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") 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 months ended March 31, 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 March 31, 2023, and our results of operations, changes in equity and cash flows for the three months ended March 31, 2023 and 2022.
DESCRIPTION OF THE BUSINESS
Comstock innovates 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 a profitable, balanced short cycle ecosystem that continuously offsets, recycles, and/or neutralizes carbon emissions.
Comstock Fuels – Most renewable fuels draw from the same feedstock pool, but the total supply can only meet a small fraction of the demand. Our technologies unblock that constraint by converting abundant but underutilized lignocellulosic biomass into biointermediates for refining into renewable fuels. Our team recently demonstrated commercial readiness with unprecedented yields approaching 100 gallons of fuel per dry ton of feedstock on a gasoline gallon equivalent basis.
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 these 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 these types of electronic devices. We also expanded our leadership team, permitted a universal waste storage facility and, opportunistically entered into an agreement to sell an existing facility for net estimated cash proceeds of over $14 million.
Comstock Mining – We own or control twelve square miles of patented mining claims, unpatented mining claims, and surface parcels, covering six and a half miles of continuous mineral strike length. We recently facilitated two SK-1300 technical reports confirming Measured and Indicated resources of 605,000 ounces of gold and 5,880,000 ounces of silver, plus Inferred resources of 297,000 ounces of gold and 2,572,000 ounces of silver. We have amassed one of the largest historical and current data repository 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.
Artificial Intelligence –Quantum Generative Materials LLC ("GenMat"), our 48% owned subsidiary, has developed and launched a new generative AI to simulate critical properties of known materials during calibration testing late last year. GenMat also used its AI to simulate new material characteristics and these generative AI models can be employed today for commercial use on their existing high-performance computing platform, well before quantum computers become mainstream.
The Company’s strategic investments in the further demonstrate our commitment to sustainable innovation. Sierra Springs Opportunity Fund ("SSOF") and its subsidiaries support responsible, sustainable economic growth in Silver Springs, NV and 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 $297.2 million at March 31, 2023. For the three months ended March 31, 2023, the Company recognized a net loss of $5.7 million and cash and cash equivalents increased by $5.6 million from $2.5 million at December 31, 2022 to $8.1 million at March 31, 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, 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 registration statement, 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 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, 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 this guidance 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.
NOTE 2 INVESTMENTS
Summary of Investments
At March 31, 2023 and December 31, 2022 our non-current investments include:
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| Equity Method Investments: | Investment | | Ownership % | | Investment | | Ownership % |
| Quantum Generative Materials LLC | $ | 12,868,811 | | | 48.19% | | $ | 13,312,433 | | | 48.19% |
| Pelen Limited Liability Company | 597,641 | | | 25.00% | | 619,184 | | | 25.00% |
| Total equity method investments | 13,466,452 | | | | | 13,931,617 | | | |
| Alternative Measurement Method Investments: | | | | | | | |
| Green Li-ion Pte. Ltd. | 4,517,710 | | | | | 4,517,710 | | | |
| Sierra Springs Opportunity Fund, Inc., at cost | 335,000 | | | | | 335,000 | | | |
| Total Investments | $ | 18,319,162 | | | | | $ | 18,784,327 | | | |
Summary financial information for affiliated companies (20% to 50%-owned) accounted for by the equity method is as follows:
| | | | | | | | | | | |
| March 31, 2023* | | December 31, 2022* |
| Current assets | $ | 669,124 | | | $ | 1,023,023 | |
| Non-current assets | 9,979,955 | | | 12,034,506 | |
| Current liabilities | 3,625 | | | 89,584 | |
| Non-current liabilities | — | | | — | |
| | | |
| | | |
| March 31, 2023* | | March 31, 2022* |
| Revenues | 17,450 | | | 73,697 | |
| Gross Profit | 17,450 | | | 73,697 | |
| | | |
| Net income (loss) and net income (loss) attributable to the entity | $ | (1,269,167) | | | $ | (2,956,597) | |
* The information is presented as of December 31, 2022 and September 30, 2022, and for the three months ended December 31, 2022 and 2021, respectively. All equity method investments are accounted for on a one-quarter lag.
The excess of our investment values over the net assets of the individual equity method investees is comprised of goodwill and mineral interest. 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 $8.9 million and $10.9 million, which is included in non-current assets as of March 31, 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. 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 10, Equity). Through December 31, 2022, we paid $7,450,000 consisting of the full $5,000,000 cash commitment and $2,450,000 against the make-whole for the deficiency in the common stock value. During the three months ended March 31, 2023 and 2022, we paid $1,200,000 and $0, respectively, against the make-whole for the deficiency in common stock value.
For the three months ended March 31, 2023 and 2022, the Company recorded $443,622 and $205,405, 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 March 31, 2023.
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 serve on the board of directors of GenMat. The GenMat board of directors is composed of the three employees of the Company having one vote each along with the chief executive officer and founder of GenMat who receives four votes. The Company's chief executive officer, chief technology officer and employee of the Company 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 March 31, 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 $21,543 in equity loss from affiliates and $16,755 in equity income from affiliates for its investment in Pelen for the three months ended March 31, 2023 and 2022, respectively.
Investment in Green Li-ion Pte, Ltd.
As part of our acquisition of the LINICO assets 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.
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 decreased our ownership to 14.01%. The Company monitors additional equity issuances of Green Li-ion to assess whether the equity securities are similar instruments requiring adjustments of the investment carrying values to fair value. At March 31, 2023, no adjustments were made to the investment's carrying value as a result of Green Li-ion equity raises. For the three months ended March 31, 2022, we recognized $59,290, in equity losses from affiliates for the investment in Green Li-ion. After March 31, 2022, the investment is accounted for using the alternative cost method.
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 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 March 31, 2022. The original acquisition cost of $10,812,669 was recognized as a reduction in equity.
For the three months ended March 31, 2022, the Company recorded other expense of approximately $250,000 in the condensed consolidated statement of operations, in connection with the termination of the transaction. There were no such expense in 2023.
Investment in Mercury Clean Up LLC and MCU Philippines, Inc.
In March 2022, based on the lack of a 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 three months ended March 31, 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 three months ended March 31, 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 coming from MCU and $305,204 coming from MCU-P during the second quarter of 2022.
As of June 18, 2022, the Company owns 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 of $0 and $14,578 for the three months ended March 31, 2023 and 2022, respectively. The Company recorded equity losses from affiliates for the investment in MCU-P of $0 and $4,385 for the three months ended March 31, 2023 and 2022, respectively.
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 March 31, 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 March 31, 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 at cost less impairment 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 $5,540,000 outstanding at March 31, 2023.
NOTE 3 NOTES RECEIVABLE AND ADVANCES, NET
Notes receivable and advances, net at March 31, 2023 and December 31, 2022 include:
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| Current portion | | | |
| Sierra Springs advances receivable | $ | 5,540,000 | | | $ | 4,990,000 | |
| Other notes receivable | 16,267 | | | 22,275 | |
| Total notes receivable and advances, current portion | $ | 5,556,267 | | | $ | 5,012,275 | |
| | | |
| Non-current portion | | | |
| Daney Ranch note receivable | $ | 992,210 | | | $ | 993,000 | |
| Unamortized discount for implied interest | (21,439) | | | (33,682) | |
| Daney Ranch note receivable, net of discount | 970,771 | | | 959,318 | |
| Total notes receivable and advances, non-current portion, net | $ | 970,771 | | | $ | 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 months ended March 31, 2023 and 2022, we recognized interest income of $17,139 and $0, respectively.
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 with Tonogold (the "Lucerne Option") where we agreed to extinguish the Tonogold note receivable in exchange for 100% of the membership interests of Comstock Mining LLC and a payment of $750,000. The agreement provided Tonogold with the option to repurchase the Comstock Mining LLC membership interests. The Lucerne Option expired at December 31, 2022, and all agreements were terminated due to the failure to pay the Company timely.
On March 26, 2022, in connection with the option agreement, we extinguished the Tonogold note receivable principal of $6,650,000 in exchange for the membership interests of Comstock Mining and the Lucerne Option. We accounted for the note receivable using the fair value option. For the three months ended March 31, 2023 and 2022, we recognized a loss in other income and expense on the consolidated statement of operations for the changes in fair value of the Tonogold note receivable of $0 and $605,000, respectively.
Advances to Sierra Springs Opportunity Fund, Inc.
For the three months ended March 31, 2023 and 2022, the Company provided SSOF advances of $550,000 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 March 31, 2023 and December 31, 2022 were $5,540,000 and $4,990,000, respectively. The advances are non-interest bearing.
NOTE 4 PROPERTY, PLANT AND EQUIPMENT, NET AND MINERAL RIGHTS
Properties, plant and equipment at March 31, 2023 and December 31, 2022 include the following:
| | | | | | | | | | | |
| | March 31, 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 | 5,270,355 | | | 5,212,891 | |
| Accumulated depreciation | (26,869,026) | | | (26,748,929) | |
| Total property, plant and equipment, net | $ | 13,411,461 | | | $ | 13,474,094 | |
During the three months ended March 31, 2023 and March 31, 2022, we recognized depreciation expense of $120,097 and $137,816, respectively.
Mineral Rights and Properties
Our properties at March 31, 2023 and December 31, 2022 consisted of the following:
| | | | | | | | | | | |
| March 31, 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 three months ended March 31, 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.
During the three months ended March 31, 2023, the Company acquired senior water rights (50 acre feet) and junior water rights (16 acre feet) on one of its existing properties for $730,595.
NOTE 5 INTANGIBLE ASSETS AND GOODWILL
The Company’s intangible assets at March 31, 2023 and December 31, 2022 include the following:
| | | | | | | | | | | | | | | | | | | | |
| Description | | Estimated Economic Life | | March 31, 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 | | | | (2,879,542) | | | (2,379,091) | |
| Intangible assets, net | | | | $ | 17,163,230 | | | $ | 17,663,681 | |
Accumulated amortization as of March 31, 2023 and December 31, 2022 consisted of the following:
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| Developed technologies | $ | 2,657,757 | | | $ | 2,172,594 | |
| License agreements | 92,780 | | | 78,415 | |
| Customer agreements | 122,885 | | | 122,884 | |
| Distribution agreements | 5,245 | | | 4,497 | |
| Trademarks | 875 | | | 701 | |
| Accumulated amortization | $ | 2,879,542 | | | $ | 2,379,091 | |
For the three months ended March 31, 2023 and 2022, amortization expense related to intangible assets was $500,451 and $568,309, respectively.
The Company is party to three license agreements with American Science and Technology Corporation (“AST”), pursuant to which Comstock Innovations 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. The Company is also party to a research agreement with Virginia Polytechnic Institute and State University (“Virginia Tech”), and an exclusive license agreement with Virginia Tech’s affiliate, Virginia Tech Intellectual Properties, Inc. (“VTIP”) pursuant to which the Company agreed to (i) pay Virginia Tech $438,410 to conduct sponsored research; and (ii) license VTIP’s related intellectual property on a worldwide exclusive basis in exchange for a royalty fee equal to 1.0% of the applicable net sales, subject to a minimum annual royalty of $5,000 per year. For the three months ended March 31, 2023 and March 31, 2022, we paid Virginia Tech $5,800 and $103,258, respectively, for their research.
Future minimum amortization expense is as follows at March 31, 2023:
| | | | | |
| Remainder of 2023 | $ | 1,497,202 | |
| 2024 | 1,993,499 | |
| 2025 | 1,993,499 | |
| 2026 | 1,993,499 | |
| 2027 | 1,993,499 | |
| Thereafter | 7,692,032 | |
| $ | 17,163,230 | |
Changes in the intangible assets and goodwill balances for the three months ended March 31, 2023 and 2022, are presented below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2022 | | Additions | | Impairment | | Amortization | | As of March 31, 2023 |
| Intangible assets | | $ | 20,042,772 | | | $ | — | | | $ | — | | | $ | — | | | $ | 20,042,772 | |
| Accumulated amortization | | (2,379,091) | | | — | | | — | | | (500,451) | | | (2,879,542) | |
| | | | | | | | | | |
| Total intangible assets and goodwill | | $ | 17,663,681 | | | $ | — | | | $ | — | | | $ | (500,451) | | | $ | 17,163,230 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2021 | | Additions | | Impairment | | Amortization | | As of March 31, 2022 |
| Intangible assets | | $ | 23,514,259 | | | $ | 500,000 | | | $ | (350,000) | | | $ | — | | | $ | 23,664,259 | |
| Accumulated amortization | | (338,958) | | | — | | | — | | | (568,309) | | | (907,267) | |
| Goodwill | | 12,788,671 | | | — | | | — | | | — | | | 12,788,671 | |
| Total intangible assets and goodwill | | $ | 35,963,972 | | | $ | 500,000 | | | $ | (350,000) | | | $ | (568,309) | | | $ | 35,545,663 | |
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 value the estimated fair value. 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 March 31, 2023 and December 31, 2022, assets held for sale include a lease intangible with a balance of $3,501,939 which is net of related amortization of $119,548 (see Note 7, Leases).
NOTE 6 ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities at March 31, 2023 and December 31, 2022 consisted of the following:
| | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 |
| Accrued interest expense | $ | 127,717 | | | $ | 43,398 | |
| Accrued payroll costs | 559,058 | | | 627,210 | |
| Accrued executive bonuses | 1,160,156 | | | 928,125 | |
| Accrued vendor liabilities | 300,345 | | | 115,653 | |
| Other accrued expenses | 5,431 | | | 5,211 | |
| Total accrued expenses | $ | 2,152,707 | | | $ | 1,719,597 | |
On July 1, 2022, the Board of Directors approved a performance objective based, cash incentive bonus for executives of the Company, with the potential to earn a performance bonus of up to 100% of base salary. The bonuses are 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. For the three months ended March 31, 2023 and 2022, the Company expensed $232,031 and $0, respectively, for the cash incentive bonus plan in the condensed consolidated financial statements (see Note 17, Subsequent Events).
NOTE 7 LEASES
The Company has the following lease balances recorded on the condensed consolidated balance sheets as follows:
| | | | | | | | | | | |
| Lease Assets and Liabilities | Classification | March 31, 2023 | December 31, 2022 |
| Finance lease right-of-use asset | Assets held for sale | $ | 15,709,039 | | $ | 15,709,039 | |
| Finance lease right-of-use asset | Finance lease - right to use asset, net | 2,900,965 | | 2,911,458 | |
| Operating lease right-of-use asset | Other current assets | 40,774 | | 42,061 | |
| Total right of use assets | | $ | 18,650,778 | | $ | 18,662,558 | |
| | | |
| Operating lease liability - current | Accrued expenses and other liabilities | $ | 5,431 | | $ | 5,211 | |
| Operating lease liability - long-term | Other liabilities | 38,735 | | 40,193 | |
| Finance lease liability | Liabilities - held for sale | 11,899,360 | | 12,021,566 | |
| Finance lease liability, current portion | Finance lease - Right of use lease liability | 389,294 | | 409,143 | |
| Finance lease liability | Finance lease - Right of use lease liability, long term portion | 417,750 | | 406,968 | |
| Total lease liabilities | | $ | 12,750,570 | | $ | 12,883,081 | |
The Company has the following lease costs recorded in the condensed consolidated statements of operations as follows:
| | | | | | | | | | | | |
| Three months ended | | |
| March 31, 2023 | March 31, 2022 | | | | |
| Finance lease cost: | | | | | | |
| Amortization of right-of-use assets | $ | 10,493 | | $ | 125,275 | | | | | |
| Interest on lease liabilities | 195,712 | | 195,611 | | | | | |
| Operating lease cost | 2,525 | | 2,525 | | | | | |
| Total lease cost | $ | 208,730 | | $ | 323,411 | | | | | |
| | | | | | |
| Other information | | | | | | |
| Operating cash flows from operating leases | $ | 2,475 | | $ | 9,350 | | | | | |
| Financing cash flows from finance leases | $ | — | | $ | 8,389 | | | | | |
The Company has the following weighted average remaining lease terms and discount rates for our finance and operating leases:
| | | | | | | | |
| March 31, 2023 | March 31, 2022 |
| Weighted-average remaining lease term - finance leases | 1.08 | 0.50 |
| Weighted-average remaining lease term - operating leases | 5.51 | 6.50 |
| Weighted-average discount rate - finance leases | 6.0 | % | 6.0 | % |
| Weighted-average discount rate - operating leases | 11.0 | % | 11.0 | % |
Finance Lease
AQMS Lease
LINICO, a majority-owned subsidiary of the Company, has a finance lease, as lessee, with Aqua Metals Reno Inc., a subsidiary of AQMS, for an industrial lease, including the land, buildings and related improvements (the “Facility”). AQMS is the non-controlling interest holder for LINICO and a related party. The Facility was being leased pursuant to an agreement that permitted the Company to purchase the Facility for a purchase price of $15.25 million ($3.25 million of which, was previously
paid) if LINICO elects not to or is 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 Facility for $12,000,000 as provided by the agreement.
Assets Held for Sale
In December 2022, the Company committed a plan to sell certain land, buildings and related improvements under the AQMS lease. As of March 31, 2023 and December 31, 2022, the AQMS lease assets and other assets associated with the AQMS lease with a net carrying value of $20,460,978 and $21,684,865, respectively, and liabilities of $21,940,904 and $12,021,566, respectively, that met the criteria to be classified as held for sale. Proceeds from the sale of these assets are required to be used to satisfy obligations due under the terms of the AQMS.
On March 1, 2023, LINICO and American Battery Technology Company ("ABTC") entered into an asset purchase agreement in which LINICO sold equipment of the 2500 Peru building for $6 million which was received by the Company and recorded a gain of $178,193 and the remaining $5,041,544 deferred until the sale of the building expected to be completed in the second quarter of 2023.
On March 30, 2023, the Company gave notice to Aqua Metals of the Company’s intent to directly purchase the 2500 Peru building. On April 26, 2023, the Company closed on the purchase of the Facility from Aqua Metals, paying the remaining $12 million due on the Facility and taking full ownership.
On March 31, 2023, LINICO and ABTC amended the purchase and sale agreements, and the Company agreed to take certain action previously contemplated by LINICO. On March 31, 2023, the Company received non-refundable consideration of $5 million in cash from ABTC.
On April 6, 2023, LINICO and ABTC amended and restated the purchase and sale agreements, and the Company received 10 million shares of restricted shares of ABTC stock. The Company will receive additional cash and/or shares, if and to the extent, the proceeds from such shares are less than $6.6 million. The Company received an additional $7 million in cash on April 21, 2023, and is entitled to an additional $3 million in cash on or before May 12, 2023.
The Company expects to net over $14.0 million in cash from this transaction. The total estimated gain on sale of the Facility and the related assets is estimated at approximately $4.9 million, of which, approximately $0.2 million was recognized during the first quarter of 2023, as the gain on the portion of the sale of associated with the equipment. The Company also recorded a deferred liability balance of $5.0 million, included in Liabilities Held for Sale, for proceeds received through March 31, 2023, but not yet realized as the sale is not yet finalized.
Assets held for sale at March 31, 2023 and December 31, 2022 include:
| | | | | | | | |
| March 31, 2023 | December 31, 2022 |
| Right of use lease asset, net of amortization | $ | 15,709,039 | | $ | 15,709,039 | |
| Lease intangible, net of amortization | 3,501,939 | | 3,501,939 | |
| Deposits | 1,250,000 | | 1,250,000 | |
| Property, plant and equipment | — | | 710,563 | |
| Construction in progress | — | | 513,324 | |
| Total assets held for sale | $ | 20,460,978 | | $ | 21,684,865 | |
Liabilities held for sale at March 31, 2023 and December 31, 2022 include:
| | | | | | | | |
| March 31, 2023 | December 31, 2022 |
| Deferred unrealized gain on sale | $ | 10,041,544 | | $ | — | |
| Right of use lease liability | 11,899,360 | | 12,021,566 | |
| Total liabilities held for sale | $ | 21,940,904 | | $ | 12,021,566 | |
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 $3,920,000, payable $35,000 per month from May 1, 2022 to April 30, 2023, $1,750,000 on April 30, 2023, and $1,750,000 on 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 for the three months ended March 31, 2023 which is classified as research and development expense on the condensed consolidated statement of operations.
Haywood Quarry Acquisition and Lease Agreement
On April 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 shortfall 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 shortfall has been recorded as a derivative asset on the consolidated balance sheets in connection with the Haywood acquisition and lease from Decommissioning Services (See Note 11, 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 $200,000 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.
Operating Lease
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 | $ | 7,425 | | | $ | 426,105 | |
| 2024 | 10,250 | | | 417,750 | |
| 2025 | 10,550 | | | — | |
| 2026 | 10,850 | | | — | |
| 2027 | 11,150 | | | — | |
| Thereafter | 9,550 | | | — | |
| Total lease payments | 59,775 | | | 843,855 | |
Less: imputed interest at 11% | (15,609) | | | (36,811) | |
| Present value of lease liabilities | $ | 44,166 | | | $ | 807,044 | |
Operating Lease Income
Revenues from operating leases on our land and building leased to others totaled $30,750 and $54,625 for the three months ended March 31, 2023 and 2022, respectively.
Minimum lease payments for operating leases to be received from others are as follows:
| | | | | |
| For the remainder of 2023 | $ | 68,175 | |
| 2024 | 94,725 | |
| 2025 | 96,000 | |
| 2026 | 96,000 | |
| 2027 | 96,000 | |
| Thereafter | 192,000 | |
| Total Minimum Lease Income | $ | 642,900 | |
NOTE 8 DEBT OBLIGATIONS
Debt at March 31, 2023 and December 31, 2022 consisted of the following:
| | | | | | | | | | | |
| March 31, 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 | 2,054,236 | | | 3,150,000 | |
| Total debt | 8,344,236 | | | 9,440,000 | |
| Less: debt discounts and issuance costs | (1,270,297) | | | (1,522,667) | |
| Total debt, net of discounts | 7,073,939 | | | 7,917,333 | |
| Less: current maturities | (3,431,419) | | | (1,795,890) | |
| Long-term debt, net of discounts and issuance costs | $ | 3,642,520 | | | $ | 6,121,443 | |
GHF, Inc. Unsecured Promissory Note
We entered into a long-term promissory note ("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 promissory note’s 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 March 31, 2023 and 2022, we recognized interest expense of $156,705 and $86,301, respectively, which includes OID amortization of $93,237 and $42,812, respectively, in connection with the GHF 2021 Note.
Alvin Fund Note
We entered into a short-term promissory note ("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 months ended March 31, 2023 and 2022, we recognized interest expense of $106,028 and $0, respectively, which includes amortization of discount of $61,644 and $0, respectively, in connection with the Alvin Fund 2022 Note.
Ionic Ventures LLC Unsecured Convertible Note
On December 16, 2022, the Company entered into a securities purchase agreement for an unsecured convertible promissory note ("Convertible Note") with Ionic Ventures, LLC. 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 March 31, 2023 and December 31, 2022, the Company bifurcated the conversion feature and recorded a derivative liability of $24,000 and $420,000, respectively, reflected in our condensed consolidated balance sheet. During the three months ended March 31, 2023 and 2022, we recognized interest expense of $59,244 and $0, respectively and amortization of discount of $97,489 and $0, respectively, in connection with the Convertible Note.
During the first quarter of 2023, the Company delivered 4,539,413 shares of common stock with a fair value of $1,662,723 at an average alternate conversion price per share of $0.37 with a principal balance of $1,300,000 and accrued interest of $19,310. Total carrying value of the converted debt was $2,054,236. In addition, the converted debt has a total derivative liability balance of $156,000 which was reversed upon conversion. As of March 31, 2023, the Company recorded a loss on conversion of debt of $270,456. The conversion terms require a measurement period of five days within which the number of share 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 its common stock held in treasury shares in anticipation of future debt to equity conversions.
NOTE 9 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 March 31, 2023:
| | | | | |
| Year | Leases |
| Remainder of 2023 | $ | 67,000 | |
| 2024 | 109,000 | |
| 2025 | 111,000 | |
| 2026 | 151,000 | |
| 2027 | 151,000 | |
| Thereafter | 1,512,250 | |
| Total minimum annual lease payments | $ | 2,101,250 | |
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 Net Smelter Returns ("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 and 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.
NOTE 10 EQUITY
Issuance of Registered Shares of Common Stock
On February 13, 2023, we entered into an equity purchase agreement (“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 $10 million from time to time, at our option, on terms we deem favorable. As of March 31, 2023, the Company issued 2,875,677 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 $800,000 at an average price per share of $0.28, and additional 552,486 common shares at a fair value of $200,000 in commitment fees. As of March 31, 2023, the 2023 Leviston Sales Agreement has $4,200,000 of remaining capacity.
On December 16, 2022, the Company entered into a securities purchase agreement for an unsecured convertible promissory note ("Convertible Note") with Ionic Ventures, LLC. The Convertible Note contains conversion terms that are based on percentages of trading price and volumes over defined measurement periods. (See Note 8, 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 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 will pay commissions equal to 5% of the offering proceeds to the placement agent in connection with any such sale. 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. During the first quarter of 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 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.
There were no issuance of unregistered shares of our common stock in connection with acquisitions, investment and other endeavors during the three months ended March 31, 2022. 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 17, Related Party) and is accounted for as a noncontrolling interest in our condensed consolidated financial statements. During the three months ended March 31, 2022, the Company and AQMS made $1,140,000 and $500,000, respectively, in additional investments to LINICO. For the three months ended March 31, 2023, the Company and AQMS did not make additional investments in LINICO. As of March 31, 2023 and December 31, 2022, we own 88.22% and 88.21%, respectively, of LINICO and AQMS owns 11.78% and 11.79%, respectively. Losses attributable to the non-controlling interest for the three months ended March 31, 2023 and 2022 were $12,805 and $168,468, 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 March 31, 2023 and December 31, 2022, accrued dividends of $311,220 and $169,248, 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 March 31, 2023 and December 31, 2022, our treasury stock includes 2,605,323 shares of our common stock with carrying value of $3,360,867. 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. 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. No sales of treasury stock were made for the three months ended March 31, 2023. We expect to sell the remaining shares in 2023.
Warrants
Outstanding warrants at March 31, 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 11 FAIR VALUE MEASUREMENTS
The following table presents our assets and liabilities measured at fair value on a recurring basis at March 31, 2023:
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | Fair Value Measurements at |
| | | March 31, 2023 |
| Total | | Quoted
Prices
in Active
Markets
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) |
| Liabilities: | | | | | | | |
| Ionic convertible debenture derivative | $ | (24,000) | | | $ | — | | | $ | — | | | $ | (24,000) | |
| LINICO related derivative | (5,468,162) | | | — | | | (5,468,162) | | | — | |
| Haywood derivative | (1,190,000) | | | — | | | (1,190,000) | | | — | |
| GenMat derivative | (5,234,043) | | | — | | | (5,234,043) | | | — | |
| Total liabilities measured at fair value | $ | (11,916,205) | | | $ | — | | | $ | (11,892,205) | | | $ | (24,000) | |
The following table presents our assets and 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 three months ended March 31, 2022, the Company recognized a loss of $605,000 in the fair value measurement of the Tonogold note receivable and a $6,650,000 exchange of the note receivable associated with the Tonogold agreement. As of March 31, 2022, the ending balance of investments measured at fair value was $0 using significant unobservable inputs (Level 3).
During the three months ended March 31, 2023, the Company recognized a gain of $240,000 for the change in fair value of the derivative and $156,000 of the derivative liability was converted. As of March 31, 2023, the ending balance of the derivative liability measured at fair value was $24,000 using significant unobservable inputs (Level 3).
VALUATION METHODOLOGIES
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.
Ionic Ventures, LLC Conversion Option
On December 16, 2022, we recorded a derivative liability on the consolidated balance sheets in connection with the Ionic 2022 Convertible 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. On April 6, 2023, Ionic Ventures, LLC returned to the Company 327,549 excess shares from equity conversions in the first quarter 2023. 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 its common stock held in treasury shares in anticipation of future debt to equity conversions. During the three months ended March 31, 2023 and 2022, the Company recorded a gain of $240,000 and $0, respectively, for the change in fair value of the derivative. At March 31, 2023 and December 31, 2022, the fair value of the derivative liability was $24,000 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 March 31, 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 4.56%, and volatility of 85.0%. 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 $0.34 and $0.28 at March 31, 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 first three months of 2023, the Company paid the former chief executive officer $375,000 also representing a decrease in contractual stock consideration. We
recorded an unrealized gain on the change in fair value of the derivative liability of $210,000 and $1,330,000 in the condensed consolidated statements of operations for the three months ended March 31, 2023 and March 31, 2022, respectively. 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 three month period ended March 31, 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 March 31, 2023 and December 31, 2022, the fair value of the shares was based on the closing price per share of our common stock of $0.34 and $0.28, respectively. We recorded an unrealized gain on the change in fair value of the derivative liability of $90,000 and $0, respectively in the condensed consolidated statements of operations. 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). On that date, the $530,000 fair value of the derivative asset was determined based on the excess of the fair value of 3,000,000 shares of our common stock issued to and held by GenMat over the $10,000,000 contractual stock consideration required under the agreement. The value of the shares was based on the $3.51 closing price per share of our common stock on that date. At March 31, 2023 and December 31, 2022, the fair value of the shares was based on the closing price per share of our common stock of $0.34 and $0.28. During the three month period ended March 31, 2023, the Company paid GenMat $1,200,000 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 $158,595 and $1,140,000 in the condensed consolidated statements of operations for the three months ended March 31, 2023 and 2022, respectively. The derivative liability is classified within Level 2 of the valuation hierarchy.
Tonogold Common Shares
The fair value of our investment in common shares of Tonogold was based on its closing price per share. At March 31, 2023 and December 31, 2022, the Company owns 606,061 shares of Tonogold. In 2022, the Company wrote off the remaining investment balance of $30,303 due to lack of marketability. We recorded a gain of $0 and $415,205 on this investment in the condensed consolidated statements of operations for the three months ended March 31, 2023 and 2022, respectively.
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 $605,000 for the change in fair value in other expense in the condensed consolidated statements of operations for the three months ended March 31, 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 three months ended March 31, 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 March 31, 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 12 STOCK-BASED COMPENSATION
2020 EQUITY INCENTIVE PLAN
During the three months ended March 31, 2023 and 2022, the Company recognized $47,700 in both periods for the vesting of stock awards issued in 2020. The remaining compensation of $143,100 will be recognized through the end of December 31, 2023.
The Company grants performance-based share awards as provided by its equity incentive plan. The vesting of 50% of the employee performance share awards is contingent on the achievement of performance goals over the next two years and vesting of the remaining 50% is contingent on the achievement of our common stock market price goals over the next four years, defined on a per share value basis. Vesting is dependent on the employee remaining with the Company from the grant date through the vesting date. The performance shares that vest based on the achievement of performance goals were valued using the Company's common stock price on the grant date, and the estimated stock-based compensation expense is determined based on the probability of achieving each goal.
The fair value of the performance share awards was initially calculated based on the Company share price using a path-dependent model with the following inputs:
| | | | | | | | | | | |
| For the three months ended | | For the three months ended |
| March 31, 2023 | | March 31, 2022 |
| Total shares granted | 30,000 | | 40,000 |
| Performance condition valuation inputs: | | | |
| Performance condition shares | 15,000 | | 20,000 |
| Stock price at grant date | $ | 0.28 | | $ | 1.68 |
| Market condition valuation inputs: | | | |
| Market condition shares | 15,000 | | 20,000 |
| Stock price | $ | 0.28 | | $ | 1.68 |
| Volatility | 97% | | 95% |
| Risk-free rate | 4.13% | | 2.51% |
| Number of iterations | 150,000 | | 100,000 |
| Fair value per share | $ | 0.02 | | $ | 0.91 |
| Term (in years) | 2.5 | | 2.2 |
During the three months ended March 31, 2023 and 2022, we granted 30,000 and 40,000 performance shares, respectively. During the three months ended March 31, 2022, 30,000 shares, which were issued in 2021 under the 2020 Plan, were forfeited. No shares were forfeited for the three months ended March 31, 2023.
Stock-based compensation for all employee performance share grants totaling $78,468 and $60,899, respectively, was recorded in the condensed consolidated statements of operations for the three months ended March 31, 2023 and 2022, respectively. No shares have vested at March 31, 2023. At March 31, 2023, unamortized stock-based compensation for the 2020 equity plan was $204,272 and will be amortized over the remaining vesting terms.
Remaining vesting terms for the employee performance share grants are as follows:
| | | | | |
| Remainder of 2023 | $ | 192,632 | |
| 2024 | 11,890 | |
| Total remaining | $ | 204,522 | |
NOTE 13 OTHER INCOME AND EXPENSES
Other income (expense) net consisted of the following for the three months ended March 31, 2023 and March 31, 2022:
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Three Months Ended | | | | |
| | March 31, 2023 | | March 31, 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 | | (465,165) | | | (266,903) | | | | | |
| All other | | 2,054 | | | (23,556) | | | | | |
| Total other income (expense) | | $ | (463,111) | | | $ | (1,130,807) | | | | | |
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 months ended March 31, 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.
For the three months ended March 31, 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 2,650,238, respectively, which is the number of treasury shares through our ownership in LINICO. The remaining 306,907 and 349,465, 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 metals and mining, renewable energy 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 real estate, equity method investments like GenMat and SSOF, and general corporate costs. Strategic and other investments revenue is from real estate activities.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended March 31, 2023 | | Renewable Energy | | Mining | | Strategic and Other Investments | | Total |
| Revenue | | $ | — | | | $ | 22,950 | | | $ | 7,800 | | | $ | 30,750 | |
| | | | | | | | |
| Depreciation and amortization | | $ | 254,650 | | | $ | 61,694 | | | $ | 314,697 | | | $ | 631,041 | |
| | | | | | | | |
| Loss from operations | | $ | (1,957,283) | | | $ | (554,926) | | | $ | (2,565,240) | | | $ | (5,077,449) | |
| | | | | | | | |
| Change in fair value of derivative instruments | | $ | — | | | $ | — | | | $ | 698,595 | | | $ | 698,595 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Total other income (expense), net | | $ | (194,573) | | | $ | 21,838 | | | $ | (431,558) | | | $ | (604,293) | |
| | | | | | | | |
| Net loss | | $ | (2,151,856) | | | $ | (533,087) | | | $ | (2,996,799) | | | $ | (5,681,742) | |
| | | | | | | | |
| Total Assets: | | $ | 15,481,219 | | | $ | 7,866,799 | | | $ | 81,643,287 | | | $ | 104,991,305 | |
| | | | | | | | |
| Capital Expenditures | | $ | 788,059 | | | $ | — | | | $ | — | | | $ | 788,059 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended March 31, 2022 | | Renewable Energy | | Mining | | Strategic and Other Investments | | Total |
| Revenue | | $ | — | | | $ | 46,825 | | | $ | 7,800 | | | $ | 54,625 | |
| | | | | | | | |
| Depreciation and amortization | | $ | 400,083 | | | $ | 92,637 | | | $ | 351,809 | | | $ | 844,529 | |
| | | | | | | | |
| Loss from operations | | $ | (2,066,433) | | | $ | (181,200) | | | $ | (2,140,455) | | | $ | (4,388,088) | |
| | | | | | | | |
| Change in fair value of derivative instruments | | $ | — | | | $ | — | | | $ | 3,065,000 | | | $ | 3,065,000 | |
| | | | | | | | |
| Impairment of intangibles | | $ | — | | | $ | — | | | $ | (1,966,969) | | | $ | (1,966,969) | |
| | | | | | | | |
| Impairment of investment, net recovery | | $ | (54,587) | | | $ | (2,455,333) | | | $ | — | | | $ | (2,509,920) | |
| | | | | | | | |
| Total other income (expense), net | | $ | (375,267) | | | $ | (2,442,825) | | | $ | 659,157 | | | $ | (2,158,935) | |
| | | | | | | | |
| Net loss | | $ | (2,441,700) | | | $ | (2,624,025) | | | $ | (1,481,298) | | | $ | (6,547,023) | |
| | | | | | | | |
| Total Assets: | | $ | 43,096,560 | | | $ | 9,632,060 | | | $ | 62,390,773 | | | $ | 115,119,393 | |
| | | | | | | | |
| Capital Expenditures | | $ | 782,500 | | | $ | — | | | $ | — | | | $ | 782,500 | |
NOTE 16 RELATED PARTY TRANSACTIONS
The following related party transactions occurred during the three months ended March 31, 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”), in order 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 president to the Company’s Board of Directors in connection with the Company’s acquisition of Comstock Innovations Corporation (F/K/A Plain Sight Innovations Corporation) (“Comstock Innovations”) 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 three months ended March 31, 2022 in the renewable energy segment.
LEASE AND PURCHASE AGREEMENT FOR BATTERY RECYCLING FACILITY
On March 1, 2023, LINICO sold $782,500 in equipment purchased from AQMS in 2022 and classified as assets held for sale at December 31, 2022 (See Note 7, Leases).
TRANSACTIONS INVOLVING SIERRA SPRINGS OPPORTUNITY FUND
The Company has provided SSOF with a total of $5,540,000 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
On April 6, 2023, Ionic Ventures, LLC returned to the Company 327,549 excess shares from equity conversions during the first quarter of 2023, resulting in total outstanding shares of 102,707,603. See also Note 8, Debt Obligations.
On April 6, 2023, the Company, LINICO and ABTC amended and restated the Facility purchase agreement. Pursuant to the Amended and Restated Agreement, the Company agreed to take certain action previously contemplated by LINICO, including purchasing the Facility. See also Note 7, Leases.
On April 26, 2023, the Company closed on the purchase of the Facility from Aqua Metals, paying the remaining $12 million due on the Facility and taking full ownership.
After the Company’s payment to AQMS of $12.0 million for the Facility purchase and $1.5 million in escrow for environmental liabilities, the Company expects to net over $14.0 million in cash from this transaction. The total estimated gain on sale of the Facility and the related assets is estimated at approximately $4.9 million, of which, approximately $0.2 million was recognized during the first quarter of 2023, as the gain on the portion of the sale of associated with the equipment. The Company also recorded a deferred liability balance of $5.0 million, included in Liabilities Held for Sale, for proceeds received through March 31, 2023, but not yet realized as the sale is not yet finalized.
On April 28, 2023, the compensation committee of the board of directors approved executive bonuses of $970,000 for named executive officers other than the Chief Executive Officer to be paid in the second and third quarters of 2023.