Comstock Inc.: Form 10-Q for the period ended Jun 30, 2018

The following discussion provides information that we believe is relevant to an assessment and understanding of the consolidated results of operations and financial condition of the Company as of and for the three and six-month period ended June 30, 2018. It should be read in conjunction with the condensed consolidated financial statements and accompanying notes also included in this Form 10-Q and our Annual Report on Form 10-K as of, and for the fiscal year ended December 31, 2017.

Overview

The Company is a Nevada-based, gold and silver mining exploration, development and production company with extensive, contiguous property in the historic Comstock and Silver City mining districts (collectively, the “Comstock District”) and additional mining, commercial and industrial properties located in Storey and Lyon Counties, Nevada. The Comstock District is located within the western portion of the Basin and Range Province of Nevada, near Reno and Carson City. The Company has been acquiring properties and developing projects in the Comstock District since 2003. Since then, the Company has consolidated a substantial portion of the historic Comstock District, entitled more productive land uses, secured permits, built an infrastructure and brought exploration projects into production.

The Company and its subsidiaries now own or control approximately 9,272 acres of mining claims and parcels in the broader Comstock District and surrounding area. The acreage is comprised of approximately 2,347 acres of patented claims and surface parcels (private lands) and approximately 6,925 acres of unpatented mining claims (public lands), which the Bureau of Land Management (“BLM”) administers.

Because of the Comstock District’s historical significance, the geology is well known and has been extensively studied by the Company, our advisors and many independent researchers. We have expanded our understanding of the geology of the project area through vigorous surface mapping and drill hole logging. The volume of geologic data is immense, particularly in the Lucerne and Dayton resource areas. We have amassed a large library of historic data and detailed surface mapping of Comstock District properties and continue to obtain historic information from private and public sources. We use such data in conjunction with information obtained from our recent mining operations, to target geological prospective exploration areas and plan exploratory drilling programs, including expanded surface and underground drilling.

The Company continues evaluating and acquiring properties, expanding its footprint and evaluating all of our existing and prospective opportunities for further exploration and development. The near-term goal of our business plan is to maximize intrinsic stockholder value realized, per share, by continuing to acquire and develop mineralized and potentially mineralized properties, exploring, developing and validating qualified resources (measured, indicated and inferred) and reserves (proven and probable) that enable the commercial development of our operations through extended, long-lived mine plans that are economically feasible and socially responsible, including mine plans for both the Lucerne and Dayton resource areas, with both surface and underground development opportunities.

Our Lucerne resource area is located in Storey County, Nevada, approximately three miles south of Virginia City and 30 miles southeast of Reno. The Lucerne resource area was host to the Company’s most-recent test mining operations from 2012 through 2015, including heap-leach processing through 2016. The heap processing facility is in American Flat, approximately three quarters of a mile west of the Lucerne mine. The Company’s headquarters is on American Flat road in Gold Hill, Nevada immediately north of the Lucerne resource area.

The Company achieved initial production and held its first pour of gold and silver on September 29, 2012. The Company ceased mining in 2015, and concluded processing in 2016, and accordingly did not have any gold or silver production or mining revenue during 2017 or 2018. From 2012 through 2016, the Company mined and processed approximately 2.6 million tons of mineralized material, and produced 59,515 ounces of gold and 735,252 ounces of silver.

Current Exploration Projects - District-wide

The Company's long-term plans contemplate the exploration and development of specific, identified geological target areas across the District that the Company has grouped into two resource areas: the Lucerne and the Dayton resource areas, and three groups of exploration targets: the Spring Valley, Occidental, and Gold Hill targets. These targets represent over 7 miles of mineralized strike length, with current and historical grades of gold and silver. Refer to Figure 1.

Figure 1 - General Overview of Priority Exploration Targets

Lucerne Resource Area

Most recently, the Company’s internal efforts had focused on the exploration and development of the Lucerne resource area, primarily from underground core drilling, underground drift (tunnel) development, and underground sampling into the Quartz Porphyry (“PQ”) and Succor geological targets. The evaluation of this program was directed at producing a robust resource model for Lucerne as well as assessing a series of geological targets in the Silver City Branch of the Comstock Lode, including the Succor vein systems, the historic Woodville Bonanza system and the PQ target. The 1,000-foot plus Succor Vein Target has an average true width of 15 feet and an average dip of 65 degrees. The structure has reported historic mining grades of approximately 0.54 ounces of “recovered” gold per ton and is open to the east and at depth, along the entire structure. The nearby Woodville Bonanza structure includes the same supporting historical mappings with reported historic mining grades of 0.749 ounces of gold per ton. The Woodville has significant current drill data including 116 intercepts of at least 10 feet, grading over 0.22 ounces per ton gold and 1.59 ounces per ton silver. The Company encountered contiguous mineralized intercepts (10 to 40 feet) from underground drilling as it moved north of the Silver City and Succor structural intersection and within and bordering the PQ mass. Future drill programs were being developed, but ultimately, the Company decided to pursue partners willing and able to commit the additional mining expertise and capital resources required to develop a commercially viable Lucerne-based mine plan.

Accordingly, during the fourth quarter of 2017, the Company entered into an Option Agreement (the “Option Agreement”) with Tonogold Resources, Inc. (“Tonogold”) where Tonogold has the right to lead engineering, development, drilling and test-work, all towards completing a technical and economic feasibility assessment and ultimately, to earn into a joint venture for the future development and mining of mineral resources on the Lucerne Property.

After a six-month evaluation, Tonogold elected to proceed and the Company received the $2 million payment. Tonogold can now earn a 51% interest in the Lucerne Property, by advancing the Lucerne exploration and development activities by making cumulative capital expenditures on the Lucerne Property of $7 million by October 3, 2019, and $20 million by April 3, 2021, of which, approximately $413,000 has been made to date. The Company immediately used $1.5 million of the proceeds, as required, to pay down its debenture.

Tonogold was also granted the option to purchase 51% of certain equipment and property for a purchase price of $25 million, or, alternatively, Tonogold can enter into a toll processing agreement with the Company. If Tonogold elects the tolling alternative, Comstock would retain 100% ownership and Tonogold would rent the Company’s processing facility, paying the Company a usage fee of $1 million per annum plus $1 per ton processed. Tonogold also has a right of first refusal if the Company, in its sole discretion, elects, to sell certain other mining properties.

Tonogold has retained the independent mining advisory firm of Behre Dolbear to publish a National Instrument 43-101 (“NI-43-101”) compliant, “Property of Merit” technical report for the Lucerne Project during the third quarter of 2018, followed by an updated NI 43-101 compliant technical report updating the Lucerne resource and ultimately, also reporting on Lucerne feasibility.

Dayton Resource Area

The Company plans to advance the Dayton Project to full feasibility, with a production ready mine plan within the next two years. The plan includes expanding the current resource at the Dayton resource area and continuing southerly into Spring Valley with incremental expansion programs that include exploration and definition drilling of targets identified by the prior conventional percussion, RC and diamond core drill programs and magnetic, IP and resistivity geophysical surveys (see Figure 2).

In-house Dayton engineering and mine planning have resulted in profiling various economic shells with multiple cutoff grade scenarios. Multiple layout plans for the mine and corresponding processing facilities have been conceptually developed and located on lands 100% privately held by the Company, thus simplifying and shortening the critical permitting chain. A definition drill plan is in place and is permitted. An expanded drill plan is currently being designed and detailed plans will be submitted to the regulatory agencies for permitting.

In addition to infrastructure and drill planning, we performed due diligence assisted by SRK Consulting in both Reno and Denver offices. The due diligence resulted in confirmation of the scoping level mine plans and agreement on the conceptual processing layout.

The volcanic host rocks and structural controls of the mineralization defined to date for the Dayton resource area are known to continue south into Spring Valley. Potentially economic gold mineralization has been intercepted in several widely spaced holes drilled during prior Spring Valley drilling programs. The technical staff has identified multiple drill targets within several specific locations that encompass the Dayton resource area and Spring Valley. The new targets are based on the Company's latest review of previous geophysical studies and current interpretation of the geology.

Figure 2 - Dayton -Spring Valley Magnetic Geophysics

Dayton - Spring Valley Group Targets

Spring Valley is located south of the Dayton resource area and south and east of State Route 341. Ground magnetic geophysical surveys identified a linear anomalous corridor, defined by a series of relative magnetic lows. Altered volcanic host rocks have been intercepted by limited drilling and identified several mineralized zones, the global Dayton resource foot print is outlined with reference to the technical report authored by Behre Dolbear in January 2013. The exploration of Spring Valley will include phased drilling programs that will continue southerly from SR341 to the historic Daney mine site (Figure 3), with a potential strike length of approximately 9,600 feet.

Figure 3 - Dayton and Spring Valley Group Targets

The technical staff reviewed historic geologic and geophysical studies and prior drill programs that focused upon the Dayton resource area and extensions south into Spring Valley. The few drill holes that were completed in Spring Valley intercepted altered Miocene volcanic rock known to host the economic mineralization of the Dayton resource. Specific drill holes that encountered highly mineralized zones are highlighted on Figure 4. Collectively, several specific locations were selected and are targeted for future drilling. The Dayton resource area has open ended economic mineralization requiring additional drill holes to delineate the geometry for mine planning. South of the Dayton resource area the limited drilling coupled with the geophysical interpretation indicates the targeted exploration model extends an additional 8,000 feet (length of geophysical magnetic survey) into Spring Valley.

Several historic mines operated in the Dayton resource area, leaving access to multiple structures from underground. Some historic adits have remained open or have been uncovered by the Company. The geologic and engineering team completed underground mapping, sampling, and surveying in a number of historic mine workings on and near the Dayton resource area. Where accessible, the workings were inspected; geologically mapped and mineralized material sampled. Once sampling was completed, the workings were surveyed to document the size of the mine workings, the location of the openings and location of the samples. The samples were then assayed at the Company’s in house metallurgical laboratory for gold and silver.

This underground sampling program has provided a wealth of assay information and provided critical information for furthering the geologic understanding of the Dayton resource area. In some cases, structures identified on the surface were traced underground and in other cases, new structures were identified underground where surface expressions were absent or obscured.

Combining the underground study with the prior conventional percussion, RC and diamond core drill programs and magnetic, IP and resistivity geophysical surveys (Figure 4), new targets have been generated based on the Company's latest review of previous studies and current interpretation of the geology. The Dayton and Spring Valley southern expansion of exploration programs includes offset and definition drilling of these targets.

Ground magnetic geophysical surveys identified a linear anomalous corridor, defined by a series of relative magnetic lows. Altered volcanic host rocks have been intercepted by limited drilling and identified several mineralized zones. Selected drill hole intercepts are highlighted (see Figure 4). The mid-level magnetic lows define a zone (up to 500 feet wide) beginning at the Dayton resource and continuing southerly approximately 8,000 feet (length of geophysical magnetic survey) towards the Daney patent. The zone is further defined by the trace of interpreted north/south trending vein swarms depicted on Figure 6. In the Dayton resource area the increased density of the vein swarms with intersecting cross structures has been indicative to host the higher grades and larger volumes of economic mineralization. This scenario is part of the exploration model and has generated a multiple drill target environment.

The Spring Valley exploration program is designed to target areas that have similar magnetic signatures of known economic grade mineralization. The magnetic geophysical survey was further studied and a structural interpretation was developed that illustrated multiple cross cutting structures (colored green) that are oblique to the southerly projected north/south vein trend (colored red), refer to Figure 4. Though rare due to alluvial cover, the outcropping quartz veins and outcropping crosscutting structures had definitive diagnostic magnetic signatures. The interpretation of the structures and veins were derived by connecting these specific magnetic attributes as identified on each 25-meter spaced survey line. Similar structures have been identified in the Dayton resource area and were found to be important components for the development of economic grades of mineralization. Geologic mapping and sample analysis conducted on the surface and in accessible underground workings have identified the north/south and the crosscutting structures to carry gold and silver values with varying silver to gold ratios. Comparisons of selected sample geochemistry, the north/south veins commonly have a relatively higher silver to gold ratio.

Figure 4 - Dayton and Spring Valley Magnetic Geophysics with Interpreted Veins and Structures

Dayton Metallurgy

In-house (CMI), column leach tests were performed on mineralized material collected from three specific, readily accessible locations on Dayton Resource patented land: Glory Hole-Mid Grade (GH-MG), Glory Hole-High Grade (GH-HG) and Dayton Adit (DA). The material collected from each site represents gold and silver mineralization encountered in the Dayton resource model. Each bulk sample from the three sites was segregated, coarse crushed, blended and split into two composites.

Six, 6-foot-high and 8-inch-diameter columns were constructed. Two columns were loaded for each bulk sample and placed under leach, maintaining the same protocol for all columns. Two columns for each sample were selected as an inherent quality control check. Each column test consisted of 74 days elapsed time with a 14-day resting stage during days 45-59. The decision to terminate the tests after 60 cumulative leach days was predicated by the flattening of the recovery curve. The metal recovery had not stopped but daily incremental increases were below CMI’s analytical detection limits.

Each composite sample was processed to a nominal crush size of 80 percent passing ¾ inch and 70 kilograms was extracted for each column charge. The material was then screened to establish volumetric content at the following selected size fractions: ¾”, ½”, ¼”, 10 mesh, 28 mesh, and 65 mesh. Each size fraction was then assayed for gold and silver content and a screen composite head grade for each zone was calculated. Each 70-kilogram composite was agglomerated with Type II Portland cement at a rate equivalent to 16 pounds of cement per ton of column charge. Cyanide concentration was 1gram cyanide per liter of leach solution. This combination of reagent concentration, leach solution volume and cement addition provided a targeted reaction pH of 10.5.

The columns were leached for 44 days, then allowed to drain and “rest” for 14 days. Leaching resumed for 16 additional days for a cumulative 60 days of active leaching. After this leaching cycle was completed, each column was rinsed with 30 gallons of potable water. The rinse included three individual rinse cycles with 10 gallons of water per cycle. The rinsed material was again screened at the same size fractions. Each size fraction was assayed to determine the tail assay or the residual amount of gold and silver remaining in each size fraction after leach. Examining the recovery of metal by size fraction, coupled with the tail assays and the extracted metal content and provided a calculated head grade for each column sample site.

The following table and charts highlight the grade of each zone along with the cumulative recovery over the course of the 60-day leach.

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Figure 5 - Dayton In-house Column Leach Results

These in-house column test results complement the results of testing on similar material done by McClelland Laboratories of Reno, Nevada in 2011. Those tests, with results included in the Company’s January 2013 Technical Report, included bottle roll tests and column tests for mineralized material from our Lucerne, Hartford, and Dayton properties. Two column tests for each bulk sample were completed, at crush sizes of 1” and ½”.

Two bulk samples were taken from surface exposures of alta andesite in the Dayton Pit area. DP-004 was selected as a medium grade sample, and DP-005 was selected as a high-grade sample. Each sample was crushed to 80% passing 1” and 80% passing ½” for the two columns, and agglomerated with type II Portland cement at the rate of 12 pounds per ton. The columns were under leach for 154 days. At the end of the test, the curves had flattened, but recovery was still increasing.

Leach results from McClelland Laboratories, August 2011

This table highlights the results from the two samples. The recoveries at 10 days are shown, along with the cumulative recovery at the end of the test. This highlights the steepness of the recovery curve, recovering a significant percentage of the metal in the first 10 days. The gold recovery curves shown above from the in-house testing are similarly steep.

The Company has retained the independent mining advisory firm of Behre Dolbear to publish a National Instrument 43-101 (“NI-43-101”) compliant, “Resource” technical report for the Dayton Resource area, followed by a Preliminary Economic

Assessment (“PEA”) during the fourth quarter of 2018. This report is expected to expand the known resource and establish preliminary economic feasibility for the project.

Pelen-Sutro Tunnel Company Acquisition

In January 2018, the Company issued 1,475,410 shares of restricted common stock to acquire 25% of the total membership interests of Pelen, LLC for $0.6 million. Pelen LLC, is the 100% owner of the historic Sutro Tunnel Company that owns the Town of Sutro, the historic 6-mile Sutro Tunnel, the federal land grants and mining rights spanning 1,000 feet on each side of the 6-mile span, the rights to the tunnel’s water and the patented mining claims and private lands on Gold Hill.

The purchase of the membership interests will close once the seller of the membership interests has received total cash proceeds of at least $585,000 either through sale of the restricted common stock received or through additional cash payments made by the Company. If all of the shares of restricted common stock have been sold and the aggregate proceeds are less than $585,000, then the Company is required to pay the shortfall in stock or cash, at the Company’s election. As of June 30, 2018, the purchase has not closed. The Company recorded a make-whole liability of $0.2 million, representing the value shortfall at June 30, 2018.

Operating Costs

During the year ended December 31, 2017, and fully continuing through the first half of 2018, the Company focused on reducing operating costs, including mining, real estate, exploration and mine development, mine claims, environmental and reclamation and general and administrative costs. Operating costs and expenses have declined by over $1.2 million when comparing the six-month period ended June 30, 2017, to the six-month period ended June 30, 2018, and the Company expects total year over year savings of approximately $2.0 million when comparing the full year of 2018 to 2017. These savings are in addition to the over $6 million in savings when having compared the full year 2017 to 2016. The Company has aggressively implemented organizational changes consistent with the transition from mining the Lucerne surface mine to growing our resource portfolio and related exploration and development activities toward production-ready mining projects.

The Company has reduced operation costs in almost all categories and already is achieving the run rate of those costs for the remainder of the year to be $1.7 million, or less than $280,000 per month (excluding depreciation, amortization, and depletion expense).

Operating expenses for the full year 2018, are anticipated to be $3.6 million, excluding $3.2 million in depreciation and $1.4 million of interest expense.

Outlook

We are positioned and focused on real asset and equity value appreciation for 2018, while concurrently eliminating our debt and growing quality gold and silver resources and reserves throughout this year. Our longer-term goal is to deliver up to $500 million of accretive share value by 2020, by acquiring, joint venturing, exploring and developing resources and reserves capable of sustaining production of more than 100,000 gold-equivalent ounces per annum.

Our streamlining in 2017 lowered operating costs in all categories by well over $6 million as compared to 2016, exceeding our targets while still growing our land positions, expanding our entitlements and permitted infrastructure, and maintaining our internal engineering, geological, metallurgical, land and financial competencies. These 2017 actions already have realized an additional $1.2 million in annual savings expected to total $2.0 million in annual savings for 2018, as compared to 2017. We are lean and well positioned to grow our resources, our assets and our equity value during 2018.

The Lucerne mine has all the required state and local permits to resume mining, and additional engineering and resource development of this northeast trending structure commenced during the fall of 2017 with Tonogold. Tonogold has elected to continue into the next phase of the Option Agreement, with their payment of $2.0 million in April, 2018. We very much look forward to Tonogold progressing and publishing updated technical reports on the Lucerne project, with economic feasibility and a plan for returning the mine to production.

We plan to advance the Dayton Project by updating the resource and providing preliminary economic feasibility and technical reporting in the fourth quarter of 2018. The plan also includes expanding the current resource at the Dayton and continuing southerly into Spring Valley with incremental expansion programs that include exploration and definition drilling of targets identified by geophysical surveys.

Recent Opportunity Zones, under the Tax Cuts and Jobs Act, identified in Lyon County and Storey County, Nevada may provide tax incentives for entities seeking to reduce potential tax liabilities and/or defer or eliminate future capital gains. These Opportunity Zones include a large portion of the Company’s mining land and equipment, as well as portions of its land held for sale. We will continue to explore possible benefits to the Company. The Company’s 98 acre Certified Industrial Site adjacent to the Silver Springs Airport is within the Opportunity Zone and increases the sales potential coupled with the continued development occurring at the Tahoe Reno Industrial Center (the largest industrial park in the world). Daney Ranch, near the US Highway 50 is positioned within the corridor between Reno, Carson City and the Industrial center. This area continues to be highly desirable as housing, commercial and retail continues to develop. We plan on monetizing these non-mining assets in 2018, eliminate debt and further strengthen our balance sheet.

Equity Raises

For the six-months ended June 30, 2018, the Company issued 6,429,299 shares of common stock through the Company’s at-the-market equity offering program and its equity purchase agreement. Gross proceeds from the issuance of shares totaled approximately $1.8 million at an average price per share of $0.28.

Through July 25, 2018, we issued 1,530,000 shares for proceeds of approximately $0.4 million.

Comparative Financial Information

The Company had two operating segments as of June 30, 2018: mining and real estate.

The comparative financial information is reflected in the following table:

Three Months Ended:

The Company ceased processing material from its leach pad in December 2016, resulting in no mining revenues in the three months ended June 30, 2018, and 2017, respectively.

Cost applicable to mining revenue decreased by approximately $0.2 million during the three months ended June 30, 2018, as compared to the same period ended June 30, 2017, primarily due to reduced depreciation expenses.

Real estate operating costs decreased by $0.01 million during the three months ended June 30, 2018, as compared to the same period ended June 30, 2017, primarily due to reduction in maintenance costs.

Exploration and mine development costs decreased by approximately $0.02 million during the three months ended June 30, 2018, as compared to the same period ended June 30, 2017, primarily due to a decrease in depreciation expense.

Mine claims and costs decreased by approximately $0.2 million during the three months ended June 30, 2018, as compared to the same period ended June 30, 2017, primarily due to reimbursements paid by Tonogold per the Option Agreement.

Environmental and reclamation costs decreased by $0.1 million during the three months ended June 30, 2018, as compared to the same period ended June 30, 2017, primarily due to reimbursements paid by Tonogold per the Option Agreement.

General and administrative costs decreased by $0.1 million during the three months ended June 30, 2018, as compared to the same period June 30, 2017, with decreases in outside services more than offsetting an increase in internal payroll costs and certain land development costs.

Interest expense decreased by $0.1 million during the three months ended June 30, 2018, as compared to the same period June 30, 2017 primarily due to debenture and notes payable reductions.

Other expenses increased by $0.2 million during the three months ended June 30, 2018, as compared to the same period June 30, 2017, primarily due to accelerated Make Whole payments on the Debenture.

Net loss was $2.4 million for the three months ended June 30, 2018, as compared to a net loss of $2.9 million for the three months ended June 30, 2017. The $0.5 million decrease was primarily related to a decrease in depreciation expense and reimbursements paid by Tonogold per the Option Agreement.

Six Months Ended:

The Company ceased processing material from its leach pad in December 2016, resulting in no mining revenues in the six months ended June 30, 2018, and 2017, respectively.

Cost applicable to mining revenue decrease by approximately $0.4 million during the six months ended June 30, 2018, as compared to the same period ended June 30, 2017, primarily due to reduced depreciation expenses.

Exploration and mine development costs decreased by approximately $0.1 million during the six months ended June 30, 2018, as compared to the same period ended June 30, 2017, primarily due to a decrease in depreciation expense.

Mine claims and costs decreased by approximately $0.2 million during the six months ended June 30, 2018, as compared to the same period ended June 30, 2017, primarily due to reimbursements paid by Tonogold per the Option Agreement.

Environmental and reclamation costs decreased by $0.4 million during the six months ended June 30, 2018, as compared to the same period ended June 30, 2017, primarily due to reimbursements paid by Tonogold per the Option Agreement and a reduction in asset retirement obligation costs.

Interest expense decreased by $0.1 million during the six months ended June 30, 2018, as compared to the same period ended June 30, 2017, primarily due to debenture and notes payable reductions.

Other expenses increased by $0.5 million during the six months ended June 30, 2018, as compared to the same period June 30, 2017, primarily due to accelerated Make Whole payments on the Debenture.

Net loss was $4.9 million for the six months ended June 30, 2018, as compared to a net loss of $5.7 million for the same period ended June 30, 2017. The $0.8 million decrease was primarily related to decreases in depreciation expense and, to a lesser extent, reimbursements of costs paid by Tonogold per the Option Agreement.

Liquidity and Capital Resources

Total current assets are $7.5 million at June 30, 2018, including cash and cash equivalents on hand of $1.5 million. The Company’s current capital resources include these cash and cash equivalents and other working capital resources, certain planned, non-mining asset sales with expected net proceeds of over $14 million and other existing financing arrangements.

Net cash used in operating activities was $2.2 million for the six months ended June 30, 2018, as compared to net cash used in operating activities of $3.6 million for the six months ended June 30, 2017. The decrease in cash used in operating activities was related to cost savings realized by the Company in non-mining costs and savings in mining costs due to reimbursements from the Tonogold Option Agreement.

Net cash used in investing activities for the six months ended June 30, 2018, was $0.2 million, as compared to net cash used in investing activities of $0.1 million for the six months ended June 30, 2017, primarily due to deposits made in 2018 relating to the purchase of DTSS.

Net cash provided by financing activities for the six months ended June 30, 2018, was $1.8 million, including $2 million received from Tonogold for the Option Agreement payment, of which $1.4 million was used to pay down the Debenture, and $1.7 million from the issuance of common stock, net of issuance costs. Net cash provided by financing activities for the six months ended June 30, 2017, was $4.6 million, including $2.9 million from the issuance of common stock, net of issuance costs, and $9.4 million from long-term debt obligations, offset by the pay-down of long-term debt obligations of approximately $7.7 million.

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and contemplates continuation of the Company as a going concern.

The Company commenced production with the Lucerne Mine in 2012, which ramped up to approximately 20,000 gold-equivalent-ounces of annual production. The Company completed leaching from its existing leach pads in December 2016, and is currently planning the exploration and development of its next two mines, first with its second surface mine in the Dayton Resource area and then further developing, in collaboration through an option agreement with Tonogold, the second phase of development and ultimately, resuming production from the Lucerne Mine.

The Company’s current capital resources include cash and cash equivalents and other net working capital resources, along with a loan commitment agreement with $7.0 million in unused capacity after consideration of fees due at the time of borrowing. The Company has an existing equity purchase agreement (the "Purchase Agreement") with Leviston Resources, LLC ("Leviston") with unused capacity of $2.6 million. These capital resources are in addition to certain planned non-mining asset sales.

The Company has recurring net losses from operations and an accumulated deficit of $227.5 million at June 30, 2018. For the six-month period ended June 30, 2018, the Company incurred a net loss of $4.9 million and used $2.2 million of cash in operations. As of June 30, 2018, the Company had cash and cash equivalents of $1.5 million, current assets of $7.5 million and current liabilities of $1.6 million, resulting in positive net current working capital of $5.9 million.

While the Company has been successful in the past in obtaining the necessary capital to support its operations, including registered equity financings from its existing shelf registration statement, borrowings, or other means, there is no assurance that the Company will be able to obtain additional equity capital or other financing, if needed. However, the Company believes it will have sufficient funds to sustain its operations during the next 12 months from the date the financial statements were issued as a result of the funding sources detailed above.

Future operating expenditures above management’s expectations, including exploration and mine development expenditures in excess of amounts to be raised from the issuance of equity under the Purchase Agreement, declines in the market value of properties held for sale, or declines in the share price of the Company's common stock would adversely affect the Company’s results of operations, financial condition and cash flows. If the Company was unable to obtain any necessary additional funds, this could have an immediate material adverse effect on liquidity and could raise substantial doubt about the Company’s ability to continue as a going concern. In such case, the Company could be required to limit or discontinue certain business plans, activities or operations, reduce or delay certain capital expenditures or sell certain assets or businesses. There can be no assurance that the Company would be able to take any such actions on favorable terms, in a timely manner or at all.

Critical Accounting Policies and Estimates

There have not been any material changes to the critical accounting policies and estimates previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2017.

A. Disclosure

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, management performed, with the participation of our Principal Executive Officer and our Principal Financial Officer, an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (“Exchange Act”). Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Exchange Act and the SEC’s rules, and that such information is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, to allow timely decisions regarding required disclosures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Our Principal Executive Officer and Principal Financial Officer concluded that, as of June 30, 2018, our disclosure controls and procedures were effective.

Design and Evaluation of Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Our management assessed the effectiveness of our internal control over financial reporting as of June 30, 2018. In making this assessment, management used the criteria for effective internal control over financial reporting described in the “Internal Control-Integrated Framework” (2013) set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on the assessment, management concluded that, as of June 30, 2018, our internal control over financial reporting was effective based on those criteria.

B. Internal Control over Financial Reporting

No change in our internal control over financial reporting, as such term is defined in Exchange Act Rule 13(a)-15, occurred during the fiscal quarter ended June 30, 2018, that materially affected or is reasonably likely to materially affect our internal control over financial reporting.

There have not been any material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2017.