Comstock(LODE) - 2021 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial Statements The financial statements for the period ended September 30, 2021, reflect significant asset and equity growth from strategic acquisitions and renewable energy investments, with a net loss primarily due to the absence of prior-year one-time gains Condensed Consolidated Balance Sheets As of September 30, 2021, total assets significantly increased to $107.4 million driven by acquisitions and investments, while total equity rose substantially to $97.8 million due to stock issuances Condensed Consolidated Balance Sheet Highlights (Unaudited) | Balance Sheet Item | Sep 30, 2021 ($) | Dec 31, 2020 ($) | Change ($) | | :--- | :--- | :--- | :--- | | Total Current Assets | 35,465,911 | 20,834,710 | 14,631,201 | | Investments | 27,099,280 | 3,272,597 | 23,826,683 | | Intangible assets | 7,475,912 | — | 7,475,912 | | Goodwill | 17,737,226 | — | 17,737,226 | | Total Assets | 107,402,544 | 43,123,562 | 64,278,982 | | Total Current Liabilities | 4,158,835 | 4,825,690 | (666,855) | | Total Liabilities | 9,570,000 | 11,344,356 | (1,774,356) | | Total Equity | 97,832,544 | 31,779,206 | 66,053,338 | Condensed Consolidated Statements of Operations For the nine months ended September 30, 2021, revenue increased to $465,838, but the company reported a net loss of $7.6 million, primarily due to the absence of a significant one-time gain recognized in the prior year Key Operational Results (Unaudited) | Metric | Q3 2021 ($) | Q3 2020 ($) | Nine Months 2021 ($) | Nine Months 2020 ($) | | :--- | :--- | :--- | :--- | :--- | | Revenue | 362,713 | 49,425 | 465,838 | 146,225 | | Loss from Operations | (1,719,917) | (1,481,572) | (3,031,876) | (3,914,390) | | Gain on sale of membership interests | — | 18,275,846 | — | 18,275,846 | | Net Income (Loss) | (9,494,506) | 17,330,062 | (7,627,267) | 18,342,836 | | Basic EPS | (0.17) | 0.54 | (0.17) | 0.63 | Condensed Consolidated Statements of Changes in Equity Total equity increased by $66.1 million to $97.8 million during the first nine months of 2021, primarily driven by $22 million in cash proceeds from stock issuances and non-cash issuances for strategic acquisitions and investments - Equity increased from $31.8 million at the start of 2021 to $97.8 million at September 30, 2021[24] - Key equity increases in 2021 included stock issuances for the investment in LINICO ($6.75 million), acquisition of RPS ($2.39 million), investment in GenMat ($10.53 million), investment in LP Biosciences ($10.8 million), acquisition of MANA ($6.8 million), and acquisition of Plain Sight Innovations ($15.0 million)[24] - The company raised approximately $22.0 million in gross proceeds from the issuance of common stock for cash during the first nine months of 2021[24][28] Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2021, net cash used in operating activities was $5.0 million, while financing activities provided $17.1 million, leading to a $1.0 million increase in cash and equivalents Cash Flow Summary (Nine Months Ended Sep 30) | Cash Flow Category | 2021 ($) | 2020 ($) | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | (4,989,020) | (2,409,947) | | Net Cash (Used in) Provided by Investing Activities | (11,145,269) | (141,851) | | Net Cash Provided by Financing Activities | 17,120,130 | 3,213,174 | - Significant non-cash investing and financing activities in 2021 included the issuance of common stock for the acquisitions of RPS ($2.3 million), MANA ($6.8 million), and PSI ($15.0 million), and for investments in LINICO ($6.25 million), GenMat ($10.0 million), and LP Biosciences ($4.17 million)[31] Notes to Condensed Consolidated Financial Statements Note 1: Summary of Significant Accounting Policies The company has strategically shifted its focus to sustainable extraction and production of materials for clean energy and carbon-neutrality, despite recurring net losses and a significant accumulated deficit - The company's business focus is on sustainable extraction, valorization, and production of scarce natural resources essential for clean energy and carbon-neutrality, including cellulosic bio-fuels, lithium-ion battery recycling, and gold from mercury remediation[34] - The company has recurring net losses and an accumulated deficit of $228.6 million as of September 30, 2021, but management believes it has sufficient funds for the next 12 months from existing cash, planned sales of Tonogold shares, repayment of notes, and the sale of its Silver Springs Properties[43][44] - The company has determined its investments in Quantum Generative Materials (GenMat), LP Biosciences (LPB), LINICO Corporation, and Sierra Springs Opportunity Fund (SSOF) are Variable Interest Entities (VIEs) but it is not the primary beneficiary, so they are not consolidated[42] Note 2: Acquisitions and Investments In 2021, the company made several strategic acquisitions including PSI, MANA, and RPS, and significant equity method investments in LP Biosciences, GenMat, and LINICO Corporation 2021 Acquisitions Summary | Acquired Company | Date | Consideration (Fair Value) | Business Focus | | :--- | :--- | :--- | :--- | | Plain Sight Innovations (PSI) | Sep 2021 | $15.0M in stock | Cellulosic fuels and biographite | | MANA Corporation | Jul 2021 | $6.8M in stock | Industrial hemp technology | | Renewable Process Solutions (RPS) | Jun 2021 | $2.3M in stock | Process engineering | Key 2021 Investments (Equity Method) | Investee | Ownership % (Voting) | Investment Focus | | :--- | :--- | :--- | | LP Biosciences LLC (LPB) | 50.00% | Industrial hemp processing | | Quantum Generative Materials LLC (GenMat) | 37.50% | Quantum computing for material science | | LINICO Corporation | 48.78% | Lithium-ion battery recycling | Note 3: Tonogold Resources, Inc. The company holds a $6.65 million note receivable from Tonogold, with its maturity extended to March 31, 2022, and also holds 8.9 million shares of Tonogold common stock - The note receivable from Tonogold was amended and its principal increased to $6,650,000 as of June 2021[123] - The maturity date of the Tonogold note was extended to March 31, 2022[121] - As of September 30, 2021, the company held 8.9 million shares of Tonogold common stock with a fair value of $1.0 million[120] Note 9: Intangible Assets and Goodwill As a result of 2021 acquisitions, the company recorded $7.5 million in net intangible assets and $17.7 million in goodwill, primarily allocated to the new Natural Resource Renewal segment Goodwill by Acquisition (as of Sep 30, 2021) | Acquisition | Goodwill ($) | | :--- | :--- | | RPS | 2,168,835 | | MANA | 6,365,938 | | PSI | 9,202,453 | | Total Goodwill | 17,737,226 | - Net intangible assets of $7,475,912 were recorded as of September 30, 2021, arising from the acquisitions of RPS, MANA, and PSI, including technology-related assets and customer contracts[137] Note 13: Long-Term Debt The company fully retired its long-term debt during the first quarter of 2021, including $3.1 million in unsecured promissory notes and a $296,171 Caterpillar loan, resulting in no outstanding long-term debt as of September 30, 2021 - On March 4, 2021, the company retired its unsecured promissory notes by paying the remaining principal balance of $3.1 million[151] - On March 4, 2021, the company retired the Caterpillar Financial Services loan by paying the remaining principal balance of $296,171[153] - As of September 30, 2021, the company had no long-term debt[150] Note 15: Commitments and Contingencies The company has future minimum lease payments of $2.2 million and unrecorded contingent payment obligations up to $26.6 million, and is involved in litigation including a wrongful termination lawsuit for which $84,166 has been accrued - The company has contingent payment obligations of up to $8.6 million to Red Wolf Agro LLC and up to $18 million to FLUX Photon Corporation, based on future net cash flows of MANA and Comstock, respectively[159][160] - Three former employees filed a lawsuit for wrongful termination, and the company believes the terminations were lawful and has accrued $84,166 in connection with this matter[170][171] Note 17: Fair Value Measurements The company holds significant derivative assets and liabilities measured at fair value, including those related to LINICO, LPB, and GenMat, which caused volatility in 'Other income (expense)' due to fair value changes Fair Value of Key Assets & Liabilities (Recurring, Sep 30, 2021) | Item | Fair Value ($) | Level | | :--- | :--- | :--- | | Tonogold note receivable | 7,056,000 | 3 | | LINICO derivative asset | 6,260,000 | 2 | | LPB derivative asset | 5,172,000 | 2 | | GenMat derivative liability | (1,990,000) | 2 | - For the nine months ended Sep 30, 2021, the company recorded a $1.26 million unrealized gain on the LINICO derivative, a $2.52 million unrealized loss on the GenMat derivative, and a $1.47 million unrealized loss on the LPB derivative[188][189][190] Note 22: Segment Reporting The company realigned its operations into Mining, Real Estate, and a new Natural Resource Renewal segment, with the latter holding $65.7 million in assets and generating $306,338 in revenue for the first nine months of 2021 - The company is organized into three operating segments: Mining, Real Estate, and Natural Resource Renewal[223] Assets by Segment (as of Sep 30, 2021) | Segment | Total Assets ($) | Goodwill ($) | | :--- | :--- | :--- | | Mining | 27,951,114 | — | | Real estate | 13,724,621 | — | | Natural resource renewal | 65,726,809 | 17,737,226 | | Total | 107,402,544 | 17,737,226 | - The new Natural Resource Renewal segment reflects the growth in ESG initiatives and includes investments in MCU, LINICO, GenMat, LPB, and the RPS, MANA, and PSI subsidiaries[223][226] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's strategic pivot to high-value strategic materials for clean energy, with plans to fund growth through over $25 million in non-strategic asset sales, including the $10.1 million sale of Silver Springs Properties - The company is focused on commercializing four renewable businesses: cellulosic fuels (PSI), lithium-ion battery recycling (LINICO), mercury remediation (MCU), and industrial hemp processing (MANA)[236] - A three-year strategic plan aims to monetize over $25.0 million in non-strategic assets to fund investments and growth[263] - The sale of the Silver Springs Properties for $10.1 million is expected to close in the first half of 2022[265] - The Q3 2021 net loss of $9.5 million was primarily driven by a $7.2 million decrease in the fair value of derivative assets related to LINICO, GenMat, and LPB, and a $0.3 million loss from affiliate companies[283][285] - Management believes existing cash, planned sales of Tonogold shares, repayment of notes, and the sale of the Silver Springs Properties will provide sufficient funds for operations over the next twelve months[307] Quantitative and Qualitative Disclosures About Market Risk The company's exposure to interest rate risk is limited as all outstanding long-term debt was repaid in March 2021, with no material changes in market risks since the 2020 Annual Report - Interest rate risk is limited because all outstanding long-term debt was repaid in March 2021[311] Controls and Procedures The Principal Executive and Financial Officer concluded that the company's disclosure controls and procedures were effective as of September 30, 2021, with no material changes to internal control over financial reporting during the quarter - Management concluded that disclosure controls and procedures were effective as of September 30, 2021, supported by the implementation of additional reviews and expert consultations for complex transactions[312] - There were no changes in internal control over financial reporting during the quarter ended September 30, 2021, that materially affected, or are reasonably likely to materially affect, internal controls[314] PART II – OTHER INFORMATION Legal Proceedings The company states its operations are in material compliance with environmental laws and regulations, with other legal proceedings detailed in Note 15 of the financial statements - The company believes its operations comply with applicable environmental laws and regulations in all material respects[317] - Details on legal proceedings are provided in Note 15, Commitments and Contingencies[318] Risk Factors No new risk factors have been identified beyond those previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2020 - No new risk factors have been identified in addition to those previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2020[319] Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2021, the company issued significant unregistered restricted common shares for strategic transactions, including 8.5 million for PSI, 4.2 million for MANA, and 3.5 million for LPB - Issued 8.5 million unregistered shares for the acquisition of Plain Sight Innovations Corporation (PSI)[320] - Issued 4.2 million unregistered shares for the acquisition of MANA Corporation[321] - Issued 3.5 million unregistered shares as part of the investment in LP Biosciences LLC (LPB)[322] Other Information On August 2, 2021, the Compensation Committee approved a special monetary award of $193,299 to the Executive Chairman and CEO, Corrado De Gasperis, and reinstated his base salary to $360,000 - The Compensation Committee approved a special monetary award of $193,299 to CEO Corrado De Gasperis to compensate for a prior voluntary salary reduction[325] - The CEO's base salary was reinstated to $360,000, effective retroactively from July 1, 2021[325]