Comstock Inc. 2023 Q3 Form 10-Q Summary
Business Context and Reporting Period
Comstock Inc. filed a Form 10-Q for the quarterly and nine-month periods ended September 30, 2023. The company develops and commercializes technologies involving renewable fuels, metals recycling, artificial intelligence-enabled materials discovery, and mineral exploration. It also owns strategic investments, real estate, water rights, and mining properties. The company had 117,130,225 common shares outstanding as of October 25, 2023.
Key Financial Metrics
| Metric | Three Months Ended Sept. 30, 2023 | Three Months Ended Sept. 30, 2022 | Nine Months Ended Sept. 30, 2023 | Nine Months Ended Sept. 30, 2022 |
|---|---|---|---|---|
| Revenue | $760,721 | $39,850 | $826,796 | $147,400 |
| Income (loss) from operations | $2,675,379 | $(2,923,932) | $(8,333,782) | $(13,155,712) |
| Net income (loss) | $13,741,164 | $(5,315,044) | $2,554,833 | $(25,952,664) |
| Net income (loss) attributable to Comstock | $12,364,975 | $(5,126,252) | $1,227,550 | $(25,271,653) |
| Basic and diluted EPS | $0.11 | $(0.07) | $0.01 | $(0.36) |
| Net cash used in operating activities | Not separately provided for quarter | Not separately provided for quarter | $(11,183,984) | $(11,746,342) |
Third-quarter earnings were substantially affected by a $7.1 million gain on the sale of the manufacturing facility and a $14.1 million gain on investments, including a $14.6 million unrealized gain on remaining Green Li-ion preferred shares. Reported profit therefore does not reflect recurring operating performance.
At September 30, 2023, cash and cash equivalents were $3.4 million, compared with $2.5 million at December 31, 2022. Working capital was $19.1 million, based on current assets of $30.7 million and current liabilities of $11.7 million. Total assets were $94.6 million and total stockholders’ equity was $69.9 million.
Debt, net of discounts, was $5.8 million at September 30, 2023, consisting primarily of a $4.29 million GHF secured note and a $2.0 million Alvin Fund note. The $3.15 million Ionic convertible note was fully converted during the nine-month period. The Alvin Fund note maturity was extended to January 31, 2026, with the interest rate increased to 16%.
Material Changes Versus the Prior Comparable Period
- Revenue increased $720,871, or approximately 1,809%, in the third quarter and $679,396, or approximately 461%, for the nine-month period. The increase primarily reflected Mackay mineral lease revenue and ABTC facility rental revenue, rather than significant technology product sales.
- Third-quarter net income improved by $19.1 million compared with the prior-year loss, primarily because of the facility-sale gain and investment gains.
- Nine-month net income improved by $28.5 million, but operating results remained negative, with an $8.3 million operating loss.
- SG&A increased to $3.1 million in the third quarter and $10.0 million for the nine-month period, driven by higher employee costs, executive incentive compensation, marketing and investor relations expenses, mining-related costs, permits, and property expenses.
- Research and development expense declined to $4.4 million for the nine-month period from $5.1 million in the prior year, primarily because 2022 included higher pilot-scale development costs.
- Shares outstanding increased materially, from 91.4 million at December 31, 2022 to 117.1 million at September 30, 2023, reflecting equity financing, debt conversions, and shares issued for obligations and fees.
- Derivative liabilities declined from $14.5 million at December 31, 2022 to $7.5 million at September 30, 2023, principally due to payments, conversions, and changes in the company’s share price.
Cash Flow, Liquidity, and Capital Resources
- Operating activities used $11.2 million of cash during the first nine months of 2023.
- Investing activities provided $6.5 million, including proceeds from the facility sale and sales of ABTC and Green Li-ion securities, partially offset by the $12.0 million facility acquisition, contractual investment commitments, SSOF advances, and purchases of mineral rights and equipment.
- Financing activities provided $5.6 million, primarily from common-stock issuances.
- Cash increased by $0.9 million during the nine-month period to $3.4 million.
- Management expects to fund the next twelve months through existing cash, asset and investment sales, mineral-property lease inflows, planned technology licensing and sales, and other financing. Management states that these sources should be sufficient, but also acknowledges that failure to obtain additional funds could materially affect liquidity and raise substantial doubt about going-concern prospects.
Guidance, Outlook, Commentary, and Risks
Management’s primary 2023 objective is commercialization. Comstock Fuels is pursuing licensing, offtake, feedstock, and commercial production agreements. Management states that each commercial fuel license could generate recurring royalties for 15 to 20 years, but no material fuel-license revenue was reported through September 30, 2023.
Comstock Metals planned approximately $2.0 million of capital spending for a demonstration facility, with permitting and operations targeted for late 2023 and early 2024. The filing does not establish that these targets were achieved by the filing date.
Comstock expects to sell its remaining Green Li-ion preferred shares during 2024 and targets at least $19 million of additional net proceeds. It also anticipates selling Silver Springs real estate and water rights for more than $40 million in 2024 and receiving approximately $7 million of advances during the first half of 2024. These are expectations, not committed proceeds.
Subsequent events included a $2.0 million Department of Energy grant announced October 3, 2023, subject to a company contribution of approximately $2.7 million, and an October 11, 2023 exclusive RenFuel license requiring minimum commercialization spending of $250,000 per quarter beginning January 1, 2024.
Principal risks include recurring operating cash burn, dependence on asset sales and equity financing, potential dilution, volatile investment values and derivative liabilities, execution and permitting risk for fuel and metals-recycling technologies, speculative mineral exploration, environmental and regulatory obligations, related-party transactions, and the ability to commercialize technologies and generate recurring revenue. The company reported no material pending legal proceedings and stated that its disclosure controls were effective as of September 30, 2023.
Important Facts for Investors to Verify
- Whether planned 2024 sales of Green Li-ion securities, Silver Springs real estate, and water rights occur at the projected values and provide the expected liquidity.
- Progress toward commercial fuel licensing, metals-recycling facility permitting, and planned early-2024 production.
- The recurring nature of revenue, since 2023 revenue was primarily associated with leases and mineral-property arrangements rather than established technology sales.
- Cash burn and funding requirements relative to the $3.4 million cash balance and $11.2 million of operating cash usage through September 2023.
- Potential dilution from outstanding equity facilities, warrants, debt conversions, and shares issued for obligations or interest.
- Recoverability and timing of the $6.46 million of non-interest-bearing advances to Sierra Springs Opportunity Fund and the company’s related-party relationships with SSOF entities.
- Settlement of the $634,019 receivable from ABTC and the status of remaining derivative liabilities totaling $7.5 million.
- Whether management’s commercialization milestones and stated funding assumptions are achieved without requiring unfavorable additional financing or asset sales.