Comstock Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2022; filed November 1, 2022. Comstock is repositioning from mining and natural-resource exploration toward cellulosic fuels, lithium-ion battery-metal recycling, technology development, and strategic investments. The company consolidated approximately 89% of LINICO and continued developing pilot-scale renewable-fuels and battery-recycling systems.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | 9M 2022 | 9M 2021 |
|---|---|---|---|---|
| Revenue | $39,850 | $362,713 | $147,400 | $465,838 |
| Loss from operations | $(2.9) million | $(1.7) million | $(13.2) million | $(3.0) million |
| Net loss | $(5.3) million | $(9.5) million | $(26.0) million | $(7.6) million |
| Net loss attributable to Comstock | $(5.1) million | $(9.5) million | $(25.3) million | $(7.6) million |
| Loss per share, basic and diluted | $(0.07) | $(0.17) | $(0.36) | $(0.17) |
| Operating cash flow | Not separately provided | Not separately provided | $(12.4) million | $(5.0) million |
- Revenue declined primarily because 2021 included engineering-services revenue related to LINICO before it became a consolidated subsidiary; 2022 intercompany revenue was eliminated.
- Q3 operating expenses were $3.0 million, including $1.9 million of selling, general and administrative expense, $1.3 million of research and development, and $0.8 million of depreciation and amortization. A $1.1 million gain on the Daney Ranch sale partially offset expenses.
- Nine-month operating expenses increased to $13.3 million from $3.5 million, driven by higher research and development, corporate and transaction costs, employee costs, insurance, and amortization.
- Nine-month research and development expense increased to $5.1 million from $0.2 million, primarily for pilot systems involving woody biomass and lithium-ion battery black mass.
- Nine-month other expense included a $6.7 million derivative fair-value loss and $3.7 million of impairment and related losses, partly offset by investment gains and the Daney Ranch gain.
Liquidity, capital resources, debt, and equity
- Cash and cash equivalents were $1.2 million at September 30, 2022, down from $5.9 million at December 31, 2021.
- Current assets were $8.1 million versus current liabilities of $32.3 million, resulting in a working-capital deficit of approximately $24.2 million, or $25.4 million excluding cash as described by management.
- Cash used in operating activities was $12.4 million. Investing activities provided $0.1 million, and financing activities provided $7.5 million.
- Debt, net of discounts and issuance costs, was $3.9 million, consisting primarily of the GHF secured promissory note, with $4.29 million principal outstanding and a December 2024 maturity. Finance-lease liabilities were $14.9 million.
- During the nine months, the company received $7.9 million from common-stock issuance, sold treasury shares for $0.2 million, and issued approximately 12.2 million shares through equity and private-placement arrangements. Shares outstanding were 82.4 million at September 30 and 86.1 million at November 1, 2022.
- Management expects to fund the next twelve months through existing cash, equity sales, engineering and technology-license revenue, asset sales, Tonogold reimbursements, and repayment of advances. Management states that it expects sufficient funds for the next twelve months but acknowledges that failure to obtain additional funding could raise substantial doubt about going-concern prospects.
Material changes and unusual items
- Comstock reacquired the Lucerne mining subsidiary from Tonogold in exchange for extinguishing a $6.65 million Tonogold note receivable. Tonogold retained an option to repurchase the interests for $7.75 million, subject to extension terms.
- The company sold Daney Ranch for net proceeds of approximately $2.4 million, recognizing a $1.1 million gain and receiving a 10-year $993,000 note receivable.
- Investments and notes receivable associated with Mercury Clean Up and MCU Philippines were substantially impaired; cash recoveries of $0.9 million were recognized.
- The Flux Photon intangible asset was impaired by $0.3 million, and the Pelen purchase option was impaired by $0.2 million. The LP Biosciences transaction was terminated, with 3.5 million Comstock shares returned and cancelled.
- Derivative liabilities increased to $15.9 million from $8.9 million at year-end, principally involving the LINICO, Haywood, and GenMat arrangements. The related fair-value loss for the nine months was $6.7 million.
- LINICO’s finance lease was amended, with the expected facility purchase moved to March 1, 2023 for an additional $14.0 million, following monthly payments of $100,640 from October 2022 through February 2023.
- Subsequent to quarter-end, Comstock agreed to make minimum cash payments totaling $3.5 million between October 2022 and May 2023 related to the LINICO former executive’s share-sale settlement. It also issued additional equity and borrowed $2.0 million at 9% interest, maturing October 2023, to fund a payment toward the battery-recycling facility.
Guidance, outlook, and risks
- Management targets commercial pilot-scale cellulosic-fuels and lithium-ion battery-recycling operations, with pilot activities expected in late 2022 and 2023. It expects an air-quality permit for battery-metal processing in the second quarter of 2023.
- Management’s long-term objective is to generate billions of dollars in annualized revenue by 2030 and enable greenhouse-gas reductions of at least 100 million metric tons annually. These are aspirational targets, not reported financial guidance.
- Management expects to monetize non-strategic assets by the first quarter of 2023 and publish a Dayton Project technical report and resource estimates in the fourth quarter of 2022.
- Key risks include limited cash, recurring losses, negative working capital, dependence on equity or asset-sale proceeds, dilution, inability to commercialize technologies, permitting and construction delays, acquisition and integration risks, commodity and market-price volatility, environmental and reclamation obligations, related-party transactions, and potential inability to satisfy lease, debt, derivative, or other commitments.
- The company has a $6.7 million reclamation liability and approximately $2.7 million in reclamation-bond deposits supporting surety obligations. It also faces contingent payment obligations under the Flux Photon and MANA arrangements, although the filing states that the MANA obligation was not probable or reasonably estimable.
- Management reported effective disclosure controls as of September 30, 2022 and no material change in internal control over financial reporting during the quarter.
Facts investors should verify
- Whether planned equity financings, asset sales, reimbursements, and other funding sources are sufficient to cover the substantial cash burn and near-term obligations.
- The timing, total cost, financing, and operational readiness of the LINICO battery-recycling facility purchase and related permitting.
- Whether pilot-scale cellulosic-fuels and battery-recycling technologies achieve the projected yields, emissions reductions, costs, and commercial scale.
- The potential cash impact of the $15.9 million derivative liabilities, the LINICO share-sale settlement, and other minimum-value or make-whole obligations.
- The collectability and timing of Tonogold, Silver Springs, and other receivables and asset-sale proceeds.
- The extent of future dilution from Leviston, Tysadco, other equity facilities, warrants, treasury-share sales, and additional financing needs.
- Whether the company’s recurring losses and working-capital deficit create a material deterioration in its ability to continue as a going concern.