☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______ TO ______.
COMMISSION FILE NO.: 001-35200
COMSTOCK INC.
(Exact name of registrant as specified in its charter)
Nevada
65-0955118
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
117 American Flat Road, Virginia City, NV
89440
(Address of principal executive offices)
(Zip Code)
(775) 847-5272
(Registrant’s telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of each exchange on which registered
Common Stock, par value $0.000666 per share
LODE
NYSE American
Securities registered pursuant to Section 12(g) of the Acts: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
x
No
¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the prior 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes
x
No
¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
Accelerated filer
☐
Emerging growth company
☐
Non-accelerated filer
☒
Smaller reporting company
☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Yes
☐
No
x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
☐
No
x
The number of shares outstanding of Common Stock, $0.000666 par value per share, on August 8, 2023 was 109,862,893.
Certain statements contained in this quarterly report on Form 10-Q are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, are forward-looking statements. The words “believe,” “expect,” “anticipate,” “estimate,” “project,” “plan,” “should,” “intend,” “may,” “will,” “would,” “potential” and similar expressions identify forward-looking statements but are not the exclusive means of doing so. Forward-looking statements include statements about matters such as: future market conditions; future explorations or acquisitions; future changes in our research, development and exploration activities; future financial, natural, and social gains; future prices and sales of, and demand for, our products and services; land entitlements and uses; permits; production capacity and operations; operating and overhead costs; future capital expenditures and their impact on us; operational and management changes (including changes in the Board of Directors); changes in business strategies, planning and tactics; future employment and contributions of personnel, including consultants; future land and asset sales; investments, acquisitions, joint ventures, strategic alliances, business combinations, operational, tax, financial and restructuring initiatives, including the nature, timing and accounting for restructuring charges, derivative assets and liabilities and the impact thereof; contingencies; litigation, administrative or arbitration proceedings; environmental compliance and changes in the regulatory environment; offerings, limitations on sales or offering of equity or debt securities, including asset sales and associated costs; business opportunities, growth rates, future working capital needs, revenues, variable costs, throughput rates, operating expenses, debt levels, cash flows, margins, taxes and earnings.
These statements are based on assumptions and assessments made by our management in light of their experience and their perception of historical and current trends, current conditions, possible future developments and other factors they believe to be appropriate. Forward-looking statements are not guarantees, representations or warranties and are subject to risks and uncertainties, many of which are unforeseeable and beyond our control and could cause actual results, developments and business decisions to differ materially from those contemplated by such forward-looking statements. Some of those risks and uncertainties include the risk factors set forth in this report and our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, and the following: adverse effects of climate changes or natural disasters; adverse effects of global or regional pandemic disease spread or other crises; global economic and capital market uncertainties; the speculative nature of gold or mineral exploration, and lithium, nickel and cobalt recycling, including risks of diminishing quantities or grades of qualified resources; operational or technical difficulties in connection with exploration, metal recycling, processing or mining activities; costs, hazards and uncertainties associated with precious and other metal based activities, including environmentally friendly and economically enhancing clean mining and processing technologies, precious metal exploration, resource development, economic feasibility assessment and cash generating mineral production; costs, hazards and uncertainties associated with metal recycling, processing or mining activities; contests over our title to properties; potential dilution to our stockholders from our stock issuances, recapitalization and balance sheet restructuring activities; potential inability to comply with applicable government regulations or law; adoption of or changes in legislation or regulations adversely affecting our businesses; permitting constraints or delays; challenges to, or potential inability to, achieve the benefits of business opportunities that may be presented to, or pursued by, us, including those involving battery technology and efficacy, quantum computing and generative artificial intelligence supported advanced materials development, development of cellulosic technology in bio-fuels and related material production; commercialization of cellulosic technology in bio-fuels and generative artificial intelligence development services; ability to successfully identify, finance, complete and integrate acquisitions, joint ventures, strategic alliances, business combinations, asset sales, and investments that we may be party to in the future; changes in the United States or other monetary or fiscal policies or regulations; interruptions in our production capabilities due to capital constraints; equipment failures; fluctuation of prices for gold or certain other commodities (such as silver, zinc, lithium, nickel, cobalt, cyanide, water, diesel, gasoline and alternative fuels and electricity); changes in generally accepted accounting principles; adverse effects of war, mass shooting, terrorism and geopolitical events; potential inability to implement our business strategies; potential inability to grow revenues; potential inability to attract and retain key personnel; interruptions in delivery of critical supplies, equipment and raw materials due to credit or other limitations imposed by vendors; assertion of claims, lawsuits and proceedings against us; potential inability to satisfy debt and lease obligations; potential inability to maintain an effective system of internal controls over financial reporting; potential inability or failure to timely file periodic reports with the Securities and Exchange Commission; potential inability to list our securities on any securities exchange or market or maintain the listing of our securities; and work stoppages or other labor difficulties. Occurrence of such events or circumstances could have a material adverse effect on our business, financial condition, results of operations or cash flows, or the market price of our securities. All subsequent written and oral forward-looking statements by or attributable to us or persons acting on our behalf are expressly qualified in their entirety by these factors. Except as may be required by securities or other law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
3
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4
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
COMSTOCK INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30, 2023
December 31, 2022
ASSETS
Current Assets:
Cash and cash equivalents
$
1,585,713
$
2,521,772
Notes receivable and advances, net - current portion
5,941,267
5,012,275
Investments
11,617,710
—
Assets held for sale
20,638,942
21,684,865
Deposits - current portion
520,098
809,583
Prepaid expenses and other current assets
818,511
739,118
Total current assets
41,122,241
30,767,613
Noncurrent Assets:
Investments
13,460,353
18,784,327
Mineral rights and properties
13,302,013
12,571,418
Properties, plant and equipment, net
13,612,438
13,474,094
Reclamation bond deposit
2,782,954
2,727,815
Notes receivable and advances, net
982,079
959,318
Intangible assets, net
16,662,779
17,663,681
Finance lease - right of use asset, net
2,968,414
2,911,458
Other assets
90,950
194,035
Total noncurrent assets
63,861,980
69,286,146
TOTAL ASSETS
$
104,984,221
$
100,053,759
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable
$
1,052,223
$
714,077
Accrued expenses and other liabilities
2,384,009
1,719,597
Deposits
410,100
422,603
Deferred gain
1,437,563
—
Derivative liabilities
7,786,334
14,545,800
Liabilities, held for sale
27,803,564
12,021,566
Finance lease - right of use lease liability
855,417
409,143
Debt, net - current portion
2,620,567
1,795,890
Total current liabilities
44,349,777
31,628,676
Long Term Liabilities:
Reclamation liability
5,412,612
5,226,505
Finance lease - right of use lease liability, non-current portion
—
406,968
Debt, net - non-current portion
3,736,793
6,121,443
Other liabilities
394,548
306,708
Total long-term liabilities
9,543,953
12,061,624
Total liabilities
53,893,730
43,690,300
COMMITMENTS AND CONTINGENCIES (Note 10)
Stockholders' Equity
Preferred Stock $.000666 par value, 50,000,000 shares authorized, no shares outstanding
—
—
Common stock, $.000666 par value, 245,000,000 shares authorized, 105,876,509 and 91,442,018 shares issued and outstanding at June 30, 2023 and
December 31, 2022, respectively
70,393
60,660
Treasury stock 2,605,323 and 2,605,323 shares, at cost, at June 30, 2023 and December 31, 2022, respectively
(3,360,867)
(3,360,867)
Additional paid-in capital
354,384,981
348,390,556
Accumulated deficit
(302,628,857)
(291,491,432)
Total equity - Comstock Inc.
48,465,650
53,598,917
Non controlling interest
2,624,841
2,764,542
Total stockholders' equity
51,090,491
56,363,459
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY
$
104,984,221
$
100,053,759
The accompanying notes to the Condensed Consolidated Financial Statements are an integral part of these statements.
5
COMSTOCK INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three-Months Ended
Six-Months Ended
June 30,
June 30,
2023
2022
2023
2022
Revenue
$
35,325
$
52,925
$
66,075
$
107,550
Operating expenses:
Selling, general and administrative expenses
3,498,852
2,508,573
6,885,824
4,911,339
Research and development
1,763,304
2,579,150
3,031,683
3,774,568
Depreciation & amortization
704,881
808,894
1,335,922
1,653,423
Gain on sale of equipment
—
—
(178,193)
—
Total operating expenses
5,967,037
5,896,617
11,075,236
10,339,330
Loss from operations
(5,931,712)
(5,843,692)
(11,009,161)
(10,231,780)
Other Income (Expense)
Gain (loss) on investments
—
(298,801)
—
52,823
Interest expense
(376,161)
(312,026)
(991,339)
(636,750)
Interest income
61,018
1,491
106,875
358,352
Change in fair value of derivative instruments
1,564,617
(8,190,000)
2,263,212
(5,125,000)
Gain (loss) on conversion of debt
32,800
—
(237,656)
—
Impairment of intangible assets
—
—
—
(338,034)
Impairment of investments and note receivable, net recovery
—
895,204
—
(3,243,651)
Other income (expense)
(855,151)
(342,773)
(1,318,262)
(1,473,580)
Total other income (expense), net
427,123
(8,246,905)
(177,170)
(10,405,840)
Net loss
(5,504,589)
(14,090,597)
(11,186,331)
(20,637,620)
Net loss attributable to noncontrolling interest
(36,101)
(323,751)
(48,906)
(492,219)
Net loss attributable to Comstock Inc.
$
(5,468,488)
$
(13,766,846)
$
(11,137,425)
$
(20,145,401)
Weighted average common shares outstanding, basic and diluted
101,374,933
68,673,115
98,173,844
68,012,760
Earnings per Share - Basic and Diluted:
Net loss per share - basic and diluted
$
(0.05)
$
(0.20)
$
(0.11)
$
(0.30)
The accompanying notes to the Condensed Consolidated Financial Statements are an integral part of these statements.
6
COMSTOCK INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
Common Stock
Additional
Accumulated
Treasury Stock
Non-Controlling
Shares
Amount
Paid in Capital
Deficit
Amount
Interest
Total
BALANCE - January 1, 2022
71,207,832
$
47,065
$
338,936,145
$
(245,542,688)
$
(3,870,000)
$
3,400,000
$
92,970,522
Common stock received and cancelled in the rescission of the LPB transaction
(3,500,000)
(2,331)
(5,107,669)
—
—
—
(5,110,000)
Common stock issuance costs
—
—
(70,000)
—
—
—
(70,000)
Capital contribution to LINICO by Aqua Metals
—
—
176,695
—
—
323,305
500,000
Employee and director share-based compensation
—
119
108,480
—
—
—
108,599
Sales of treasury shares (1,485 common shares)
—
—
805
—
1,916
—
2,721
Net loss
—
—
—
(6,378,555)
—
(168,468)
(6,547,023)
BALANCE - March 31, 2022
67,707,832
$
44,853
$
334,044,456
$
(251,921,243)
$
(3,868,084)
$
3,554,837
$
81,854,819
Issuance of common stock for Haywood lease
1,500,000
999
2,294,001
—
—
—
2,295,000
Tysadco private placement funding
3,076,923
2,049
1,997,951
2,000,000
Issuance of common stock
4,377,697
2,916
3,457,084
—
—
—
3,460,000
Issuance of common stock for stock issuance costs
829,597
553
839,447
—
—
—
840,000
Common stock issuance costs
—
—
(1,053,000)
—
—
—
(1,053,000)
Common stock received and cancelled in connection with employee termination
(720,000)
(480)
480
—
—
—
—
Employee and director share-based compensation
—
—
113,580
—
—
—
113,580
Repurchase of employee stock options
—
—
(12,195)
—
—
—
(12,195)
Exercise of employee stock options
50,000
33
27,967
—
—
—
28,000
Net loss
—
—
—
(13,766,846)
—
(323,751)
(14,090,597)
BALANCE - June 30, 2022
76,822,049
$
50,923
$
341,709,771
$
(265,688,089)
$
(3,868,084)
$
3,231,086
$
75,435,607
BALANCE - January 1, 2023
91,442,018
$
60,660
$
348,390,556
$
(291,491,432)
$
(3,360,867)
$
2,764,542
$
56,363,459
Issuance of common stock
6,090,276
4,056
2,145,944
—
—
—
2,150,000
Common stock issuance costs
—
—
(607,620)
—
—
—
(607,620)
Issuance of common stock for stock issuance costs
963,445
642
349,358
—
—
—
350,000
Issuance of common stock for conversion of debt and accrued interest
4,539,413
3,023
1,659,700
—
—
—
1,662,723
Employee and director share-based compensation
—
120
126,168
—
—
—
126,288
LINICO dividends earned by AQMS not distributed
—
—
—
—
—
(44,703)
(44,703)
Net loss
—
—
—
(5,668,937)
—
(12,805)
(5,681,742)
BALANCE - March 31, 2023
103,035,152
$
68,501
$
352,064,106
$
(297,160,369)
$
(3,360,867)
$
2,707,034
$
54,318,405
Issuance of common stock
619,352
412
499,588
—
—
—
500,000
Issuance of common stock for conversion of debt and accrued interest, net shares returned
1,951,248
1,300
1,667,632
—
—
—
1,668,932
Issuance of common stock in lieu of payment of interest
270,757
180
107,327
—
—
—
107,507
Employee and director share-based compensation
—
—
46,328
—
—
—
46,328
LINICO dividends earned by AQMS not distributed
—
—
—
—
—
(46,092)
(46,092)
Net loss
—
—
—
(5,468,488)
—
(36,101)
(5,504,589)
BALANCE - June 30, 2023
105,876,509
$
70,393
$
354,384,981
$
(302,628,857)
$
(3,360,867)
$
2,624,841
$
51,090,491
The accompanying notes to the Condensed Consolidated Financial Statements are an integral part of these statements.
7
COMSTOCK INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six-Months Ended
June 30,
2023
2022
CASH FLOW FROM OPERATING ACTIVITIES
Net loss
$
(11,186,331)
$
(20,637,620)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation
335,473
282,907
Amortization of finance leases
23,652
259,904
Amortization on discount associated with finance leases
212,649
—
Amortization of debt discount and other debt-related items
479,065
86,100
Amortization of intangibles
1,000,902
1,110,970
Accretion of reclamation liability
186,107
185,919
Issuance of common stock in lieu of payment of interest
107,507
—
Gain on sale of equipment
(178,193)
—
Loss on conversion of debt
237,656
—
Employee and director share based compensation
172,616
222,060
Change in fair value of derivative instruments
(2,263,212)
5,125,000
Change in fair value of investments
765,000
33,440
Loss on sale of equity securities
—
518,737
Share of net loss of equity-method investments
806,264
578,819
Impairment of MCU-P note receivable
—
733,731
Loss on write off of investments in MCU and MCU-P, net of recovery
—
2,455,333
Impairment of Flux Photon intangibles
—
338,035
Other
(24,605)
24,493
Changes in operating assets and liabilities:
Prepaid expenses
(79,391)
(31,320)
Deposits - asset
289,485
75,300
Other assets
78,976
78,210
Accounts payable
213,124
717,607
Accrued expenses, other liabilities and deposits
720,226
127,672
Deferred gain
1,425,000
—
Net cash provided by (used in) operating activities
(6,678,030)
(7,714,703)
CASH FLOW FROM INVESTING ACTIVITIES:
Proceeds received associated with the agreement to sell the Facility
21,000,000
—
Purchase of Aqua Metals Transfer LLC and Facility (Note 8)
(12,000,000)
—
Recovery of funds from MCU and MCU-P
—
895,204
Acquisition of intangible
—
(500,000)
Payments on contractual commitments associated with derivatives
(3,500,000)
—
Advances to Sierra Springs Opportunity Fund, Inc.
(935,000)
(1,300,000)
Proceeds from repayment by Sierra Springs Opportunity Fund, Inc.
—
1,300,000
Proceeds from Tonogold option agreement
—
750,000
Payments on Haywood land lease and acquisition
—
(50,000)
8
Six-Months Ended
June 30,
2023
2022
Investment in Quantum Generative Materials LLC
—
(750,000)
Additions to construction in progress
—
(180,522)
Proceeds from sale of equity securities
—
933,129
Purchase of mineral and property, plant and equipment
(816,071)
(587,002)
Other
(47,288)
5,336
Net cash provided by (used in) investing activities
3,701,641
516,145
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock
2,650,000
5,460,000
Payments on finance leases
(352,050)
(63,626)
Capital contributed to LINICO from AQMS
—
500,000
Common stock issuance costs
(257,620)
(283,000)
Other
—
18,311
Net cash provided by financing activities
2,040,330
5,631,685
Net increase (decrease) in cash and cash equivalents
(936,059)
(1,566,873)
Cash and cash equivalents at beginning of period
2,521,772
5,912,188
Cash and cash equivalents at end of period
$
1,585,713
$
4,345,315
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Haywood land lease and acquisition
$
—
$
2,050,000
Issuance of common shares for Haywood land lease and acquisition
$
—
$
245,000
Issuance of common shares for debt conversion and accrued interest
$
3,331,656
$
—
Return of common stock in connection with conversion of debt and accrued interest
$
(121,193)
$
—
Investment shares received on sale of Facility
$
9,365,000
$
—
Return of investment shares in lieu of escrowed funds
$
(1,500,000)
$
—
Issuance of common shares for due diligence and commitment fees
$
350,000
$
840,000
Common stock received in the rescission of the LPB transaction
$
—
$
5,110,000
Tonogold note receivable exchanged for option
$
—
$
(6,650,000)
The accompanying notes to the Condensed Consolidated Financial Statements are an integral part of these statements.
9
COMSTOCK INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REFERENCES TO THE COMPANY
Unless context otherwise indicates, the terms we, us, our, Comstock, or the Company mean Comstock Inc., and its subsidiaries on a consolidated basis.
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States ("GAAP") and include the accounts of Comstock Inc. and its wholly-owned subsidiaries, Comstock Fuels Corporation ("Comstock Fuels"), Comstock Metals Corporation ("Comstock Metals") and its 88.22% owned subsidiary LINICO Corporation ("LINICO"), Comstock Innovation Corporation(“Comstock Innovations”), Comstock IP Holdings LLC ("Comstock IP Holdings"), Comstock Engineering Corporation ("Comstock Engineering"), Comstock Mining LLC, Comstock Processing LLC, Comstock Northern Exploration LLC, Comstock Exploration and Development LLC, Comstock Real Estate Inc., Comstock Industrial LLC, MANA Corporation ("MANA"), Downtown Silver Springs LLC ("DTSS"), Aqua Metals Transfer LLC and MCU Philippines, since its acquisition in June 2022. Intercompany transactions have been eliminated. The condensed consolidated financial statements do not include all disclosures required of annual consolidated financial statements and, accordingly, should be read in conjunction with our consolidated financial statements and notes thereto in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
Operating results for the three and six-months ended June 30, 2023 may not be indicative of full year 2023 results.
In management's opinion, the accompanying condensed consolidated financial statements contain all adjustments necessary for a fair statement of our financial position as of June 30, 2023, and our results of operations, changes in equity for the three and six-months ended June 30, 2023 and 2022, and our cash flows for the six-months ended June 30, 2023 and 2022.
DESCRIPTION OF THE BUSINESS
Comstock innovates and commercializes technologies that enable systemic decarbonization and circularity by efficiently converting under-utilized waste and renewable natural resources into fuels, metals and electrification products that contribute to balancing global uses and emissions of carbon and accelerate more efficient and effective mineral and material discoveries.
Our strategic plan is based on innovating and enabling material science solutions and using our technologies to reduce reliance on long cycle fossil fuels, to shift to and maximize throughput of short cycle fuels, and to lead and support the adoption and growth of profitable, balanced, short cycle ecosystems that continuously offset, recycle, and/or neutralize carbon emissions.
Comstock Fuels – Most renewable fuels draw from the same feedstock pool, primarily vegetable oils, but the total supply can only meet a small fraction of the demand. Our technologies unblock that constraint by converting abundant, lignocellulosic biomass into biointermediates for refining into renewable fuels.
Comstock Metals – The world is focused on the production of energy generation and storage technologies to reduce reliance on fossil fuels, including lithium-ion batteries (“LIBs”), photovoltaics, and fuel cells. Each of those technologies relies on scarce critical metals, increasing global demand for primary metal mining and recycling. During 2022, we deployed a pilot system to validate technologies for use in efficiently crushing, conditioning, extracting, and recycling high purity metal concentrates from LIBs and other electronic devices.
Comstock Mining – We own or control twelve square miles of patented and unpatented mining claims and surface parcels, covering six and a half miles of continuous mineral strike length. We enhanced the value of a small portion of our properties in the past year with two SK-1300 technical reports estimating Measured and Indicated resources containing 605,000 ounces of gold and 5,880,000 ounces of silver, plus Inferred resources containing 297,000 ounces of gold and 2,572,000 ounces of silver. We have amassed one of the largest historical and current data repositories for the Comstock historic district and plan on enhancing that data with hyperspectral orbital imaging and generative artificial intelligence (“AI”) solutions that provide prospecting analytics and enable more effective mineral discovery.
10
Artificial Intelligence –Quantum Generative Materials LLC ("GenMat"), our 48% owned investment, has developed and launched a new generative AI to simulate critical properties of known materials during calibration testing late last year. GenMat also plans on using its AI to simulate new material characteristics. GenMat's generative AI models can be employed today for commercial use on GenMat's existing high-performance computing platform, well before quantum computers become mainstream.
The Company’s strategic investment in the Sierra Springs Opportunity Fund ("SSOF") and its subsidiaries further demonstrates our commitment to and support of sustainable economic growth in our northern Nevada communities.
LIQUIDITY AND CAPITAL RESOURCES
The Condensed Consolidated Financial Statements are prepared on the going concern basis of accounting that assumes the realization of assets and the satisfaction of liabilities in the ordinary course of business. The Company has had recurring net losses from operations and had an accumulated deficit of $302.6 million at June 30, 2023. For the six-months ended June 30, 2023, the Company recognized a net loss of $11.1 million and cash and cash equivalents decreased by $0.9 million from $2.5 million at December 31, 2022 to $1.6 million at June 30, 2023. The Company intends to fund our operations over the next twelve months from existing cash and cash equivalents, planned sales of non-strategic assets and other investments, leasing cash inflows on certain mineral properties, and planned licensing, sales and cash inflows from our lignocellulosic and metal recycling technologies and related engineering services. Based on these expected funding sources, management believes the Company will have sufficient funds to sustain our operations and meet our commitments under our investment agreements during the 12 months following the date of issuance of the Condensed Consolidated Financial Statements included herein. While the Company has been successful in the past in obtaining the necessary capital to support our operations, including registered equity financings from our existing shelf and other registration statements, non-registered equity placements, borrowings and various other means, there is no assurance the Company will be able to obtain additional equity capital or other financing, if needed. Risks to our liquidity include future operating expenditures above management’s expectations, including but not limited to research and development, pre-development, exploration, selling, general and administrative, and investment related expenditures in excess of repayments of the advances to SSOF, cash proceeds from the sale of our non-strategic assets and other investments, amounts to be raised from the issuance of equity under our existing shelf and other registration statements, and repayments of the advances to SSOF. Risks to our liquidity also include declines in the market value of properties planned for sale or declines in the share price of our common stock that would adversely affect our results of operations, financial condition and cash flows. If we are unable to obtain any necessary additional funds, this could have an immediate material adverse effect on liquidity and raise substantial doubt about our ability to continue as a going concern. In such case, we could be required to limit or discontinue certain business plans, activities or operations, reduce or delay certain capital expenditures or investments, and/or sell certain assets or businesses. There can be no assurance that we would be able to take any such actions on favorable terms, in a timely manner, or at all.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform to the 2023 financial statement presentation. Reclassifications had no effect on net income (loss) or cash flows as previously reported.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2022, the FASB issued ASU 2022-03 (Topic 820) Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. The new guidance clarifies a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value, and an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. The amendments require certain disclosures for equity securities subject to contractual sale restrictions, including the fair value of equity securities subject to contractual sale restrictions reflected in the balance sheet, the nature and remaining duration of the restriction, and the circumstances that could cause a lapse in the restriction. The guidance is effective for fiscal years beginning after December 15, 2023 and interim periods within those fiscal years. The Company is currently evaluating the impact of Topic 820 on our consolidated financial statements.
Management does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the accompanying financial statements.
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NOTE 2 INVESTMENTS
Summary of Investments
At June 30, 2023 and December 31, 2022 our investments include:
June 30, 2023
December 31, 2022
Equity Method Investments:
Investment
Ownership %
Investment
Ownership %
Quantum Generative Materials LLC
$
12,523,225
48.19%
$
13,312,433
48.19%
Pelen Limited Liability Company
602,128
25.00%
619,184
25.00%
Total equity method investments
13,125,353
13,931,617
Readily Determinable Fair Value Investments:
American Battery Technology Company common stock
$
7,100,000
$
—
Alternative Measurement Method Investments:
Green Li-ion Pte. Ltd. preferred shares
4,517,710
4,517,710
Sierra Springs Opportunity Fund, Inc., at cost
335,000
335,000
Total Investments
25,078,063
18,784,327
Less: current investments
11,617,710
—
Long-term investments
$
13,460,353
$
18,784,327
Summary financial information for affiliated companies (20% to 50%-owned) accounted for by the equity method for the periods presented, compiled from the equity investee's financial statements and reported on a one quarter lag is as follows:
June 30, 2023
December 31, 2022
Current assets
$
969,634
$
1,023,023
Non-current assets
8,375,674
12,034,506
Current liabilities
3,625
89,584
Non-current liabilities
—
—
Six-Months Ended
June 30, 2023
June 30, 2022
Revenues
35,750
34,775
Gross Profit
35,750
34,775
Net loss
$
(2,172,782)
$
(1,434,706)
The excess of our investment values over the net assets of the individual equity method investees is comprised of goodwill. We periodically assess the net assets of our equity method investees and confirm there are no other assets that may require additional adjustments. Significant amounts due to and from equity method investees included in the summarized financial information include the aggregate value of the Company's stock held by investees and make-whole derivatives of $7.3 million and $10.9 million, which is included in non-current assets as of June 30, 2023 and December 31, 2022, respectively, in the table above.
Investment in Quantum Generative Materials LLC
On June 24, 2021, we invested in the equity of GenMat, and we received 465,000 membership units and committed $5,000,000 in cash and $10,000,000 in guaranteed stock value for a total of $15,000,000 for the initial seed investment and committed an additional $35,000,000 based upon GenMat’s realization of key development milestones, for up to 50% ownership of GenMat.
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At closing we issued 3,000,000 restricted shares of our common stock with a fair value of $10,530,000 toward the $10,000,000 required stock purchase price and recorded a $530,000 related derivative asset (see Note 11, Equity). Through December 31, 2022, we paid $7,450,000 consisting of the full $5,000,000cash commitment and $2,450,000 against the make-whole for the deficiency in the common stock value. During the six-months ended June 30, 2023 and 2022, we paid $2,100,000 and $750,000, respectively, against the make-whole for the deficiency in common stock value.
For the three and six-months ended June 30, 2023, the Company recorded $345,586 and $789,208, respectively, in equity loss from affiliates for our investment in GenMat at 37.5% of voting rights since 165,000 membership units were not vested as of June 30, 2023. For the three and six-months ended June 30, 2022, the Company recorded $316,140 and $521,545, respectively, in equity loss from affiliates for our investment in GenMat.
The Company’s executive chairman and chief executive officer serves as the chairman of GenMat and the Company’s chief technology officer and another employee of the Company also serve on the board of directors of GenMat. The GenMat board of directors is composed of the three aforementioned employees of the Company, each having one vote and the founder and chief executive officer of GenMat who effectively receives four votes. The three aforementioned employees of the Company's do not and have not received compensation of any kind from GenMat.
Investment in Pelen LLC
In April 2020, the Company invested $602,500 in Pelen LLC in exchange for 25% ownership and retained an option to purchase the remaining 75% ownership interest. At June 30, 2023 and December 31, 2022, the balance of option payments applicable to the purchase price totaled $150,000 and are included in deposits on the condensed consolidated balance sheets.
The Company recorded $4,487 in equity income and $17,056 in equity loss from affiliates for its investment in Pelen for the three and six-months ended June 30, 2023. The Company recorded $4,223 and $20,978, respectively, in equity income from affiliates for its investment in Pelen for the three and six-months ended June 30, 2022.
Investment in American Battery Technology Company
In connection with the sale of the Facility (see Note 8, Assets Held For Sale), the Company received 11 million shares of restricted common stock from the purchaser of the Facility, American Battery Technology Company ("ABTC") with an initial fair value of $9,365,000. On June 30, 2023, the Company and ABTC amended the agreement whereby the Company returned 1,923,077 of the ABTC restricted shares and ABTC agreed to forego the right to have $1.5 million of the purchase price set aside in escrow to settle indemnification claims. The shares are restricted securities. As of June 30, 2023, the remaining investment of 9,076,923 shares of restricted ABTC common stock had a fair value of $7.1 million. For the three and six-months ended June 30, 2023, the Company recognized a loss of $765,000 on the investment included in other income (expense) in the condensed consolidated statements of operations (see Note 12, Fair Value Measurements).
Investment in Green Li-ion Pte, Ltd.
As part of our acquisition of a majority ownership of LINICO on December 30, 2021, we acquired 20.22% of Green Li-ion Pte, Ltd., a Singaporean company ("Green Li-ion"). The investment had a fair value of $4,577,000 at acquisition and was accounted for under the equity method through March 31, 2022 and under the alternative cost method, after March 31, 2022.
On January 5, 2022 and April 11, 2022, Green Li-ion issued additional equity and decreased our ownership to 16.45%, resulting in the loss of our ability to exercise significant influence. Accordingly, we elected the measurement alternative for equity investments that do not have a readily determinable fair value and we are now accounting for the investment at cost, with all losses previously recognized under the equity method remaining as part of the carrying value of the investment.
On February 28, 2023, Green Li-ion issued additional equity and further decreased our ownership down to 14.01%. The Company monitors additional equity issuances of Green Li-ion to assess whether the equity securities issued are similar instruments requiring adjustments of our investments carrying value to fair value. At June 30, 2023, no adjustments were made to our investments carrying value as a result of the Green Li-ion equity issuances.For the three and six-months ended June 30, 2022, we recognized $0 and $59,290, respectively, in equity losses from affiliates for the investment in Green Li-ion.
Investment in LP Biosciences LLC
On February 28, 2022, the LP Biosciences LLC ("LPB") 2021 transactions were terminated and each of the parties were relieved of their respective rights, liabilities, expenses, and obligations under the transactions except termination obligations. In
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connection with the termination, 3,500,000 restricted shares of the Company’s common stock were transferred back to the Company for cancellation upon receipt. The combined value of $5,110,000, representing the carrying value of our investment of $4,173,000 and the derivative asset of $937,000, was recorded directly to additional paid-in capital in the statement of equity as of June 30, 2022. The original acquisition cost of $10,812,669 was recognized as a reduction in equity.
For the three and six-months ended June 30, 2022, the Company recorded other expense of approximately $0 and $250,000, respectively, in the condensed consolidated statement of operations, in connection with the termination of the transaction. There was no such expense in 2023.
Investment in Mercury Clean Up LLC and MCU Philippines, Inc.
In March 2022, based on the lack of known, cash-generating operating sites for MCU-P operations, and the costs associated with relocating and deploying to a new site, there is no known reasonable possibility of future cash flows from MCU and MCU-P and we determined that the investment was not recoverable. During the six-months ended June 30, 2022, investment of $1,960,448 in MCU and the investment of $494,884 and notes receivable of $1,628,913 to MCU-P were deemed unrecoverable, and all amounts were fully impaired.
On June 18, 2022, the members of MCU agreed to distribute 100% of MCU's assets to the Company, including the cash held by MCU and MCU-P of $895,204 and the remaining 50% of MCU-P common stock, in exchange for forgiveness of the debt owed by MCU-P to the Company which was fully impaired in the six-months ended June 30, 2022. The cash and proceeds of assets liquidated of $895,204 were recognized as a recovery of impairment of assets in other income (expense) of the Company with $590,000 from MCU and $305,204 from MCU-P during the second quarter of 2022.
As of June 18, 2022, the Company owned 100% of the membership interest of MCU, which has since been dissolved, and 100% of the stock of MCU-P, respectively. The carrying value of the investment on the acquisition date of both MCU and MCU-P was $0 and the net assets remaining after distributing the cash in repayment of the note receivable were insignificant. MCU and MCU-P hold equipment that was fully impaired prior to the acquisitions, and the remaining net assets include insignificant amounts of cash and accounts payable.
The Company recorded equity losses from affiliates for the investment in MCU and MCU-P of $0 for the three and six-months ended June 30, 2023. The Company recorded equity losses from affiliates for the investment in MCU of $0 and $14,578 for the three and six-months ended June 30, 2022. The Company recorded equity losses from affiliates for the investment in MCU-P of $0 and $4,385 for the three and six-months ended June 30, 2022.
Investment in Sierra Springs Opportunity Fund, Inc.
During 2019, the Company invested $335,000 into a qualified opportunity zone fund, SSOF which owns Sierra Springs Enterprises, Inc. ("SSE"), a qualified opportunity zone business. At June 30, 2023, our $335,000 investment in SSOF and 6,700,000 voting shares represent 11.64% of the total, fully diluted SSOF common shares. The Company monitors additional equity issuances of SSOF to assess whether the equity securities are similar instruments requiring adjustments of the investment carrying values to fair value. The Company did not make any adjustments to the investments carrying value. At June 30, 2023 and December 31, 2022, the Company’s investment in SSOF is presented on the condensed consolidated balance sheets as a non-current investment. The Company's CEO is an executive and director of SSOF.
The SSOF investment is accounted for using the alternative measurement method as there is no ready market for the investment units and is recorded to non-current investments on the condensed consolidated balance sheets. Management identified no events or changes in circumstances that might have a significant adverse effect on the carrying value of the investment. Management concluded it was impractical to estimate fair value due to the early stages of the fund and the absence of a public market for its stock.
The Company’s maximum exposure to loss as a result of its involvement with SSOF is limited to its initial investment of $335,000 and the advances of $5,925,000 outstanding at June 30, 2023.
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NOTE 3 NOTES RECEIVABLE AND ADVANCES, NET
Notes receivable and advances, net at June 30, 2023 and December 31, 2022 include:
June 30, 2023
December 31, 2022
Current portion
Sierra Springs advances receivable
$
5,925,000
$
4,990,000
Other notes receivable
16,267
22,275
Total notes receivable and advances, current portion
$
5,941,267
$
5,012,275
Non-current portion
Daney Ranch note receivable
$
991,156
$
993,000
Unamortized discount for implied interest
(9,077)
(33,682)
Daney Ranch note receivable, net of discount
982,079
959,318
Total notes receivable and advances, non-current portion, net
$
982,079
$
959,318
Daney Ranch Sale
In August 2022, the Company sold the Daney Ranch and issued a 10-year $993,000 note receivable maturing in August 2032 to the former lessee and purchaser (see Note 7, Leases). The note bears interest at 2% for the first year and 7% for the remaining term. The note may be prepaid, in full or in part, at any time without penalty. The note is secured by a second priority security interest in the property. The present value of the future interest and principal payments using a prevailing rate for similar loans of 7% was less than the face amount of the loan at issuance and we recognized an initial discount of $51,909. The discount is being amortized into interest income over the first year of the note and the note is measured on an amortized cost basis. During the three and six-months ended June 30, 2023, we recognized interest income of $17,310 and $34,449, respectively. For the three and six-months ended June 30, 2022, there was no interest income recognized.
Tonogold Note Receivable
In September 2020, the Company sold its 100% ownership interest in Comstock Mining LLC whose sole assets were the Lucerne properties and related permits (“Comstock Lucerne”), to Tonogold Resources, Inc. ("Tonogold") for cash and debt.
On March 26, 2022, we entered into an option agreement (the "Lucerne Option") with Tonogold where we agreed to extinguish their $6,650,000 note receivable ("the Note") in exchange for 100% of the membership interests of Comstock Mining LLC and a payment of $750,000. The agreement provided Tonogold the right to repurchase the Comstock Mining LLC membership interests, which expired at December 31, 2022, when all agreements were terminated due to the failure to pay the Company.
Prior to the Lucerne Option agreement, we accounted for the Note using the fair value option. For the three and six-months ended June 30, 2022, we recognized a loss in other income and expense on the consolidated statement of operations for the change in fair value of the Note of $0 and $605,000, respectively.
Advances to Sierra Springs Opportunity Fund, Inc.
For the six-months ended June 30, 2023 and 2022, the Company provided SSOF advances of $935,000 and $1,300,000, respectively. The $1,300,000 amount was fully repaid on January 26, 2022. SSOF used the advances payments on land options and working capital associated with the investments in qualified businesses in the opportunity zone. Total advances outstanding at June 30, 2023 and December 31, 2022 were $5,925,000 and $4,990,000, respectively. The advances are non-interest bearing.
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NOTE 4 PROPERTY, PLANT AND EQUIPMENT, NET AND MINERAL RIGHTS
Property, plant and equipment at June 30, 2023 and December 31, 2022 include the following:
June 30, 2023
December 31, 2022
Land
$
6,328,338
$
6,328,338
Real property leased to third parties
1,037,049
1,037,049
Property, plant and equipment for mineral processing
27,644,745
27,644,745
Other property and equipment
5,686,710
5,212,891
Accumulated depreciation
(27,084,404)
(26,748,929)
Total property, plant and equipment, net
$
13,612,438
$
13,474,094
During the three-months ended June 30, 2023 and 2022, we recognized depreciation expense of $215,376 and $145,091, respectively. During the six-months ended June 30, 2023 and 2022, we recognized depreciation expense of $335,473 and $282,907, respectively.
On April 26, 2023, the Company closed on the purchase of Aqua Metals Transfer LLC, a subsidiary of Aqua Metals Inc. ("AQMS"), including land, buildings and related improvements therein and paid the $12 million due to AQMS, effectively taking full ownership of the land, buildings and related improvements and the previously existing lease with LINICO was terminated. As of June 30, 2023, assets held for sale include the land, buildings and related improvements with a balance of $20,638,942 (see Note 8, Assets Held For Sale).
Mineral Rights and Properties
Our properties at June 30, 2023 and December 31, 2022 consisted of the following:
June 30, 2023
December 31, 2022
Comstock Mineral Estate
$
12,164,013
$
12,164,013
Other mineral properties
317,405
317,405
Water rights
820,595
90,000
Total mineral rights and properties
$
13,302,013
$
12,571,418
The Comstock Mineral Estate includes all of the Company's resource areas and exploration targets. During the six-months ended June 30, 2023 and 2022, we did not record any depletion expense, as none of the properties are currently in production. All of our mineral exploration and mining lease payments are classified as selling, general and administrative expenses in the condensed consolidated statements of operations.
On June 30, 2023, the Company signed a Mineral Exploration and Mining Lease Agreement (the “Mining Lease”) with Mackay Precious Metals Inc (“Mackay”). The Mining Lease provides a twenty-year term granting Mackay the rights to conduct exploration on certain of the Company’s mineral properties in Storey County, Nevada. Mackay paid a lease initial fee of $1,250,000 and will make quarterly lease payments of $375,000 for the first four years, and quarterly lease payments of $250,000 thereafter. In addition, Mackay will reimburse carrying costs for the mineral properties, estimated to be $177,000 per year, and will pay a Net Smelter Return ("NSR") royalty of 1.5% from eventual mine production from the mineral properties. Mackay also committed to expenditures of $1,000,000 per year on a cumulative basis, and increasingly detailed technical reports after the first five, ten, and fifteen years.
We determined that the lease initial fee of $1,250,000 will be recognized as income ratably over the term of the lease and quarterly lease payments will be recognized as income in the period received. As of June 30, 2023, the Company received the lease initial fee and recorded deferred revenue of $1,250,000 reflected in deferred gain on our condensed consolidated balance sheet.
In March 2023, the Company acquired senior water rights (50-acre feet) associated with one of its existing properties and junior water rights (16-acre feet) for a total of $730,595.
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NOTE 5 INTANGIBLE ASSETS AND GOODWILL
The Company’s intangible assets at June 30, 2023 and December 31, 2022 include the following:
Description
Estimated Economic Life
June 30, 2023
December 31, 2022
Developed technologies
10 years
$
19,382,402
$
19,382,402
License agreements
10 years
510,752
510,752
Customer agreements
1 year
122,885
122,885
Distribution agreements
8 years
19,733
19,733
Trademarks
10 years
7,000
7,000
Accumulated amortization
(3,379,993)
(2,379,091)
Intangible assets, net
$
16,662,779
$
17,663,681
Accumulated amortization as of June 30, 2023 and December 31, 2022 consisted of the following:
June 30, 2023
December 31, 2022
Developed technologies
$
3,142,853
$
2,172,594
License agreements
107,211
78,415
Customer agreements
122,885
122,884
Distribution agreements
5,994
4,497
Trademarks
1,050
701
Accumulated amortization
$
3,379,993
$
2,379,091
For the three-months ended June 30, 2023 and 2022, amortization expense related to intangible assets was $500,451 and $530,695, respectively. For the six-months ended June 30, 2023 and 2022, amortization expense related to intangible assets was $1,000,902 and $1,110,970, respectively.
The Company is party to three license agreements with American Science and Technology Corporation (“AST”), pursuant to which the Company agreed to license AST’s intellectual properties for use at three facilities in exchange for three facility-specific license fees of $500,000 each, and a royalty fee equal to 1.0% of the gross revenue of each of the first three licensed facilities. During 2022, the Company paid $500,000 toward the license fees which are recognized as an addition to intangible assets - developed technologies. As of June 30, 2023, we obtained the three license agreements and no additional payments are anticipated.
Future minimum amortization expense is as follows at June 30, 2023:
Remainder of 2023
$
996,750
2024
1,993,499
2025
1,993,499
2026
1,993,499
2027
1,993,499
Thereafter
7,692,033
$
16,662,779
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Changes in the intangible assets and goodwill balances for the six-months ended June 30, 2023 and 2022, are presented below:
As of December 31, 2022
Additions
Impairment
Amortization
As of June 30, 2023
Intangible assets
$
20,042,772
$
—
$
—
$
—
$
20,042,772
Accumulated amortization
(2,379,091)
—
—
(1,000,902)
(3,379,993)
Total intangible assets and goodwill
$
17,663,681
$
—
$
—
$
(1,000,902)
$
16,662,779
As of December 31, 2021
Additions
Impairment
Amortization
As of June 30, 2022
Intangible assets
$
23,514,259
$
500,000
$
(350,000)
$
—
$
23,664,259
Accumulated amortization
(338,958)
—
11,965
(1,110,970)
(1,437,963)
Goodwill
12,788,671
—
—
—
12,788,671
Total intangible assets and goodwill
$
35,963,972
$
500,000
$
(338,035)
$
(1,110,970)
$
35,014,967
All intangibles and goodwill are associated with the Renewable Energy segment. In 2022, the Company fully impaired the goodwill associated with acquisitions in 2021 of $12,788,671 in the renewable energy segment. Our assessment reviewed both qualitative and quantitative factors to derive the estimated fair value of our goodwill associated with our acquisitions in 2021. The Company fully impaired the goodwill associated with acquisitions in 2021 due to a decrease in the Company's stock price and market capitalization since the acquisition date. Our valuation method incorporated the present value of projected cash flows to calculate the discounted cash flows compared to the guideline for public companies. We compared the fair value as indicated by the discounted cash flows of the reporting unit to the carrying value of the goodwill and recognized a full impairment of goodwill associated with our 2021 acquisitions.
As of December 31, 2022, assets held for sale include a lease intangible with a balance of $3,501,939 which was net of related amortization of $119,548. The underlying lease and lease intangible were classified as Held for Sale at December 31, 2022 and expired in April 2023 with the Company's acquisition of the associated leased assets (see Note 8, Assets Held For Sale).
NOTE 6 ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities at June 30, 2023 and December 31, 2022 consisted of the following:
June 30, 2023
December 31, 2022
Accrued interest expense
$
49,167
$
43,398
Accrued payroll costs
796,632
627,210
Accrued incentive compensation
1,223,112
928,125
Accrued vendor liabilities
144,427
115,653
Other accrued expenses
170,671
5,211
Total accrued expenses
$
2,384,009
$
1,719,597
On July 1, 2022, the Board of Directors approved a performance objective based, cash incentive compensation for executives of the Company, with the potential to earn a performance bonus of up to 100% of base salary. The incentive compensation is discretionary and based on the progress and achievement of performance objectives as depicted in the strategic plan approved by the Board of Directors. The final assessment of progress and achievement requires the compensation committee’s approval. On April 28, 2023, the compensation committee of the Board of Directors approved executive incentive compensation of $970,000 for named executive officers other than the chief executive officer earned through December 31, 2022. As of June 30, 2023, the Company paid $635,000 relating to the 2022 executive accrued incentive compensation with the remaining $335,000 to be paid in the third quarter of 2023. For the three and six-months ended June 30, 2023, the Company recognized $656,081 and $888,112, respectively, of expense associated with the plan based on estimates of progress towards meeting incentives. For the three and six-months ended June 30, 2022, the Company expensed $0 for the cash incentive compensation plan. As of
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June 30, 2023, accrued incentive compensation of $1,223,112 consists of the remaining $335,000 of the 2022 incentive to be paid in the third quarter of 2023 and $888,112 relating to the estimated 2023 incentive accrual expected to be paid in 2024.
NOTE 7 LEASES
The Company has the following lease balances recorded on the condensed consolidated balance sheets as follows:
Lease Assets and Liabilities
Classification
June 30, 2023
December 31, 2022
Finance lease right-of-use asset
Assets held for sale
$
—
$
15,709,039
Finance lease right-of-use asset
Finance lease - right to use asset, net
2,968,414
2,911,458
Operating lease right-of-use asset
Other current assets
39,452
42,061
Total right of use assets
$
3,007,866
$
18,662,558
Operating lease liability - current
Accrued expenses and other liabilities
$
5,658
$
5,211
Operating lease liability - long-term
Other liabilities
37,237
40,193
Finance lease liability
Liabilities - held for sale
—
12,021,566
Finance lease liability, current portion
Finance lease - Right of use lease liability
855,417
409,143
Finance lease liability
Finance lease - Right of use lease liability, long term portion
—
406,968
Total lease liabilities
$
898,312
$
12,883,081
The Company has the following lease costs recorded in the condensed consolidated statements of operations as follows:
Three-Months Ended
Six-Months Ended
June 30, 2023
June 30, 2022
June 30, 2023
June 30, 2022
Finance lease cost:
Amortization of right-of-use assets
$
13,159
$
132,270
$
23,652
$
257,545
Interest on lease liabilities
16,937
206,272
212,649
401,883
Operating lease cost
1,322
2,525
3,847
5,049
Total lease cost
$
31,418
$
341,067
$
240,148
$
664,477
Other information
Operating cash flows from operating leases
$
2,475
$
2,400
$
4,950
$
4,800
Financing cash flows from finance leases
$
25,066
$
55,238
$
352,050
$
63,627
The Company has the following weighted average remaining lease terms and discount rates for our finance and operating leases:
June 30, 2023
June 30, 2022
Weighted-average remaining lease term - finance leases
1.08
0.35
Weighted-average remaining lease term - operating leases
5.26
6.25
Weighted-average discount rate - finance leases
8.0
%
6.11
%
Weighted-average discount rate - operating leases
11.0
%
11.0
%
19
Finance Lease
AQMS Lease
LINICO, a majority-owned subsidiary of the Company, had a finance lease, as lessee, with Aqua Metals Reno Inc., a subsidiary of Aqua Metals Inc. ("AQMS"), for land, buildings and related improvements (the “Facility”). AQMS is the non-controlling interest holder for LINICO. The lease agreement provided for the Company, to purchase the Facility for a purchase price of $15.25 million ($3.25 million of which was previously paid) if LINICO elected not to or was unable to purchase the Facility. On March 30, 2023, the Company delivered AQMS a notice of its irrevocable intent to exercise the option and purchase the membership interest of the entity that owned the Facility for $12,000,000, as provided by the agreement. On April 26, 2023, the Company closed on the purchase of the membership interest of Aqua Metals Transfer LLC from AQMS and paid the remaining $12 million due, taking full ownership of the membership interest of Aqua Metals Transfer LLC and terminating the AQMS lease (see Note 8, Assets Held for Sale).
AST Asset Purchase Agreement
On April 16, 2021, the Company entered into three license agreements and an asset purchase agreement with AST. The license agreements provided for full use of the facility and all machinery and equipment located therein until April 30, 2022 (see Note 5, Intangible Assets and Goodwill). Under the Asset Purchase Agreement, the Company agreed to acquire substantially all of AST’s assets in exchange for $3,500,000 due on April 30, 2024 in addition to $35,000 per month from May 1, 2022 to April 30, 2024. Beginning May 1, 2022, the Asset Purchase Agreement provides for full access and use of the AST assets until all payments are made and title transfers to the Company. Under this agreement, payment associated with the machinery and equipment acquired was $79,935 and $159,870 for the three and six-months ended June 30, 2023, respectively, which is classified as research and development expense on the condensed consolidated statement of operations. For the three and six-months ended June 30, 2022, payment associated with the machinery and equipment acquired was $53,290.
Haywood Quarry Acquisition and Lease Agreement
On April 7, 2022 and amended on November 7, 2022, the Company contracted to purchase Haywood quarry and industrial property (“Haywood”) from Decommissioning Services LLC (“Decommissioning Services”) for $2.1 million, payable in $50,000 of cash and 1,500,000 common shares of Comstock with a value of $2,295,000. The Haywood property represents approximately 190 industrial acres in Lyon County, Nevada, and part of one of the larger industrial parks in Lyon County. The property has power, water and direct highway access. The Company plans to employ a portion of the property for used lithium-ion battery storage, supporting LINICO's battery metal recycling.
The closing and purchase of the asset is contingent on liquidation of the shares and receipt of the full purchase price by the seller. The Company agreed to make up any contractual stock consideration if the proceeds from the sale of the shares plus the deposit are less than $2.1 million, and the seller agreed to refund any excess proceeds. This contractual stock consideration has been recorded as a derivative on the consolidated balance sheets. The first amendment to the lease agreement signed by the parties on November 7, 2022, extended the closing date to April 7, 2024. During the six-months ended June 30, 2023 and the year ended December 31, 2022, the Company paid Decommissioning Services $200,000 and $150,000, respectively, which resulted in a decrease in contractual stock consideration (see Note 12, Fair Value Measurements).
During the period between execution of the agreement and closing, the property is leased to us for no additional consideration, providing exclusive rights to access, use or sublease portions of the property, to obtain permits and prepare the property for its intended purpose, including improvements. If the conditions for closing are not satisfied by April 7, 2024, the agreement will terminate, and Decommissioning Services will retain a total of $400,000 in rental fees for use of the property. We agreed to pay Decommissioning Services a 2% royalty of the sales price of any gravel, aggregate, or rock products produced and sold from Haywood, excluding the removal of materials that have been pledged to a third-party for improvements made.
20
Minimum lease payments to be paid by the Company by fiscal year for the Company's operating and finance leases are as follows:
Operating Leases
Finance Leases
For the remainder of 2023
$
4,901
$
50,130
2024
10,250
860,564
2025
10,550
—
2026
10,850
—
2027
11,150
—
Thereafter
9,600
—
Total lease payments
57,301
910,694
Less: imputed interest at 11%, operating lease
(14,406)
—
Less: imputed interest at 8%, finance lease
—
(55,277)
Present value of lease liabilities
$
42,895
$
855,417
Operating Lease Income
Revenues from operating leases on our land and building leased to others totaled $35,325 and $43,875 for the three-months ended June 30, 2023 and 2022, respectively. Revenues from operating leases on our land and building leased to others totaled $66,075 and $98,500 for the six-months ended June 30, 2023 and 2022, respectively.
Minimum lease payments for operating leases to be received from others are as follows:
For the remainder of 2023
$
45,450
2024
94,725
2025
96,000
2026
96,000
2027
96,000
Thereafter
192,000
Total Minimum Lease Income
$
620,175
NOTE 8 ASSETS HELD FOR SALE
As of June 30, 2023 and December 31, 2022, the Facility and other assets associated with AQMS lease had a net carrying value of $20,638,942 and $21,684,865, respectively, and liabilities of $27,803,564 and $12,021,566, respectively, that met the criteria to be classified as held for sale.
On March 1, 2023, LINICO and ABTC entered into an asset Purchase Agreement in which LINICO sold equipment associated with the Facility for $6 million in cash. The agreement states that both parties entered into a Membership Interest Purchase Agreement ("Facility Purchase Agreement") whereby ABTC would also acquire the Facility. In connection with the sale of equipment, the Company recorded a gain of $178,193 during the quarter ended March 31, 2023, with the remaining $5,041,544 of estimated gain deferred until the sale of the Facility is completed, anticipated in the third and fourth quarters of 2023.
On March 31, 2023, LINICO and ABTC amended the Facility Purchase Agreement, and the Company agreed to take certain action previously contemplated by LINICO. On March 31, 2023 and April 21, 2023, the Company received non-refundable consideration of $5 million and $7 million in cash, respectively, from ABTC.
On April 6, 2023, LINICO and ABTC amended and restated the Facility Purchase Agreement, and the Company received 10 million shares of ABTC restricted common stock (with a guarantee that the Company will receive additional cash and/or shares if and to the extent that the proceeds from such shares are less than $6.6 million). The Company was also required to set aside $1.5 million of the purchase price in escrow to settle potential indemnification claims.
On May 12, 2023, the parties amended and restated the Facility Purchase Agreement ("Second Amendment and Restated Agreement"), the Company received an additional $1.0 million in cash and 1 million shares of restricted shares of ABTC
21
common stock. On May 22, 2023, the Company received an additional $2.0 million in cash associated with the purchase and an additional $250,000 in cash to extend the closing period of the agreement.
On June 30, 2023, the parties amended and restated the Second Amendment and Restated Agreement ("Third Amendment and Restated Agreement"), whereby the Company returned 1,923,077 of restricted shares of ABTC stock in exchange for $1.5 million of the purchase price previously agreed to be set aside in escrow to settle potential indemnification claims. Four months after the registration statement is declared effective, ABTC will be required to make a one-time cash payment to the Company equal to the difference, if any, of $6,000,000 minus the net proceeds of any shares sold minus the market value of any shares still then owned by the Company. On June 30, 2023, the parties entered into an interim water right agreement to grant a security interest in certain water rights of ABTC for the benefit of the Company to secure certain payment obligations of ABTC under the amended agreement.
Consideration received for the Facility and equipment as of June 30, 2023 are as follows:
Date
Consideration
Fair Value of Consideration
March 1, 2023
Cash
$
6,000,000
March 31, 2023
Cash
5,000,000
April 6, 2023 (modified April 21, 2023)
Restricted shares of ABTC common stock (10,000,000 shares)
9,000,000
April 21, 2023
Cash
7,000,000
May 12, 2023
Cash
1,000,000
May 12, 2023
Restricted shares of ABTC common stock (1,000,000 shares)
365,000
May 22, 2023
Cash - Extension Fee
250,000
May 22, 2023
Cash
2,000,000
June 30, 2023
ABTC common shares returned in lieu of escrowed funds (1,923,077 shares)
$
(1,500,000)
Total Consideration
$
29,115,000
The Company anticipates to net approximately $15.0 million in cash from this transaction after selling of the ABTC stock in the third and fourth quarters 2023. The total estimated gain on sale of the Facility is estimated at approximately $7.2 million, of which, approximately $0.2 million of which was recognized during the first quarter of 2023, on the portion of the sale of associated with the equipment. The Company recorded a deferred liability balance of $27.8 million included in Liabilities Held for Sale, for the deferred proceeds and gains on the sale of the Facility and related equipment received through June 30, 2023, but not yet realized as control of the Facility has not yet been transferred to ABTC.
On April 21, 2023, the Company and ABTC entered into a pre-closing lease agreement for the Facility whereby ABTC could use the Facility until the time the sale is finalized. The terms of the lease agreement commenced on April 21, 2023, and ended on June 30, 2023 with ABTC paying $1 in rent per month. On June 30, 2023, the lease term was automatically extended after June 30, 2023, on a month-to-month basis, and monthly rent increased to $175,000 per month. Under the lease terms, ABTC is responsible for payment of all taxes and operating costs associated with the Facility. As of June 30, 2023, we received prepaid rent from ABTC of $175,000 which is in deferred gain on the condensed consolidated balance sheets.
Assets held for sale at June 30, 2023 and December 31, 2022 include:
June 30, 2023
December 31, 2022
Right of use lease asset, net of amortization
$
—
$
15,709,039
Lease intangible, net of amortization
—
3,501,939
Building, land and improvements
20,638,942
—
Deposits
—
1,250,000
Property, plant and equipment
—
710,563
Construction in progress
—
513,324
Total assets held for sale
$
20,638,942
$
21,684,865
22
Liabilities held for sale at June 30, 2023 and December 31, 2022 include:
June 30, 2023
December 31, 2022
Deferred proceeds and gains on sale of Facility and related equipment
$
27,803,564
$
—
Right of use lease liability
—
12,021,566
Total liabilities held for sale
$
27,803,564
$
12,021,566
NOTE 9 DEBT OBLIGATIONS
Debt at June 30, 2023 and December 31, 2022 consisted of the following:
June 30, 2023
December 31, 2022
GHF Secured Promissory Note – 6% interest, due December 15, 2024
$
4,290,000
$
4,290,000
Alvin Fund LLC Promissory Note - 9% interest, due October 25, 2023
2,000,000
2,000,000
Ionic Unsecured Convertible Promissory Note - 8% interest, due March 16, 2024
750,000
3,150,000
Total debt
7,040,000
9,440,000
Less: debt discounts and issuance costs
(682,640)
(1,522,667)
Total debt, net of discounts
6,357,360
7,917,333
Less: current maturities, net of discounts and issuance costs
(2,620,567)
(1,795,890)
Long-term debt, net of discounts and issuance costs
$
3,736,793
$
6,121,443
GHF, Inc. Unsecured Promissory Note
We entered into a long-term promissory note (the "GHF 2021 Note") with GHF, Inc. on December 15, 2021, with a principal amount of $5,000,000, of which $4,550,000 was funded and $450,000 was an original issue discount ("OID"). The full principal is due on December 15, 2024. Interest is payable monthly at a rate of 6% annually. Prepayment is allowed in full or in part at any time without premium or penalty. The loan is secured by all non-mining related assets of the Company, Silver Springs land and water rights, excluding the Lucerne and Dayton properties. The Company is required to prepay the promissory note with any net cash proceeds received in the sale of any collateral.
On August 22, 2022, the Company amended the GHF 2021 Note prepayment provision to reduce the amount required to be paid from the Daney Ranch sale to $710,000 of the net cash proceeds. As consideration for the amendment, the Company issued GHF, Inc. warrants to purchase 200,000 common shares exercisable at a price of $1.00 per share for a two-year term. The warrants had a fair value of $18,975 on the date of issuance and was recorded as an additional debt discount with a corresponding increase in additional paid-in capital.
During the three-months ended June 30, 2023 and 2022, we recognized interest expense of $158,447 and $118,083, respectively, which includes OID amortization of $94,273 and $43,288, respectively, in connection with the GHF 2021 Note. During the six-months ended June 30, 2023 and 2022, we recognized interest expense of $315,152 and $247,196, respectively, which includes OID amortization of $187,510 and $86,100, respectively, in connection with the GHF 2021 Note.
Alvin Fund Note
We entered into a short-term promissory note (the "Alvin Fund 2022 Note") with Alvin Fund LLC on October 25, 2022 with a principal amount of $2,000,000. In consideration of the lender providing the financing, the Company issued $250,000 in shares to the lender which was recognized as a discount on the loan. The full principal is due on October 25, 2023. Interest is payable monthly at a rate of 9% annually. Prepayment is allowed in full or in part at any time without premium or penalty. The loan is secured by all the property commonly referred to as the Dayton properties. During the three and six-months ended June 30, 2023, we recognized interest expense of $107,206 and $213,234, respectively, which includes amortization of discount of $62,329 and $123,973, respectively, in connection with the Alvin Fund 2022 Note. During the three and six-months ended June 30, 2022, we recognized interest expense of $0 in connection with the Alvin Fund 2022 Note. On June 21, 2023, the Company issued 270,757 shares of unregistered restricted common shares with a fair value of $107,507 to Alvin Fund LLC in lieu of cash payments for interest under the Alvin Fund 2022 Note.
23
Ionic Ventures LLC Unsecured Convertible Note
On December 16, 2022, the Company entered into a securities purchase agreement for an unsecured convertible promissory note ("Ionic Note") with Ionic. with a principal amount of $3,150,000, of which $2,975,000 was funded and $175,000 was an original issue discount ("OID") and issued with a 5% OID. The full principal is due on March 16, 2024. Interest is payable monthly at a rate of 8% annually. We used the net proceeds from this offering for strategic development programs and other general corporate purposes. The Convertible Note contains conversion terms that are based on percentages of trading price and volumes over defined measurement periods. The terms require the conversion option to be bifurcated as a derivative. At June 30, 2023 and December 31, 2022, the Company bifurcated the conversion feature and recorded a derivative liability of $600,000 and $420,000, respectively, reflected in our condensed consolidated balance sheet. During the three-months ended June 30, 2023 and 2022, we recognized interest expense of $23,478 and $0, respectively and amortization of discount of $70,093 and $0, respectively, in connection with the Convertible Note. During the six-months ended June 30, 2023 and 2022, we recognized interest expense of $82,722 and $0, respectively and amortization of discount of $167,582 and $0, respectively, in connection with the Convertible Note.
As of June 30, 2023, the Company delivered 6,490,661 shares of common stock with a fair value of $3,452,848 at an average conversion price per share of $0.53 upon the conversion of a principal balance of $2,400,000 and accrued interest of $58,707. The converted debt had a total derivative liability balance of $996,254 which was reversed upon conversion. During the three-months ended June 30, 2023, the Company recorded a gain on conversion of debt of $32,800. During the six-months ended June 30, 2023, the Company recorded a loss on conversion of debt of $237,656. The conversion terms require a measurement period of five days within which the number of shares initially converted are adjusted for changes in trading volume during the period. Under this provision, on April 6, 2023, Ionic returned 327,529 excess shares of the Company's common stock issued upon earlier conversions.
NOTE 10 COMMITMENTS AND CONTINGENCIES
COMSTOCK MINERAL ESTATE LEASE PAYMENTS
We lease certain mineral rights and properties under leases expiring at various dates through 2040. Future minimum annual lease payments, including royalty and rental payments, under these existing lease agreements are as follows at June 30, 2023:
Year
Leases
Remainder of 2023
$
51,500
2024
109,000
2025
111,000
2026
151,000
2027
151,000
Thereafter
1,512,250
Total minimum annual lease payments
$
2,085,750
We have minimum royalty obligations with certain of our mineral properties and leases. For most of the mineral properties and leases, we are subject to a range of royalty obligations to the extent that production commences. These royalties range from 0.5% to 5% of NSR from minerals produced on the properties, with the majority being under 3%. Some of the factors that will influence the amount of the royalties include ounces extracted and the price of extracted metals.
Our mining and exploration activities are subject to various laws and regulations governing the protection of the environment. These laws and regulations are continually changing and generally become more restrictive. The Company believes its operations are in compliance with applicable laws and regulations in all material respects. The Company has made, and expects to make in the future, expenditures to comply with such laws and regulations, but cannot predict the full amount of such future expenditures.
OTHER
From time to time, we are involved in claims or proceedings that arise in the ordinary course of business. There are no matters pending that we expect to have a material adverse impact on our business, results of operations, financial condition or cash flows.
24
NOTE 11 EQUITY
Issuance of Registered Shares of Common Stock
On February 13, 2023, we entered into an equity purchase agreement (the “2023 Leviston Sales Agreement”) with Leviston Resources LLC (“Leviston”) to offer and sell registered shares of common stock at an aggregate offering price of up to $5,000,000 from time to time, at our option, on terms we deem favorable. As of June 30, 2023, the Company issued 3,495,029 registered shares of common stock to Leviston pursuant to the Company’s Form S-3 filed with the U.S. Securities and Exchange Commission, for an aggregate sales price of $1,300,000 at an average price per share of $0.37, and additional 552,486 common shares at a fair value of $200,000 in commitment fees. As of June 30, 2023, the 2023 Leviston Sales Agreement has $3,700,000 of remaining capacity.
On December 16, 2022, the Company entered into a securities purchase agreement for an unsecured convertible promissory note ("Ionic Note") with Ionic. The Convertible Note contains conversion terms that are based on percentages of trading price and volumes over defined measurement periods. (see Note 9, Debt Obligations).
On June 21, 2022, we entered into an agreement for the purchase of up to $10,000,000 worth of shares of the Company’s common stock from time to time, at the Company’s option. Any shares offered and sold to Tysadco were registered for resale pursuant to a registration statement on Form S-1 filed with U.S. Securities and Exchange Commission pursuant to the Securities Act of 1933 (the “Securities Act”). The Company paid commissions equal to 5% of the offering proceeds to the placement agent in connection with such sales. In consideration to enter the Purchase Agreement, the Company delivered 428,571 additional shares of common stock with a fair value of $300,000 to Tysadco. For the year ended December 31, 2022, the Company issued 3,433,634 shares of common stock to Tysadco, for an aggregate sales price of $1,100,000 at an average price per share of $0.32. As of June 30, 2023, the Company issued 3,214,599 shares of common stock to Tysadco, for an aggregate sales price of $1,350,000 at an average price per share of $0.42. Sales of common stock, if any, under the Purchase Agreement are made at a 10% discount to the volume weighted average sales price of the common stock on the date that Tysadco receives a capital call from the Company.
Issuance (Cancellation) of Unregistered Shares of Common Stock
On June 21, 2023, the Company issued 270,757 shares of unregistered restricted common shares with a fair value of $107,507 to Alvin Fund LLC in lieu of cash payments for interest under the Alvin Fund 2022 Note.
On February 14, 2023, the Company issued 410,959 shares of unregistered restricted common stock with a fair value of $150,000 to Leviston as payment for due diligence fees under the 2023 Leviston Sales Agreement.
On June 21, 2022, the Company also entered into an equity purchase agreement (the “Purchase Agreement”) with Tysadco Partners, LLC (“Tysadco”) for the private placement of 3,076,923 common shares at a purchase price of $0.65 per share. The Company paid $140,000 in cash and delivered 57,143 common shares with a fair market value of $40,000 to the placement agent in connection with such sale.
On May 20, 2022, the Company cancelled 720,000 common shares returned by a previous employee who was a former owner of MANA.
On April 7, 2022, the Company issued 1,500,000 common shares with a six-month restriction period to Decommissioning Services LLC for the purchase of the Haywood quarry and industrial property (see Note 7, Leases).
On February 28, 2022, the Company and the other parties to the LP Biosciences transactions mutually agreed to terminate the Transaction Documents. In connection with the termination, 3,500,000 restricted shares of the Company’s common stock were transferred back to the Company for cancellation upon receipt.
Noncontrolling Interest
On December 30, 2021, we entered into an agreement with LINICO to purchase additional shares resulting in approximately 90% controlling interest. The remaining 10% ownership was held by AQMS (see Note 16, Related Party) and is accounted for as a noncontrolling interest in our condensed consolidated financial statements. During the six-months ended June 30, 2022, the Company and AQMS made $1,935,813 and $500,000, respectively, in additional investments to LINICO. For the six-months ended June 30, 2023, the Company and AQMS did not make additional capital contribution in LINICO. As of June 30, 2023 and December 31, 2022, we own 88.22% and 88.21%, respectively, of LINICO and AQMS owns 11.78% and 11.79%,
25
respectively. LINICO is required pay dividends to the Company and AQMS after the date it receives cash payment in full for the issuance of any shares of Series A Preferred Stock or Series A-2 Preferred Stock, and from and after the date of issuance of any shares of Series A-1 Preferred Stock or Series A-3 Preferred Stock, at the rate per annum of eight percent 8% of the Original Issue Price of such shares, plus the amount of previously accrued and unpaid dividends. As of June 30, 2023 and December 31, 2022, accrued dividends of $357,312 and $266,516, respectively, were due to AQMS and are included in accrued liabilities on the condensed consolidated financial statements.
In March 2022, the $500,000 capital contribution from AQMS was invested in LINICO through the exercise of Series A preferred stock warrants which decreased the Company’s ownership in LINICO by 2.01% from 90.34% to 88.33%. The ownership percentage change did not result in a change in control and the Company retained and maintained control of LINICO. The decrease in ownership percentage resulted in a reduction to the Company's additional paid in capital of $176,695 as of March 31, 2022 reflected in our condensed consolidated statement of changes in stockholders' equity.
Treasury Stock
At June 30, 2023 and December 31, 2022, our treasury stock includes 2,605,323 shares of our common stock with carrying value of $3,360,867. The shares were acquired with our acquisition of LINICO on December 30, 2021 and are carried at cost and presented as a deduction to equity. During 2022, we sold 394,677 shares of treasury stock with a carrying value of $509,113 for gross proceeds of $240,077. The difference of $269,056 was recognized as a deduction to additional paid in capital. No sales of treasury stock were made for the six-months ended June 30, 2023.
Warrants
Outstanding warrants at June 30, 2023 and December 31, 2022 are as follows:
Number of Warrants
Exercise Price
Expiration Date
GHF, Inc.
200,000
$
1.0000
August 22, 2024
GHF, Inc.
500,000
$
0.4555
December 15, 2024
GHF, Inc.
500,000
$
2.5217
December 15, 2024
Total Outstanding warrants
1,200,000
NOTE 12 FAIR VALUE MEASUREMENTS
The following table presents our assets and liabilities measured at fair value on a recurring basis at June 30, 2023:
Fair Value Measurements at
June 30, 2023
Total
Quoted Prices in Active Markets (Level 1)
Significant Other Observable Inputs (Level 2)
Significant Unobservable Inputs (Level 3)
Assets:
ABTC restricted common shares
$
7,100,000
$
—
$
7,100,000
$
—
Liabilities:
Ionic convertible debenture derivative
$
(600,000)
$
—
$
—
$
(600,000)
LINICO related derivative
(3,278,162)
—
(3,278,162)
—
Haywood derivative
(605,000)
—
(605,000)
—
GenMat derivative
(3,303,172)
—
(3,303,172)
—
Total liabilities measured at fair value
$
(7,786,334)
$
—
$
(7,186,334)
$
(600,000)
26
The following table presents our liabilities at December 31, 2022, measured at fair value on a recurring basis:
Fair Value Measurements at
December 31, 2022
Total
Quoted Prices in Active Markets (Level 1)
Significant Other Observable Inputs (Level 2)
Significant Unobservable Inputs (Level 3)
Liabilities:
Ionic convertible debenture derivative
$
(420,000)
$
—
$
—
$
(420,000)
LINICO related derivative
(6,053,162)
—
(6,053,162)
—
Haywood derivative
(1,480,000)
—
(1,480,000)
—
GenMat derivative
(6,592,638)
—
(6,592,638)
—
Total liabilities measured at fair value
$
(14,545,800)
$
—
$
(14,125,800)
$
(420,000)
During the six-months ended June 30, 2022, the Company recognized a loss of $605,000 in the fair value measurement of the Note and a $6,650,000 exchange of the note receivable associated with the Tonogold agreement using significant unobservable inputs (Level 3). As of June 30, 2022, the ending balance of investments measured at fair value was $0.
During the three and six-months ended June 30, 2023, the Company recognized a loss of $1,416,254 and $1,176,254, respectively, for the change in fair value of the Ionic convertible debenture derivative. For the three and six-months ended June 30, 2023, $840,254 and $996,254, respectively, of the derivative liability was converted and the ending balance of the derivative liability measured at fair value was $600,000 using significant unobservable inputs (Level 3).
VALUATION METHODOLOGIES
The following is a description of the valuation methodologies used for the Company's financial instruments measured at fair value on a recurring basis as well as the general classification of such instruments pursuant to the valuation hierarchy.
American Battery Technology Investment
The fair value of our investment in ABTC restricted common shares acquired in connection with the sale of the Facility valued using a Monte Carlo valuation model (see Note 8, Assets Held For Sale).
•On April 6, 2023, the initial fair value of the 10 million restricted common shares included a make-whole provision for the deficiency in common stock value if the net cash proceeds from the sale of the stock are less than $6.6 million to be paid by ABTC to the Company; if the net cash proceeds are greater than $7.6 million, the Company will return the excess proceeds to ABTC. The Monte Carlo valuation model determined an initial fair value of $7.0 million of the 10 million restricted shares which included a beginning stock price at $0.78, volatility of 94.0%, and a risk-free rate of 4.80%.
•On April 21, 2023, due to an amendment to the underlying agreement, the upper limit cap of $7.6 million was removed which resulted in a new valuation of the shares. The fair value increased by $2.0 million from the Monte Carlo valuation model which included a beginning stock price at $0.86, volatility of 95.0%, and a risk-free rate of 5.00%.
•On May 12, 2023, the Company received an additional 1 million restricted common shares from ABTC due to an amendment to the purchase agreement. The initial fair value of these 1 million shares was $365,000 from the Monte Carlo valuation model included a beginning stock price at $0.74, volatility of 95.0%, and a risk-free rate of 5.07%.
•On June 30, 2023, in accordance with an amendment to the agreement, the Company returned 1,923,077 of restricted shares of ABTC stock in lieu of $1.5 million of the purchase price previously agreed to be held in escrow to settle indemnification claims based on the original agreement.
27
•As of June 30, 2023, the 9,076,923 shares of restricted ABTC shares held by the Company, had a fair value of $7.1 million. The fair values of the common shares are based on a Monte Carlo valuation model which included a beginning stock price at $0.77, volatility of 89.0%, and a risk-free rate of 5.26%. We recorded an unrealized loss on the change in fair value of the investment in ABTC common shares of $765,000 in the condensed consolidated statements of operations for the three months and six-months ended June 30, 2023. The investment asset is classified within Level 2 of the valuation hierarchy.
Ionic Ventures, LLC Conversion Option
On December 16, 2022, we recorded a derivative liability on the consolidated balance sheets in connection with the Ionic Note. On that date, the $420,000 fair value of the derivative liability was determined based on bifurcation of the derivative liability from the convertible note. During the three and six-months ended June 30, 2023, the Company recorded a loss of $1,416,254 and $1,176,254, respectively, for the change in fair value of the derivative. At June 30, 2023 and December 31, 2022, the fair value of the derivative liability was $600,000 and $420,000, respectively. At December 31, 2022, the derivative was valued using a Monte Carlo valuation model with a conversion price equal to 90% of the average price capped at $0.50, discount rate of 35%, risk-free rate of 4.40%, and volatility of 60.0%. At June 30, 2023, the derivative was valued using a Monte Carlo valuation model with a conversion price equal to 90% of the average price capped at $0.50, discount rate of 35%, risk free rate of 5.30%, and volatility of 95.0%. The derivative liability is classified within Level 3 of the valuation hierarchy.
LINICO Derivative Instrument
On December 30, 2021, the Company entered into an agreement to acquire 3,129,081 LINICO common shares from its former chief executive officer and director in exchange for 3,500,000 shares of the Company's common stock ("Comstock Shares"). If and to the extent that the sale of the Company's shares results in net proceeds greater than $7,258,162, then the former chief executive officer is required to pay all of such excess proceeds to the Company. If and to the extent that the sale of the Comstock Shares results in net proceeds less than $7,258,162, then the Company is required to pay the former chief executive officer equal to such shortfall. The fair value of the shares was based on the closing price per share of our common stock of $0.73 and $0.28 at June 30, 2023 and December 31, 2022, respectively. In 2022, the Company paid the former chief executive officer $225,000 representing a decrease in contractual stock consideration. For the three and six-months ended June 30, 2023, the Company paid the former chief executive officer $825,000 and $1,200,000 respectively, representing a decrease in contractual stock consideration. We recorded an unrealized gain on the change in fair value of the derivative liability of $1,365,000 and $1,575,000, respectively, in the condensed consolidated statements of operations for the three and six-months ended June 30, 2023. We recorded an unrealized loss on the change in fair value of the derivative liability of $3,675,000 and $2,345,000, respectively, in the condensed consolidated statements of operations for the three and six-months ended June 30, 2022. The derivative liability is classified within Level 2 of the valuation hierarchy.
Haywood Derivative Instrument
On April 7, 2022, we recorded a derivative asset on the consolidated balance sheets in connection with the Haywood acquisition and lease from Decommissioning Services (see Note 7, Leases). On that date, the $245,000 fair value of the derivative asset was determined based on the excess of the fair value of 1,500,000 shares of our common stock issued to and held by Decommissioning Services and a deposit of $50,000 over the $2,100,000 contractual stock consideration required under the agreement. During the six-months ended June 30, 2023 and the year ended December 31, 2022, the Company paid Decommissioning Services $200,000 and $150,000, respectively, which resulted in a decrease in contractual stock consideration. At June 30, 2023 and December 31, 2022, the fair value of the shares was based on the closing price per share of our common stock of $0.73 and $0.28, respectively. We recorded an unrealized gain on the change in fair value of the derivative liability of $585,000 and $675,000, respectively, in the condensed consolidated statements of operations for the three and six-months ended June 30, 2023. We recorded an unrealized loss on the change in fair value of the derivative liability of $1,365,000 in the condensed consolidated statements of operations for the three and six-months ended June 30, 2022. The derivative liability is classified within Level 2 of the valuation hierarchy.
GenMat Derivative Instrument
On June 24, 2021, we recorded a derivative asset on the consolidated balance sheets in connection with the GenMat Membership Interest Purchase Agreement (see Note 2, Investments). At June 30, 2023 and December 31, 2022, the fair value of the shares was based on the closing price per share of our common stock of $0.73 and $0.28. During the six-months ended June 30, 2023, the Company paid GenMat $2,100,000 against the existing derivative liability, representing a payment toward the Company’s investment obligation. In 2022, the Company paid GenMat $2,450,000 against the existing derivative liability, representing a payment toward the Company’s investment obligation. We recorded an unrealized gain on the change in fair value of the derivative liability of $1,030,871 and $1,189,466, respectively, in the condensed consolidated statements of
28
operations for the three and six-months ended June 30, 2023. We recorded an unrealized loss on the change in fair value of the derivative liability of $3,150,000 and $2,010,000, respectively, in the condensed consolidated statements of operations for the three and six-months ended June 30, 2022. The derivative liability is classified within Level 2 of the valuation hierarchy.
Tonogold Note Receivable
On March 31, 2022, the Company amended an Option Agreement with Tonogold (the “Lucerne Option”). Tonogold re-conveyed 100% of the previously sold membership interests of Comstock Mining LLC, the entity that owns the Lucerne mine, to the Company, in exchange for the Company exchanging Tonogold’s payment obligations under a secured note in the principal amount owed of $6,650,000 to the Company. The Company recorded a loss of $0 and $605,000, respectively, for the change in fair value in other expense in the condensed consolidated statements of operations for the three and six-months ended June 30, 2022.
LPB Derivative Instrument
On July 23, 2021, we recorded a derivative asset on the consolidated balance sheets in connection with the LPB Contribution Agreement. On that date, the $6,642,000 fair value of the derivative asset was determined based on the excess of the fair value of 3,500,000 shares of our common stock issued to and held by LPB over the $4,173,000 fair value of our contractual consideration under the LPB Partnership Interest Purchase Agreement. The value of the shares was based on the $3.09 closing price per share of our common stock on that date. On February 28, 2022, the Company and the other parties to the LPB transactions mutually agreed to terminate the transaction documents. Prior to settlement, the fair value of the shares was based on the closing price per share of our common stock of $1.46, and we recorded a gain on the change in fair value of the derivative liability of $595,000 in the consolidated statements of operations for the six-months ended June 30, 2022. The fair value of the derivative as of the settlement date of $937,000 was derecognized, along with the value of the investment in LPB, and the fair value of the 3,500,000 shares was $5,110,000 and was recognized as a decrease first to the par value of the common stock returned, and the remainder as a reduction to additional paid in capital.
Other Financial Instruments
At June 30, 2023, the carrying amount of cash and cash equivalents, notes receivable and debt carried at amortized costs, approximates fair value because of the short-term maturity of these financial instruments.
NOTE 13 OTHER INCOME AND EXPENSES
Other income (expense) net consisted of the following for the three and six-months ended June 30, 2023 and June 30, 2022:
Three-Months Ended
Three-Months Ended
Six-Months Ended
Six-Months Ended
June 30, 2023
June 30, 2022
June 30, 2023
June 30, 2022
Change in fair value Tonogold note receivable
$
—
$
—
$
—
$
(605,000)
Tonogold amendment fee and charges
—
—
—
14,652
LPB settlement and related expenses
—
—
—
(250,000)
Equity loss in affiliates
(341,100)
(311,917)
(806,264)
(578,819)
Change in fair value in investments
(765,000)
—
(765,000)
—
ABTC amendment fee and charges
250,000
—
250,000
—
All other
949
(30,856)
3,002
(54,413)
Total other income (expense)
$
(855,151)
$
(342,773)
$
(1,318,262)
$
(1,473,580)
NOTE 14 NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of shares of common stock outstanding during the period. For the three and six-months ended June 30, 2023 and 2022, we had no common stock equivalent shares that were potentially dilutive, including warrants to purchase common stocks, stock options, stock awards and a conversion option on a convertible debenture.
29
For the six-months ended June 30, 2023 and 2022, the weighted average number of shares outstanding, for the purpose of calculating earnings per share, were reduced by treasury shares of 2,298,416 and 2,657,208, respectively, which is the number of treasury shares through our ownership in LINICO. The remaining 306,907 and 341,898, respectively, weighted average treasury shares are deemed to be owned by AQMS.
NOTE 15 SEGMENT REPORTING
We have the following segments and reporting units: production and sale of renewable energy, mining and strategic and other corporate investments.
Summarized financial information relating to our reportable segments is provided below. Certain amounts have been reclassified to conform to the current period presentation, most notably to reclassify our historical activities to our all-other segment. Our renewable energy segment includes our new fuels and metal recycling technologies and the resulting renewable energy services. Our mining segment includes our gold and silver mining assets and real estate. Our strategic and other investments segment includes all other activities, including all other real estate, equity method investments in GenMat and SSOF, and general corporate costs. Strategic and other investments revenue is from real estate activities.
Three-Months Ended
June 30, 2023
Renewable Energy
Mining
Strategic and Other Investments
Total
Revenue
$
—
$
27,525
$
7,800
$
35,325
Depreciation and amortization
$
234,498
$
61,694
$
408,689
$
704,881
Loss from operations
$
(2,514,847)
$
(801,487)
$
(2,615,378)
$
(5,931,712)
Change in fair value of derivative instruments
$
—
$
—
$
1,564,617
$
1,564,617
Total other income (expense), net
$
(16,003)
$
84,749
$
358,377
$
427,123
Net loss
$
(2,530,850)
$
(716,739)
$
(2,257,000)
$
(5,504,589)
Total Assets:
$
16,285,260
$
7,903,902
$
80,795,059
$
104,984,221
Capital Expenditures
$
28,012
$
—
$
—
$
28,012
30
Three-Months Ended
June 30, 2022
Renewable Energy
Mining
Strategic and Other Investments
Total
Revenue
$
—
$
45,125
$
7,800
$
52,925
Depreciation and amortization
$
357,815
$
123,609
$
327,470
$
808,894
Loss from operations
$
(3,339,858)
$
(1,106,904)
$
(1,396,930)
$
(5,843,692)
Change in fair value of derivative instruments
$
595,000
$
—
$
(8,785,000)
$
(8,190,000)
Impairment of investments and note receivable, net recovery
$
—
$
—
$
895,204
$
895,204
Total other income (expense), net
$
(685,757)
$
(2,435,872)
$
(5,125,276)
$
(8,246,905)
Net loss
$
(4,025,615)
$
(2,476,601)
$
(7,588,381)
$
(14,090,597)
Total Assets:
$
42,026,333
$
9,363,762
$
66,435,968
$
117,826,063
Capital Expenditures
$
33,802
$
—
$
—
$
33,802
Six-Months Ended
June 30, 2023
Renewable Energy
Mining
Strategic and Other Investments
Total
Revenue
$
—
$
50,475
$
15,600
$
66,075
Depreciation and amortization
$
489,148
$
123,388
$
723,386
$
1,335,922
Loss from operations
$
(4,472,130)
$
(1,356,413)
$
(5,180,618)
$
(11,009,161)
Change in fair value of derivative instruments
$
—
$
—
$
2,263,212
$
2,263,212
Total other income (expense), net
$
(210,576)
$
106,587
$
(73,181)
$
(177,170)
Net loss
$
(4,682,706)
$
(1,249,826)
$
(5,253,799)
$
(11,186,331)
Total Assets:
$
16,285,260
$
7,903,902
$
80,795,059
$
104,984,221
Capital Expenditures
$
816,071
$
—
$
—
$
816,071
31
Six-Months Ended
June 30, 2022
Renewable Energy
Mining
Strategic and Other Investments
Total
Revenue
$
—
$
91,950
$
15,600
$
107,550
Depreciation and amortization
$
757,898
$
185,303
$
710,222
$
1,653,423
Loss from operations
$
(5,406,341)
$
(551,978)
$
(4,273,461)
$
(10,231,780)
Change in fair value of derivative instruments
$
595,000
$
—
$
(5,720,000)
$
(5,125,000)
Impairment of intangible assets
$
338,034
$
—
$
(676,068)
$
(338,034)
Impairment of investments and note receivable, net recovery
$
(54,587)
$
(2,455,333)
$
(733,731)
$
(3,243,651)
Total other income (expense), net
$
(1,061,025)
$
(2,457,710)
$
(6,887,105)
$
(10,405,840)
Net loss
$
(6,467,316)
$
(3,009,688)
$
(11,160,616)
$
(20,637,620)
Total Assets:
$
42,026,333
$
9,363,762
$
66,435,968
$
117,826,063
Capital Expenditures
$
587,002
$
—
$
—
$
587,002
NOTE 16 RELATED PARTY TRANSACTIONS
The following related party transactions occurred during the six-months ended June 30, 2023 and 2022.
AMENDMENT TO ASSET PURCHASE AGREEMENT
On September 7, 2021, the Company entered and closed under an Asset Purchase Agreement with Flux Photon Corporation (“FPC”), to acquire certain intellectual property and related photovoltaic and photocatalysis laboratory equipment (the “FPC Assets”). The purchase price payable for the FPC Assets is $18,000,000 payable in cash to FPC at a rate equal to 20% of the future monthly consolidated sales, less total variable costs, less operating expenses, maintenance, tax payments, and debt service payments of the Company and its now and hereafter-existing subsidiaries, until the purchase price of $18,000,000 has been fully paid. The Company assigned the FPC Assets to its wholly-owned Comstock IP Holdings subsidiary immediately after closing. On December 10, 2021, the Asset Purchase Agreement was amended to provide for the payment by the Company of a $350,000 down payment against the purchase price, corresponding to a potential performance-based cash payment of $17,650,000 required under the Asset Purchase Agreement. The Company’s chief technology officer and the president of the Company's Comstock Fuels subsidiary are indirect beneficiaries of all payments made to FPC under the Asset Purchase Agreement. The Company additionally agreed to appoint the Company's chief technology officer to the Company’s Board of Directors in connection with the Company’s acquisition of Comstock Innovations Corporation on September 7, 2021. We recognized an impairment loss of $338,034 on the FPC Assets in other income (expense) in the condensed consolidated statement of operations during the six-months ended June 30, 2022 in the renewable energy segment.
LEASE AND PURCHASE AGREEMENT FOR BATTERY RECYCLING FACILITY
On March 1, 2023, the Company sold $782,500 in equipment purchased from AQMS in 2022 and classified as assets held for sale at December 31, 2022. AQMS has a noncontrolling interest of LINICO and through April 5, 2023, the chief financial officer of AQMS was on the Company's board of directors. On April 26, 2023, the Company closed on the purchase of Aqua Metals Transfer LLC, a subsidiary of AQMS, including land, buildings and related improvements therein and paid the $12 million due to AQMS, effectively taking full ownership of the land, buildings and related improvements and the previously existing lease with LINICO was terminated. As of June 30, 2023, assets held for sale include the land, buildings and related improvements with a balance of $20,638,942 (see Note 8, Assets Held For Sale).
32
TRANSACTIONS INVOLVING SIERRA SPRINGS OPPORTUNITY FUND
As of June 30, 2023, the Company has provided SSOF and one of its subsidiary with a total of $5,925,000 in Advances ("SSOF Advances"). SSOF was required to use the corresponding proceeds to pay deposits and other payments on land and other facilities and general corporate purposes related to investments in qualified businesses in the opportunity zone. The SSOF Advances are non-interest-bearing and are expected to be repaid on or before the closing of the Company’s sale of the Silver Springs Properties to SSE (see Note 3, Notes Receivable and Advances, Net). SSOF has assigned all assignable rights, title and interest in SSOF’s property purchases until such time as the SSOF Advances are repaid.
The Company's executive chairman and chief executive officer co-founded SSOF and SSE, and serves as the chief executive officer of SSOF and as an executive of SSE along with a diverse team of qualified financial, capital markets, real estate and operational professionals that together govern, lead and manage SSOF and SSE. The $525,000 investment and 9,164,333 voting shares of our CEO and two of our directors represent 15.92% of total as converted SSOF common shares. The Company's chief executive officer has not received compensation from either SSOF or SSE.
NOTE 17 SUBSEQUENT EVENTS
From July 3, 2023 to August 2, 2023, the Company issued 3,986,384 registered shares of common stock to Leviston pursuant to the Company's Form S-3 filed with the U.S. Securities and Exchange Commission, for an aggregate sales price of $2,250,000 at an average price per share of $0.56. As of August 10, 2023, the 2023 Leviston Sales Agreement has $1,450,000 of remaining capacity.
33
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis provide information that management believes is relevant to an assessment and understanding of our condensed consolidated financial condition and results of operations. This discussion should be read in conjunction with the Condensed Consolidated Financial Statements included herewith, the footnotes thereto and the risk factors herein.
OVERVIEW
Comstock innovates and commercializes technologies that enable systemic decarbonization, primarily by enabling the extraction and conversion of under-utilized natural resources into renewable energy products. Our strategic plan is based on innovating, enabling and commercializing material science solutions that use our technologies to reduce reliance on long cycle fossil fuels, to shift to and maximize throughput of short cycle fuels, and to lead and support the adoption and growth of a profitable, balanced short cycle ecosystem that continuously offsets, recycles, and/or neutralizes carbon emissions.
We achieve our goal by accelerating the commercialization of our technology portfolios and investments, primarily in renewable fuels, electrification metals, and artificial intelligence enabled mineral discovery and materials development.
Comstock Fuels – Most renewable fuels draw from the same feedstock pool, primarily vegetable oils, but the total supply can only meet a small fraction of the demand. Our technologies unblock that constraint by converting abundant lignocellulosic biomass into biointermediates for refining into renewable fuels. Our team demonstrated commercial readiness with exceptional yields approaching 100 gallons of fuel per dry ton of feedstock on a gasoline gallon equivalent basis. Execution of one or more license agreements with operationally experienced, technologically sophisticated, and well capitalized customers is a top 2023 objective. Each license could create more than 20 years of recurring royalty revenue with material upfront engineering fees.
Comstock Metals – The world is focused on the production of energy generation and storage technologies to reduce reliance on fossil fuels, including lithium-ion batteries (“LIBs”), photovoltaics, and fuel cells. Each of those technologies relies on scarce critical metals, increasing global demand for primary metal mining and recycling. During 2022, we deployed a pilot system to validate technologies for use in efficiently crushing, conditioning, extracting, and recycling high purity metal concentrates from LIBs and other electronic devices. We also expanded our leadership team in metals recycling, permitted a universal waste storage facility and opportunistically entered into an agreement to sell an existing facility for net estimated cash proceeds of approximately $15.0 million. Securing revenue generating supply commitments in our expanded metals recycling business is a key objective for 2023.
Comstock Mining – We own or control twelve square miles of patented and unpatented mining claims and surface parcels, covering six and a half miles of continuous mineral strike length. We enhanced the value of a small portion of our properties in the past year with two SK-1300 technical reports estimating Measured and Indicated resources containing 605,000 ounces of gold and 5,880,000 ounces of silver, plus Inferred resources containing 297,000 ounces of gold and 2,572,000 ounces of silver. We have amassed one of the largest historical and current data repositories for the Comstock historic district and plan on enhancing that data with hyperspectral orbital imaging and generative artificial intelligence ("AI") solutions that provide prospecting analytics and enable more effective mineral discovery. Our 2023 efforts should enhance our estimated resources and advance us to a Preliminary Economic Assessment ("PEA") on the path toward full economic feasibility.
Artificial Intelligence – Quantum Generative Materials LLC ("GenMat"), our 48% owned investment, has developed and launched a new generative AI to simulate critical properties of known materials during calibration testing late last year. GenMat also plans on using its AI to simulate new material characteristics. GenMat’s generative AI models can be employed today for commercial use on GenMat’s existing high-performance computing platform, well before quantum computers become mainstream. In 2023, GenMat will, among other things, elevate new material simulation to commercial readiness by synthesizing and directly testing new AI simulated materials in high value applications. Our investment in GenMat is also an integral component of our ongoing innovation strategy.
The Company’s strategic investment in the Sierra Springs Opportunity Fund ("SSOF") and its subsidiaries further demonstrates our commitment to and support of sustainable economic growth in our northern Nevada communities.
34
COMPARATIVE FINANCIAL INFORMATION
Three-Months Ended June 30, 2023 Compared to Three-Months Ended June 30, 2022
Net loss for the three-months ended June 30, 2023 decreased by $8,586,008 to $5,504,589 from a loss of $14,090,597 for the comparable 2022 period. The decrease in net loss primarily resulted from a change in estimated fair value of the derivative assets of $9,754,617 with a $1,564,617 gain recorded in 2023 as compared to a $8,190,000 loss in 2022, lower research development expenses of $815,846, lower loss on investments of $298,801, and lower depreciation and amortization expense of $104,013. Variance partially offset by higher selling, general and administration expenses of $990,279, recovery of losses in 2022 related to the MCU-P note receivable of $895,204, and higher other income (expense) of $512,378 primarily due to change in estimated fair value of equity securities and investments.
Below we set forth a summary of comparative financial information for the three-months ended June 30, 2023 and 2022:
June 30, 2023
June 30, 2022
Change
Revenue
$
35,325
$
52,925
$
(17,600)
Operating expenses:
Selling, general and administrative expenses
3,498,852
2,508,573
990,279
Research and development
1,763,304
2,579,150
(815,846)
Depreciation & amortization
704,881
808,894
(104,013)
Gain on sale of equipment
—
—
—
Total operating expenses
5,967,037
5,896,617
70,420
Loss from operations
(5,931,712)
(5,843,692)
(88,020)
Other Income (Expense)
Gain (loss) on investments
—
(298,801)
298,801
Interest expense
(376,161)
(312,026)
(64,135)
Interest income
61,018
1,491
59,527
Change in fair value of derivative instruments
1,564,617
(8,190,000)
9,754,617
Gain (loss) on conversion of debt
32,800
—
32,800
Impairment of investments and note receivable, net recovery
—
895,204
(895,204)
Other income (expense)
(855,151)
(342,773)
(512,378)
Total other income (expense), net
427,123
(8,246,905)
8,674,028
Net loss
$
(5,504,589)
$
(14,090,597)
$
8,586,008
Net loss attributable to noncontrolling interest
$
(36,101)
$
(323,751)
$
287,650
Net loss attributable to Comstock Inc.
$
(5,468,488)
$
(13,766,846)
$
8,298,358
RESULTS OF OPERATIONS
Three-Months Ended June 30, 2023 Compared to Three-Months Ended June 30, 2022
Revenues for the three-months ended June 30, 2023 decreased by $17,600 to $35,325 from $52,925 for the comparable 2022 period, as a result of lower revenues from operating leases on our buildings, primarily due to the sale of the Daney Ranch.
Revenue, costs of sales and gross profit in future periods will vary significantly depending on a number of factors, including the amount of renewable energy products that we produce and sell, the market prices for those products, the extent to which we
35
secure and collect reasonable royalties, the degree to which we can provide event-driven engineering services, and the costs associated with each component of the aforementioned revenues.
Selling, general and administrative expense for the three-months ended June 30, 2023 increased by $990,279 to $3,498,852 from $2,508,573 in the comparable 2022 period, primarily as a result of higher employee costs of $1,015,169 attributed to higher payroll and related costs, executive incentive compensation and higher marketing and investor relations expenses.
Research and development expenses for the three-months ended June 30, 2023 decreased by $815,846 to $1,763,304 from $2,579,150 in the comparable 2022 period, primarily as a result of lower costs related to the accelerated development of pilot scale systems in 2022 for processing woody biomass into intermediate materials that can be converted into fuels and for crushing and separating lithium ion batteries. These systems are used to validate the processes and develop parameters for upscaling these renewable technologies. Our Comstock Fuels and Comstock Metals subsidiaries are leading the developments of these commercialized technologies. No similar costs were incurred in the first half of 2023. Variance offset partially by higher employee costs attributed to executive incentive compensation.
Depreciation and amortization for the three-months ended June 30, 2023 decreased by $104,013 to $704,881 from $808,894 in the comparable 2022 period, primarily from ceasing amortization on assets held for sale in the second quarter of 2023.
Gain on investments for the three-months ended June 30, 2023 increased by $298,801 due to no gain on investments for the three-months ended June 30, 2023 compared to a loss of $298,801 for the comparable 2022 period. The 2022 loss was primarily due to realized losses on sales of Tonogold common stock.
Interest expense for the three-months ended June 30, 2023 increased by $64,135 to $376,161 from $312,026 in the comparable 2022 period, primarily due to interest and related amortization of the original issue discount ("OID") on the GHF 2021 Note, the Alvin Fund 2022 Note and the Ionic Note, the latter of which originated during the fourth quarter of 2022.
Interest income for the three-months ended June 30, 2023 increased by $59,527 to $61,018 from $1,491 in the comparable 2022 period, as a result of $17,310 and $20,380 from interest income from Daney Ranch notes receivable and higher interest on cash held in deposits, respectively, for the three-months ended June 30, 2023.
Change in the fair value of our derivative instruments for the three-months ended June 30, 2023 increased by $9,754,617 to a gain of $1,564,617 from a loss of $8,190,000 in the comparable 2022 period, as a result of a higher increase in the Company's share price in connection with potential make-whole obligations for minimum value commitments on the Company's common shares and change in the fair value of the Ionic derivative. The 2023 gain was attributed $1,365,000 LINICO investment, $1,030,871 for GenMat investment and $585,000 Haywood investment, offset by a loss $1,416,254 on the derivative liability for Ionic Note. The loss from the three-months ended June 30, 2022 was attributed to $3,675,000 for LINICO investment, $3,150,000 for GenMat investment and $1,365,000 Haywood investment.
Gain of $32,800 on conversion of debt for the three-months ended June 30, 2023 are attributed to the Ionic Note conversions of 1,951,248 shares for the three-months ended June 30, 2023.
Recovery of impairment losses for the three-months ended June 30, 2023 decreased by $895,204, due primarily to a recovery of credit losses on the MCU-P note receivable for the three-months ended June 30, 2022. No impairment losses or recoveries were recorded in the second quarter 2023.
Other income (expenses), net for the three-months ended June 30, 2023 were $855,151, primarily consisting of losses from our equity method investments of $341,099 including a GenMat loss of $345,586, and losses from our investment in ABTC common shares of $765,000.
Other income (expenses), net for the three-months ended June 30, 2022 were $342,773, which primarily consisted of losses from our equity method investments of $311,917 and other losses of $30,856.
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COMPARATIVE FINANCIAL INFORMATION
Six-Months Ended June 30, 2023 Compared to Six-Months Ended June 30, 2022
Net loss for the six-months ended June 30, 2023 decreased by $9,451,289 to $11,186,331 from a loss of $20,637,620 for the comparable 2022 period. The decrease in net loss primarily resulted from a change in estimated fair value of the derivative assets of $7,388,212 with a $2,263,212 gain recorded in 2023 as compared to losses of $5,125,000 in 2022, decrease in losses from impairment of intangible assets, notes receivable from MCU-P and investments in MCU of $3,581,685 recorded in the first half of 2022, lower research development expenses of $742,885, lower depreciation and amortization expense of $317,501 and gain on sale of equipment of $178,193. Variance partially offset by higher selling, general and administration expenses of $1,974,485, loss on conversion of debt $237,656, higher interest expense $354,589 and lower interest income $251,477.
Below we set forth a summary of comparative financial information for the six-months ended June 30, 2023 and 2022:
June 30, 2023
June 30, 2022
Change
Revenue
$
66,075
$
107,550
$
(41,475)
Operating expenses:
Selling, general and administrative expenses
6,885,824
4,911,339
1,974,485
Research and development
3,031,683
3,774,568
(742,885)
Depreciation and amortization
1,335,922
1,653,423
(317,501)
Gain on sale of equipment
(178,193)
—
(178,193)
Total operating expenses
11,075,236
10,339,330
735,906
Loss from operations
(11,009,161)
(10,231,780)
(777,381)
Other Income (Expense)
Gain (loss) on investments
—
52,823
(52,823)
Interest expense
(991,339)
(636,750)
(354,589)
Interest income
106,875
358,352
(251,477)
Change in fair value of derivative instruments
2,263,212
(5,125,000)
7,388,212
Gain (loss) on conversion of debt
(237,656)
—
(237,656)
Recovery (Impairment) of intangible assets
—
(338,034)
338,034
Impairment of investments and note receivable, net recovery
—
(3,243,651)
3,243,651
Other income (expense)
(1,318,262)
(1,473,580)
155,318
Total other income (expense), net
(177,170)
(10,405,840)
10,228,670
Net loss
(11,186,331)
(20,637,620)
9,451,289
Net loss attributable to noncontrolling interest
(48,906)
(492,219)
443,313
Net loss attributable to Comstock Inc.
$
(11,137,425)
$
(20,145,401)
$
9,007,976
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RESULTS OF OPERATIONS
Six-Months Ended June 30, 2023 Compared to Six-Months Ended June 30, 2022
Revenues and gross profit for the six-months ended June 30, 2023, decreased $41,475 to $66,075 from $107,550 for the comparable 2022 period as a result of lower revenues from operating leases on our land and building leased to others, primarily due to the sale of the Daney Ranch.
Revenue, costs of sales and gross profit in future periods will vary significantly depending on a number of factors, including the amount of renewable energy products that we produce and sell, the market prices for those products, the extent to which we secure and collect reasonable royalties, the degree to which we can provide event-driven engineering services, and the costs associated with each component of the aforementioned revenues.
Selling, general and administrative expense for the six-months ended June 30, 2023 increased by $1,974,485 to $6,885,824 from $4,911,339 in the comparable 2022 period primarily as a result of higher employee costs of $1,594,695 attributed to higher salaries, executive incentive compensation, payroll administration costs and higher marketing and investor relations expenses. Other costs increased by $772,314 including mining related costs associated with no relative reimbursements from Tonogold, partially offset by lower professional fees of $418,738.
Research and development expenses for the six-months ended June 30, 2023 decreased by $742,885 to $3,031,683 from $3,774,568 in the comparable 2022 period primarily as a result of lower costs related to the development of a pilot scale system in 2022 for processing woody biomass into intermediate materials that can be converted into paper products and fuels and the pilot scale system for crushing and separating lithium ion batteries. These systems are used to validate the processes and develop parameters for upscaling these renewable technologies. Our Comstock Engineering, Comstock Innovations and LINICO subsidiaries, which were acquired in 2021 are leading the developments of these commercialized technologies. No similar costs were incurred in the first half of 2023. Variance offset partially by higher employee costs attributed to executive incentive compensation.
Depreciation and amortization during the six-months ended June 30, 2023, decreased by $317,501 to $1,335,922 from $1,653,423 in the comparable 2022 period, primarily from ceasing amortization on assets held for sale in the first half of 2023.
Gain on sale of equipment attributed to the AQMS Facility during the six-months ended June 30, 2023, attributed to the AQMS Facility was $178,193.
Gain on investments during the six-months ended June 30, 2023 decreased by $52,823 due to no gain on investments for the first half of 2023 compared to a gain of $52,823 for the comparable 2022 period. The 2022 gain was primarily a result of sales of 8,065,924 shares of Tonogold stock.
Interest expense for the six-months ended June 30, 2023, increased by $354,589 to $991,339 from $636,750 for the comparable 2022 period primarily due to interest and related amortization of the original issue discount ("OID") on the GHF promissory note, the Alvin note and the Ionic Note that originated during the fourth quarter of 2022.
Interest income for the six-months ended June 30, 2023, decreased by $251,477 to $106,875 from $358,352 in the comparable 2022 period, as a result of the extinguishment of the Tonogold note receivable and the extinguishment of the MCU-P note receivable that was exchanged for the MCU assets, both of which are no longer accruing interest income for the six-months ended June 30, 2023.
Change in fair value of our derivative instruments for the six-months ended June 30, 2023, increased by $7,388,212 to a gain of $2,263,212 in 2023 compared to a loss in 2022 of $5,125,000 as a result of an increase in the Company's share price in connection with potential make whole obligations for minimum value commitments on the Company’s common shares. The 2023 gain was attributed $1,575,000 LINICO investment, $1,189,466 for GenMat investment and $675,000 Haywood investment, offset by a loss $1,176,254 on the derivative liability for Ionic Note. The 2022 loss was attributed to $2,345,000 for LINICO investment, $2,010,000 for GenMat investment and $1,365,000 Haywood investment.
Loss of $237,656 on conversion of debt for the six-months ended June 30, 2023 are attributed to the Ionic Note conversions of 6,490,661 shares for the six-months ended June 30, 2023.
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Impairment of intangible assets for the six-months ended June 30, 2023 decreased by $338,034, due primarily to the FPC intangible assets as a result of historical and continuing losses and an inability to recover the investment through the use of their technology. For the six-months ended June 30, 2023, no impairment losses or recoveries were recorded.
Impairment of investments and notes receivable, net of recoveries, for the six-months ended June 30, 2023, decreased by $3,243,651. Decrease due primarily to the 2022 impairment losses as a result of investments in MCU and MCU-P and note receivable in MCU-P, which were deemed unrecoverable as of March 31, 2022 from a significant decline in forecasted cash flows from the MCU-P operations. Variance also attributed to $595,000 related to the LPB investment prior to settlement in exchange for 3,500,000 of the Company's shares in 2022; offset by $895,204 recovery of credit losses on the MCU-P note receivable for the three-months ended June 30, 2022. For the six-months ended June 30, 2023, no impairment losses or recoveries were recorded.
Other income (expenses), net, for the six-months ended June 30, 2023 were $1,318,262, primarily consisting of losses from our equity method investments of $806,265 including a GenMat loss of $789,209 and loss from our investment in ABTC common shares of $765,000.
Other income (expenses), net, for the six-months ended June 30, 2022 were $1,473,580, primarily consisted of a reduction in value of the Tonogold note receivable of $605,000, losses from our equity method investments of $578,819, LPB settlement expense of $250,000 and other losses of $39,761.
OUTLOOK
The primary focus for 2023 has been and continues to be commercialization. The Company’s biorefining technologies are commercially ready and offer unprecedented performance for the Company’s prospective customers. Comstock Fuels is actively pursuing revenue producing opportunities with globally recognized renewable fuel producers. Comstock Metals is also commercially ready and has engineered and ordered its first commercial demonstration facility and will permit and deploy this facility in the second half of 2023. The capital expenditures for this commercial operation will be approximately $2 million.
GenMat’s physics-based, generative AI solutions has made significant technological advancements over the past two years with the 2023 goal of commercial readiness first and then followed by commercialization with early adopting customers. Comstock Mining recently secured a revenue generating license, resulting in expected 2023 cash proceeds of over $2.0 million.
Commercialization
Comstock’s team has decades of diverse technology development and commercialization experience. The Company uses a disciplined approach to devising, qualifying, and elevating innovations from conception through increasing degrees of commercial readiness. The Company has adopted a widely used Technology Readiness Level (“TRL”) measurement system for objectively assessing Comstock’s progress, risks, investment qualifications, and commercial maturity.
There are nine readiness levels on the TRL scale, starting with TRL 1. Progression up the scale requires achievement of “SMART” milestones that are Specific, Measurable, Achievable, Relevant, and Timely. Proof of concept occurs at TRL 3. TRL 4 and 5 involve increasing degrees of process validation. TRL 6 is the first true demonstration of commercial readiness. TRL 7 and 8 involve various functional prototypes and pilots with increasing fidelity and sophistication. A TRL 9 technology is commercially mature and fully deployed. Depending on the technology and other applicable factors, revenue can commence at TRL 6 for early adopting and generally sophisticated commercial clients with continued development to TRL 7, 8, and 9.
The following chart summarizes the change in TRL status over the past year, and the objectives for 2023:
Line of Business
Technology
12/2021
12/2022
12/2023 Goal
Cellulosic Fuels
Conversion of under-utilized woody biomass into renewable fuels at high yield
TRL 4
TRL 6
TRL 7
Artificial Intelligence
Generative AI that simulates new materials at exponentially increased speed
TRL 3
TRL 4
TRL 6
Metals
Scalable extraction of metals from electrification products
TRL 2
TRL 5
TRL 6
Mining Technology
Dramatically reduced exploration costs with hyperspectral imaging and AI-based analytics
TRL 0
TRL 2
TRL 3
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Comstock’s SMART milestones and commercialization process involve meticulous planning that is informed by many factors, including the total addressable markets, their growth rates and the speed that the Company can initiate and increase revenue.
Comstock Fuels
Most current forms of renewable fuel draw from the same pool of conventional feedstocks, including corn and vegetable oils in the U.S., but the entire available supply of those feedstocks could only meet a small fraction of the demand for renewable fuels. Comstock's patented and patent-pending biorefining technologies unblock that constraint by converting abundant but underutilized lignocellulosic or "woody" biomass into biointermediates for refining drop-in and other renewable fuels.
The Company’s objectives for 2023 include:
•Executing one or more early adopter license agreements and commencing development on commercial scale projects for operationally experienced, technologically sophisticated and well capitalized customers.
•Completion of full technical documentation and engineering submittal packages.
•Completion of an independent lifecycle carbon analysis to prove the carbon emissions reduction benefits of the fuels produced with Comstock’s known processes.
•Continuous operation of the integrated bio-intermediate production process at the Company’s demonstration plant for sufficient time to achieve and broadly demonstrate TRL 7.
Each license agreement for a commercial production facility could create 15 to 20 years of recurring royalty revenue.
Comstock Metals
Resource scarcity and supply are generally the main drivers presented when discussing battery recycling. From a market perspective what is often missed is that electric vehicle batteries are only one of many metals-based products that can cause a massive amount of pollution if simply landfilled at the end of life with no recovery of the underlying metal values.
Comstock Metals objectives for 2023 include:
•Physically reposition and broaden the addressable market for commercialization of our metals recycling.
•Advancing the technology readiness for broader material recycling, prioritizing photovoltaics.
•Permitting the broader material recycling system, starting with photovoltaics, in northern Nevada.
•Deploying the broader material recycling and readying it for production.
Comstock Metals has submitted all permits for operating its manufacturing facility in Silver Springs, NV, and expects receipt of permits and deployment of its operations before the end of 2023, with operations commencing in early 2024.
Comstock Mining
The Company has amassed the single largest known repository of historical and current geological data on the Comstock mineral district, including extensive geophysical surveys, geological mapping, sampling and drilling data and published updated SK-1300 technical reports on the Lucerne and Dayton resource areas.
On June 30, 2023, the Company signed a Mineral Exploration and Mining Lease Agreement (the “Mining Lease”) with Mackay Precious Metals Inc (“Mackay”). The Mining Lease provides a twenty-year term granting Mackay the rights to conduct exploration on certain of the Company’s mineral properties in Storey County. Mackay paid a lease initial fee of $1,250,000 and will make quarterly lease payments of $375,000 for the first four years, and quarterly lease payments of $250,000 thereafter. In addition, Mackay will reimburse carrying costs for the mineral properties, estimated to be $177,000 per year, and will pay an NSR royalty of 1.5% from eventual mine production from the mineral properties. Mackay also committed to expenditures of $1,000,000 per year on a cumulative basis, and increasingly detailed technical reports after the first five, ten, and fifteen years.
The Company’s objectives for 2023 include:
•Receive cash proceeds of over $2.0 million from new mineral leases leveraging the northern Gold Hill and northern Occidental claim groups.
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•Develop, in collaboration with GenMat, a next-generation geostatistical digital twin model of the most strategic development areas, using the Company’s existing geologic and geophysical data.
The Company’s 2023 efforts will apply economic analysis to Comstock’s existing gold and silver resources progressing toward full economic feasibility.
Artificial Intelligence
Investment in physics-based, generative artificial intelligence (“AGI”) is a crucial component of Comstock’s technology innovation strategy. Quantum Generative Materials LLC ("GenMat"), develops and commercializes cutting-edge generative artificial intelligence models for the discovery and manipulation of matter. GenMat is a company that Comstock has a 48.19% investment interest. This includes AGI models that can be employed today, for commercial use on GenMat’s existing, high-performance computing platforms, well before quantum computers become mainstream.
GenMat's AGI operates similarly to the large language models widely discussed in the media today, but instead of words and language, it uses atoms and molecules to generate physical systems and harness math and science to discover new materials in an exponentially shorter time than traditional methods allow. To put this into perspective, new material discovery typically takes many years and many millions of dollars. GenMat's AGI will simulate thousands of unique new materials in seconds.
GenMat’s objectives for 2023 include:
•Elevate new material simulation to TRL 6 by synthesizing and directly testing the AGI’s simulated materials to confirm the precision and accuracy of those simulations.
•Launch and make operational a space-based hyperspectral imaging sensor for mineral discovery applications.
•Commercialize an enterprise-oriented API and other physics-based AGI solutions to early adopter enterprise clients for advanced materials simulation and synthesis.
While the Company can’t be precise about exactly when GenMat will initiate revenue, GenMat’s technologies are maturing much faster than anticipated when the Company invested in GenMat in 2021.
Corporate
The Company has also made meaningful progress and expect to complete the monetization of now over $30 million in sales of our non-strategic assets during 2023, while funding our business developments and limiting our focus to the objectives above. For the six-months ended June 30, 2023, the Company received from ABTC cash proceeds of $21.0 million and a net 9,076,923 ABTC common stock and paid $12 million to purchase the AQMS Facility. We expect to sell 9,076,923 restricted shares of ABTC common shares in the third and fourth quarters of 2023 and receive, at a minimum, proceeds of $6.0 million and total net proceeds of approximately $15.0 million.
The Company also expects proceeds of approximately $0.75 million from the sale of 1,500 Green Li-ion Pte. Ltd. (“Green Li-ion”) preferred shares (representing approximately 4% of the 37,162 Green Li-ion preferred shares owned by LINICO) during the 2023 third quarter. The Company intends to sell the remaining Green Li-ion preferred shares over the next twelve months.
LIQUIDITY AND CAPITAL RESOURCES
Our financial position and liquidity are based on our net sources of capital from financing as generally compared to our net uses of capital from investing activities and ultimately, our ability to generate cash flows from our operations. Our cash balances at June 30, 2023 and December 31, 2022 were $1,585,713 and $2,521,772, respectively. The Company had current assets of $41,122,241 and current liabilities of $44,349,777, representing working capital deficit of $3,227,536 at June 30, 2023.
The current liabilities include $27.8 million of Liabilities Held for Sale representing deferred cash and stock proceeds already received from the sale of the Facility and related equipment and derivative liabilities of $7.8 million for the contingent make-whole liabilities and $1.4 million of deferred revenue representing cash received from the Mackay and ABTC lease agreements.
Our primary source of liquidity during the first six-months of 2023 was cash from asset sales and to a lesser extent, financing activities. During the six-months ended June 30, 2023, we generated $3,701,641 and $2,040,330 in cash from our investing activities and our financing activities, respectively, and we used $6,678,030 in cash in our operating activities.
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During the six-months ended June 30, 2023, the Company delivered 6,490,661 shares of common stock with a fair value of $3,452,848 at an average alternate conversion price per share of $0.53 with a principal balance of $2,400,000 and accrued interest of $58,707. On April 6, 2023, Ionic returned 327,549 excess shares from equity conversions in the first quarter 2023.
During the six-months ended June 30, 2023, we issued 3,214,599 shares of common stock to Tysadco, for an aggregate sales price of $1,350,000 at an average price per share of $0.42 with$7,550,000 of remaining capacity, subject to certain restrictions.
On February 13, 2023, we entered into an equity purchase agreement (the “2023 Leviston Sales Agreement”) with Leviston Resources LLC (“Leviston”) to offer and sell registered shares of common stock at an aggregate offering price of up to $5 million from time to time, at our option, on terms we deem favorable. During the six-months ended June 30, 2023, we issued 3,495,029 shares of common stock to Leviston for an aggregate sales price of $1,300,000 at an average price per share of $0.37 with $3,700,000 of remaining capacity, subject to certain restrictions.
On December 16, 2022, the Company entered into a securities purchase agreement for an unsecured convertible promissory note (the "Ionic Note") with Ionic. with a principal amount of $3,150,000, of which $2,975,000 was funded and $175,000 was an original issue discount ("OID") and issued with a 5% OID. The full principal is due on March 16, 2024. Interest is payable monthly at a rate of 8% annually. The Convertible Note contains conversion terms that are based on percentages of trading price and volumes over defined measurement periods. The terms require the conversion option to be bifurcated as a derivative. As of June 30, 2023 and December 31, 2022, the Company bifurcated the conversion feature and recorded a derivative liability of $600,000 and $420,000, respectively, reflected in our consolidated balance sheet.
On October 25, 2022, we entered into a short-term promissory note (the "Alvin Fund 2022 Note") with Alvin Fund LLC with a principal amount of $2,000,000. In consideration of the lender providing the financing, the Company issued $250,000 in shares to the lender. The full principal is due on October 25, 2023. Interest is payable monthly at a rate of 9% annually. Prepayment is allowed in full or in part at any time without premium or penalty. The loan is secured by all the property commonly referred to as the Dayton properties. On June 21, 2023, the Company issued 270,757 shares of unregistered restricted common shares with a fair value of $107,507 to Alvin Fund LLC in lieu of payment of interest under the Alvin Fund 2022 Note.
On June 21, 2022, The Company entered into an agreement with Tysadco for the purchase of up to $10,000,000 worth of shares of the Company’s common stock from time to time, at the Company’s option. Any shares offered and sold to Tysadco will be registered for resale pursuant to a registration statement on Form S-1 filed with U.S. Securities and Exchange Commission pursuant to the Securities Act of 1933 (the “Securities Act”). The Company paid a commission of 428,571 additional shares of common stock with a fair value of $300,000 to Tysadco in connection with such sale. Sales of common stock, if any, under the Purchase Agreement are made at a 10% discount to the volume weighted average sales price of the common stock on the date that Tysadco receives such a capital call from the Company.
On April 12, 2022, the Company entered into an equity purchase agreement (the “Leviston Agreement”) with Leviston Resources LLC (“Leviston”) for the purchase of up to $10,000,000 worth of shares of the Company’s common stock from time to time, at the Company’s option, on terms deemed favorable to the Company. Any shares offered and sold are issued pursuant to the Company’s shelf registration statement on Form S-3 and the related prospectus (File No. 333-263930) filed by the Company with the U.S. Securities and Exchange Commission pursuant to the Securities Act of 1933 (the “Securities Act”). Sales of common stock, if any, under the Purchase Agreement may be made in sales deemed to be “at-the-market” equity offerings as defined in Rule 415 promulgated under the Securities Act, at a discount of 10% to the volume weighted average sales price of the common stock on the date that Leviston receives a capital call from the Company. For consideration to enter the Leviston Agreement, the Company agreed to deliver additional shares of common stock to Leviston, for no additional consideration, on the first settlement date with respect to a put notice delivered by the Company. As of December 31, 2022, the 2022 Leviston Agreement has no remaining capacity, and the facility was closed.
We intend to fund our operations over the next twelve months from existing cash and cash equivalents, planned sales of non-strategic assets and other investments, leasing cash inflows on certain mineral properties, planned licensing, sales and profits from our cellulosic and battery metal recycling technology and related engineering services, and previously funded capital into our LINICO subsidiary and Quantum investment. Based on these expected funding sources, management believes we will have sufficient funds to sustain our operations and meet our commitments under our investment agreements during the twelve months following the date of issuance of the condensed consolidated financial statements included herein. While we have been successful in the past in obtaining the necessary capital to support our operations, including registered equity financings from our existing shelf registration and other registration statements, non-registered equity placements, borrowings and various other means. There is no assurance we will be able to obtain additional equity capital or other financing, if needed.
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Net cash used in operating activities for the six-months ended June 30, 2023 decreased by $1,036,673 to $6,678,030 from $7,714,703 in the comparable 2022 period, due primarily to changes in operating expenses discussed in Financial Condition and Results of Operating Information.
Net cash provided by investing activities for the six-months ended June 30, 2023 increased by $3,185,496 to $3,701,641 from $516,145 in the comparable 2022 period, primarily due to proceeds from sale of the AQMS lease and related assets of $21.0 million, partially offset by $12.0 million in cash used for the purchase of the AQMS Facility, $3.5 million for payments on contractual commitments for GenMat, LINICO and Haywood investments, $0.9 million for SSOF advances, and $0.8 million for the purchase of water rights as compared to net cash provided in the 2022 period primarily from $0.9 million from recovery of MCU funds, $0.9 million from the sale of Tonogold common shares, and $0.8 million from Tonogold option agreement proceeds, partially offset by $0.8 million for GenMat investments, $0.5 million for licenses and $0.6 million for purchases of equipment.
Net cash provided in financing activities for the six-months ended June 30, 2023 decreased $3,591,355 to $2,040,330 from $5,631,685 for the comparable 2022 period, primarily as a result of net proceeds from the issuance of common stock of $2,810,000 and reduced contributions of $500,000 from AQMS for additional shares in LINICO in 2022.
Risks to our liquidity could result from future operating expenditures above management’s expectations, including but not limited to research and development, pre-development, exploration, selling, general and administrative, and investment related expenditures in excess of repayments of the advances to SSOF, and cash proceeds from the sale of our non-strategic assets and other investments, amounts to be raised from the issuance of equity under our existing shelf and other registration statements, declines in the market value of properties planned for sale, or declines in the share price of our common stock that would adversely affect our results of operations, financial condition and cash flows. If we were unable to obtain any necessary additional funds, this could have an immediate material adverse effect on liquidity and raise substantial doubt about our ability to continue as a going concern. In such case, we could be required to limit or discontinue certain business plans, activities or operations, reduce or delay certain capital expenditures or investments, or sell certain assets or businesses. There can be no assurance that we would be able to take any such actions on favorable terms, in a timely manner, or at all.
CRITICAL ACCOUNTING ESTIMATES
There have been no significant changes to the critical accounting estimates disclosed in Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2022 Form 10-K.
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ITEM 3QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Prices
Changes in the market price of commodities, including precious metals, critical metals and oil and gas may significantly affect our future profitability and cash flow. Metal prices fluctuate widely due to factors such as: demand, global mine production levels, supply chain constraints, investor sentiment, central bank reserves, global conflicts and the value of the U.S. dollar.
Interest Rate Risk
The interest rates on our existing long-term debt borrowings are fixed, and as a result, interest due on borrowings are not impacted by changes in market-based interest rates.
There have been no material changes in the market risks discussed in Item 7A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
ITEM 4 CONTROLS AND PROCEDURES
A. Disclosure
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q, with the participation of our Principal Executive and Financial and Accounting Officer, an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 ("Exchange Act") was conducted. Our disclosure controls and procedures are designed to ensure information required to be disclosed in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Exchange Act rules, and such information is accumulated and communicated to our management, including our Principal Executive and Financial Officer, to allow timely decisions regarding required disclosures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based on that evaluation, our CEO concluded that our disclosure controls and procedures, including controls and procedures designed to ensure that information required to be disclosed by us is accumulated and communicated to our management (including our CEO), were effective as of June 30, 2023, in assuring them in a timely manner that material information required to be disclosed in this report has been properly recorded, processed, summarized and reported.
Changes in Internal Control Over Financial Reporting
During the quarter ended June 30, 2023, there was no change in our internal control over financial reporting that materially affected or is reasonably likely to materially affect our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
The Company’s business activities, including cellulosic fuels, battery recycling, storage, mining and exploration, are subject to various laws and regulations governing environmental protection. These laws and regulations are frequently changing and generally becoming more restrictive. The Company believes its operations are in compliance with applicable laws and regulations, in all material respects. The Company continuously makes expenditures to comply with such laws and regulations and cannot predict the full amount of such future expenditures.
ITEM 1A RISK FACTORS
No new risk factors have been identified in addition to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022 and our Quarterly Report on Form 10-Q for the interim period ended June 30, 2023.
ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USES OF PROCEEDS
On June 21, 2023, the Company issued 270,757 shares of unregistered restricted common shares with a fair value of $107,507 to Alvin Fund LLC in lieu of payment of interest under the Alvin Fund 2022 Note pursuant to Section 4(a)(2) of the Securities act.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 MINE SAFETY DISCLOSURES
Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 104 of Regulation S-K, we are required to disclose items believed to be violations of the Federal Mine Safety and Health Act of 1977, any health and safety standard, or any regulation, as administered by the Federal Mine Safety and Health Administration. The required information is included in Exhibit 95 to this report.
ITEM 5 OTHER INFORMATION
None.
ITEM 6 EXHIBITS
The exhibits required to be filed as a part of this Report on Form 10-Q are listed in the Exhibit Index attached hereto, which is incorporated herein by reference.
(1) Exhibits filed as part of this Report:
See Exhibits for which the Exhibit number is noted with an asterisk on the Exhibit Index attached hereto.
Interactive Data File (Quarterly Report on Form 10-Q, for the periods ended June 30, 2023, furnished in XBRL (eXtensible Business Reporting Language)).
Attached as Exhibit 101 to this report are the following documents formatted in XBRL: (i) the Condensed Consolidated Balance Sheets at June 30, 2023 and December 31, 2022, (ii) the Condensed Consolidated Statements of Operations for the three and six-months ended June 30, 2023 and 2022, (iii) the Condensed Consolidated Statements of Changes in Equity for the three and six-months ended June 30, 2023 and 2022, (iv) the Condensed Consolidated Statements of Cash Flows for six-months ended June 30, 2023 and 2022 and (v) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text. Users of this data are advised pursuant to Rule 406T of Regulation S-T that this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
* Filed herewith.
# Management contract or compensatory plan.
46
The SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the date indicated.
