Item 7. Management’s Discussion and Analysis
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis provides information that management believes is relevant to an assessment and understanding of our consolidated financial condition and results of operations. This discussion should be read in conjunction with the Consolidated Financial Statements included herewith and the footnotes thereto and the risk factors contained herein.
OVERVIEW
Comstock enables systemic decarbonization by innovating and commercializing technologies and materials that integrate into existing global supply chains to extract and convert under-utilized natural resources into renewable energy products that reduce reliance on fossil fuels and contribute to net zero mobility.
Our goal is to Accelerate the Commercialization of Decarbonizing Hard Technologies. We are pushing the boundaries of what is possible in technology and sustainability by leveraging our teams’ unique skills, our diverse technology portfolio, and our frontier research networks toward achieving breakthrough innovations that deliver meaningful positive impact across industries, economies, and communities. The primary focus for 2024 is the continued development and commercialization of our businesses.
Our approach integrates frontier scientific discovery with our systemic management practices into One System aligned and capable to meet the demand for commercial-ready energy transition solutions. Our operations primarily involve the innovation, development, and commercialization of our intellectual properties and related assets, with integrated teams focused on each core function in dedicated lines of business organized to address high impact decarbonization targets. We innovate and develop technologies to achieve significant growth on industry-wide scales by creating financial and other incentives for rapid integration into and across entire industries. Our commercialization plans for each technology are designed to facilitate that result, such as by selling process solutions, engineering services and technology licenses that enable clients to use their capital, infrastructure, and other resources to maximize the rate and scale of adoption, thereby simultaneously maximizing the rate we build shareholder wealth.
We are currently commercializing pioneering intellectual properties for refining lignocellulosic (woody) biomass into renewable replacements for fossil crude at remarkably high yields, recycling increasingly scarce electrification metals from end-of-life photovoltaics and other electronic devices, and advanced physics based artificial intelligence for precision mining and materials discovery. We make, own and manage investments in related assets to support our businesses, including multiple, existing minority equity positions in strategic technology developers, a renewable fuels demonstration facility in Wisconsin, a metals recycling demonstration facility in Nevada, and direct investments in northern Nevada real estate comprised of strategic water rights and about twelve square miles of mining claims and surface parcels with measured and indicated mineral resources containing 605,000 ounces of gold and 5,880,000 ounces of silver, and inferred mineral resources containing an additional 297,000 ounces of gold and 2,572,000 ounces of silver. We also recently announced the execution of agreements with RenFuel to acquire a development stage biorefinery project to refine byproducts of paper production into biointermediates for refining into renewable fuels, and to make an up to $3,000,000 strategic investment over the next three years in RenFuel for the continued development and commercialization of advanced applications of RenFuel’s and Comstock’s complimentary renewable fuels technologies .
Lines of Business
Fuels Segment
Our Fuels Segment develops and commercializes technologies that extract and convert wasted and unused lignocellulosic biomass into intermediates for refining into advanced renewable fuels. Most renewable fuels draw from the same pool of conventional FOG feedstocks, but the total existing FOG supply can only meet a small fraction of the global mobility demand. Our technologies unblock that constraint by converting abundant, lignocellulosic biomass into biointermediates for refining into renewable fuels.
While innovation and development is ongoing and we expect additional advancements, our existing commercially available technologies have proven the potential to produce more than 100 gallons per dry tonne of woody biomass as measured on a GGE basis, with CI scores of 15 or less for Cellulosic Ethanol and our proprietary HBO. HBO is used directly by biofuel refineries to blend with, diversify, and extend conventional hydroprocessed FOG feedstocks to enhance production of renewable fuels.
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We are currently evaluating several joint development solutions and systems based on our technologies, as well as feedstock and offtake agreements, licenses, engineering services, and direct investments.
Execution of additional commercial agreements, including but not limited to, joint development agreements, offtake agreements, feedstock agreements, licensing agreements and direct investments supporting the deployment and enablement of our solutions, primarily with operationally experienced, technologically sophisticated, and well capitalized customers represents an ongoing objective and the primary focus for 2024. The joint development agreements represent up to five phases of development and represent material upfront engineering and professional service fees, ultimately enabling licenses and royalties could create more than 20 years of recurring revenues from the production and sale of lignocellulosic biointermediaries and related co-products.
Metals Segment
Our Metals Segment recently secured sufficient supplier commitments and all of the necessary permits to begin commissioning our first photovoltaic recycling facility, and is expected to receive revenue in the form of tipping fees and to a lesser extent recycled metal sales for the processing of end-of-life photovoltaic materials.
During 2023 and early 2024, we expanded our leadership team in metals recycling, selected our first production site, secured all permitting for our first demonstration scale commercial facility, and secured long term supply agreements from our first customers. In early 2024, we commenced production commissioning activities and continued expanding our existing revenue generating supply commitments while commencing the design and site selection for our first “industry-scale” production facility and the permitting thereto in our metals recycling business are the key objectives for 2024.
Mining Segment
Our Mining Segment generated over $1 million in revenue during 2023 and is expected to generate income in the form of leases, licenses, and related fees throughout 2024. Our Mining Segment is administered by our wholly owned subsidiary, Comstock Mining LLC, and various other subsidiaries that collectively own or control twelve square miles of properties of patented mining claims, unpatented mining claims and surface parcels in northern Nevada, including six and a half miles of continuous mineralized strike length (the “Comstock Mineral Estate”).
Strategic Investments Segment
We own and manage several investments and projects that are strategic to our plans and ability to produce and maximize throughput in our Fuels, Metals and Mining Segments, that are held for the purpose of complimenting or enhancing our mission of enabling systemic decarbonization and creating value but that are not a component of such other segments or otherwise have distinct operating activities. Our Strategic Investments Segment includes minority equity investments in Quantum Generative Materials LLC (physics-based artificial intelligence), Green Li-ion Pte Limited (lithium ion battery recycling and cathode production), Sierra Springs Opportunity Fund (strategic direct investment in northern Nevada real estate), and other equity or equity-linked investments.
We also recently announced the execution of agreements with RenFuel to acquire a development stage biorefinery project to refine byproducts of paper production into biointermediates for refining into renewable fuels, and to make an up to $3,000,000 strategic investment over the next three years in RenFuel for the continued development and commercialization of advanced applications of RenFuel’s and Comstock’s complimentary renewable fuels technologies.
Investment in GenMat – We invested our minority interest of GenMat as an enhancement and an integral component of our innovation strategy. GenMat has developed and launched a new generative AI that we believe is capable of simulating critical properties of known materials with high accuracy. GenMat also plans on using its AI to simulate new material characteristics for new and existing applications. We believe these generative AI models can be employed today, on GenMat’s existing high-performance computing platform, well before quantum computers become mainstream.
During 2023, GenMat began elevating material simulation capabilities to commercial readiness by synthesizing and directly testing new AI simulated materials in high value applications and potentially engage early adopter enterprise clients for this use. GenMat also kicked off a new, historic era of breakthrough mineral exploration capabilities with the successful launch of GENMAT-1, GenMat’s own Hyperspectral Remote Sensing Imaging ( “ HRSI ” ) system for the purpose of optimizing future mineral exploration for the Comstock Mining using their proprietary physics-based artificial intelligence (AI) and newly developing hyperspectral sensing technology. Hyperspectral imaging collects and processes information from across the electromagnetic spectrum using contiguous bands. GenMat and Comstock Mining are pioneering the development and testing
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of GenMat’s technologies by combining the physics-based AI with Comstock’s existing geologic data and the new GENMAT-1 HRSI system.
Investment in Green Li-ion – Our wholly owned LINICO subsidiary invested in 37,162 preferred shares of Green Li-ion in 2021, as we were assembling our technology partners for the recycling of electrification products. We coincidentally secured the rights for the use of their renewable precursor cathode active materials production system.
On September 12, 2023, LINICO received gross proceeds of $795,510 from the sale of 1,500 Green Li-ion preferred shares (representing approximately 4% of the 37,162 of the shares then owned by LINICO). At September 30, 2023, the Company adjusted our investment's carrying value to fair value by increasing that value by $14,577,627 for the remaining 35,662 Green Li-ion preferred shares representing 13.34% of Green Li-ion. The Company intends to sell its remaining shares during 2024.
Investment in SSOF – During 2019, the Company invested $335,000 for 6,700,000 shares. These shares represented approximately 11.64% of SSOF as of December 31, 2022. From 2020 through November of 2023, the Company also advanced $6,985,000 to SSOF and its subsidiary, for the purpose of purchasing land, payments for deposits on land and payments for an option on land and water rights purchases. On December 29, 2023, the Company and SSOF agreed to convert the full amount of the outstanding advances for an additional 3,880,556 common shares of SSOF stock (at a dollar value of $1.80 per share) that also resulted in an unrealized gain recognized of $11,725,000 on the original 6,700,000 shares.
At December 31, 2023, the Company’s total investment in SSOF has a carrying value of $19,045,000, representing 10,580,556 common shares, or 17.11% of the total SSOF outstanding common shares on a fully diluted, if converted basis.
SSOF is a qualified opportunity zone fund, that owns 100% of SSE, a qualified opportunity zone business. SSE and its subsidiaries own or controls approximately 2,500 acres of land, a manufacturing facility, significant senior, junior and effluent water rights, sewer rights and also owns and operates the Silver Springs Regional Airport LLC. The substantial majority of these properties are contiguous and strategically located within immediate proximity of Highway 50, State Route 492, the Northern Nevada Industrial Center and the Tahoe Reno Industrial Center where companies like Tesla, Switch, Google, Microsoft, and Redwood Materials, and over one hundred more companies that are currently located, expanding or locating in this industrializing region.
Other
Investments in Properties – The Company directly owns three types of properties in Silver Springs, NV, including 98 acres of industrial land, 160 acres of commercial land, both centrally located in Silver Springs, just south of the Silver Springs Regional Airport and a portfolio of water rights. The Company will begin marketing these assets for sale as both industrial and commercial development as interest in Silver Springs, NV continuously increased during 2023.
RECENT DEVELOPMENTS
Comstock had historically focused on natural resource exploration, development, and production, with an emphasis on mining gold and silver resources from its extensive contiguous property holdings in the historic Comstock and Silver City mining districts in Nevada (collectively, the “Comstock Mineral Estate”). The Company, following a series of strategic acquisitions, now primarily innovates and commercializes technologies that enable systemic decarbonization, by enabling the extraction and conversion of under-utilized natural resources into renewable energy products and other decarbonizing solutions. These acquisitions were designed to build on our competencies and reposition us to capitalize on the global transition to clean energy and added the management, employees, facilities, intellectual properties, and other assets needed to transform our company and business into an emerging leader in the innovation and sustainable production of renewable energy. The Company is currently commercializing all three of its lines of business, renewable fuels, renewable metals and sustainable mining and making strategic investments in other decarbonizing technologies that either compliment or enhance the financial, natural and social decarbonizing impacts.
On December 19, 2023, Comstock, LINICO (the then 88.23% owned subsidiary), and AQMS entered into a stock redemption agreement pursuant to which AQMS sold and LINICO purchased, all of the remaining equity in LINICO in exchange for $600,000, payable in twelve monthly installments of $50,000. LINICO owns, among other assets, 35,662 Series Seed Preferred Shares in Green Li-ion and Comstock owns 100% of LINICO.
On November 11, 2023, GenMat, in which we have a minority interest, successfully launched GENMAT-1, its Hyperspectral Remote Sensing Imaging (HRSI) system to explore optimizing future mineral exploration for the Comstock Mineral Estate via their proprietary physics-based artificial intelligence and hyperspectral sensing technology. GENMAT-1 was successfully
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launched and manifested via Maverick Space Systems, an end-to-end satellite deployment and mission integration services company, aboard a SpaceX Falcon 9 Transporter rocket from Vandenberg Space Force Base in Lompoc, California. The hyperspectral data that GENMAT-1 obtains will ultimately be integrated with current and historical geological data to test and improve GenMat’s geophysics-based machine learning models.
SUMMARY RESULTS OF OPERATIONS
Net income for the year ended December 31, 2023, increased $57,264,511 to $10,526,252 from a net loss of $46,738,259 in 2022. The increase of $57.3 million primarily resulted from higher gains on investments of $25,027,565, and a gain on the sale of a facility of $7,304,570, decreased impairments, primarily on goodwill, and to a lesser extent intangibles and investments, totaling $16,370,356 in 2022, decreased charges associated with the change in estimated fair value of the derivative investments of $8,688,723 with a $961,085 gain recorded in 2023 as compared to losses of $7,727,638 in 2022, and lower research and development expense of $905,827, higher revenues of $1,096,299, lower other income (expense) of $422,245 primarily due to change in estimated fair value of equity securities and investments, and lower depreciation and amortization expense of $851,045; partially offset by higher selling, general and administration expenses of $2,345,273, a prior year gain on sale of Daney Ranch of $1,055,623 that did not recur and lower interest income of $135,639.
Below we set forth a summary of comparative financial information for the years ended December 31, 2023 and 2022:
2023 2022 Change
Revenue $ 1,274,449 $ 178,150 $ 1,096,299
Selling, general and administrative expenses 12,588,626 10,243,353 2,345,273
Research and development 6,117,305 7,023,132 (905,827)
Depreciation and amortization 2,477,525 3,328,570 (851,045)
Gain on sale of Daney Ranch — (1,055,623) 1,055,623
Gain on sale of Facility (Note 9) (7,304,570) — (7,304,570)
Total operating expenses 13,878,886 19,539,432 (5,660,546)
Loss from operations (12,604,437) (19,361,282) 6,756,845
Other Income (Expense):
Gain (loss) on investments 25,034,875 7,310 25,027,565
Interest expense (1,646,724) (1,651,435) 4,711
Interest income 251,969 387,608 (135,639)
Change in fair value of derivative instruments 961,085 (7,727,638) 8,688,723
Gain on conversion of debt 129,705 — 129,705
Impairment of intangibles — (338,035) 338,035
Impairment of investment and note receivable, net recovery — (3,243,650) 3,243,650
Impairment of goodwill — (12,788,671) 12,788,671
Other income (expense) (1,600,221) (2,022,466) 422,245
Total other income (expense), net 23,130,689 (27,376,977) 50,507,666
Net income (loss) 10,526,252 (46,738,259) 57,264,511
Net income (loss) attributable to noncontrolling interest 1,364,431 (789,515) 2,153,946
Net income (loss) attributable to Comstock Inc. $ 9,161,821 $ (45,948,744) $ 55,110,565
For the years ended December 31, 2023 and 2022, we had the following (Loss) income from operations by segment, as set forth in the summary table below. See Note 19, Segment Reporting , to the Consolidated Financial Statements.
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2023 2022
Fuels $ (6,836,194) $ (7,928,025)
Metals (1,855,549) (1,180,300)
Mining (1,284,753) (346,115)
Strategic Investments (3,176,886) (1,843,510)
Corporate 548,945 (8,063,332)
(Loss) income from operations $ (12,604,437) $ (19,361,282)
For the years ended December 31, 2023 and 2022, we had total assets set forth in the summary table below. See Note 19, Segment Reporting , to the Consolidated Financial Statements.
2023 2022
Fuels $ 7,257,580 $ 8,101,196
Metals 11,797,921 10,618,187
Mining 25,003,871 25,563,028
Strategic Investments 57,082,301 60,536,258
Corporate 5,324,671 (4,764,910)
Total Assets $ 106,466,344 $ 100,053,759
COMPONENTS OF REVENUES AND EXPENSES
Our revenues are primarily derived from the sale of engineering and related services, revenue generated from our mining lease, and revenues generated from our real estate. Our future costs of goods sold will primarily include allocable labor, materials and incidental expenses incurred in connection with revenue from anticipated services and solutions. Selling, general and administrative expenses consist of payroll, insurance and professional fees for marketing, selling, legal, consulting, accounting and investor relations activities. Payroll, including benefits and incentive compensation, are the largest single category of expenditures in selling, general and administrative expenses and research and development.
RESULTS OF OPERATIONS
Year Ended December 31, 2023 Compared to Year Ended December 31, 2022
Revenues for the year ended December 31, 2023 increased $1,096,299 to $1,274,449 in 2023 from $178,150 in 2022, primarily due to higher rental fees and revenues from the Mackay Precious Metals Inc. (“Mackay”) and ABTC leases of $906,250 and $237,473, respectively.
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 technology solutions that we license and sell, the market prices for those services, 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 year ended December 31, 2023 increased $2,345,273 to $12,588,626 in 2023 from $10,243,353 in 2022, primarily as a result of higher employee costs of $1,554,287 attributed to higher salaries, executive incentive compensation, payroll administration costs, and higher marketing and investor relations expenses. Variance also attributed to higher mining related costs of $731,157 associated with no relative reimbursements from Tonogold in 2023, higher board director fees of $703,000, higher reclamation expense of $658,367 attributed to the change in estimate for reclamation liabilities in 2022, higher other expense of $418,907 including supplies, postage and royalty expense, higher license and permits of $212,346, and higher property taxes of $211,699. The increase is partially offset by lower bad debt expense of $1,037,427 primarily attributed to the Tonogold accounts receivable impairment in 2022, lower professional fees of $920,738, and lower stock-based compensation expense of $126,234.
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Research and development expenses for the year ended December 31, 2023 decreased $905,827 to $6,117,305 in 2023 from $7,023,132 in 2022, primarily as a result of higher 2022 costs related to the development of the two pilot scale systems for both processing woody biomass into biointermediates for renewable fuels and for crushing and separating electrification products. These systems are used to validate the processes and develop parameters for deploying and upscaling these renewable technologies. The decrease was partially offset by higher employee costs attributed to executive incentive compensation.
Depreciation and amortization expense for the year ended December 31, 2023 decreased $851,045 to $2,477,525 in 2023 from $3,328,570 in 2022, primarily from ceasing amortization on certain assets held for sale in 2023.
In 2023, we recognized a gain on sale of the battery recycling facility of $7,304,570. In 2022, we recognized a gain on sale of the Daney Ranch of $1,055,623.
Gain on investments of $25,034,875 in 2023, increased $25,027,565 as compared to a small gain on investments in 2022 of $7,310, resulting from a positive $14,577,627 unrealized gain associated with our Green Li-ion preferred share investment, a positive $11,725,000 unrealized gain associated with our SSOF common share investment, and a realized gain of $597,248 on the actual sale of 1,500 Green Li-ion preferred shares, partially offset by a realized loss of $1,865,000 on the sale of ABTC stock.
Interest expense for the year ended December 31, 2023 of $1,646,724 was comparable to 2022 of $1,651,435.
Interest income for the year ended December 31, 2023 decreased by $135,639 to $251,969 in 2023, from $387,608 in 2022, primarily as a result of the extinguishment of the Tonogold note receivable and the extinguishment of the MCU Philippines Inc. (“MCU-P”) note receivable that was exchanged for the Mercury Clean Up LLC (“MCU”) assets, that are no longer accruing interest income for the year ended December 31, 2023.
The change in fair value of our derivative instruments changed by $8,688,723, to a gain of $961,085 in 2023 from a loss of $7,727,638, 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 derivative gain was attributed to $945,000 for the LINICO investment, $710,672 for the GenMat investment and $405,000 for the Haywood Property purchase, offset by a loss of $1,099,587 on the derivative liability for the Ionic Note. The 2022 derivative loss of $7,727,638 was attributed to $3,535,000 for LINICO, $2,912,638 for GenMat and $1,875,000 for the Haywood Property, partially offset by a gain of $595,000 for LP Biosciences.
Gain of $129,705 on conversion of debt for the year ended December 31, 2023 are attributed to the Ionic Note debt conversions associated with 9,636,924 of the Company's common shares used for conversion for the year ended December 31, 2023.
Impairment of intangible assets for the year ended December 31, 2023 decreased by $338,035, due primarily to the impairment of the Flux Photon Corporation (“FPC”) intangible assets as a result of continuing losses and inability to recover the investment. For the year ended December 31, 2023, no impairment losses or recoveries were recorded.
Impairment of investments and notes receivable, net of recoveries, for the year ended December 31, 2023 decreased by $3,243,650. The decrease was primarily due to the 2022 impairment losses resulting from bad investments in MCU and MCU-P and note receivable in MCU-P, which were deemed unrecoverable as of March 31, 2022, resulting from a significant decline in forecasted cash flows from the MCU-P operations. The decrease was 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. For the year ended December 31, 2023, no impairment losses or recoveries were recorded.
Impairment of goodwill for the year ended December 31, 2023 decreased by $12,788,671 primarily from the 2022 goodwill impairments of $10.6 million from the acquisition of Comstock Innovations (formerly Plain Sight Innovations) and $2.2 million from the acquisition of Comstock Engineering (formerly Renewable Process Solutions), respectively. For the year ended December 31, 2023, no goodwill impairment losses were recorded.
Other income (expenses), net, for the year ended December 31, 2023 were $1,600,221, primarily consisting of losses from our equity method investments of $1,715,689, substantially all of which was associated with GenMat.
Other income (expenses), net, for the year ended December 31, 2022 were $2,022,466, primarily consisting of losses from our equity method investments of $1.1 million, substantially all of which was associated with GenMat, a $0.6 million decrease in the value of the Tonogold note receivable and a $0.3 million expense associated with the LP Biosciences LLC (“LPB”) settlement.
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No deferred income tax benefit was recorded for the years ended December 31, 2023 and 2022.
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 investing activities and ultimately, our ability to provide or use cash flows from or in our operations. Our cash balances at December 31, 2023 and 2022 were $3,785,577 and $2,521,772, respectively. The Company had current assets of $23,183,139 and current liabilities of $14,841,025, representing working capital excess of $8,342,114 at December 31, 2023.
The current liabilities include derivative liabilities of $5.4 million for the contingent make-whole liabilities and $2.4 million of accrued expenses and other liabilities, including $1.3 million for incentive compensation and $0.8 million for accrued payroll and related expenses.
Our primary source of liquidity during 2023 was cash from financing and investing activities. During the year ended December 31, 2023, we generated $11,258,485 and $3,630,541, respectively, in cash from our financing and investing activities and we used $13,625,221 in cash in our operating activities. Our primary source of liquidity during 2022 was cash from financing activities. During the year ended December 31, 2022, we generated $12,446,702 from our financing activities and we used $12,105,169 and $3,731,949 in cash from our operating and investing activities, respectively.
During 2023, we issued 15,356,808 common shares through equity issuance and private placement agreements, at an average price per share of $0.43 corresponding to proceeds of $6,650,380, net of cash issuance fees of $249,620. During 2023, we also provided a net $15,000,000 from the sale of the battery recycling facility (proceeds of $27,000,000 from the sale of the Manufacturing Facility and used $12,000,000 for the purchase of the Manufacturing Facility) and used $10,020,000 for advances to SSOF and payments on commitments for investments associated with derivative instruments (that is, primarily for GenMat, LINICO and the Haywood Property) and $1,819,065 for the purchase of property, plant and equipment, primarily associated with the our new solar panel recycling facility.
During 2022, we issued 20,666,674 common shares through equity issuance and private placement agreements at an average price per share of $0.52 and proceeds of $10,488,180, net of cash issuance fees of $298,000. During 2022, we also used $2,825,000 for payments on commitments for investments associated with derivative instruments (that is, primarily for GenMat and to a lesser extent LINICO and the Haywood Property) and $1,014,070 for the purchase of property, plant and equipment, primarily associated with for the electrification metal recycling pilot.
On December 27, 2023, the Company entered into a securities purchase agreement for an unsecured convertible promissory note (the "Kips Bay Note") with Kips Bay Select LP ("Kips Bay") with a principal amount of $5,263,157, of which $263,157 was an original issue discount. The full principal is due on March 27, 2025. Interest is payable monthly at a rate of 8% annually. On December 27, 2023, the Company received $3.0 million and received the remaining $2.0 million by January 27, 2024. The Kips Bay 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 December 31, 2023, the Company bifurcated the conversion feature was recorded as a derivative liability with a corresponding addition to debt discount of $1,360,000 reflected in our consolidated balance sheet. The derivative was valued using a Monte Carlo valuation model with a conversion price equal to 90% of the average price capped at $1.00, discount rate of 35%, risk free rate of 4.54%, and volatility of 96.0%. During the year ended December 31, 2023, we recognized interest expense of $16,822 which includes OID amortization of $14,806 in connection with the Kips Bay Note.
On November 12, 2023, the Company entered into (the “Alvin Fund 2023 Note”) with Alvin Fund with a principal amount of $2,100,000, including a $100,000 original issue discount. The Company also provided additional consideration in the form of warrants that allows the lender to purchase 1,000,000 shares at $0.70 per share, which was recognized as a discount on the loan. The full principal is due on February 12, 2025. Interest is payable monthly at a rate of 8% annually. Prepayment is allowed in full or in part at any time without penalty. The loan is secured by the Company's non-mining assets. The warrants are exercisable for a period of two years commencing on November 12, 2023, and ending on November 12, 2025.
On February 13, 2023, the Company entered into an equity purchase agreement (the “2023 Leviston Sales Agreement”) with Leviston to offer and sell registered shares of common stock at an aggregate offering price of up to $5,000,000. As of December 31, 2023, the Company issued Leviston 10,892,604 of registered common shares for an aggregate sales price of $5,000,000 at an average price per share of $0.46, and the Company issued Leviston an additional 552,486 common shares at a fair value of $200,000 in commitment fees. As of December 31, 2023, the 2023 Leviston Sales Agreement has no remaining capacity.
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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.
In 2023, the Company delivered 9,636,924 shares of common stock with a fair value of $4,622,502 at an average conversion price per share of $0.48 upon the conversion. The conversion terms required 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 and October 27, 2023, Ionic returned excess shares of 327,549 and 603,569, respectively, of the Company's common stock issued upon earlier conversions with a fair value of $364,330.
The Ionic Note had a derivative liability balance of $1,519,587 that was reversed upon conversion. The Company recorded a gain on the conversions of $129,705. As of December 31, 2023, the Ionic Note was fully converted with no remaining obligation.
On October 25, 2022, the Company entered into (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 which was recognized as a discount on the loan. The full principal was due on October 25, 2023. Interest was payable monthly at a rate of 9% per annually. Prepayment is allowed in full or in part at any time without premium or penalty. The loan is secured by all of the property commonly referred to as the Dayton properties. On September 30, 2023, the Company entered into an amendment to extend the maturity of the Alvin Fund 2022 Note to January 31, 2026, at an interest rate of 16%. The Company used the proceeds for a $2.0 million payment toward the purchase of a battery recycling facility from LINICO.
On June 21, 2022, the Company entered into an equity purchase agreement with 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 value of $40,000 to the placement agent in connection with such sale. Such sale was exempt from registration pursuant to Section 4(a)(2) of the Securities Act.
On June 21, 2022, the Company also 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. The Company also paid Tysadco a commission of 428,571 additional common shares with a fair value of $300,000.
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. For the year ended December 31, 2023, the Company issued 4,464,204 shares of common stock to Tysadco, for an aggregate sales price of $1,900,000 at an average price per share of $0.43. 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. As of December 31, 2023, the Purchase Agreement has $7,000,000 remaining capacity, subject to certain limitations and contractual restrictions.
On April 12, 2022, the Company entered into an equity purchase agreement (the “2022 Leviston Sales Agreement”) with 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. 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 into the 2022 Leviston Sales 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. For the year ended December 31, 2022, the Company issued to Leviston 13,156,117 common shares with an aggregate sales price of $7,311,180, at an average price per share of $0.64, and an additional 206,897 common shares at a fair value of $300,000 in commitment fees. The Company issued 136,986 unregistered common shares with a fair value of $200,000 in due diligence fees. As of December 31, 2023, the 2022 Leviston Sales 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, mining lease revenues, sales from our lignocellulosic and battery metal recycling technology and related engineering services, and planned sales of
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non-strategic assets and other investments, planned licensing. 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 12 months following the date of issuance of the 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 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. We intend to fund our operations beyond the next twelve months from existing cash and cash equivalents, mining lease revenues, sales from our lignocellulosic and battery metal recycling technology and related engineering services, and planned sales of non-strategic assets and other investments, planned licensing, and borrowings and other various equity financing alternatives from our existing shelf and other registration statements.
Net cash used in operating activities for the year ended December 31, 2023 increased $1,520,052 to $13,625,221 in 2023 from $12,105,169 in 2022 primarily due to increases in cash used for operating expenses discussed in Financial Condition and Results of Operating.
Net cash provided by investing activities for the year ended December 31, 2023, increased by $7,362,490 to $3,630,541 as compared to cash used of $3,731,949 in 2022, primarily due to proceeds from sale of the Manufacturing Facility of $27.0 million, including $6.0 million from proceeds on sale of ABTC shares paid for that Facility, and $0.8 million for proceeds on sale of Green Li-ion investments, partially offset by $12.0 million in cash used for the purchase of the Manufacturing Facility, $5.2 million for payments on contractual commitments our investment in GenMat, LINICO and the Haywood Property, $2.0 million for SSOF advances, and $0.8 million for the purchase of equipment and water rights, as compared to net cash provided in the 2022 period primarily from $1.5 million for proceeds on sale of Daney Ranch, $0.9 million from proceeds from the sale of Tonogold shares, and $0.8 million from proceeds from the Tonogold option agreement, partially offset by $1.6 million in cash used for construction in progress.
Net cash provided by financing activities for the year ended December 31, 2023, decreased by $1,188,217 to $11,258,485 in 2023 from $12,446,702 in 2022, primarily as a result of lower net proceeds from the issuance of common stock of $3.9 million and reduced contributions of $500,000 from AQMS for additional shares in LINICO in 2022; offset partially by lower payments for financial leases of $3.5 million due to sale of Facility in 2023.
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 sale proceeds from our non-strategic assets and other investments, amounts to be raised from the issuance of equity under our existing shelf registration statement, 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.
OUTLOOK
Our goal is to Accelerate the Commercialization of Decarbonizing Hard Technologies. We are pushing the boundaries of what is possible in technology and sustainability by leveraging our teams’ unique skills, our diverse technology portfolio and our frontier research and development networks toward achieving breakthrough innovations that deliver meaningful positive impact across industries, economies and communities. The primary focus for 2024 is the commercialization of our businesses and the continuous innovation, development and engineering of technologies and solutions.
Technology Readiness
The Company’s biorefining technologies are commercially ready and offer growth-enabling performance for the Company’s prospective customers. Comstock Fuels is actively pursuing joint development and licensing agreements representing future revenues from technical and engineering services, designed to identify, define and enable renewable fuel hub projects, including securing associated supply chain participants, performing preliminary and final engineering, facilitating commissioning, construction and operations with globally recognized current and developing renewable fuel producers.
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Comstock Metals is also commercially ready and has engineered and ordered its first commercial demonstration facility and permitted and deployed approximately $2.3 million in capital expenditures for this facility, primarily in the second half of 2023, and early 2024, with commissioning and production commencing in early 2024.
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.
Each of our lines of developing businesses have achieved sufficiency for certain aspects of their technology readiness enabling early adoption and commercialization efforts.
The following summarizes the recent change in TRL status, and the 2024 objectives:
Line of Business
Technology
12/2021
12/2022
12/2023
12/2024 Goal
Lignocellulosic Fuels
Conversion of under-utilized woody biomass into renewable fuels at high yield
TRL 4
TRL 6
TRL 6
TRL 7
Artificial Intelligence
Generative AI that simulates new materials at exponentially increased speed
TRL 3
TRL 4
TRL 6
TRL 7
Metals
Scalable extraction of metals from electrification products
TRL 2
TRL 5
TRL 6
TRL 7
Mining
Dramatically reduced exploration costs with hyperspectral imaging and AI-based analytics
TRL 0
TRL 2
TRL 3
TRL 6
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.
Commercialization – Lines of Business
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 rapidly growing demand for renewable fuels. Comstock's patented and patent-pending biorefining technologies unblock that constraint by converting underutilized lignocellulosic or "woody" biomass into biointermediates for refining drop-in and other renewable fuels.
The Company’s objectives for 2024 include:
• Execute multiple, revenue generating commercial agreements for industry-scale joint development projects, including prefeasibility, feasibility, engineering, commissioning, construction, operations, committed offtake, supply of feedstocks etc., with operationally experienced, technologically sophisticated and well capitalized customers ; and
• Expand, integrate and commission an integrated, continuous bio-intermediate production system, including cellulosic ethanol and HBO for sufficient time to achieve and broadly demonstrate TRL 7, in late 2024 or early 2025.
Each joint development project could result in millions of dollars of technical services and engineering revenues and ultimately, license agreements for commercial production facilities that could each create 15 to 20 years of royalty revenues.
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Comstock Metals
End of life solar panels are one of the primary metals-based products that can cause a massive amount of pollution if simply allowed to be landfilled at the end of life with no recovery of any of the underlying metal values.
Comstock Metals objectives for 2024 include:
• Advancing the technology readiness for broader material recycling, prioritizing photovoltaics, to TRL 7;
• Commissioning the photovoltaic material recycling;
• Commencing production of the demonstration scale production facility;
• Expanding our existing revenue generating supply commitments; and
• Finalizing the design and site selection for our first few “industry-scale” facilities and commence permitting.
Comstock Metals has secured all permits for operating its demonstration scale production facility in Silver Springs, NV, with commissioning of operations commencing now, and once commissioned, begin ongoing production immediately thereafter.
Comstock Mining
The Company has amassed the single largest known repository of historical and current geological data within the Comstock mineral district, including extensive geophysical surveys, geological mapping, and drilling data, including the Dayton resource.
On June 30, 2023, the Company signed a Mineral Exploration and Mining Lease Agreement (the “Mining Lease”) with 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 initiation fee of $1,250,000 and made their first two quarterly lease payments totaling $875,000, with quarterly lease payments of $375,000 due for the next three and a half years, and then quarterly lease payments of $250,000 thereafter. 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. Mackay will reimburse carrying costs and pay a 1.5% NSR royalty from any future mine production.
The Company’s objectives for 2024 include:
• Receive cash proceeds of approximately $2 million from mineral leases leveraging the northern district claims;
• Commercialize mineral development agreements that enable resource expansion of the central district claims;
• Develop with GenMat, AI-based exploration tools, using Comstock's extensive geologic data along with GENMAT-1’s hyperspectral imaging solution to condition and develop the AI and ground-truth its predictions, and
• Complete the development and mine plans that enables the economic development of the southern district claims.
The Company’s 2024 efforts will apply economic analysis to Comstock’s existing gold and silver resources progressing toward full economic feasibility for the southern part of the district and the ultimate development of full mine and reclamation plans.
Strategic Investments
Investment in GenMat
Investment in generative physics-based AI is a crucial component of Comstock’s technology innovation strategy. GenMat develops and commercializes proprietary generative artificial intelligence models for the discovery and manipulation of matter. This includes AI models that can be employed today, for commercial use on GenMat’s existing, high-performance computing platforms. GenMat is a company in which Comstock has a minority investment interest.
GenMat's AI 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. New material discovery typically takes many years and many millions of dollars. GenMat's AI can simulate thousands of unique new materials in seconds.
GenMat’s objectives for 2024 include:
• Elevate new material simulation to TRL 7 by synthesizing and directly testing the AI’s ability to predict material properties to confirm the precision and accuracy of those simulations;
• Commercialize its space-based hyperspectral imaging sensor for mineral discovery applications; and
• Commercialize physics-based AI solutions to enterprise clients for advanced materials simulation and synthesis.
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While the Company can’t be precise about exactly when GenMat will initiate revenue, GenMat’s technologies are maturing much faster than anticipated and at least one commercial agreement is likely in 2024.
Investment in Green Li-ion
Green Li-ion continues making meaningful progress in the development and deployment of its system that remanufactures critical precursor cathode active materials (“PCAM”). In 2023, LINICO received gross proceeds of approximately $0.8 million from the sale of 1,500 Green Li-ion preferred shares (representing approximately 4% of the 37,162 Green Li-ion preferred shares owned by LINICO). The Company intends to sell the remaining 35,662 Green Li-ion preferred shares for potentially up to $19 million more in 2024 proceeds, resulting in a total of almost $20 million from its original $2.0 million investment.
Investments in others non-mining real estate, water rights and securities
The Company directly owns land and water rights in Silver Springs, NV, that it will begin marketing for sale and anticipates selling these assets for over $40 million in net proceeds during 2024.
IMPACT OF NEW ACCOUNTING STANDARDS
Information about the impact of new accounting standards is included in Note 1 of the consolidated financial statements in this Annual Report.
CRITICAL ACCOUNTING ESTIMATES
The SEC has requested that all registrants address their most critical accounting policies. The SEC has indicated that a “critical accounting policy” is one which is both important to the representation of the registrant’s financial condition and results and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. We base our estimates on experience and on various other assumptions our management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results will differ and may differ materially from these estimates under different assumptions or conditions. Changes in accounting estimates could occur in the future from period to period. Our management has discussed the development and selection of our most critical financial estimates with the Audit and Finance Committee of our Board of Directors. The following summarizes our most critical accounting policies:
Determination of Fair Values
Management determines the fair value of a financial instrument based on the amount that could be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value is calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity. In addition, the fair value of liabilities includes consideration of non-performance risk, including the party’s own credit risk. For our fair value measurements, we utilize market prices, third-party valuation consultant, present value methods and standard option valuation models to determine the price we would receive from the sale of an asset or the transfer of a liability in an orderly transaction at the measurement date. We measure the fair value of a group of financial assets and liabilities consistent with how a market participant would price the net risk exposure at the measurement date.
Impairment of Mineral Rights, Properties, Plant and Equipment, Intangible Assets, Notes Receivable and Investments
The Company assesses its mineral rights and properties, plant and equipment for possible impairment whenever events or changes in circumstances indicate the carrying value of the assets may not be recoverable. Such indicators include changes in the Company’s business plans, changes in precious metal prices and significant downward revisions of estimated mineralization quantities. If the carrying value of an asset exceeds the future undiscounted cash flows expected from the asset, an impairment charge is recorded for the excess of carrying value of the asset over its estimated fair value. Determination as to whether and how much an asset is impaired involves management estimates on highly uncertain matters such as future commodity prices, the effects of inflation and technology improvements on operating expenses, and the outlook for global or regional demand conditions for gold and silver. However, the impairment reviews and calculations are based on assumptions that are consistent
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with the Company’s business plans and long-term investment decisions. Management does not believe there are impairments present in mineral rights and properties, plant, and equipment.
At the end of each reporting period, management considers whether impairment indicators exist to evaluate if a notes receivable or payable is impaired and, if so, record an impairment loss.
At the end of each reporting period, management reassesses whether an investment accounted for under the equity method or an investment covered under the alternative method since the security is without a readily determinable fair value, qualifies to be measured at cost less impairment. Management considers whether impairment indicators exist to evaluate if an equity investment security is impaired and, if so, record an impairment loss.
At the end of each reporting period, management reviews purchased intangible assets for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. We measure recoverability of these assets by comparing the carrying amounts to the future undiscounted cash flows that the assets or asset group are expected to generate. When appropriate, management develops discounted cash flow projections of our projected revenue and net income for intangible assessments for the Fuels, Metals and Mining Segments. These GAAP-based undiscounted cash flow analysis are prepared by a third-party consultant and reviewed by management for reasonableness. If the carrying value of the assets or asset group are not recoverable, impairment is measured and recorded as the amount by which the carrying value exceeds its fair value.
Estimates of future cash flows used to test the recoverability of our intangible assets are based on management’s best estimate of the revenues generated from planned projects and related costs expected to be incurred for our Fuels, Metals and Mining business segments. Such cost estimates include, where applicable recurring operating costs. Actual revenues and costs incurred in future periods could differ from amounts estimated.
Reclamation and Remediation Obligations
Reclamation costs are allocated to expense over the life of the related assets and are periodically adjusted to reflect changes in the estimated present value resulting from the passage of time and revisions to the estimates of either the timing or amount of the reclamation and remediation costs. Reclamation obligations are based on when the spending for an existing environmental disturbance will occur. We review, on at least an annual basis, the reclamation obligation at each mine site in accordance with guidance for accounting for asset retirement obligations. Reclamation obligations for inactive mines are accrued based on management’s best estimate of the costs expected to be incurred at a site. Such cost estimates include, where applicable, ongoing care, maintenance and monitoring costs. Changes in estimates at inactive mines are reflected in earnings in the period an estimate is revised. Accounting for reclamation and remediation obligations requires management to make estimates unique to each mining operation of the future costs we will incur to complete the reclamation and remediation work required to comply with existing laws and regulations. Actual costs incurred in future periods could differ from amounts estimated. Additionally, future changes to environmental laws and regulations could increase the extent of reclamation and remediation work required. Any such increases in future costs could materially impact the amounts charged to earnings for reclamation and remediation.
Income Taxes
Our income tax expense and deferred tax assets and liabilities reflect management’s best assessment of estimated future taxes to be paid. Deferred income taxes arise from temporary differences between the tax and financial statement recognition of revenue and expense. In evaluating our ability to recover our deferred tax assets, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. In projecting future taxable income, we develop assumptions including the amount of future state, federal and foreign pretax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates that we are using to manage the underlying businesses. Valuation allowances are recorded as reserves against net deferred tax assets by the Company when it is determined that net deferred tax assets are not likely to be realized in the foreseeable future. The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations. Income tax positions must meet a more-likely-than-not recognition threshold to be recognized.
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