Comstock Inc. 10-Q Summary
Business context and reporting period
Comstock Inc. develops technologies and investments focused on renewable fuels from lignocellulosic biomass, battery-metal recycling, mining and artificial-intelligence-enabled materials discovery. This filing covers the quarter and six months ended June 30, 2023, compared primarily with the corresponding 2022 periods. The company is a smaller reporting company and its common stock trades on NYSE American under LODE.
Key financial metrics
| Metric | Three months ended June 30, 2023 | Six months ended June 30, 2023 |
|---|---|---|
| Revenue | $35,325 | $66,075 |
| Loss from operations | $(5.9) million | $(11.0) million |
| Net loss | $(5.5) million | $(11.2) million |
| Net loss attributable to Comstock | $(5.5) million | $(11.1) million |
| Loss per share, basic and diluted | $(0.05) | $(0.11) |
| Operating cash flow | Not separately provided for the quarter | $(6.7) million |
| Capital expenditures | Not separately provided for the quarter | $0.8 million |
- Revenue consisted primarily of lease income; no renewable-fuels or metals-recycling revenue was reported in the segment disclosures.
- Reported operating expenses were $6.0 million for the quarter and $11.1 million for the six months. Gross margin is not meaningful because the filing does not report cost of sales; operating margins were substantially negative because revenue was minimal.
- Cash and cash equivalents were $1.6 million at June 30, 2023, down from $2.5 million at December 31, 2022.
- Current assets were $41.1 million versus current liabilities of $44.3 million, producing a $3.2 million working-capital deficit. The current-liability balance included $27.8 million of deferred proceeds and gains classified as liabilities held for sale.
- Total assets were $105.0 million and total stockholders’ equity was $51.1 million at June 30, 2023.
- Debt, net of discounts, was $6.4 million, including $2.6 million classified as current and $3.7 million as long term. Principal obligations included the $2.0 million Alvin Fund note due October 2023, the $4.3 million GHF note due December 2024 and the remaining Ionic convertible note balance due March 2024.
- Net cash used in operating activities was $6.7 million; investing activities provided $3.7 million and financing activities provided $2.0 million.
Material changes versus the prior comparable period
- Second-quarter revenue declined 33% to $35,325 from $52,925; six-month revenue declined 39% to $66,075 from $107,550, primarily because of lower lease income following the Daney Ranch sale.
- Second-quarter net loss improved to $5.5 million from $14.1 million, while the six-month net loss improved to $11.2 million from $20.6 million. The improvement was driven largely by favorable changes in derivative fair values and the absence of significant 2022 impairments.
- Second-quarter selling, general and administrative expense increased $1.0 million to $3.5 million; six-month expense increased $2.0 million to $6.9 million, primarily due to higher employee, executive incentive, marketing and investor-relations costs.
- Research and development expense decreased to $1.8 million in the quarter and $3.0 million for the six months, reflecting lower pilot-scale development costs than in 2022.
- Derivative fair-value gains were $1.6 million for the quarter and $2.3 million for the six months, compared with losses of $8.2 million and $5.1 million, respectively, in 2022. These gains are non-cash and may be volatile.
- The company issued substantial equity during the period. Shares issued and outstanding increased to 105.9 million at June 30, 2023 from 91.4 million at December 31, 2022, before treasury stock considerations.
- In April 2023, the company purchased the Aqua Metals Transfer facility for $12.0 million and classified the facility as held for sale. Through June 30, it received $21.0 million in cash and restricted American Battery Technology Company shares in connection with the planned sale. The transaction remained subject to closing and other conditions at quarter-end.
Guidance, outlook, risks and unusual items
- Management’s 2023 focus is commercialization. Comstock Fuels is pursuing licensing agreements, Comstock Metals expects to deploy a commercial demonstration facility in the second half of 2023, and the company expects metals-recycling operations to commence in early 2024.
- The planned metals-recycling commercial operation is expected to require approximately $2.0 million of capital expenditures.
- Management expects more than $2.0 million of 2023 cash proceeds from new mineral leases. A June 30, 2023 lease with Mackay Precious Metals provides a $1.25 million initial fee, quarterly payments of $375,000 for four years and $250,000 thereafter, plus carrying-cost reimbursements and a 1.5% net-smelter-return royalty.
- Management expected approximately $15.0 million of net cash proceeds from selling the restricted ABTC shares in the third and fourth quarters of 2023, with a minimum payment obligation of $6.0 million under the amended arrangement. It also expected approximately $0.75 million from a planned sale of certain Green Li-ion preferred shares.
- The company reported recurring operating losses, an accumulated deficit of $302.6 million and limited cash. Management believes planned asset sales, investment monetizations, lease inflows, licensing and technology-related cash receipts will fund operations for the next 12 months, but warns that failure to obtain additional funds could raise substantial doubt about its ability to continue as a going concern.
- Principal risks include commercialization and execution risk, dependence on asset sales and equity financing, dilution, volatile stock prices and commodity prices, permitting and environmental requirements, technology and acquisition risks, derivative and fair-value volatility, debt maturities and related-party exposures.
- At June 30, 2023, the company had $5.9 million of non-interest-bearing advances outstanding to Sierra Springs Opportunity Fund, an entity with significant management and director relationships.
- The filing states that no new material risk factors were identified beyond those previously disclosed and that no material legal proceedings were pending.
Important facts for investors to verify
- Whether the ABTC facility sale closed after quarter-end and the amount and timing of cash ultimately realized from the restricted shares.
- Whether the company generated the projected licensing, mineral-lease and technology-related revenue, including the timing of Comstock Fuels and Comstock Metals commercialization.
- Availability of cash and financing to meet the October 2023 Alvin Fund maturity, the March 2024 Ionic maturity and ongoing operating cash needs.
- Terms, collectability and repayment timing of the $5.9 million SSOF advances and the effect of related-party relationships.
- Potential dilution from equity sales, convertible-debt conversions and outstanding derivative obligations; derivative liabilities totaled $7.8 million at June 30, 2023.
- Progress toward permitting and deployment of the metals-recycling facility and the expected approximately $2.0 million capital requirement.
- Whether reported fair-value gains and asset-sale proceeds are recurring or non-cash, as operating revenue remained only $66,075 for the first six months.