Comstock Inc.: Form 10-Q for the period ended Sep 30, 2023

RESULTS OF OPERATIONS

The following discussion and analysis provide information that management believes is relevant to an assessment and understanding of our condensed consolidated financial condition and results of operations. This discussion should be read in conjunction with the Condensed Consolidated Financial Statements, footnotes and risk factors included herewith and herein.

OVERVIEW

Comstock innovates and commercializes technologies that enable systemic decarbonization, primarily by enabling the extraction and conversion of under-utilized natural resources into renewable energy products and solutions. Our strategic plan is based on innovating, enabling and commercializing material science solutions that use our technologies to reduce reliance on long cycle fossil fuels, to shift to and maximize throughput of short cycle fuels, and to lead and support the adoption and growth of a profitable, balanced short cycle ecosystem that continuously offsets, recycles, and/or neutralizes carbon emissions.

We achieve our goal by accelerating the commercialization of our technology portfolios and investments, primarily in renewable fuels, electrification metals, and artificial intelligence enabled mineral discovery and materials development.

Line of Business Segments

Comstock Fuels – Most renewable fuels draw from the same feedstock pool, primarily vegetable oils, but the total supply can only meet a small fraction of the demand. Our technologies unblock that constraint by converting abundant lignocellulosic biomass into biointermediates for refining into renewable fuels. Our team demonstrated commercial readiness with exceptional biofuel production yields of more than 100 gallons per dry tonne of woody biomass as measured on a gasoline gallon equivalent basis (“GGE”), and what the Company believes are market-leading, extremely low carbon intensity (“CI”) scores of 15 for Cellulosic Ethanol and the Company’s proprietary Hydrodeoxygenated Bioleum™ Oil (“HBO”).

HBO is a unique, compliant, drop-in biointermediate that is used in the production of Sustainable Aviation Fuel and Renewable Diesel Fuel. It has been verified to increase the diversity of hydroprocessed, fat-based feedstock and significantly reduce CI scores beyond what is commercially achievable today. For example, the carbon intensity of fossil fuels is industry-benchmarked at between 80 and 95. A score of 15 demonstrates carbon reductions in excess of 80%.

Execution of one or more license agreements with operationally experienced, technologically sophisticated, and well capitalized customers is a top 2023 objective. Each license could create more than 20 years of recurring royalty revenue with material upfront engineering fees.

Comstock Metals – The world is also focused on the production of energy generation and storage technologies to reduce reliance on fossil fuels, including photovoltaics, lithium-ion batteries (“LIBs”), and fuel cells. Each of those technologies relies on scarce critical metals, increasing global demand for primary metal mining and recycling. During 2023, we are deploying a demonstration system to commercialize technologies for use in efficiently crushing, conditioning, extracting, and ultimately recycling metal concentrates from photovoltaics and other electronic devices. We also expanded our leadership team in metals recycling, commenced permitting of our first demonstration scale commercial facility scheduled for production in the first quarter of 2024. Securing revenue generating supply commitments in our metals recycling business is a key objective for 2023.

Comstock Mining – We own or control twelve square miles of patented and unpatented mining claims and surface parcels, covering six and a half miles of continuous mineral strike length. We have amassed one of the largest historical and current data repositories for the Comstock historic district and we have enhanced the value of a small portion of our properties in the past year with two SK-1300 technical reports estimating Measured and Indicated resources containing 605,000 ounces of gold and 5,880,000 ounces of silver, plus Inferred resources containing 297,000 ounces of gold and 2,572,000 ounces of silver. We plan on further enhancing that data with hyperspectral orbital imaging and generative artificial intelligence (“AI”) solutions that provide prospecting analytics and enable more effective mineral discovery. Our 2023 efforts include commercializing one or more exploration and development partners that enable the expansion and enhancement of our estimated mineral resources.

Strategic Investments

Investment in Quantum Generative Materials LLC ("GenMat") – We invested in 48% of GenMat as an enhancement and an integral component of our innovation strategy. GenMat has developed and launched a new generative AI that we believe is capable of simulating critical properties of known materials with high accuracy. GenMat also plans on using its AI to simulate new material characteristics for new and existing applications. We believe these generative AI models can be employed today, on GenMat’s existing high-performance computing platform, well before quantum computers become mainstream.

In 2023, GenMat began elevating material simulation capabilities to commercial readiness by synthesizing and directly testing new AI simulated materials in high value applications and potentially engage early adopter enterprise clients for this use. GenMat also plans on launching and operating a space-based hyperspectral imaging sensor for mineral discovery applications.

Investment in Green Li-ion Pte, Ltd. (“Green Li-ion”) – Our majority owned LINICO subsidiary invested in 37,162 preferred shares of Green Li-ion in 2021, as we were assembling our technology partners for the recycling of electrification products. We coincidentally secured the rights for the use of their renewable precursor cathode active materials production system.

On September 13, 2023, LINICO received gross proceeds of $795,510 from the sale of 1,500 Green Li-ion preferred shares (representing approximately 4% of the 37,162 of the shares then owned by LINICO). At September 30, 2023, the Company adjusted our investments carrying value to fair value by increasing that value by $14,577,627 for the remaining 35,662 Green Li-ion preferred shares representing 13.34% of Green Li-ion. The Company intends to sell its remaining shares during 2024.

Investment in Sierra Springs Opportunity Fund – The Company invested in 6,700,000 shares, or 11.64% of SSOF, in 2019. SSOF is a qualified opportunity zone fund, that owns 100% of SSE, a qualified opportunity zone business. SSE and its subsidiaries own or control over 2,500 acres of land, a manufacturing facility, significant senior, junior and effluent water rights, sewer rights and owns and operates the Silver Springs Regional Airport LLC. These properties are all contiguous and strategically located within immediate proximity of Highway 50, State Route 492, the Northern Nevada Industrial Center and the Tahoe Reno Industrial Center where companies like Tesla, Panasonic, Walmart, Switch, Google, Microsoft, Redwood Materials, American Battery Technology Corporation, AquaMetals, and over hundred more are located and locating.

Corporate and Other

Investments in others non-mining real estate – The Company directly owns three types of appreciating assets in Silver Springs, NV, including 98 acres of industrial land, 160 acres of commercial land, both centrally located in Silver Springs, just south of the Silver Springs Regional Airport and a portfolio of water rights. The Company will begin marketing these assets for sale as both industrial and commercial development interest in Silver Springs, NV has continuously increased during 2023.

COMPARATIVE FINANCIAL INFORMATION

Three-Months Ended September 30, 2023 Compared to Three-Months Ended September 30, 2022

Net income for the three-months ended September 30, 2023 increased by $19,056,208 to net income of $13,741,164 from a net loss of $5,315,044 for the comparable prior period. The increase primarily resulted from a higher gain on investments of $14,118,389, gain on sale of Facility of $7,126,377 and higher revenues of $720,871 in 2023, partially offset by a gain on the sale of Daney Ranch of $1,055,623 in 2022, a gain on conversion of debt $289,512, and lower depreciation and amortization expense of $117,786 in 2023. The variance was also partially offset by change in estimated fair value of the derivative instruments of $769,176 with a $2,369,176 loss recorded in 2023 as compared to a $1,600,000 loss in 2022, higher selling, general and administration expenses of $1,245,580, higher other income (expense) of $246,526 primarily due to change in estimated fair value of equity securities and investments, and higher research development expenses of $64,520.

Below we set forth a summary of comparative financial information for the three-months ended September 30, 2023 and 2022:

RESULTS OF OPERATIONS

Three-Months Ended September 30, 2023 Compared to Three-Months Ended September 30, 2022

Revenues for the three-months ended September 30, 2023 increased by $720,871 to $760,721 from $39,850 for the comparable prior period, as a result of higher rental revenues from the Mackay and ABTC leases of $490,625 and $237,473, respectively.

Revenue, costs of sales and gross profit in future periods will vary significantly depending on a number of factors, including the amount of renewable energy solutions and products that we produce and sell, the market prices for those products, the extent to which we secure and collect reasonable royalties, the degree to which we can provide event-driven engineering services, and the costs associated with each component of the aforementioned revenues.

Selling, general and administrative expense for the three-months ended September 30, 2023 increased by $1,245,580 to $3,140,080 from $1,894,500 in the comparable prior period, primarily as a result of higher employee related costs of $784,857 attributed to higher payroll and related costs, executive incentive compensation and higher marketing and investor relations expenses. Variance also due to net higher mining related costs of $525,638 associated with no relative reimbursements in 2023 from Tonogold, the write off of Fenix deposit of $240,000 and higher permits and license fees of $86,860, partially offset by lower legal and professional fees of $391,050.

Research and development expenses for the three-months ended September 30, 2023 increased by $64,520 to $1,394,860 from $1,330,340 in the comparable prior period, primarily as a result of higher legal and professional fees.

Depreciation and amortization for the three-months ended September 30, 2023 decreased by $117,786 to $676,779 from $794,565 in the comparable prior period, primarily from ceasing amortization on assets held for sale in 2023.

Gain on sale of Facility attributed to the Facility during the three-months ended September 30, 2023, was $7,126,377. The 2022 gain of $1,055,623 related to the sale of the Daney Ranch in the third quarter of 2022.

Gain on investments for the three-months ended September 30, 2023 increased by $14,118,389 due to a realized gain of $597,248 on the sale of 1,500 shares of our Green Li-ion investment and the adjusted fair value gain of $14,577,627 recorded on the remaining 35,662 Green Li-ion preferred shares; offset by $1,100,000 in loss on the ABTC investment for the three-months ended September 30, 2023 compared to a loss of $43,514 for the comparable prior period. The 2022 losses were primarily due to the lack of marketability of the Company's remaining ownership in Tonogold common stock resulting in an impairment of $30,303.

Interest expense for the three-months ended September 30, 2023 decreased by $6,122 to $320,815 from $326,937 and comparable to three-months ended September 30, 2022.

Interest income for the three-months ended September 30, 2023 increased by $63,017 to $73,067 from $10,050 in the comparable prior period, primarily as a result of $19,776 and $19,319 from interest income from Daney Ranch notes receivable and higher interest on cash held in deposits, respectively, for the three-months ended September 30, 2023.

Change in the fair value of our derivative instruments for the three-months ended September 30, 2023 decreased by $769,176 to a loss of $2,369,176 from a loss of $1,600,000 in the comparable prior period, as a result of a decrease in the Company's share price in connection with potential make-whole obligations for minimum value commitments on the Company's common shares and change in the fair value of the Ionic derivative. The 2023 loss was attributed $1,120,000 LINICO investment, $845,843 for GenMat investment and $480,000 Haywood investment, offset by a gain of $76,667 on the derivative liability for Ionic Note. The loss from the three-months ended September 30, 2022 was attributed to $700,000 for LINICO investment, $600,000 for GenMat investment and $300,000 Haywood investment.

Gain of $289,512 on conversion of debt for the three-months ended September 30, 2023 is attributed to the Ionic Note conversions of 2,818,714 shares for the three-months ended September 30, 2023.

Impairment of investment and notes receivable, net recovery, for the three-months ended September 30, 2023 decreased by $4,441, and comparable to the three-months ended September 30, 2022.

Other income (expense) for the three-months ended September 30, 2023 were $681,678, primarily consisting of losses from our equity method investments of $531,535 including a GenMat loss of $533,635. For the three-months ended September 30, 2023, $150,000 was impaired for the remaining Pelen purchase option.

Other income (expense) for the three-months ended September 30, 2022 were $435,152, primarily consisted of losses from our equity method investments of $279,892 and other losses of $5,260. For the three-months ended September 30, 2022, $150,000 was impaired for the remaining Pelen purchase option.

COMPARATIVE FINANCIAL INFORMATION

Nine-Months Ended September 30, 2023 Compared to Nine-Months Ended September 30, 2022

Net income for the nine-months ended September 30, 2023 increased by $28,507,497 to net income of $2,554,833 from a net loss of $25,952,664 for the comparable prior period. The increase in net income primarily resulted from higher gains on investments of $13,300,566, change in estimated fair value of the derivative instruments of $6,619,036 with a $105,964 loss recorded in 2023 as compared to losses of $6,725,000 in 2022, higher gain on sale of Facility of $7,304,570 offset by gain on sale of Daney Ranch of $1,055,623 in 2022, decrease in losses from impairment of intangible assets, notes receivable from MCU-P and investments in MCU of $3,577,243 recorded in 2022, lower research and development expenses of $678,365, lower other income (expense) of $673,792 primarily due to change in estimated fair value of equity securities and investments, lower depreciation and amortization expense of $435,287 and gain on conversion of debt $51,856. Variance partially offset by higher selling, general and administration expenses of $3,220,065, higher interest expense $348,467, and lower interest income $188,459.

Below we set forth a summary of comparative financial information for the nine-months ended September 30, 2023 and 2022:

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RESULTS OF OPERATIONS

Nine-Months Ended September 30, 2023 Compared to Nine-Months Ended September 30, 2022

Revenues for the nine-months ended September 30, 2023 increased $679,396 to $826,796 from $147,400 for the comparable prior period as a result of higher rental revenues from the Mackay and ABTC leases of $490,625 and $237,473, respectively.

Revenue, costs of sales and gross profit in future periods will vary significantly depending on a number of factors, including the amount of renewable energy products that we produce and sell, the market prices for those products, the extent to which we secure and collect reasonable royalties, the degree to which we can provide event-driven engineering services, and the costs associated with each component of the aforementioned revenues.

Selling, general and administrative expense for the nine-months ended September 30, 2023 increased by $3,220,065 to $10,025,904 from $6,805,839 in the comparable prior period primarily as a result of higher employee costs of $2,382,376 attributed to higher salaries, executive incentive compensation, payroll administration costs and higher marketing and investor relations expenses. Other costs increased by $1,538,053 including higher mining related costs of $705,326 associated with no relative reimbursements from Tonogold in 2023, the write off of Fenix deposit of $240,000, higher license and permits of $206,611, higher property taxes of $188,934 and higher royalty expense of $92,021; offset partially by lower professional fees of $768,529.

Research and development expenses for the nine-months ended September 30, 2023 decreased by $678,365 to $4,426,543 from $5,104,908 in the comparable prior period primarily as a result of lower costs related to the development of pilot scale systems in 2022 for processing woody biomass into biointermediate that can be made into renewable fuels and for crushing and separating electrification products. These systems are used to validate the processes and develop parameters for deploying and upscaling these renewable technologies. Variance offset partially by higher employee costs attributed to executive incentive compensation.

Depreciation and amortization during the nine-months ended September 30, 2023, decreased by $435,287 to $2,012,701 from $2,447,988 in the comparable prior period, primarily from ceasing amortization on assets held for sale in 2023.

Gain on sale of Facility attributed to the Facility during the nine-months ended September 30, 2023, was $7,304,570. The 2022 gain of $1,055,623 related to the sale of the Daney Ranch in the third quarter of 2022.

Gain on investments during the nine-months ended September 30, 2023 increased by $13,300,566 due to a realized gain of $597,248 on the sale of 1,500 shares of our Green Li-ion investment and the mark to market gain of $14,577,627 recorded for the remaining 35,662 Green Li-ion preferred shares at $530.34 per share; offset by $1,865,000 in loss on the ABTC investment as we sold all 9,076,923 ABTC shares for the nine-months ended September 30, 2023 compared to a gain of $9,309 for the comparable prior period. The 2022 gain was primarily a result of sales of 8,065,924 shares of Tonogold stock.

Interest expense for the nine-months ended September 30, 2023, increased by $348,467 to $1,312,154 from $963,687 for the comparable prior period primarily due to interest and related amortization of the original issue discount ("OID") on the GHF promissory note, the Alvin note and the Ionic Note that originated during the fourth quarter of 2022.

Interest income for the nine-months ended September 30, 2023, decreased by $188,459 to $179,942 from $368,401 in the comparable prior period, as a result of the extinguishment of the Tonogold note receivable and the extinguishment of the MCU-P note receivable that was exchanged for the MCU assets, both of which are no longer accruing interest income for the nine-months ended September 30, 2023.

Change in fair value of our derivative instruments for the nine-months ended September 30, 2023, increased by $6,619,036 to a smaller loss of $105,964 in 2023 compared to a loss in 2022 of $6,725,000 as a result of an increase in the Company's share price in connection with potential make whole obligations for minimum value commitments on the Company’s common shares. The 2023 derivative loss was attributed to $455,000 for LINICO investment, $343,623 for GenMat and $195,000 for Haywood, offset by a loss of $1,099,587 on the derivative liability for Ionic Note. The 2022 derivative loss was attributed to $3,045,000 for LINICO, $2,610,000 for GenMat and $1,665,000 for Haywood, partially offset by a gain of $595,000 for LP Biosciences LLC.

Gain of $51,856 on conversion of debt for the nine-months ended September 30, 2023 are attributed to the Ionic Note debt conversions associated with 9,309,375 of the Company's common shares for the nine-months ended September 30, 2023.

Impairment of intangible assets for the nine-months ended September 30, 2023 decreased by $338,033, due primarily to the impairment of the FPC intangible assets as a result of continuing losses and inability to recover the investment. For the nine-months ended September 30, 2023, no impairment losses or recoveries were recorded.

Impairment of investments and notes receivable, net of recoveries, for the nine-months ended September 30, 2023, decreased by $3,239,210. Decrease due primarily to the 2022 impairment losses as a result of investments in MCU and MCU-P and note receivable in MCU-P, which were deemed unrecoverable as of March 31, 2022 from a significant decline in forecasted cash flows from the MCU-P operations. Variance also attributed to $595,000 related to the LPB investment prior to settlement in exchange for 3,500,000 of the Company's shares in 2022; offset by $4,441 recovery of credit losses on the MCU-P note receivable for the nine-months ended September 30, 2022.

Other income (expenses) for the nine-months ended September 30, 2023 were $1,234,940, primarily consisting of losses from our equity method investments of $1,337,801, including a GenMat loss of $1,322,844.

Other income (expenses) for the nine-months ended September 30, 2022 were $1,908,732, primarily consisted of losses from our equity method investments of $858,712, a reduction in value of the Tonogold note receivable of $605,000, LPB settlement expenses of $250,000, and other losses of $45,020.

OUTLOOK

The primary focus for 2023 continues to be commercialization.

Technology Readiness

The Company’s biorefining technologies are commercially ready and offer growth-enabling performance for the Company’s prospective customers. Comstock Fuels is actively pursuing revenue producing opportunities with globally recognized renewable fuel producers. Comstock Metals is also commercially ready and has engineered and ordered its first commercial demonstration facility and will permit and deploy approximately $2.0 million in capital expenditures for this facility in the second half of 2023, with production planned in early 2024.

Comstock’s team has decades of diverse technology development and commercialization experience. The Company uses a disciplined approach to devising, qualifying, and elevating innovations from conception through increasing degrees of commercial readiness. The Company has adopted a widely used Technology Readiness Level (“TRL”) measurement system for objectively assessing Comstock’s progress, risks, investment qualifications, and commercial maturity.

There are nine readiness levels on the TRL scale, starting with TRL 1. Progression up the scale requires achievement of “SMART” milestones that are Specific, Measurable, Achievable, Relevant, and Timely. Proof of concept occurs at TRL 3. TRL 4 and 5 involve increasing degrees of process validation. TRL 6 is the first true demonstration of commercial readiness. TRL 7 and 8 involve various functional prototypes and pilots with increasing fidelity and sophistication. A TRL 9 technology is commercially mature and fully deployed. Depending on the technology and other applicable factors, revenue can commence at TRL 6 for early adopting and generally sophisticated commercial clients with continued development to TRL 7, 8, and 9.

The following chart summarizes the change in TRL status over the past year, and the objectives for 2023:

Comstock’s SMART milestones and commercialization process involve meticulous planning that is informed by many factors, including the total addressable markets, their growth rates and the speed that the Company can initiate and increase revenue.

Commercialization – Lines of Business

Comstock Fuels

Most current forms of renewable fuel draw from the same pool of conventional feedstocks, including corn and vegetable oils in the U.S., but the entire available supply of those feedstocks could only meet a small fraction of the rapidly growing demand for renewable fuels. Comstock's patented and patent-pending biorefining technologies unblock that constraint by converting underutilized lignocellulosic or "woody" biomass into biointermediates for refining drop-in and other renewable fuels.

The Company’s objectives for 2023 include:

• Executing one or more early adopter commercial agreements for committed offtake, supply of feedstocks and commencing development on commercial scale production projects for operationally experienced, technologically sophisticated and well capitalized customers.
• Completion of full technical documentation and engineering submittal packages.
• Completion of an independent lifecycle carbon analysis to prove the carbon emissions reduction benefits of the fuels produced with Comstock’s known processes.
• Continuous operation of the integrated bio-intermediate production process at the Company’s demonstration plant for sufficient time to achieve and broadly demonstrate TRL 7.

Each license agreement for a commercial production facility could create 15 to 20 years of recurring royalty revenue.

Comstock Metals

Resource scarcity and supply are generally the main drivers presented when discussing battery recycling. From a market perspective what is often missed is that electric vehicle batteries are only one of many metals-based products that can cause a massive amount of pollution if simply landfilled at the end of life with no recovery of the underlying metal values.

Comstock Metals objectives for 2023 include:

• Physically reposition and broaden the addressable market for commercialization of our metals recycling.
• Advancing the technology readiness for broader material recycling, prioritizing photovoltaics.
• Permitting the broader material recycling system, starting with photovoltaics, in northern Nevada.
• Deploying the broader material recycling and readying it for production.

Comstock Metals has submitted all permits for operating its manufacturing facility in Silver Springs, NV, and expects receipt of permits and deployment of its operations before the end of 2023, with operations commencing in early 2024.

Comstock Mining

The Company has amassed the single largest known repository of historical and current geological data on the Comstock mineral district, including extensive geophysical surveys, geological mapping, sampling and drilling data and published updated SK-1300 technical reports on the Lucerne and Dayton resource areas.

On June 30, 2023, the Company signed a Mineral Exploration and Mining Lease Agreement (the “Mining Lease”) with Mackay Precious Metals Inc (“Mackay”). The Mining Lease provides a twenty-year term granting Mackay the rights to conduct exploration on certain of the Company’s mineral properties in Storey County, Nevada. Mackay paid a lease initiation fee of $1,250,000 and will make quarterly lease payments of $475,000 for the first six months, quarterly lease payments of $375,000 for the next three and a half years, and then quarterly lease payments of $250,000 thereafter. In addition, Mackay will reimburse carrying costs for the mineral properties, estimated to be $177,000 per year, and will pay a NSR royalty of 1.5% from eventual mine production from the mineral properties. Mackay also committed to expenditures of $1,000,000 per year on a cumulative basis, and increasingly detailed technical reports after the first five, ten, and fifteen years.

The Company’s objectives for 2023 include:

• Receive cash proceeds of over $2.1 million from new mineral lease leveraging the northern Gold Hill and northern Occidental claim groups.
• Commercializing one or more exploration and development partners that enable the expansion and enhancement our of estimated mineral resources in the central and southern parts of the district.
• Develop, in collaboration with GenMat, AI-based, next-generation exploration tools, using the Company’s extensive geologic and geophysical data along with GenMat’s hyperspectral imaging solution to condition the AI and ground-truth its predictions.

The Company’s 2023 efforts will apply economic analysis to Comstock’s existing gold and silver resources progressing toward full economic feasibility.

Strategic Investments

Investment in GenMat

Investment in generative physics-based artificial intelligence (“AI”) is a crucial component of Comstock’s technology innovation strategy. Quantum Generative Materials LLC ("GenMat"), develops and commercializes cutting-edge, proprietary generative artificial intelligence models for the discovery and manipulation of matter. This includes AI models that can be employed today, for commercial use on GenMat’s existing, high-performance computing platforms, well before quantum computers become mainstream. GenMat is a company in which Comstock has a 48% investment interest.

GenMat's AI operates similarly to the large language models widely discussed in the media today, but instead of words and language, it uses atoms and molecules to generate physical systems and harness math and science to discover new materials in an exponentially shorter time than traditional methods allow. To put this into perspective, new material discovery typically takes many years and many millions of dollars. GenMat's AI can potentially simulate thousands of unique new materials in seconds.

GenMat’s objectives for 2023 include:

• Elevate new material simulation to TRL 6 by synthesizing and directly testing the AI’s ability to predict material properties to confirm the precision and accuracy of those simulations.
• Launch and make operational a space-based hyperspectral imaging sensor for mineral discovery applications.
• Commercialize an enterprise-oriented API and other physics-based AI solutions to potential early adopter enterprise clients for advanced materials simulation and synthesis.

While the Company can’t be precise about exactly when GenMat will initiate revenue, GenMat’s technologies are maturing much faster than anticipated when the Company invested in GenMat in 2021.

Investment in Green Li-ion

The Company has also made meaningful progress after its LINICO subsidiary received gross proceeds of approximately $0.8 million from the sale of 1,500 Green Li-ion Pte. Ltd. (“Green Li-ion”) preferred shares (representing approximately 4% of the 37,162 Green Li-ion preferred shares owned by LINICO). The Company intends to sell the remaining 35,662 Green Li-ion preferred shares for at least $19 million more in net proceeds during 2024, netting a total of almost $20 million.

Investments in others non-mining real estate, water rights and securities

The Company directly owns land and water rights in Silver Springs, NV, that it will begin marketing for sale and anticipates selling these assets for over $40 million in net proceeds during 2024. The Company also expects to receive approximately $7.0 million in advances during the first half of 2024.

During the third quarter of 2023, the Company sold all 9,076,923 ABTC shares for net proceeds of approximately $5.4 million. As of September 30, 2023, the Company recorded a receivable of $0.6 million equal to the contractual difference of $6.0 million minus the net proceeds received of $5.4 million. The Company expects to receive the remaining proceeds in 2023.

LIQUIDITY AND CAPITAL RESOURCES

Our financial position and liquidity are based on our net sources of capital from financing and investing as generally compared to our net uses of capital from operating and investing activities and ultimately, our ability to generate cash flows from our operations. Our cash balances at September 30, 2023 and December 31, 2022 were $3,440,085 and $2,521,772, respectively. The Company had current assets of $30,738,352 and current liabilities of $11,663,129, representing working capital excess of $19,075,223 at September 30, 2023.

The current liabilities include derivative liabilities of $7.5 million for the contingent make-whole liabilities and $2.3 million of accrued expenses primarily $1.3 million of incentive compensation accrual and $0.6 million accrued payroll and related expenses.

Our primary source of liquidity during the first nine-months of 2023 was cash from asset sales and to a lesser extent, financing activities. During the nine-months ended September 30, 2023, we generated $6,457,386 and $5,644,911 in cash from our investing activities and our financing activities, respectively, and we used $11,183,984 in cash in our operating activities.

During the nine-months ended September 30, 2023, the Company issued 9,309,375 shares of the Company's common stock with a fair value of $4,499,598 at an average conversion price per share of $0.48 to Ionic upon the conversion of a principal balance of $3,150,000 and accrued interest of $103,912. On April 6, 2023, Ionic returned 327,549 excess shares from equity conversions. At September 30, 2023, the Ionic Note was fully converted and the Company estimates that approximately 415,000 of excess shares will be returned during the fourth quarter of 2023.

During the nine-months ended September 30, 2023, we issued 3,214,599 common shares to Tysadco, for an aggregate sales price of $1,350,000 at an average price of $0.42 per share with $7,550,000 of remaining capacity, subject to certain restrictions.

On February 13, 2023, we entered into an equity purchase agreement (the “2023 Leviston Sales Agreement”) with Leviston Resources LLC (“Leviston”) to offer and sell registered shares of common stock at an aggregate offering price of up to $5.0 million, from time to time, at our option, on terms we deem favorable. During the nine-months ended September 30, 2023, we issued 10,892,604 shares of common stock to Leviston for an aggregate sales price of $5,000,000 at an average price per share of $0.46 with no remaining capacity and the facility was closed.

On December 16, 2022, the Company entered into a securities purchase agreement for an unsecured convertible promissory note (the "Ionic Note") with Ionic. with a principal amount of $3,150,000, of which $2,975,000 was funded and $175,000 was an original issue discount ("OID") and issued with a 5% OID. The full principal is due on March 16, 2024. Interest is payable monthly at a rate of 8% annually. The Ionic Note contains conversion terms that are based on percentages of trading price and volumes over defined measurement periods. The terms require the conversion option to be bifurcated as a derivative. As of September 30, 2023 and December 31, 2022, the Company bifurcated the conversion feature and recorded a derivative liability of $0 and $420,000, respectively, reflected in our consolidated balance sheet.

On October 25, 2022, we entered into a promissory note (the "Alvin Fund 2022 Note") with Alvin Fund LLC with a principal amount of $2,000,000. In consideration of the lender providing the financing, the Company issued $250,000 in shares to the lender. The full principal is due on October 25, 2023. Interest is payable monthly at a rate of 9% annually. Prepayment is allowed in full or in part at any time without premium or penalty. The loan is secured by all the property commonly referred to as the Dayton properties. On June 21, 2023 and September 1, 2023, the Company issued 270,757 and 74,353 shares, respectively, of unregistered restricted common shares with a fair value of $107,507 and $45,370, respectively, to Alvin Fund LLC in lieu of cash payments for interest under the Alvin Fund 2022 Note. On September 30, 2023, the Company entered into an amendment to extend the maturity of the Alvin Fund 2022 Note to January 31, 2026, at an interest rate of 16%.

On June 21, 2022, The Company entered into an agreement with Tysadco for the purchase of up to $10,000,000 worth of shares of the Company’s common stock from time to time, at the Company’s option. Any shares offered and sold to Tysadco will be registered for resale pursuant to a registration statement on Form S-1 filed with U.S. Securities and Exchange Commission pursuant to the Securities Act of 1933 (the “Securities Act”). The Company paid a commission of 428,571 additional shares of common stock with a fair value of $300,000 to Tysadco in connection with such sale. Sales of common stock, if any, under the Purchase Agreement are made at a 10% discount to the volume weighted average sales price of the common stock on the date that Tysadco receives such a capital call from the Company.

On April 12, 2022, the Company entered into an equity purchase agreement (the “Leviston Agreement”) with Leviston Resources LLC (“Leviston”) for the purchase of up to $10,000,000 worth of shares of the Company’s common stock from time to time, at the Company’s option, on terms deemed favorable to the Company. Any shares offered and sold are issued pursuant to the Company’s shelf registration statement on Form S-3 and the related prospectus (File No. 333-263930) filed by the Company with the U.S. Securities and Exchange Commission pursuant to the Securities Act of 1933 (the “Securities Act”). Sales of common stock, if any, under the Purchase Agreement may be made in sales deemed to be “at-the-market” equity offerings as defined in Rule 415 promulgated under the Securities Act, at a discount of 10% to the volume weighted average sales price of the common stock on the date that Leviston receives a capital call from the Company. For consideration to enter the Leviston Agreement, the Company agreed to deliver additional shares of common stock to Leviston, for no additional consideration, on the first settlement date with respect to a put notice delivered by the Company. As of December 31, 2022, the 2022 Leviston Agreement has no remaining capacity, and the facility was closed.

We intend to fund our operations over the next twelve months from existing cash and cash equivalents, planned sales of non-mining real estate and other investments, leasing cash inflows on certain mineral properties, planned licensing, sales and profits from our cellulosic and battery metal recycling technology and related engineering services, and previously funded capital into our LINICO subsidiary and Quantum investment. Based on these expected funding sources, management believes we will have sufficient funds to sustain our operations and meet our commitments under our investment agreements during the twelve months following the date of issuance of the condensed consolidated financial statements included herein. While we have been successful in the past in obtaining the necessary capital to support our operations, including registered equity financings from our existing shelf registration and other registration statements, non-registered equity placements, borrowings and various other means. There is no assurance we will be able to obtain additional equity capital or other financing, if needed.

Net cash used in operating activities for the nine-months ended September 30, 2023 decreased by $562,358 to $11,183,984 from $11,746,342 in the comparable prior period, due primarily to decreases in cash used for operating expenses discussed in Financial Condition and Results of Operating Information.

Net cash provided by investing activities for the nine-months ended September 30, 2023 increased by $6,356,198 to $6,457,386 from $101,188 in the comparable prior period, primarily due to proceeds from sale of the AQMS lease and related assets of $21.0 million on the sale of the Facility, partially offset by $12.0 million in cash used for the purchase of the Facility, $5.6 million for payments on contractual commitments for GenMat, LINICO and Haywood investments, $1.5 million for SSOF advances, $0.8 million for proceeds on sale of Green Li-ion investments and $0.8 million for the purchase of water rights as compared to net cash provided in the 2022 period primarily from $1.5 million for proceeds on sale of Daney Ranch, $0.9 million from recovery of MCU funds, $0.9 million from the sale of Tonogold shares, and $0.8 million from Tonogold option agreement proceeds.

Net cash provided in financing activities for the nine-months ended September 30, 2023 decreased $1,244,567 to $5,644,911 from $6,889,478 for the comparable prior period, primarily as a result of lower net proceeds from the issuance of common stock of $1,512,020 and reduced contributions of $500,000 from AQMS for additional shares in LINICO in 2022.

Risks to our liquidity could result from future operating expenditures above management’s expectations, including but not limited to research and development, pre-development, exploration, selling, general and administrative, and investment related expenditures in excess of repayments of the advances to SSOF, and cash proceeds from the sale of our non-strategic assets and other investments, amounts to be raised from the issuance of equity under our existing shelf and other registration statements, declines in the market value of properties planned for sale, or declines in the share price of our common stock that would adversely affect our results of operations, financial condition and cash flows. If we were unable to obtain any necessary additional funds, this could have an immediate material adverse effect on liquidity and raise substantial doubt about our ability to continue as a going concern. In such case, we could be required to limit or discontinue certain business plans, activities or operations, reduce or delay certain capital expenditures or investments, or sell certain assets or businesses. There can be no assurance that we would be able to take any such actions on favorable terms, in a timely manner, or at all.

CRITICAL ACCOUNTING ESTIMATES

There have been no significant changes to the critical accounting estimates disclosed in Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2022 Form 10-K.

Market Prices

Changes in the market price of commodities, including precious metals, critical metals and oil and gas may significantly affect our future profitability and cash flow. Metal prices fluctuate widely due to factors such as: demand, global mine production levels, supply chain constraints, investor sentiment, central bank reserves, global conflicts and the value of the U.S. dollar.

Interest Rate Risk

The interest rates on our existing long-term debt borrowings are fixed, and as a result, interest due on borrowings are not impacted by changes in market-based interest rates.

There have been no material changes in the market risks discussed in Item 7A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

A. Disclosure

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, with the participation of our Principal Executive and Financial and Accounting 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") was conducted. Our disclosure controls and procedures are designed to ensure information required to be disclosed in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Exchange Act rules, and such information is accumulated and communicated to our management, including our Principal Executive and Financial Officer, to allow timely decisions regarding required disclosures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based on that evaluation, our CEO concluded that our disclosure controls and procedures, including controls and procedures designed to ensure that information required to be disclosed by us is accumulated and communicated to our management (including our CEO), were effective as of September 30, 2023, in assuring them in a timely manner that material information required to be disclosed in this report has been properly recorded, processed, summarized and reported.

Changes in Internal Control Over Financial Reporting

During the quarter ended September 30, 2023, there was no change in our internal control over financial reporting that materially affected or is reasonably likely to materially affect our internal control over financial reporting.

No new risk factors have been identified in addition to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022 and our Quarterly Report on Form 10-Q for the interim period ended September 30, 2023.