Comstock Inc. — Fiscal 2022 Form 10-K Summary
Business context and reporting period
Comstock Inc. reported its fiscal year ended December 31, 2022. The company is transitioning from a historical mining focus toward renewable energy, battery-metal recycling, technology licensing, engineering services, and data-enhanced mineral exploration. Its reportable segments are renewable energy, mining, and strategic and other investments.
Comstock operates demonstration and pilot facilities for cellulosic fuels and lithium-ion battery recycling technologies, owns or controls approximately 9,472 acres of Comstock Lode District properties, and holds a 48.19% investment in Quantum Generative Materials LLC. The company had 33 full-time employees at year-end.
Financial performance and key metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Revenue | $178,150 | $862,165 | Down $684,015 |
| Gross profit | $178,150 | $590,083 | Down $411,933 |
| Loss from operations | $19,361,282 | $6,405,921 | Loss increased $12,955,361 |
| Net loss | $46,738,259 | $24,583,620 | Loss increased $22,154,639 |
| Net loss attributable to Comstock | $45,948,744 | $24,583,620 | Loss increased $21,365,124 |
| Basic and diluted loss per share | $0.62 loss | $0.49 loss | Loss per share increased |
| Cash used in operating activities | $12,105,169 | $7,492,402 | Use increased $4,612,767 |
| Cash used in investing activities | $3,731,949 | $16,097,485 | Use decreased $12,365,536 |
| Cash provided by financing activities | $12,446,702 | $27,070,131 | Down $14,623,429 |
Revenue was primarily from engineering and related services and real estate activities. The company had no cost of goods sold in 2022 and therefore reported a gross margin of approximately 100%; this margin is not representative of a commercial production business because the company generated minimal revenue and has not established recurring product sales.
Operating expenses were $19.5 million, including $10.2 million of selling, general and administrative expense, $7.0 million of research and development expense, and $3.3 million of depreciation and amortization. Research and development increased substantially as Comstock funded pilot-scale systems for woody biomass conversion and lithium-ion battery recycling.
Other major 2022 charges included a $12.8 million goodwill impairment, a $7.7 million loss from changes in derivative fair values, $2.2 million of investment impairments, and $338,035 of intangible-asset impairment. A $1.1 million gain on the sale of Daney Ranch partially offset operating expenses.
Liquidity, debt, and capital resources
- Cash and cash equivalents declined to $2.5 million at December 31, 2022, from $5.9 million at December 31, 2021.
- Current assets were $30.8 million and current liabilities were $31.6 million, resulting in a working-capital deficit of approximately $861,000.
- Total debt principal was $9.4 million, consisting of the $4.3 million net GHF secured note, a $2.0 million Alvin Fund note due October 2023, and a $3.15 million Ionic convertible note due March 2024. Debt net of discounts was $7.9 million.
- The GHF note bears 6% interest and is secured by substantially all non-mining assets, Silver Springs land and water rights, and Daney Ranch, excluding the Lucerne and Dayton properties.
- The Alvin Fund note bears 9% interest and is secured by the Dayton properties.
- The Ionic note bears 8% interest, is unsecured, and had a $420,000 derivative liability at year-end due to its variable conversion feature.
- Comstock raised $10.5 million net from issuing 20.7 million common shares in 2022 and issued additional shares for fees, acquisitions, investments, and financing-related consideration.
- Management stated that liquidity for the next 12 months is expected to come from existing cash, asset sales, repayment of advances, technology licensing and engineering revenue, and additional financing. The filing warns that failure to obtain needed funds could raise substantial doubt about the company’s ability to continue as a going concern.
Material changes versus the prior comparable period
- Revenue fell approximately 79% because 2021 included engineering revenue related to LINICO before its consolidation; Comstock has not yet generated material recurring revenue from its new technologies.
- Net loss increased approximately 90% to $46.7 million, driven by higher operating and research expenses, impairments, derivative losses, higher interest expense, and the absence of the $5.7 million deferred tax benefit recorded in 2021.
- Research and development expense increased from $415,000 to $7.0 million, reflecting development of pilot systems for cellulosic fuels and battery-metal recycling.
- Goodwill declined from $12.8 million to zero after full impairment of goodwill associated with the 2021 renewable-energy acquisitions.
- Total assets declined from $127.0 million to $100.1 million, while total stockholders’ equity declined from $93.0 million to $56.4 million.
- Shares issued and outstanding increased from 71.2 million at December 31, 2021, to 91.4 million at December 31, 2022, excluding potential future dilution.
- All Tonogold agreements expired or were terminated on December 30, 2022. Comstock reacquired the Lucerne properties in exchange for extinguishing Tonogold’s $6.65 million note, but wrote off $1.3 million of related reimbursement receivables.
- Comstock’s Dayton-Spring Valley technical report estimated measured and indicated resources of 293,000 ounces of gold and 2.12 million ounces of silver, plus inferred resources of 90,000 ounces of gold and 480,000 ounces of silver. The company has no proven or probable mineral reserves.
Guidance, outlook, commentary, and risks
Management identified commercialization as the primary 2023 focus. Objectives include securing early-adopter cellulosic-fuels license agreements, advancing woody-biomass technology from TRL 6 to TRL 7, advancing battery-metal recycling from TRL 5 to TRL 6, advancing generative-AI technology from TRL 4 to TRL 6, and preparing preliminary economic assessments for the Dayton and Lucerne properties.
Management also expected to monetize up to $30 million of non-strategic assets during 2023. Subsequent to year-end, Comstock announced the sale of LINICO’s battery-recycling facility and related assets for $27.0 million, with expected net proceeds exceeding $12.5 million after obligations and other adjustments. The filing also disclosed that $1.0 million of the Ionic note, plus interest, was converted into 3.2 million shares through March 6, 2023.
- Liquidity depends on asset sales, new equity or debt financing, and successful commercialization of technologies that have generated little revenue to date.
- The company has recurring losses, an accumulated deficit of $291.5 million, negative operating cash flow, and substantial near-term debt and lease obligations.
- Renewable-fuels economics depend on government programs and credits, including the Renewable Fuel Standard, biodiesel tax incentives, and state Low Carbon Fuel Standards.
- Commercial success depends on technology validation, permitting, construction, feedstock supply, offtake agreements, customer adoption, and competition from better-capitalized companies.
- Mining properties remain exploration-stage assets. Mineral resources are estimates and do not demonstrate economic viability; no proven or probable reserves have been established.
- Environmental, reclamation, water-rights, permitting, Carson River Mercury Superfund Site, and regulatory risks may increase costs or delay projects. Reclamation surety bonds totaled approximately $7.3 million, backed by $2.7 million of cash collateral.
- Derivative liabilities totaled $14.5 million at year-end and produced significant earnings volatility in 2022.
- Related-party exposures include $4.99 million of non-interest-bearing advances to Sierra Springs Opportunity Fund, which is associated with the company’s chief executive officer and other directors.
- The independent auditor issued an unqualified opinion but identified impairment assessment of goodwill and definite-lived intangibles as a critical audit matter. The company is not required to have, and the auditor did not provide an opinion on, internal control over financial reporting.
Most important facts for investors to verify
- Whether the announced LINICO asset sale generated the expected net cash proceeds and how those proceeds were applied to lease and other obligations.
- Whether Comstock secured material licensing, royalty, engineering, or offtake agreements in 2023 and generated recurring operating revenue.
- Available cash, working capital, debt maturities, derivative liabilities, and any additional equity issuance or dilution after March 16, 2023.
- Whether the company’s going-concern assessment remains supportable without additional financing or asset sales.
- Progress toward commercial readiness and independent validation of the cellulosic-fuels, battery-recycling, generative-AI, and mining technologies.
- The economic viability of Dayton and Lucerne, including updated technical studies, permitting, capital requirements, recoveries, and conversion of resources into reserves.
- Repayment of the $4.99 million SSOF advances and completion of the planned Silver Springs property transactions.
- The effect of RFS, LCFS, tax-credit, environmental, reclamation, and permitting changes on projected economics.