assets of a related person;
• any reclassification of securities, recapitalization, or any other transaction involving us that would have the effect of increasing the voting power of a related person;
• the adoption of a plan or proposal for our liquidation or dissolution proposed by or on behalf of a related person; and
• the entering into of any agreement, contract or other arrangement providing for any of the transactions described above.

This voting requirement will not apply to certain transactions, including any transaction approved by a majority vote of the directors (called "Disinterested Directors") who are not affiliated or associated with the related person described above, provided that there are at least three Disinterested Directors.

This provision could have the effect of delaying or preventing a change in control of the Company in a transaction or series of transactions.

Liability of directors and indemnification. Our certificate of incorporation provides that a director will not be personally liable to the Company or our shareholders for breach of fiduciary duty as a director, except to the extent that such exemption or limitation of liability is not permitted under Delaware General Corporation Law. Any amendment or repeal of such

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provisions may not adversely affect any right or protection of a director existing under our certificate of incorporation for any act or omission occurring prior to such amendment or repeal.

Our certificate of incorporation and bylaws provide that each person who at any time serves or served as one of our directors or officers, or any person who, while one of our directors or officers, is or was serving at our request as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, is entitled to indemnification and the advancement of expenses from the Company, and to the fullest extent permitted by applicable Delaware law. However, as provided under applicable Delaware General Corporation Law, this indemnification will only be provided if the indemnitee acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the Company.

Amendments. Our certificate of incorporation provides that we reserve the right to amend, alter, change, or repeal any provision contained in our certificate of incorporation, and all rights conferred to shareholders are granted subject to such reservation. The affirmative vote of holders of not less than 80% of our voting stock, voting together as a single class, is required to alter, amend, adopt any provision inconsistent with, or to repeal certain specified provisions of our certificate of incorporation. However, the 80% vote described in the prior sentence is not required for any alteration, amendment, adoption of inconsistent provision or repeal of the "business combination" provision discussed under the "Business combination provision" paragraph above which is recommended to the shareholders by two-thirds of our Disinterested Directors, and such alteration, amendment, adoption of inconsistent provision or repeal shall require the vote, if any, required under the applicable provisions of the Delaware General Corporation Law, our certificate of incorporation and our bylaws. In addition, our bylaws provide that shareholders may only adopt, amend or repeal our bylaws by the affirmative vote of holders of not less than 66-2/3% of our voting stock, voting together as a single class. Our bylaws may also be amended by the affirmative vote of two-thirds of our board of directors.

We have not yet entered into an agreement with a registrar and transfer agent, but we anticipate that we will do so in the near future.

Upon completion of this offering, a minimum of 5,766,268 and a maximum of 9,566,268 shares of common stock will be outstanding. All shares of common stock sold in this offering will be freely transferable without restriction or further registration under the Securities Act, except that shares purchased by an affiliate of ours (in general, a person who is in a control relationship with us), will be subject to the resale limitations of Rule 144 under the Securities Act. The remaining 4,566,268 shares of common stock outstanding will be "restricted securities" as defined in Rule 144. In addition, we have granted warrants and options to purchase 1,061,103 shares of common stock. Sales of significant amounts of our common stock, or the perception that such sales could occur, could have an adverse impact on the market price of the common stock.

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In general, under Rule 144 as currently in effect, if a period of at least one year has elapsed after the later of the date on which "restricted" shares were acquired from us or the date on which they were acquired from an "affiliate," then the holder of these shares, including an affiliate, is entitled to sell a number of shares within any three-month period that does not exceed the greater of:

• one percent of the then outstanding shares of common stock; or
• the average weekly reported volume of trading of the common stock during the four calendar weeks preceding such sale.

Sales under Rule 144 are also subject to requirements pertaining to the manner of such sales, notices of such sales and the availability of current public information concerning the Company. Affiliates may sell shares not constituting "restricted" shares in accordance with the above volume limitations and other requirements but without regard to the one-year period. Under Rule 144(k), if a period of at least two years has elapsed between the later of the date on which "restricted" shares were acquired from us and the date on which they were acquired from an affiliate, a holder of such shares who is not an affiliate at the time of the sale and has not been an affiliate for at least three months prior to the sale would be entitled to sell the shares immediately without regard to the volume limitations and other conditions described above. This description of Rule 144 is not intended to be a complete description thereof.

No named expert or counsel was hired on a contingent basis or will receive any direct or indirect interest in the Company in connection with this offering. No named expert or counsel has ever been a promoter, underwriter, voting trustee, director, officer or employee of the Company.

We explore for oil and gas in Israel. Our principal assets are petroleum rights issued by the Ministry of National Infrastructures of the State of Israel, specifically an exploration license covering 387,700 Israeli dunam (approximately 95,800 acres), entitled License No. 298/Ma'anit-Joseph. We have named the project to explore the license the "Joseph Project."

Our executive offices are located at 6510 Abrams Road, Suite 300, Dallas, Texas 75231 and our telephone number is (214) 221-4610. Our office in Israel is located at 9 Yair Stern St., Herzliya, Israel 46412 and the telephone number is +972 (9) 955-2619.

In 1985, during a visit to Israel, John M. Brown (our founder and CEO) became inspired and dedicated to finding oil and gas in Israel, and he started the process that led to the Joseph Project. During the next fourteen years he made several trips each year to Israel, hired oil and gas consultants in Israel and Texas, met with Israel government officials, made direct investments with local exploration companies, and assisted Israeli exploration companies in raising money for

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oil and gas exploration in Israel. This activity led Mr. Brown to form Zion Oil and Gas, Inc. in April 2000 in order to receive the award of a small onshore petroleum license from the Israeli government. Mr. Brown and 25 different persons who had assisted him during the fourteen-year period started Zion with an initial cash contribution of $2,400, for which they received 2,400,000 shares of common stock at the price of 1/10 of one cent per share. Upon its formation, Mr. Brown and the others contributed to Zion all of the technical, economic, legal and financial data they had accumulated over the years relating to oil and gas exploration in Israel. For accounting purposes, no monetary value was attached to the data and we are unable to provide you with any estimate of its cost of acquisition or current market or replacement value, if any.

Upon the award of our first petroleum right (the License No. 298/Ma'anit, which is referred to as the "Ma'anit License") in May 2000, the Israeli government gave us access to most of its data with respect to previous exploration in the area, including geologic reports, seismic records and profiles, drilling reports, well files, gravity surveys, geochemical surveys and regional maps. We also gathered information concerning prior and ongoing geological, geophysical and drilling activity relevant to our planned activities from a variety of other publicly accessible sources. The map on the inside cover of this prospectus shows the outline of our current Ma'anit-Joseph License. It also shows the location of the approximately 500 kilometers of seismic lines and relative locations of eight mid-range (to 7,500 feet) and deep (to 21,000 feet) wells in our immediate area. The Israeli government conducted most of the seismic surveys itself during the 1970's and 1980's in order to provide data to encourage oil companies to invest in exploratory drilling. Private and public Israeli, American and international companies conducted additional seismic survey and drilled most of the eight wells in the period since 1980. Our best estimate of the cost of the exploration activities in our license area to date (in actual dollars spent at the time) is shown in the table below. Most of the numbers are from sources that we consider verifiable, including reports to the Israeli government, press releases, filings with the Tel Aviv Stock Exchange and personal involvement of some of our officers. Some numbers we estimated based upon the scope of the completed work. The operator to the south of us (Givot Olam) has the right to keep its data confidential while its petroleum rights are in force, so our information about the three Meged wells drilled by Givot Olam comes primarily from Givot Olam's prospectuses, reports to and filings with the Israeli Securities Authority and the Tel Aviv Stock Exchange, as well as information published over the course of its operations on its website.

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Our properties consist of petroleum rights, seismic data and computer analyses acquired as follows:

Effective May 1, 2000 the Israeli government awarded us the three-year 28,800-acre "Ma'anit License" (#298) to conduct petroleum exploration activities (the dark shaded area in the center of the map shown on the following page).

• The area covered by the license contains two abandoned exploratory wells, Ma'anit #1 in the west and Har Amir #1 in the east, each drilled into Middle Jurassic Age formations (approximately 160 million years old) to depths of approximately 2,300 meters (7,550 feet). From May 2000 until May 2001, we conducted extensive geophysical and geological operations, including interpreting and mapping approximately 250 kilometers of previously shot seismic lines, reprocessing 70 kilometers of existing seismic, and shooting 11 kilometers of new seismic. As a result, we began to intensely focus on an exploration target that looked very promising, and a new exploratory trend concept in the Upper Triassic Age formations (approximately 200 million years old) under the Ma'anit License and the adjacent area.

• Based on our new exploratory trend concept, we applied for and received effective May 1, 2001 an eighteen-month, 137,250-acre Preliminary Permit with Priority Rights. The permit (#176) named "Joseph" bounded the Ma'anit License on three sides and provided us the opportunity to determine the direction of our exploration.

• In 2001, we retained independent consulting geologists and geophysicists who reviewed the seismic data on the Ma'anit License area and helped us interpret the data as representative of a barrier reef system bounding a subsiding back reef basin (a sill basin). This geologic interpretation was first postulated by Superior Oil Company in a study prepared for the Israeli National Oil Company in 1980 that was made available to the Company in early 2002. It was further substantiated in early 2002 by our review of documents in the files of the Geophysical Institute of Israel (and a related 2002 academic paper) pertaining to the Asher-Atlit # 1 well (drilled in 1983 and located 13 miles northwest of the Ma'anit #1) where rock samples from the Upper Triassic were described as reefal formation of the same type found in the Dolomite Alps of Southern Europe (Austria and Northern Italy).

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• With the assistance and support of the Geophysical Institute of Israel, we intensified our exploration efforts in 2001 and 2002, incorporating an additional 250 kilometers of seismic data into the interpretation and reprocessing another 60 kilometers of existing seismic data. For most of 2002, we maintained a temporary exploration office at the Institute and used its Landmark/Paradigm software at a workstation there.

• In 2002, we also conducted a new seismic survey on the Joseph Permit area, acquiring an additional 21 kilometers of seismic data, and we selected drilling sites for the first exploratory wells on each of two prospects - the Ma'anit Reef on the Ma'anit License area and the Joseph Reef on the Joseph Permit area. In October 2002, we submitted a detailed prospect description to the Israeli Oil Commissioner. Our report summarized our exploration and computer analysis studies and findings, and presented two fully developed drilling prospects. With the report, we submitted a request to exercise our priority rights under the Joseph Permit by incorporating the southern portion of the Joseph Permit area into the Ma'anit License (to be renamed the Ma'anit - Joseph License) and extending the term of the Ma'anit License through April 30, 2005. During November and December 2002, we updated and revised our report as additional analysis was completed at the workstation.

• Following approval by the Petroleum Commission of the State of Israel, the Minister of National Infrastructures, during February 2003, granted, as of January 1, 2003, the Company's application to consolidate its existing petroleum rights into the Ma'anit-Joseph License, covering a combined area of approximately 95,800 acres, and to extend the term of the license through April 30, 2005. Approximately 70,000 acres in the Joseph Permit area and Ma'anit License area were released back to the State of Israel. The License maintains its original issue date of May 1, 2000 (for grandfather rights purposes in case of any fiscal regime changes) and contains a commitment to start the drilling or re-entry of a well before July 1, 2004. The term of the License is extendible for two additional years through April 30, 2007, upon the fulfillment of the committed work program and is convertible into a 30-year lease (extendible by up to 20 additional years) upon a commercial discovery. Maintenance of the License requires the payment of a graduated annual license fee which has been paid through April 30, 2004. The annual license fee thereafter will be approximately $78,000.     

  [Map of License Area]

We intend to apply for a preliminary permit to conduct exploration activities on areas north and/or south of the license area in order to continue our exploration of the exploratory trend we

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have developed under the Ma'anit License and Joseph Permit areas. If we receive such a permit, we will be subject to a monthly permit fee in the amount of approximately $1.00 per each 250 acres under permit.

We lease approximately 3,600 square feet of office space in Dallas under a lease which expires October 31, 2008, but which may be terminated at the end of three years with an early termination payment. The monthly rent is $4,104, $4,104, $4,104, $4,262 and $4,262 for each of the twelve-month periods ending October 31, 2004, 2005, 2006, 2007 and 2008 respectively, less any sublease payments received. Currently approximately 1,400 square feet are subleased month-to-month for a payment of $1,500 per month.

We also have use of office space in Herzliya on month-to-month terms in return for payments of approximately $400 per month. The space is owned by one of our officers.

Our business in Israel is subject to regulation by the State of Israel pursuant to the Petroleum Law, 5712-1952. The administration and implementation of the Petroleum Law is vested in the Minister of National Infrastructures (the "Minister"), the Petroleum Commissioner (the "Petroleum Commissioner") and an advisory commission (the "Petroleum Commission"). The following discussion includes brief statements of certain provisions of the Petroleum Law in effect at the date of this prospectus.

Petroleum resources are owned by the State of Israel, regardless of whether they are located on state lands or the offshore continental shelf. No person is allowed to explore or produce petroleum without being granted a specific right under the Petroleum Law. The law provides for three types of rights, two relevant to the exploration stage and the third for production.

Preliminary permit. The most basic right is the preliminary permit, which may be granted for a period not exceeding 18 months. The permit allows the prospector to conduct preliminary investigations, such as field geology, airborne magnetometer surveys and seismic data acquisition, but does not allow test drilling. The holder of a preliminary permit is entitled to request a priority right on the permit area, which, if granted, prevents an award of petroleum rights on the permit area to any other party. There are no restrictions as to size of the permit area or to the number of permits that may be held by one prospector. However, Israeli policy is to award an area no larger than that for which the applicant has a reasonable plan of operation and has shown evidence of the necessary financial resources to execute the plan.

License. The next level of petroleum right is the "license", bestowing an exclusive right for further exploration work and requiring the drilling of one or more test wells. The initial term of a license is up to three years and it may be extended for up to an additional four years. A license area may not exceed 400,000 dunams (approximately 100,000 acres). One dunam is equal to 100 square meters. No one entity may hold more than twelve licenses or hold more than a total of four million dunam in aggregate license area.

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Production lease. Upon discovery of petroleum commercial quantities, a licensee has a statutory "right" to receive a production lease. The initial lease term is 30 years, extendable up to a maximum period of 50 years. A lease confers upon the lessee the exclusive right to explore for and produce petroleum in the lease area and requires the lessee to produce petroleum in commercial quantities (or pursue test or development drilling). The lessee is entitled to transport and market the petroleum produced, subject, however, to the right of the Government to require the lessee to supply local needs first, at market price.

Requirements and entitlements of holders of petroleum rights. The holder of a petroleum right (permit, license or lease) is required to conduct its operations with due diligence and in accordance with the accepted practice in the petroleum industry. The holder is required to submit progress and final reports; provided, however, the information disclosed in such reports remains confidential for as long as the holder owns a petroleum right on the area concerned.

The grant of a petroleum right does not automatically entitle its holder to enter upon the land to which the right applies or to carry out exploration and production work. Entry requires the consent of the private or public holders of the surface rights and of other public regulatory bodies (e.g. planning and building authorities, Nature Reserves Authority, municipal and security authorities, etc.). The holder of a petroleum right may request the Government to acquire, on his behalf, land needed for petroleum purposes. The petroleum right holder is required to obtain all other necessary approvals.

On October 23, 2002, in conjunction with the 2003 Budget, a bill was submitted to the Israeli Knesset by the Government which, if it had been adopted, would have introduced major changes in the Petroleum Law and repealed many rights currently available to persons involved in petroleum exploration and production activities. Specifically, it proposed to change the regime pursuant to which petroleum rights were granted and held, to repeal certain rights of holders of petroleum rights to enter surface lands in order to conduct petroleum operations and receive allocations of water for drilling operations and to rescind exemptions granted to holders of petroleum rights and petroleum contractors from certain customs duties and sales and excise taxes. While this proposal was rejected in Knesset committee and was not passed in conjunction with the 2003 Budget, it may be resubmitted in the new session of the Knesset. If adopted, the effect of various of the proposed amendments could likely result in increasing our costs of conducting petroleum drilling and production operations in Israel and, in certain instances, where reasonable arrangements could not be reached with holders of surface rights, might result in our inability to pursue certain operations.

The Petroleum Commissioner and staff of Ministry of National Infrastructures have also proposed a series of amendments to the Petroleum Law that are currently under study. Among the amendments proposed are: (1) repeal of the exemptions granted to holders of petroleum rights and petroleum contractors from certain customs duties, and purchase and excise taxes; (2) requiring holders of petroleum rights to post bonds to ensure the performance of work commitments and post-operations site remediation; (3) inclusion of environmental and safety

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standards for petroleum exploration and production activities; (4) limitation of production leases to single geological structures rather than to geographically defined surface areas; (5) providing for forced pooling where reservoirs underlie lands subject to more than one petroleum right; (6) introduction in certain circumstances of a mandatory tender regime for the issuance of petroleum rights, including preliminary permits; (7) restriction of the term of a production lease to 25 years (currently a lease term is 30 years with a right to extend for additional periods up to a total of 50 years); (8) repeal of the automatic rights granted to holders of production leases to import, refine, export and trade in petroleum and petroleum products; (9) amendment of conditions for the granting of preliminary permits, introduction of limitations to data secrecy rights and provision for restructuring of the Petroleum Commission. It is not possible to predict whether or to what extent the proposals of the Ministry of National Infrastructures' staff will be adopted by the government and enacted into law or to what extent our operations will be affected by any or all of such amendments to the Petroleum Law as may ultimately be enacted, although it is likely that adoption of certain of the proposals would increase the costs of our operations and, in certain scenarios, may limit our ability to benefit from the entire economic life of our discoveries, if any. It should be noted that, as opposed to the defeated government initiative in the 2003 Budget legislation, the Ministry's proposal does not propose to change any of the rights of holders of Petroleum Rights to acquire necessary surface or water use rights.

Our activities in Israel will be subject to taxation both in Israel and in the United States. Under the U.S. Internal Revenue Code, we will be entitled to claim either a deduction or a foreign tax credit with respect to Israeli income taxes paid or incurred on our Israeli source oil and gas income. As a general rule, the Company anticipates it will be more advantageous for it to claim a credit rather than a deduction for applicable Israeli income taxes on its United States tax return. A tax treaty exists between the United States and Israel that would provide opportunity to use the tax credit. 

Exploration and development expenses. Under current Israeli tax laws, exploration and development expenses incurred by a holder of a petroleum right can, at the option of such holder, either be expensed in the year it occurs or capitalized and expensed (or amortized) over a period of years. Most of our expenses to date have been treated for Israeli income tax purposes as accumulated revenue expenses.

Depletion allowances. Under current Israeli tax laws, the holder of an interest in a petroleum license or lease is allowed a deduction for income tax purposes on account of the depletion of the petroleum reserve relating to such interest. This may be by way of percentage depletion or cost depletion, whichever is greater. Percentage depletion is at the rate of 27.5% of the gross income, but subject to a limit of 50% of the net income attributed to the relevant petroleum license or lease in that tax year. Cost depletion is the amount calculated by dividing the "adjusted cost" of the petroleum interest, being the cost less accrued depletion allowances to date, at the beginning of the tax year, by the number of units remaining in the estimated petroleum reservoir at the beginning of such year, and multiplying this sum by the number of units of petroleum produced from the interest and saved during the tax year.

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Corporate tax. Under current Israeli tax laws, whether a company is registered in Israel or is a foreign company operating in Israel through a branch, it is subject to Israeli Companies Tax on its taxable income from Israeli sources at a flat rate of 36%.

Import duties. Insofar as similar items are not available in Israel, the Petroleum Law provides that the owner of a petroleum right may import into Israel, free of customs, purchase taxes and other import duties, all machinery, equipment, installations, fuel, structures, transport facilities etc. (apart from consumer goods and private cars) that are required for the petroleum exploration and production purposes.

Currency control. If the necessary taxes have been paid and a foreign currency source has been established for the relevant investment, foreign investors may repatriate principal and profits of investments without restriction.

Royalties on production. Under the Petroleum Law, the holder of a petroleum lease is required to pay a royalty of one-eighth in kind or cash (at the option of the Petroleum Commissioner) of the quantity of petroleum produced and saved from the leased area excluding the quantity of petroleum used by the lessee in its operations. Royalties are treated as revenue expenses.

On October 23, 2002, also in conjunction with the 2003 Budget, a bill was submitted to the Israeli Knesset by the Government which, if it had been adopted, would have led to a major restructuring of the Israeli system for taxing oil and gas operations and income. Pursuant to the proposal, the applicable taxes would have been imposed in accordance with rules to have been established by the Minister of Finance and would have been deductible against the Companies Tax. While this proposal was rejected in Knesset committee and was not passed in conjunction with the 2003 Budget, it may be resubmitted in the new session of the Knesset.

An alternative initiative to amend the fiscal regime applicable to oil and gas operations has been proposed by the Ministry of National Infrastructures and is currently under study. Under this proposal, the current royalty-based system would be replaced by a Petroleum Revenue Tax regime in which tax rates for on-shore production would vary between 0 - 30% (up to 75% for certain off-shore production), following recapture of costs, depending on the size of the discovery. It is the position of the Ministry of National Infrastructures that any new fiscal regime should not apply to holders of outstanding exploration licenses and production leases and that such holders be governed by the existing fiscal regime ("grandfather rights"). The staffs of the Israeli Finance and Justice Ministries have taken issue with the Ministry of National Infrastructures on this point. The Company does not know and cannot predict how this dispute will be resolved or, if "grandfathered" status is not granted, how the courts would treat a challenge to any attempt to subject existing rights holders to the proposed new fiscal regime, which in many circumstances would result in substantially higher government takes than provided under the current regime.

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Petroleum Revenue Tax regimes, as that currently proposed by the Ministry of National Infrastructures, are as a general matter not entitled to foreign tax credit for U.S. tax purposes unless specifically provided in a tax treaty between the United States and the taxing jurisdiction. The current U.S. - Israel Tax Treaty does not provide for a credit for any Israeli tax in the nature of a Petroleum Revenue Tax. Thus, if the proposal of the Ministry of National Infrastructures is adopted, and if the U.S. - Israel Tax Treaty is not amended to provide for such credits, to the extent we would be subjected to the new tax in Israel, our United States tax liability will likely be increased significantly. Moreover, if we were successful in discovering major reserves resulting in multiple payout, our tax liabilities in Israel might in certain circumstances be substantially greater than our combined royalty and Companies Tax liability in Israel under the current royalty-based regime.

The law relating to taxation of petroleum exploration and production operations and related transactions is not well developed in Israel, and many issues relating to the transactions described herein and in which we may be involved, including transactions relating to the transfer of certain interests to our Key Employee Incentive Fund and the Charitable Trusts. The Israeli tax liabilities for the Fund and Trusts have neither been reviewed by Israeli tax authorities nor been subject of judicial scrutiny. As a result, we cannot predict how the Israeli tax authorities or courts will rule in the event issues relating to our contemplated operations and transactions are presented to them.

Change in Accountants

During February 2002, our board of directors appointed Lane Gorman Trubitt, L.L.P. as our independent auditors and determined not to reappoint Harry Pevos, CPA. The change was made in contemplation of our initial public offering as we worked to appoint independent auditors having experience with public companies and SEC reporting requirements. The opinions of Harry Pevos, CPA, on the audited financial statements since the Company's incorporation in April 2000 through December 31, 2000, did not contain an adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles. Since our incorporation, there were no disagreements with Harry Pevos, CPA, on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, nor have there been any other events that required reporting under SEC regulations.

We currently employ six consultants and two employees. During the next twelve months, we expect to hire full-time employees and some of our consultants will change over to full-time employee status. Six additional full-time employees will also be needed. We also expect to hire several consultants for specific short-term services. None of our current employees are subject to any collective bargaining agreements and there have been no strikes. It is contemplated that in a year's time our staffing will be as follows, based upon the amounts raised in this offering:

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We intend to establish a Key Employee Incentive Fund. At the Company's 2002 Annual Meeting, our shareholders approved the establishment of such a fund in which 1.5% of the gross proceeds of our production would be set aside for distribution as bonuses to key employees and consultants. As currently approved by the Board of Directors, the funds would not become available for bonus distribution with respect to any single well until we have received back from production cash amounts equal to the amount of money we spent on the well. The plan is designed to attract, retain and motivate highly qualified oil and gas professionals who would have their personal financial interests aligned with ours.

Zion Oil & Gas, Inc. was incorporated in Florida in April 2000, and we were awarded our first petroleum right in Israel in May 2000, the Ma'anit License. In January 2002, a wholly-owned subsidiary with the same name was incorporated in Delaware. The Florida corporation was merged into the Delaware corporation in July 2003, the purpose of which was solely to reincorporate from Florida to Delaware in anticipation of this offering. We believe investors, investment bankers and attorneys are generally more familiar and comfortable with Delaware corporation law than any other state. Upon the reincorporation, all the outstanding shares of common stock in the Florida corporation were converted into common stock of the Delaware corporation on a one-to-one basis and all of the outstanding shares of preferred stock in the Florida corporation were converted into common stock of the Delaware corporation at the ratio of twelve shares of common stock for each share of preferred stock.

The shareholders at the February 2002 annual meeting gave our board of directors the authority to reverse split the Company's common stock. The board of directors did not exercise that authority and it expired at the next annual meeting of the Company, held June 30, 2003. The shareholders at the 2002 annual meeting also authorized our board of directors to establish two charitable trusts, one to support charitable projects in Israel and one to support charitable projects in the United States and other countries. See "Plan of Operation and Management's Discussion-Charitable Trusts."

We intend to comply with the work program required by the License and either re-enter and deepen the existing Ma'anit #1 well bore (or drill an exploration test well) to a minimum depth of 4,000 meters (13,123 ft.). The well must be re-entered or started no later than July 1, 2004.

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If the first well is commercially productive, we will install oil and gas separation facilities and storage tanks and initiate sales of oil. During 2005 and again in 2006, we intend to drill a second and third exploratory, development or step-out well to approximately 5,000 meters each. The results of those wells, when combined with the results of the first well, will dictate the future development of any oil and gas field that might be discovered.

In re-entering and deepening the Ma'anit # 1 and drilling additional exploratory wells, we intend to use oil industry service companies, as is the common practice in the industry. The service companies include drilling contractors, wireline evaluation services, engineering services, mud and chemical services, rock bit companies, and oil field tubular suppliers.

Givot Olam Oil Exploration L.P., a publicly traded limited partnership listed on the Tel Aviv Stock Exchange, holds an exploration license just south of our Ma'anit-Joseph License. They have just drilled a well about 15 kilometers southeast of our proposed Joseph Reef location. The well was drilled to a depth of 4,680 meters (15,450 ft.) to the same Triassic-aged formation at approximately the same depth to which we intend to drill. According to announcements filed by Givot Olam with the Tel Aviv Stock Exchange, the entire target section of Triassic-aged formation through which Givot Olam drilled (some 500 meters or 1,650 ft.) was "hydrocarbon saturated". Givot Olam is preparing to conduct production tests on the well.

Our basic plan of operation consists of the following steps, assuming we raise the maximum offering amount of $25,000,000:

1. Interview and hire key personnel.
2. Order the long lead-time items and start the permitting process to drill the well.
3. Enter into a drilling contract for a rig capable of drilling to 17,000 feet or more and acquire necessary surface rights and regulatory permits to commence drilling operations.
4. Apply for preliminary permits in areas of additional exploratory interest.
5. Re-enter the Ma'anit #1 and deepen it through two Triassic age targets, the tops of which are approximately 13,600 feet and 15,000 feet deep.
6. Take full hole cores during drilling.
7. Log and test the well after drilling.
8. If the cores, logs and test results indicate the presence of commercially producible oil and gas, run production casing and attempt to make the well into a commercial producer.
9. If the well is commercial, file an application with the Israeli Government to convert the license into a production lease. Upon approval, install separation facilities, tanks and gathering pipelines. Begin sales of oil and gas (see "Marketing" below).
10. Use all the data from the well to recalibrate and revise the computer studies and develop a reservoir simulation model.

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11. If the well data does not significantly alter the prior interpretations, then proceed to step 13; otherwise go to step 12.
12. If the prior interpretations are significantly altered, then conduct new geological and geophysical reviews to obtain a better understanding of the area in light of the new data. Decide whether or not to move to a new area or drill in a different location in the same area. If the decision is made to abandon the license area, then move to the new permit area or somewhere else in Israel and begin the exploration process all over again.
13. Prepare the Joseph Reef location for drilling.
14. Acquire the necessary surface rights and apply for the relevant drilling permits.
15. Move in the drilling and drill through a Triassic Age target at approximately 14,000 feet.
16. Repeat steps 6-12.
17. Select a third location on the license based on the information from the first two wells.
18. Repeat steps 14-16.
19. At any time during any of the preceding steps, we might enter into negotiations to sell a portion of the Joseph Project (and our petroleum rights and prospect data) in order to spread our risk, conserve our capital and obtain co-owners with technical capability and local knowledge to supplement our efforts. There is no assurance that we will be able to attract any parties to join us.

If we only raise the minimum of $6,000,000 and we are unable to attract additional participants in the Joseph Project, we will only be able complete steps 1-8 before we no longer have sufficient funds to proceed. Our ability to take any subsequent steps would depend upon the result of coring, logging and testing of the well. If the results are not encouraging, there is no assurance we would be able to raise enough money to maintain our license. In this case you would lose your investment.

If the first well is productive, then we plan to use the information to raise additional money to attempt to complete it as a producer and drill additional wells. There can be no assurance that we will be successful in such endeavors.

If any of the exploratory wells are commercially productive, we will install oil and gas separation facilities and storage tanks. Initially, oil from the license area will be transported by truck to the oil refinery located near Haifa, a distance of approximately 40 kilometers. Under the terms of the Petroleum Law, we may be required by the Minister of National Infrastructures to first offer any oil and gas discovered to Israeli domestic purchasers at market prices. Our long-range plans include laying a 6-kilometer oil pipeline to join an existing crude oil transfer line between the refinery in Haifa and the refinery in Ashdod, Israel. We would sell gas initially to a local manufacturing plant located within 200 meters of the Ma'anit # 1 location. Long-range plans

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include connecting the separation facility to a countrywide gas transportation line, now in final planning stages.

We believe we can sell any of the liquid hydrocarbons in Israel at prices commonly received in the Mediterranean basin. Those prices, net to the wellhead, are expected to approximate Israeli market prices, plus or minus allowances for quality.

At the present time, Israel can absorb any discovery of oil, condensate or gas liquids. The total energy and petrochemicals consumption of Israel in 2002 was estimated by Israeli government sources to be the equivalent of 132 million barrels of oil, 25% of which is for electric power generation. This leaves approximately 100 million barrels per year of demand for liquid hydrocarbons if all the electric power generation is from coal and the offshore gas discoveries. Even a giant oil field discovery (of which there can be no assurance) would have a project life of almost 50 years and would not result in maximum production in any single year in excess of 100 million barrels. At this time there is almost no competition for locally produced oil. Only one oil field is currently producing in Israel and it is near the end of its economic life with daily production of about 70 barrels of oil.

The current Israeli market for natural gas is in its infancy. There is now only a limited market in several regions of the country. The government is encouraging the power and industrial sectors to convert to gas energy and, jointly with the private sector, is in the final stages of planning and commencing the development of a natural gas pipeline infrastructure intended to connect the newly discovered off-shore gas fields and Egyptian sources to the potential market in Israel. We believe that the electrical generating sector (which is building combined cycle, gas-fired generating units), together with the industrial, commercial and future residential sectors when developed, should be able to absorb any gas discovery within a reasonable period.

The only contract signed for the supply and sale of natural gas in Israel is between the offshore gas producer/supplier Yam Tethys and the Israeli Electric Company ("IEC"). Pricing terms of the contract have not been released, other than that the price is tied to the weighted average price of a basket of fuels. It has been estimated that initial deliveries will commence in the third quarter of 2003. We believe we will be able to sell our natural gas, if any, to IEC at a commercial price estimated to average $2.40 per million British Thermal Unit ("BTU") under a standard industry contract.

Since the market for crude oil is limited in Israel to Oil Refineries, Ltd. ("ORL"), no special marketing strategy will be employed. If we are successful in our exploration effort, we are confident that we will enter into a long-term sales agreement with ORL, as the relationship will be beneficial to both parties. ORL will benefit from not having to rely upon imported oil purchased primarily at spot oil prices and we expect to enter into a long-term contract for the sale of our oil fixed to an agreed upon index as is normal practice in the oil industry. If we cannot reach agreement with ORL, we will have the option of exporting the crude oil. In this case, we would seek to enter into a long-term contract with an oil trading/shipping company.

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Because this prospectus focuses primarily on details about us rather than the industry in which we operate or will operate, potential investors may wish to conduct their own separate investigation of the Israeli oil and gas industry to obtain broader insight in assessing the our prospects.

If we are successful in finding oil and gas in Israel, we intend to donate a portion of our gross revenues to charities in Israel, the United States and elsewhere in the world. The donations will be made through entities we are in the process of establishing. These entities have not been as yet fully defined. For description purposes we call them charitable trusts, but they may be tax-exempt corporations, foundations, associations or some other form of charitable entity. Independent of the form of organization, our board of directors has established the following parameters.

1. There will be two separate and distinct organizations, one to be established in Israel and one in the United States, or such other jurisdictions as may be determined by the Company's board. Each of the organizations will have its own board of directors (or board of trustees) consisting of up to nine members each, a majority of which shall not be any of our officers, directors or shareholders owning more that 1% of the Company.
2. At least two-thirds of the Israeli board will be resident citizens of Israel. Our founder, John Brown, will serve as the initial chairman.
3. At least two-thirds of the other board will be resident citizens of the United States. John Brown will serve as the initial chairman of the board.
4. The two entities will be set up with the objective that to the extent possible our donations to them will be tax deductible under both Israel and U.S. tax law.
5. We will assign to each of the two entities an after payout overriding royalty of 3% (or equivalent net profits interest) in the Joseph Project petroleum rights and any other petroleum rights that we acquire in Israel. This means that 6% of the gross proceeds of oil and gas production would go to the two entities for charitable purposes, 3% to be used for charitable activities in Israel by one entity and 3% to be used for such purposes in the United States and internationally by the other.
6. The funds to be distributed by the two entities may only be given to charities that meet the qualification of section 501(c) (3) of the United States Internal Revenue Code or the equivalent section of the Israel Income Tax Code.
7. If we are unsuccessful in our exploration efforts, no funds will be available for donation.
8. The general application of the funds will be to support projects for the restoration of the land and people of Israel and social and educational and rehabilitative projects in the United States and internationally. Our board will establish more specific guidelines at the time the entities are formed.

We plan to form these entities after the close of this offering, but before the first well reaches its anticipated target depth.

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Our shareholders have approved the concept in principle, as well as the specific sources of funds for the donations.

We have not been profitable since inception. We therefore list below in chronological order the events that in our opinion must or should occur or the milestones which in our opinion we must or should reach in order to become profitable.

In the following paragraphs we set forth the probable consequences to us of delays in achieving each of the events or milestones within the above time schedule, and particularly the effect of any delays upon our liquidity in view of the then anticipated level of operating costs.

If this offering only raises the minimum amount, we will seek joint venture partners to participate in the drilling and completion (if needed) of the first well and the drilling of remaining wells. The partner would be required to take a sufficiently high interest to make up the difference in the amount of funds available and the cost of drilling the first well or the first and second wells. If the joint venture participation exceeds 50%, we may not be able to remain operator of the project, which means we would not necessarily control the timing of the project. We cannot assure you that we would be able to bring in joint venture partners in time to meet our work program obligations or, if we found the partners in time, that the terms and conditions of their participation would be favorable to us.

In the event that we are forced to "sell down" our interest in the project by bringing in a joint venture participant, the overall return to the Company would be reduced. However, a reduced interest would not mean that we would not be profitable. We would expend fewer funds due to

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our reduced interest and the promotion that a joint venture participant would pay. We therefore could become profitable sooner in this scenario, although our gross returns would be less.

In the event that the first wells are non-commercial, we would not become profitable until such time as we raised additional funds and drilled at least one successful commercial well. It is possible that all of our funds will be spent on unsuccessful wells, and we never become profitable.

After reviewing the nature and timing of each event or milestone, potential investors should reflect upon whether achievement of each within the estimated time frame is realistic and should assess the consequences of delays or failure in making an investment decision. A potential investor should recognize that oil and gas exploration is risky and should not invest any more money in purchasing our common stock than he or she could afford to completely lose in the event of unsuccessful drilling.

Some of the statements under "Prospectus Summary," "Risk Factors," " Plan of Operation and Management's Discussion," "Business and Properties," and elsewhere in this prospectus constitute forward-looking statements. These statements relate to future events or our future financial performance. In come cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "intends," "estimates," "predicts," "potential" or "continue" or the negative of such terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially. In evaluating these statements, you should specifically consider various factors, including the risks outlined under "Risk Factors." These factors may cause our actual results to differ materially from any forward-looking statement.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy or completeness of these statements. We are under no duty to update any of the forward-looking statements after the date of this prospectus to conform these statements to actual results.

During the past two years there have been no material transactions between the Company and any of our directors, officers, candidates for director, or shareholders, except as described in the following paragraphs.

John M. Brown may be deemed the promoter of the Company. Upon the formation of the Company, Mr. Brown purchased 520,000 shares of common stock at the price of 1/10 cent per share, which was the price at which 1,880,000 other shares were sold to 25 other people, including 100,000 shares to his wife and 50,000 shares to his son. At the same time Mr. Brown

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entered into a $50,000 line of credit with the Company against which we initially borrowed approximately $25,000 to make our first license fee payment to the Israeli government. The loan bore an interest rate of 7% per annum and we eventually borrowed to the maximum amount. During 2001, we repaid the outstanding $50,000 principal amount of the loan by delivering to Mr. Brown 50,000 shares of common stock and warrants to purchase 33,333 shares of common stock at the exercise price of $1.00 per share, in accordance with the same terms and conditions as the shares of common stock and warrants were being sold to unrelated third parties in private transactions during 2001.

During 2002, Mr. Brown entered into a new loan agreement with the Company at a 7% interest rate and advanced $50,000 to us under the loan agreement. At the end of the year, Mr. Brown participated in our private placement of Series A Convertible Preferred Stock and received 5,000 shares of the preferred stock and warrants to purchase 25,000 shares of common stock at $1.50 per share in exchange for cancellation of our $50,000 indebtedness. The exchange was made under the same terms and conditions as the sale at the same time by us to unrelated third parties of our preferred stock and $1.50 warrants.

During the year 2000, M&B Concrete Construction, Inc. and M&B Concrete, Inc. (collectively, "M&B"), companies in which John Brown, our chairman and chief executive officer, is a director and principal shareholder, provided a "financial comfort letter" to the Israeli Petroleum Commissioner in connection with our application for our first license. M&B received no direct compensation for the letter, but the three shareholders of M&B, John Brown, his son Mark Brown, and Robert Jarvis, all participated in the initial purchase of shares of our common stock at the price of $0.001 per share. In October 2002, in connection with our application to consolidate our petroleum rights into a single license and extend its term, M&B provided the Petroleum Commissioner with a renewal and extension of the comfort letter for which we agreed to pay a fee of $50,000 to M&B. The shareholders of M&B elected to use the money we owed them to purchase shares of preferred stock and warrants in one of our private placements, on the same terms and conditions as unrelated third party cash purchasers. M&B directed that the preferred stock and warrants be issued in equal amounts to Mark Brown and Robert Jarvis.

In early 2002, the Company borrowed $50,590 under a loan facility with Cimarron Resources, Inc, which is owned by Eugene Soltero, the president of the Company. Cimarron obtained the monies to lend to the Company through a loan facility with Bank One. The interest charged to us is the Cimarron's interest cost which accrues at Bank One's prime rate (4.25% at December 31, 2002) plus 2.5%. The note is due on the earlier of (a) 30 days following the closing of an initial public offering by the Company; (b) the determination by the Board of Directors of the Company that the Company has raised funds in sufficient amounts to enable the Company to conduct operations prior to the closing of an initial public offering without need for recourse to the loan facility; or (c) the date the principal amount of the monies advanced to Cimarron under the Bank One facility are due. Mr. Soltero may convert any outstanding balance due under the note into shares of our common stock at the conversion price of $1.00 per share.

In February 2003, the Board of Directors voted to accept an offer by a shareholder of the Company to advance the sum of up to $100,000 to cover certain obligations of the Company

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relating to this offering, subject to the payment of a commitment fee in the form of preferred stock and warrants of the Company of a value equivalent to $10,000 to her or her designees. This loan bears interest at the rate of 10% per annum and must be repaid at the earliest of (a) the closing of the minimum offering, (b) twelve months from the date approved, or (c) at such time or times as in the opinion of the directors of the Company, funds available to the Company so permit.

We believe that the foregoing transactions were on no less favorable terms than could have been obtained from unaffiliated third parties. Any future transactions between us and our affiliates will be approved by a majority of disinterested directors and will be on terms no less favorable to us than those which could be obtained from unrelated third parties.

This is our initial public offering. Our common stock and warrants are not listed or traded on any stock exchange. We have applied to list our common stock on the NASDAQ Small Cap market conditional upon closing at least the minimum sale of $6,000,000. We cannot assure you that our common stock will be listed on any exchange.

Directors who are not Company employees or officers receive $1,000 per month and are permitted to accept stock in lieu of cash (at prices set by sales to unrelated third parties. Directors who are Company officers receive no extra compensation for service on the board.

The following table provides the compensation paid or to be paid to our executive officers, directly or indirectly, for services rendered in all capacities for the fiscal year ended December 31, 2002:

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None of our executive officers receive personal benefits in addition to the basic compensation listed above. Each officer received such compensation for providing consulting services to the Company. Mr. Soltero received his compensation through his personal consulting company, Cimarron Resources, Inc. The others were directly compensated.

The following table provides information regarding options and warrants granted to our executive officers in fiscal 2002:

Mr. Soltero exercised the options referred to above to purchase 400,000 shares of common stock for $80,000 during the fiscal year 2002. There were no unexercised employment related options held by our executive officers as of December 31, 2002, except a warrant issued to Mr. Soltero in 2001, before he became an officer, whereby he may purchase 10,000 shares of common stock for $1.00 per share until December 31, 2004. Any options or warrants held by them were acquired in connection with their loan of funds to the Company or their purchase of equity securities from the Company under terms and conditions identical to the terms and conditions under which unrelated third parties made similar investments.

In the Company's 2002 annual meeting, the shareholders approved the establishment of a long-term management incentive plan, which may be structured as an employees' royalty pool, to be funded by the equivalent of a 1.5% overriding royalty interest (after pay out of investment) in the wells we drill. According to board resolutions, Mr. Brown, Mr. Soltero, Mr. Mandelker and Mr. Perry will be awarded each a 10% interest in the plan. Mr. Avery, Mr. Roih and Dr. Kashai will each be awarded a 5% interest in the plan, if, as and when the plan may be established.

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The Board of Directors has authorized the chairman and chief executive officer, on behalf of the Company, to enter into five-year employment agreements, effective July 1, 2003 with the executive officers set out below.

Each of the agreements would be substantially in the same form (except to comply with the law of the country in which the officer resides) and are expected to contain:

• Indemnification for acts other than willful misconduct.
• Five-year terms, terminable only by death, severe disability, or for willful misconduct resulting in felony conviction.
• Post-contract retirement benefits.
• Termination benefits in the event of change of control equal to remainder of contract plus three years salary.
• Participation in the long-term management incentive program.
• Outline of responsibilities and authorities for the executive's position.

We are not including in this prospectus a section on material federal income tax consequences for non-US investors because we have not entered into any agreements with Placement Agents outside the United States. If we do enter into any such agreements, we will file a post-effective amendment containing the names and addresses of any such Placement Agents as well as federal income tax information for non-US residents.

We are not including in this prospectus a section on material Israeli income tax consequences for US investors because the holders of our common stock will not be directly subject to any Israeli income taxes related to their holdings. All Israeli income taxes will be paid by us and either credited or expensed against any United States federal income tax liability we may incur.

Alice A. Waters, Attorney at Law, Waxahachie, Texas, will pass on the validity of the issuance of the shares of common stock offered by this prospectus.

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The audited financial statements included in this prospectus have been audited by Lane Gorman Trubitt, L.L.P., independent public accountants, as indicated in their report with respect thereto, and are included herein in reliance upon the authority of said firm as experts in accounting and auditing in giving said report.

This prospectus is part of a registration statement we have filed with the SEC under the Securities, relating to our shares. As permitted by SEC rules, this prospectus does not contain all the information we have included in the registration statement and the accompanying exhibits and schedules we filed with the SEC. You may refer to the registration statement, exhibits and schedules for more information about us and our shares. You can read and copy the registration statement, exhibits and schedules at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can obtain information about the operation of the SEC's Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. We will be required to file current reports, quarterly reports, annual reports, proxy statements and other information with the SEC. You may read and copy those reports, proxy statements and other information at the SEC's Public Reference Room and regional offices or through its Internet site. We intend to furnish our shareholders with annual reports that will include a description of our operations and audited consolidated financial statements certified by an independent public accounting firm.

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F-1

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

BALANCE SHEETS

STATEMENTS OF OPERATIONS

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

STATEMENTS OF CASH FLOWS

NOTES TO FINANCIAL STATEMENTS

F-2

Board of Directors and Stockholders

Zion Oil & Gas, Inc.

We have audited the accompanying balance sheets of Zion Oil & Gas, Inc. (a development stage company) as of December 31, 2002 and 2001, and the related statements of operations, changes in stockholders' equity, and cash flows for the each of the two years in the period ended December 31, 2002, and cumulative amounts since April 6, 2000 (inception). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the 2002 and 2001 financial statements referred to above present fairly, in all material respects, the financial position of Zion Oil & Gas, Inc. as of December 31, 2002 and 2001, and the results of its operations and its cash flows for each of the two years then ended and cumulative amounts since inception, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company is in its development stage and has insignificant operating revenue. In addition, the Company has limited capital resources and has initiated a new phase of activity, all of which raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also discussed in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

LANE GORMAN TRUBITT, L.L.P.

Dallas, Texas

April 14, 2003

F-3

F-4

F-5

F-6