Comstock Inc. quarterly report, Q2 FY2022

Comstock Inc. Form 10-Q Summary

Business Context and Reporting Period

Comstock Inc. filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2022. The company is transitioning from historical mining and natural-resource activities toward renewable-energy businesses focused on cellulosic fuels, lithium-ion battery recycling, electrification metals, carbon capture, and related technologies. Reported operations include renewable-energy products and strategic and other investments, including real estate, mining, and equity-method investments.

Revenue remained primarily rental revenue; the renewable-energy businesses generated no external revenue during the quarter or six-month period. The company had 76.8 million common shares outstanding at June 30, 2022 and 78.7 million shares outstanding as of August 9, 2022.

Financial Position and Key Metrics

Metric	Three Months Ended June 30	Six Months Ended June 30
Revenue	$52,925, down from $54,625	$107,550, up from $103,125
Operating loss	$5.84 million, versus $1.71 million	$10.23 million, versus $1.31 million
Net income (loss)	$(14.09) million, versus $(6.32) million	$(20.64) million, versus $1.87 million net income
Net loss attributable to Comstock	$(13.77) million, or $(0.20) per share	$(20.15) million, or $(0.30) per share
Operating expenses	$5.90 million	$10.34 million
Research and development	$2.58 million	$3.77 million

Gross profit was equal to revenue because the reported revenue consisted of rental income with no cost of goods sold. The gross margin was therefore approximately 100%, but this does not reflect commercial renewable-energy production margins.
Cash and cash equivalents were $4.35 million at June 30, 2022, down from $5.91 million at December 31, 2021.
Current assets were $11.09 million versus current liabilities of $30.94 million, producing a working-capital deficit of approximately $19.85 million, or $24.19 million excluding cash as described by management.
Total assets were $117.83 million, compared with $126.95 million at year-end 2021. Total liabilities increased to $42.39 million from $33.98 million, while stockholders’ equity declined to $75.44 million from $92.97 million.
Net cash used in operating activities was $7.71 million. Investing activities provided $0.52 million, and financing activities provided $5.63 million, resulting in a $1.57 million decrease in cash.
Debt, net of discounts and issuance costs, was $4.57 million, consisting primarily of a $5.0 million secured 6% GHF promissory note due December 15, 2024.
Finance lease liabilities were $13.82 million. LINICO expected to make additional lease payments and potentially exercise a $13.0 million purchase option for its battery recycling facility by October 1, 2022.
Derivative liabilities increased to $14.35 million from $8.87 million, primarily because of fair-value changes associated with LINICO, GenMat, and the Haywood acquisition.
The accumulated deficit was $265.7 million at June 30, 2022.

Material Changes Versus the Prior Comparable Period

Six-month revenue increased only $4,425 year over year, while operating expenses increased $8.92 million. SG&A rose $3.73 million, research and development increased by $3.77 million, and depreciation and amortization increased by $1.42 million.
The company recorded a $5.13 million derivative fair-value loss in the first half of 2022, compared with a $5.00 million gain in the prior-year period. The 2022 loss primarily reflected declines in Comstock’s share price and related make-whole obligations.
The company recorded $3.58 million of net impairment losses, principally on Mercury Clean Up and MCU Philippines investments and receivables, the FLUX Photon intangible asset, and the LP Biosciences investment. A $0.90 million recovery was received from MCU-related assets.
The Tonogold note receivable was exchanged for the Lucerne mining interests and related assets. The transaction added $6.84 million of mineral properties and a $0.94 million reclamation liability, while eliminating the note receivable.
The company terminated the LP Biosciences transaction and cancelled 3.5 million common shares previously issued in connection with it.
Common-stock financing increased shares outstanding. During the first half of 2022, the company issued 7.55 million shares through equity issuance and private-placement agreements, with reported net proceeds of approximately $3.46 million after cash issuance fees.
At June 30, 2022, LINICO ownership was 88.59%, with Aqua Metals holding the remaining 11.41%. LINICO incurred research and development costs and held construction-in-progress assets related to its battery recycling facility.

Guidance, Outlook, Commentary, Risks, and Unusual Items

Management targets annualized revenue exceeding $16 billion by 2030 and aims to enable annual greenhouse-gas reductions of at least 100 million metric tons. These are long-term objectives, not near-term financial guidance, and the filing provides no revenue or earnings forecast for 2022.

Management expected battery-metal processing permitting in the fourth quarter of 2022 and an air-quality permit in the first quarter of 2023.
The company expected pilot-scale lithium-ion battery processing and cellulosic-fuels operations to advance during 2022 and 2023, with a first cellulosic-fuel biorefinery to follow future development and scaling.
Management planned to fund operations from existing cash, engineering services and technology licenses, asset and investment sales, Tonogold reimbursements, repayment of Sierra Springs advances, the potential sale of Silver Springs properties, and additional equity financing.
Management stated that available and expected funding sources were sufficient for the following twelve months, but warned that failure to obtain additional funding could materially affect liquidity and raise substantial doubt about the company’s ability to continue as a going concern.
Key liquidity risks include continuing operating losses, elevated research and development spending, delayed asset sales or reimbursements, lower property or stock values, inability to raise equity or debt capital, and commitments related to investments and facilities.
Other significant risks include permitting and construction delays, technology commercialization risk, speculative mineral and battery-recycling activities, commodity-price volatility, environmental and reclamation obligations, dilution from equity issuance, related-party transactions, and the ability to satisfy debt and lease obligations.
The company had reclamation liabilities of $6.57 million and cash collateral and other reclamation deposits of $2.70 million. Mining and exploration properties were not in production and no depletion expense was recorded.
A former-employee wrongful-termination lawsuit was settled; $200,000 was paid during the first half of 2022, with $150,000 remaining accrued at June 30, 2022.
Subsequent to quarter-end, the company issued 1.92 million shares through August 8, 2022 for net proceeds of approximately $1.05 million. The board also approved executive base salaries of $495,000 with potential performance bonuses of up to 100%.

Most Important Facts for Investors to Verify

Whether the company can convert its renewable-energy and battery-recycling technologies into recurring external revenue; the filing reports only $107,550 of six-month revenue and no external renewable-energy revenue.
The timing, cost, financing, and permitting status of the LINICO battery facility and cellulosic-fuels pilot projects.
Whether planned asset sales, Silver Springs proceeds, Tonogold reimbursements, Sierra Springs repayments, and additional equity financing occur on the expected schedule.
The company’s ability to fund its working-capital deficit, operating cash burn, lease obligations, investment commitments, and potential LINICO facility purchase obligation.
The potential dilution and economic cost of the Leviston and Tysadco equity arrangements, derivative liabilities, make-whole provisions, and other share-based commitments.
The recoverability of investments, intangible assets, mineral properties, and related-party receivables, including the remaining value of strategic investments.
Environmental permitting, reclamation requirements, regulatory compliance, and the ultimate cost and timing of mining-site obligations.