Financial Overview

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

The following discussion provides information that we believe is relevant to understanding and assessing the consolidated results of operations and the financial condition of the Company, as of and for the years ended December 31, 2020 and 2019, and our future results. The information should be read in conjunction with the consolidated financial statements and accompanying notes included in this Form 10-K.

Overview

The Company is a Nevada-based, precious and strategic metal-based exploration, economic resource development, mineral production and metal processing business with a strategic focus on high-value, cash-generating, environmentally friendly, and economically enhancing mining and processing technologies and businesses. The Company has extensive, contiguous property in the historic Comstock and Silver City mining districts (collectively, the “Comstock District”) and is an emerging leader in sustainable, responsible mining and processing, and is currently commercializing environment-enhancing, metal-based technologies, products, and processes for precious and strategic metals recovery.

The Company’s goal is to grow per-share value by commercializing environment-enhancing, precious and strategic-metal-based products and processes that generate a rate of predictable cash flow (throughput) and increase the long-term enterprise value of our northern Nevada based platform. The next three years are dedicated to delivering that value by achieving the performance objectives listed below:

Establish and grow the value of our mineral properties:

• Establish the Dayton Resource area’s maiden, stand-alone mineral resource estimate;
• Expand the Dayton-Spring Valley Complex through exploration drilling and geophysical modelling;
• Develop the expanded Dayton-SV Complex toward full economic feasibility, supporting a decision to mine;
• Entitle the Dayton-SV Complex with geotechnical, metallurgical and environmental studies and permitting; and
• Validate the Comstock NSR Royalty portfolio (e.g., Lucerne Mine, Occidental Lode, Comstock Lode).

Commercialize a global, ESG-compliant, profitable, mercury remediation system:

• Establish the technical efficacy of MCU’s Comstock Mercury System, and protect the intellectual property;
• Deploy and operate the first international mercury remediation project by deploying MCU’s second and third mercury remediation systems into the Philippines;
• Identify, evaluate and prioritize a pipeline of potential mercury remediation projects; then deploy the third and fourth mercury remediation projects, producing extended, superior cash flow returns; and,
• Assess and capitalize on value enhancing, ESG-based expansion opportunities

Monetize non-strategic assets and build a quality organization:

• Monetize our third-party, junior mining securities responsibly, for $12.5 million or more;
• Monetize our non-mining assets for $12.5 million, excluding the Gold Hill Hotel;
• Grow the value of our Opportunity Zone investments to over $30.0 million; and
• Deploy a systemic organization, capable of accelerating growth and handling complexity.

The strategic plan is designed to deliver per-share value over the next three years, while positioning the Company for continued growth beyond 2023.

The Company began acquiring properties in the Comstock District in 2003. Since then, the Company has consolidated a significant portion of the Comstock District, amassed the single largest known repository of historical and current geological data on the Comstock region, secured permits, built an infrastructure and completed two phases of test production. The Company continues evaluating and acquiring properties inside and outside the district, expanding its footprint and evaluating all our existing and prospective opportunities for further exploration, development and mining.

The Company and its subsidiaries now own or control approximately 9,358 acres of mining claims, parcels, and royalty interests in the broader Comstock District and surrounding area. The acreage includes approximately 2,396 acres of patented claims and surface parcels (private lands), and approximately 6,962 acres of unpatented mining claims (public lands), which the BLM administers. The Company’s headquarters is on American Flat Road, immediately north of the Lucerne resource area and just south of Virginia City, Nevada.

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 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 historical data and detailed surface mapping of Comstock District properties and continue to obtain historical information from public and private sources. We integrate this data with information obtained from our recent mining operations, to target prospective geological exploration areas and plan exploratory drilling programs, including expanded surface and underground drilling.

Our Dayton resource area and the adjacent Spring Valley exploration targets are located in Lyon County, Nevada, approximately six miles south of Virginia City. Access to the properties is by State Routes 341 and 342, both paved roads.

Our sale to Tonogold of the membership interests in Comstock LLC, the owner of the Lucerne Mine, resource area and related permits closed on September 8, 2020. The 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. Lucerne is the subject of ongoing assessment, exploration and development plans by Tonogold. The Company retains a 1.5% NSR royalty in the Lucerne properties.

The Company achieved initial production and first poured gold and silver on September 29, 2012. The Company ceased mining in 2015 and concluded processing in 2016. 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 Projects

Exploration and Development

The Company has identified many exploration targets on its land holdings in the Comstock District, but has focused, to date, on the Dayton resource area and, through our collaboration with Tonogold the Lucerne resource area (including surface and underground exploration). We have also leased the remaining Storey County mineral claims, including the Occidental group and other exploration targets, to Tonogold, which has near-term plans for exploration and ultimately development towards economic feasibility for those assets. We are developing exploration plans for the remaining areas, primarily the Dayton resource area and Spring Valley group that we view as an extension of the Dayton resource area.

The Company’s district-wide exploration and development plans contemplate three specific, geological areas that the Company has organized into wholly-owned subsidiaries called Comstock Exploration and Development LLC, Comstock Northern Exploration LLC, and Comstock LLC. Comstock Exploration and Development LLC includes the Dayton and Spring Valley areas. Comstock Northern Exploration LLC includes the Occidental and Gold Hill exploration targets now leased to Tonogold, and Comstock LLC. Comstock LLC, which was recently acquired by Tonogold, includes the Lucerne properties, for which the Company retains a 1.5% NSR royalty. These exploration targets represent over 7 miles of mineralized strike length, with current and historical grades of gold and silver, and significant historical mine production (Figure 4).

The Company retained royalties ranging from 1.5% to 3.0% on the Lucerne, Occidental and other properties, and an additional royalty of 1.0% (that is 25% of 4%) on Sutro Tunnel Company mining patents in Storey County, Nevada, through the Company’s 25% membership interest in Pelen Limited Liability Company (“Pelen”), the 100% owner of the historic Sutro Tunnel Company.

Figure 4 – General Overview of Priority Exploration Targets

Comstock Processing LLC (100% owner of the American Flat Processing Facility)

The processing facility is in the American Flat area of Gold Hill, Nevada, less than a mile west of Lucerne, and operated 24 hours per day, seven days per week, for substantially all of late 2012 through 2016. During 2019, Comstock formed Comstock Processing LLC (“CPL”), a newly realigned, wholly-owned subsidiary that owns all of the property, plant, equipment, and permits for the crushing, agglomerating, leaching, Merrill Crowe processing, mercury retort, refining, and metallurgical operations located at 1200 American Flat Road, Virginia City, Nevada. The facilities represent a fully permitted platform, best positioned for implementing our Strategic Focus on high-value, cash-generating, precious metal-based activities, including, but not limited to, metals exploration, engineering, resource development, economic feasibility assessments, mineral production, metal processing and related ventures of environmentally friendly, and economically enhancing mining technologies. To date, Comstock Processing has entered into two agreements that leverage its platform for nearer-term cash generation: first, with the Lease Option Agreement with Tonogold to lease and operate the facilities and second, with Mercury Clean Up LLC (“MCU”) for the commercial pilot of the MCU mercury remediation system.

CPL’s Lease Option with Tonogold

On November 18, 2019, the Company entered into the Lease Option Agreement to lease its permitted American Flat mining property, plant and equipment to Tonogold for crushing, leaching and processing material from the Lucerne Mine. Under the Lease Option Agreement, Tonogold is required to reimburse the Company approximately $1.1 million in expenses to maintain the option. If the option is exercised, Tonogold will then pay the Company a

rental fee of $1.0 million per year plus $1 per processed ton, in addition to all the costs of operating and maintaining the facility. After the first $15.0 million in rental fees are paid, the rental fee will step down to $1.0 million per year and $0.50 per processed ton for the next $10.0 million paid to the Company.

CPL’s Venture with Mercury Clean Up, LLC

The second agreement (the “MCU Agreement”) is with Mercury Clean Up, LLC (“MCU”), to pilot test new, cleaner technologies, in collaboration with Oro Industries Inc. (“Oro”), for the manufacture and global deployment of mercury remediation systems with proprietary mechanical, hydro, electro-chemical and oxidation processes to reclaim and remediate mercury from soils, waste and tailings. MCU has the exclusive, worldwide rights to four patentable technologies and equipment that we believe will demonstrate feasible, economic mercury remediation. Comstock provides the platform for testing the mercury remediation system and MCU will conduct the trials that prove scalable feasibility. MCU plans to deploy the solution globally and has secured its first major, international remediation project in the Philippines. Comstock’s award-winning mercury reclamation experience coupled with MCU’s technology and processing know-how positions a new, global growth opportunity consistent with the Company’s Strategic Focus.

Worldwide unregulated activity has released thousands of tons of mercury into the environment. The continued worldwide use of mercury in unregulated activities, primarily outside of the United States, is polluting air, soils and waters, and poisoning marine life and endangering lives. Ongoing, unregulated artisanal mining outside of the U.S. represents more than 40% of the ongoing mercury contamination and represents a tremendous opportunity for cleaning up the environment in a sustainable, profitable manner. Mercury will not go away by itself and must be removed to stop the pollution. Mercury can’t be broken down or destroyed, and MCU, in collaboration with Oro and the Company, is pioneering an effective solution.

Pursuant to the MCU Agreement, the Company committed $2.0 million of capital contributions payable in cash of $1.15 million and stock of $0.85 million, in exchange for 15% of the fully-diluted equity ownership of MCU and 50% of the equity of any future joint ventures formed with MCU. Through December 31, 2020, the Company has invested $1.15 million in cash and over $0.85 million in stock, representing a $2.0 million commitment for MCU to demonstrate the feasibility of the Mercury Remediation System on CPL’s permitted platform.

Over the past seven years, Comstock has implemented several plans, approved by NDEP, intended to address NDEP’s and the U.S. Environmental Protection Agency (“EPA”) protocols, guidance and goals for sampling, characterizing, transporting and managing mercury within the Carson River Mercury Superfund Site (“CRMS”) Study Area. These plans and CPL’s existing, permitted infrastructure provide an ideal platform for validating the efficacy of the MCU process. MCU and the Company will work closely with NDEP for any additional approvals or permits.

The Company and MCU are evaluating numerous locations containing historical, mercury-contaminated tailings, and developing a detailed schedule for pilot testing. MCU delivered sampling and testing equipment to the American Flat site in February 2020, and began taking samples of tailings at locations in the CRMS to locate suitable material to commence testing. The remaining equipment arrived at the American Flat site during the third quarter of 2020, and MCU began stockpiling material and initial test processing during the fourth quarter of 2020.

Based on successful proof of technical and economic viability, the Company and MCU would create a new, 50-50 venture called Comstock Mercury Remediation LLC for pursuing global business opportunities. The Company currently holds 15% of the membership interests of MCU with an option to increase to 25% of the membership interests, and separately, the right to 50% participation in any joint ventures, including, but not limited to, MCU Philippines, Inc. and Comstock mercury remediation project, the first two mercury remediation project opportunities.

The Company entered into a second amendment of the MCU Agreement, on April 10, 2020, wherein, MCU and Comstock have identified an opportunity to remediate mercury in the Philippines, particularly in the province of Davao d’ Oro (the “Philippine Opportunity”); where Comstock and MCU formed a new joint venture to engage profitably in the Philippine Opportunity. The Company has made cash investments in the form of $1.2 million in interest free loans and committed up to an additional $1.8 million in equity and debt investments, and received 50% ownership of a new entity called MCU Philippines, Inc. At such time as Company investments in joint ventures under the MCU Agreement total $2.0 million, it will be issued an additional 10% of the membership interests of MCU, for total membership interests of 25%.

The first processing unit was shipped to the Philippines in the fourth quarter of 2020, with production expected to commence during the first quarter of 2021.

CPL and Development of Clean Technologies

The ongoing testing of alternative technologies aligns with the Company’s Strategic Focus on responsible development. A breakthrough with cleaner technologies could result in higher, faster recoveries with reduced waste, shorter permitting cycle times and lower reclamation costs.

The Company continues exploring other partners and ventures that can leverage its fully-permitted platform for the development of cash-generating, precious metal-based activities, including, but not limited to, metals exploration, engineering, resource development, economic feasibility assessments, mineral production, metal processing, and related ventures of environmentally-friendly and economically enhancing mining technologies.

Comstock Exploration & Development (100% owner of the Dayton Resource and Spring Valley Exploration Areas)

Our Dayton resource area and the adjacent Spring Valley exploration targets are located in Lyon County, Nevada, approximately six miles south of Virginia City. Access to the properties is by State Routes 341 and 342, both paved roads. The Dayton resource area includes the historic Dayton, Kossuth and Alhambra patents, and the Dayton Consolidated mine workings. The historic Dayton Consolidated mine was the last meaningful underground mining operation in the Comstock District, before being closed after the War Act in October 1942, which closed down non-essential gold mining operations in the United States and its territories.

The Dayton resource area ranks as the Company’s top exploration and development target. In January 2014, the Lyon County Board of Commissioners approved strategic master plan and zoning changes on the Dayton, Kossuth and Alhambra mining patents and other properties located in the Dayton resource area, enabling a more practical, comprehensive feasibility study for mining. Geological studies and development planning are currently underway utilizing data from extensive metallurgical testing and assessment during 2017, an additional 30,818 feet of drilling completed in 2015, geophysical analysis and interpretation completed in 2013, and extensive geological data from pre-2013 drill programs.

During the third quarter of 2020, the Company engaged Geotech Ltd (“Geotech”) of Aurora, Canada, to conduct an airborne geophysical survey of the Dayton

resource area, Spring Valley exploration targets, and the rest of the Company’s Comstock District properties. The survey included both magnetic and Geotech’s proprietary Versatile Time-Domain Electromagnetic (“VTEM”) surveys. The survey was flown from September 19 through October 3, 2020, with 1,161 line-kilometers. The interpreted, three-dimensional results are scheduled to be delivered in early 2021. The results will greatly increase the Company’s understanding of the Dayton resource area and Spring Valley resource expansion potential, along with the Company’s other exploration targets in Lyon County.

Figure 5 – Total Magnetic Intensity, with cooler colors representing relative magnetic lows, and warmer colors relative highs

The Company’s technical staff is currently compiling a detailed structural interpretation of the Dayton resource area, which will provide the framework for a completely new resource model. The detailed interpretation is leading to a list of highly prospective drill targets to further define and expand the mineral resource.

Figure 6 – Example Interpreted Dayton Section, West to East

The plan includes expanding the current resource at the Dayton resource area and continuing southerly into Spring Valley. The Spring Valley group of exploration targets lies adjacent to the Dayton resource area, trending south toward the southern-most end of the Comstock District that includes the southern portion of the Kossuth patented claim and the Dondero and Daney claims, and all of the Company’s placer mining claims in Spring Valley and Gold Canyon. The Spring Valley mineralized structures lie mostly concealed beneath a veneer of sediment gravels and the volcanic host rocks and the structural controls of the mineralization defined for the Dayton resource area are known to continue south into Spring Valley. The exploration of Spring Valley will include phased drilling programs that will continue southerly from State Route 341 to the historic Daney mine site (Figure 4), with a potential strike length of approximately 9,600 feet.

On May 21, 2020, the Company enhanced its land position in Spring Valley by exercising its option with New Daney Company Inc. (“New Daney”) to purchase seven unpatented lode mining claims in Spring Valley. These claims had been leased from New Daney since 2010. The Company paid a total of $100,000 for the claims. On October 8, 2020, the Company closed the transaction with a payment in full for the $85,000 balance.

The Company is proceeding to publish a separate, S-K 1300 compliant, Initial Assessment technical report for the Dayton resource area to validate a mineral resource estimate. The new technical report will provide not only a new resource estimate, but also a phased drilling plan for further defining and expanding the resource for sustainable, profitable mining. The Company plans to continually advance the Dayton resource area to full feasibility, towards a production ready mine plan. Mining and processing on lands 100% privately held by the Company should simplify and shorten the critical permitting chain.

Comstock Northern Exploration LLC (Occidental Lode and Other Northern Target Mineral Claims)

Tonogold has commenced further, detailed analysis of our northern targets that correlates historical data with modern geological assessments and reveals a potentially much larger exploration opportunity. Accordingly, the Company signed a new Mineral Exploration and Mining Lease (the “Exploration Lease”) with Tonogold for certain mineral properties in Storey County, Nevada. The lease is for an initial term of 5 years, with options to renew for an additional 15 years, so long as specific commitments are met, including spending of at least $1.0 million per year on exploration and progressively validating progress through technical reports.

The lease has a quarterly fee of $10,000 in the first year, escalating 10% per year thereafter. Tonogold is also required to reimburse all claim maintenance costs, third-party lease payments, and other costs associated with owning the properties. The Company retains a 1.5% to 3.0% NSR royalty on future mineral production from the properties. The Company also maintains an additional net royalty of 1.0% (that is, 25% of 4%) on Sutro Tunnel Company mining patents in Storey County, Nevada, through the company’s 25% membership interest in Pelen, the 100% owner of the historic Sutro Tunnel Company.

The Exploration Lease includes the Occidental group and Gold Hill group of exploration targets, which contain many historic mining operations, including the Overman, Con Imperial, and Yellow Jacket mines, as well as the historically under-developed Occidental Lode, parallel to the main Comstock trend. The Company believes this will accelerate the development of these targets and enhance the value of its mineral property and royalty portfolio. Tonogold has permitted an exploration drilling program for these areas, and began drilling during the third quarter of 2020, commencing their announced $7.0 million drill program, including both core and RC drilling, focused on the historically significant Comstock Lode.

Comstock Mining LLC (100% owner of the Lucerne Resource Area)

In January 2019, the Company and Tonogold entered into a Purchase Agreement, as restated and amended in September 2020, to sell to Tonogold its interests in Comstock LLC, a wholly-owned subsidiary of the Company with sole net assets of the Lucerne properties and related permits. The transaction was completed September 8, 2020, with Tonogold receiving 100% of the membership interests and full control of Comstock LLC. The Company received consideration including $7.1 million in cash, $6.1 million in CPS with a fair value of $7.6 million, and a Note with fair value of $6.1 million, net of a related contingent forward with a fair value of $2.0 million, for a total of $18.8 million, resulting in an $18.3 million gain. Tonogold also guaranteed the Company’s remaining payments for its membership interest in Northern Comstock LLC, which owns and leases certain mineral properties in the Lucerne area, and assumed certain reclamation liabilities. The Company also retains a 1.5% NSR royalty on the Lucerne properties. See Note 2, Significant Transactions, to the consolidated financial statements.

Over the past two years, Tonogold, aided by the independent mining advisory firm of Mine Development Associates, has evaluated and remodeled the Lucerne mineral resource, and plans further exploration, development and economic feasibility assessments.

Figure 7 – Dayton and Spring Valley Ground-Magnetic Geophysics with Interpreted Veins and Structures

Significant Transactions

Tonogold Resources Inc. Securities, Purchase, Lease and Option Agreements

There are three agreements between the Company and Tonogold Resources Inc (“Tonogold”): the Membership Interest Purchase Agreement, the Mineral Exploration and Mining Lease, and a Lease Option Agreement for the Company’s American Flat processing facility. See Note 2, Significant Transactions, to the consolidated financial statements.

Membership Interest Purchase Agreement

On January 24, 2019, the Company entered into an agreement, as amended and restated on September 8, 2020, to sell to Tonogold its interests in Comstock LLC, a wholly-owned subsidiary with sole net assets of the Lucerne properties and related permits, (the “Purchase Agreement”), with the initial closing on November 18, 2019.

On November 18, 2019, Tonogold received 50% of the membership interests of Comstock LLC, in exchange for the consideration paid to date. The Company retained all management control and authority over Comstock LLC until Tonogold’s membership interests totaled 100%.

On September 8, 2020, the Purchase Agreement was closed, and 100% of the membership interests were acquired by Tonogold. The fair value of the consideration delivered by Tonogold for the membership interests in Comstock LLC was $18.8 million, including cash, CPS, and a note receivable. The Company’s gain on the sale was $18.3 million, recorded during the year ended December 31, 2020 in the consolidated statements of operations.

Other features of the Purchase Agreement include Tonogold guaranteeing the Company’s future payments of capital contributions required under the operating agreement of Northern Comstock LLC, which owns and leases certain mineral properties in the Lucerne area, the assumption of certain reclamation liabilities, and the reimbursement of certain operating costs. The Company also retains a 1.5% NSR royalty on the Lucerne properties.

Cash – Through September 8, 2020, the Company received $7.1 million in a series of cash payments from Tonogold, starting with a $1.0 million non-refundable deposit in January 2019, and concluding with $140,000 at closing of the Purchase Agreement.

Tonogold CPS and Common Shares – The consideration received under the Purchase Agreement included the CPS. During 2019, the Company received $6.1 million face value in Tonogold CPS. The CPS became convertible into common shares on May 22, 2020. The conversion price for the CPS was the lower of (1) $0.18 cents per share, or (2) 85% of the 20-day volume weighted average closing price of Tonogold common shares. Tonogold could redeem the CPS prior to conversion, at a redemption price 120% of the face value of the CPS. The CPS was recorded by the Company at a fair value of $7.6 million when received.

On May 22, 2020, and September 29, 2020, the Company elected to convert $1.1 million and $2.8 million of CPS, respectively, at $0.18 per common share, for a total of 21,777,778 Tonogold common shares. On October 2, 2020, Tonogold redeemed the remaining $2.2 million of CPS for $2.6 million in cash, representing 120% of face value.

On December 16, 2020, the Company entered into an agreement with Wingfield Tono LP (“Wingfield”) for the purchase of up to 15,666,667 Tonogold common shares at a fixed price of $0.33 per share, in three tranches scheduled for December 23, 2020, January 15, 2021, and February 1, 2021. The Company received $0.9 million from Wingfield through December 31, 2020.

During the year ended December 31, 2020, the Company sold 8,645,918 Tonogold common shares at an average price of $0.37 per share for gross proceeds of $2.9 million (plus a $0.2 million related receivable).

At December 31, 2020, the Company has total investments in Tonogold of 13,131,860 common shares valued at $3.9 million. The fair value of the common shares is based on the $0.30 closing share price (OTC: TNGL) on December 31, 2020. See Note 15, Fair Value Measurements, and Note. 22, Subsequent Events, to the consolidated financial statements.

Tonogold Note Receivable – The consideration received for Tonogold’s acquisition of Comstock LLC included the Note. The Note had an initial principal balance of $5,475,000 when the Note was issued on March 20, 2020. The outstanding principal balance was $4,475,000 when the Purchase Agreement closed on September 8, 2020. The Note has an interest rate of 12% per annum, with interest payable monthly. The outstanding principal balance is due on September 20, 2021, unless extended by the Company.

The Note includes the following features: 1) conversion feature allowing the Company, in its option, to elect payment in Tonogold common shares upon certain events; 2) change of control redemption right allowing the Company to redeem the Note in cash at a 125% premium; 3) event of default redemption right allowing the Company the right to elect redemption of the Note in cash at a 118% premium; and 4) an option for the Company to extend the maturity date. On September 8, 2020, the fair value of the Note was $6.1 million, based on a Monte Carlo model with various inputs, including the Tonogold common share price of $0.35, volatility of 96%, risk-free rate of 0.15%, cost of debt of 11.12%, required conversion premium of 30%, probability of prepayment of 5%, probability of change of control of 5% and probability of default of 27%. On December 31, 2020, the fair value was updated with a Tonogold common share price of $0.30, resulting in a fair value of $5.5 million, and a loss on change in fair value of $0.6 million recorded in other expense in the consolidated statements of operations.

Contingent Forward – The Note was previously accounted for as a contingent forward. In evaluating the accounting for the Note, the Company determined that, although the Note represents legal form debt, it should be evaluated and accounted for based on the substance of the arrangement rather than its legal form. The Company concluded that the Note represented a contingent forward for the Company’s right to sell its membership interests in Comstock LLC to Tonogold at a future date in exchange for cash consideration or common stock of Tonogold if certain options were elected (the “Contingent Forward”). The Company identified the Contingent Forward as a derivative which was adjusted to fair value at the end of each reporting period. The Company recorded the $1.2 million initial fair value of the Contingent Forward in additional paid in capital since Tonogold, a related party at the time, owned 50% of the membership interests of Comstock LLC. The fair value of the contingent forward asset on September 8, 2020 was $2.0 million, and was an offset to the consideration received for the sale of Comstock LLC recorded on September 8, 2020. Upon closing of the Purchase Agreement, the contingencies were eliminated, and the Note was recorded as a current asset on the consolidated balance sheets.

Mineral Exploration and Mining Lease for Storey County Properties

On September 16, 2019, as amended and restated on December 23, 2019, the Company, as lessor, entered into a 10-year, renewable mineral exploration and mining lease with Tonogold for certain mineral properties owned or controlled by the Company in Storey County, Nevada (the “Exploration Lease”). The Exploration Lease grants Tonogold the right to use these properties for mineral exploration and development, and ultimately the production, removal and sale of minerals and certain other materials.

Tonogold pays the Company a quarterly lease fee of $10,000. The lease fee escalates 10% each year on the anniversary date of the Exploration Lease. Tonogold also reimburses the Company for all costs associated with owning the properties, including lease payments for underlying, third-party leases. The Exploration Lease also provides for royalty payments when mining operations commence. For the first year following the commencement of mining, royalties will be paid to the Company at the rate of 3.0% of NSR for the properties. The rate will be reduced to 1.5% of NSR thereafter.

The Exploration Lease provides that Tonogold’s exploration spending, permitting, and engineering commitments will be a cumulative total of at least $20.0 million over 20 years, at the rate of $1.0 million per year. Tonogold also committed to specific milestones for issuing technical reports on their results, culminating in a published Feasibility report by the 20^th anniversary of the Exploration Lease. Tonogold is currently conducting exploration drilling targeting the Gold Hill and Occidental targets in Storey County.

The initial term of the Exploration Lease (the “Exploration Term”) is 5 years, with Tonogold committing to spending at least $5.0 million for exploration, and to producing an NI 43-101 compliant technical report by the end of the 5^th year. The Exploration Lease will automatically renew for a second, 10-year term (the “Development Term”) as long as the commitments have been met. During the Development Term, Tonogold is committed to $10.0 million of additional expenditures for exploration, development, and technical reporting, and to producing an economically viable mine plan and an NI 43-101 compliant Pre-Feasibility report before the agreement’s 15^th anniversary.

The Exploration Lease will automatically renew for a third, five-year term (“the Planning Term”) provided that the prior spending and reporting commitments have been met. During the Planning Term, Tonogold is committed to $5.0 million in additional expenditures for exploration, development, permitting, and technical reporting. By the 20^th anniversary of the agreement, Tonogold also commits to producing an economically viable mine plan, and an NI 43-101 compliant Feasibility Report, and will produce a mutually agreed-upon schedule for placing the properties into production.

If the spending and other commitments have been met during the Planning Term, the Exploration Lease will automatically continue in effect as long as development and permitting activities continue in compliance with a mutually agreed-upon schedule, or for so long as minerals are produced from the properties or from adjacent properties (the “Extended Term”).

Lease Option Agreement for the American Flat Processing Facility

On November 18, 2019, the Company, as lessor, entered into the Lease Option Agreement to lease its permitted American Flat property, plant and equipment to Tonogold for crushing, leaching and processing material from the Lucerne Mine. Under the Lease Option Agreement, Tonogold is required to reimburse the Company approximately $1.1 million in expenses per year to maintain the option. If the option is exercised, Tonogold will then pay the Company a rental fee of $1.0 million per year plus $1 per processed ton, in addition to all the costs of operating and maintaining the facility, up to and until the first $15.0 million in rental fees are paid, and then stepping down to $1.0 million per year and $0.50 per processed ton for the next $10.0 million paid to the Company. The Lease Option Agreement remains in effect, but has not yet been exercised.

Reimbursements

Total reimbursements under the three Tonogold agreements, including, but not limited to, all costs associated with owning the properties, lease and option payments and lease income for the years ended December 31, 2020 and 2019 were $2.9 million and $2.2 million, respectively.

Mercury Clean Up, LLC Pilot and Joint Venture Agreements

The MCU Agreement

On June 21, 2019, as amended July 3, 2019, April 10, 2020 and December 4, 2020, the Company entered into a Mercury Remediation Pilot, Investment and Joint Venture Agreement (the “MCU Agreement”) with Mercury Clean Up, LLC (“MCU”). Pursuant to the MCU Agreement, the Company committed $2.0 million of capital contributions that was payable in cash of $1.15 million and shares of the Company’s common stock of $0.85 million, in exchange for 15% of the fully-diluted membership interest of MCU and the first right to participate in 50% of the equity of any future joint ventures formed with MCU (the “Joint Ventures”).

Based on successful proof of technical and commercial viability, the Company has the rights to coordinate an additional $3.0 million in financing for the Joint Ventures, and MCU would then contribute the 25-ton-per-hour system, based on an agreed upon capital plan (equipment and working capital uses) and a time-specific project schedule, including the timing of the capital needs. Completing $2.0 million of such financing entitles the Company to an additional 10% of the fully-diluted membership interests of MCU.

MCU Investment

Cash – The Company made cash payments to MCU of $750,000 during 2019, and $400,000 during 2020, bringing the total to $1,150,000 in cash and satisfying the required cash contribution.

Shares of Common Stock – The MCU Agreement contains a provision whereby the Company is required to issue additional shares of its common stock for the difference between the value of the Company’s common shares received by MCU and the required stock-based investment of $850,000. On July 18, 2019, the Company issued 900,000 shares of restricted common stock with a fair value of $751,050 to fund the MCU capital contribution. During the three months ended June 30, 2020, MCU sold the 900,000 common shares for net proceeds of $465,127, reducing the remaining make-whole liability to $384,873. On May 15, 2020, the Company issued MCU an additional 625,000 shares of restricted common stock with a fair value of $314,687.

On December 4, 2020, the 625,000 remaining common shares became transferable, and MCU and the Company agreed that MCU received consideration in excess of the required $2.0 million, and the Company became the fully vested owner of 15% of the fully-diluted membership interest of MCU and became entitled to 50% participation in the Joint Ventures. As of December 31, 2020, the total purchase price of $2.0 million, paid in cash and stock, is accounted for as Investment in Mercury Clean Up, LLC, a non-current asset on the consolidated balance sheets. The investment is accounted for under the equity method.

When liquidated by MCU, the value received for the remaining shares in excess of the required investment will be applied to the Company’s investment in the Joint Ventures. As of December 31, 2020, the excess value was $265,127, accounted for as Derivative asset related to MCU, a current asset on the consolidated balance sheets.

MCU Philippines, Inc. Investment

On April 10, 2020, the Company entered into a second amendment of the MCU Agreement, wherein MCU and the Company have identified an opportunity to remediate mercury in the Philippines, specifically in the province of Davao d’ Oro (the “Philippine Opportunity”). In July 2020, MCU formed MCU Philippines, Inc. (“MCU-P”) to engage in the Philippine Opportunity.

On December 4, 2020, the Company became fully entitled to 50% participation in the Joint Ventures, was issued 50% of the common stock of MCU-P, and the Company’s chief executive officer was appointed a director of MCU-P.

During 2020, the Company made cash loans to MCU-P of $1.2 million, in the form of senior secured interest free loans, and committed up to another $1.8 million in secured loans. At such time as the Company’s loans to MCU-P reach $2.0 million, the Company will receive an additional 10% membership interest in MCU.

Because the transaction had not previously closed, these amounts were recorded as Deposits for Investment in MCU Philippines, Inc on the consolidated balance sheets at September 30, 2020. As of December 4, 2020, when the Company was granted 50% participation in the Joint Ventures, the deposits were recorded as a senior secured interest free note receivable due December 31, 2024. At December 31, 2020, the fair value of the note receivable from MCU-P is valued at the $1,080,000 face amount less a discount of $319,060, representing the present value of the interest free benefits of the note. The discounted present value is based on the alternative borrowing cost of MCU-P, considering market data for companies with comparable credit ratings. As of December 31, 2020, the fair value of the note receivable is recorded in Notes receivable and advances, net, and an amount equal to the original unamortized discount is included in Investment in MCU Philippines, Inc., a non-current asset on the consolidated balance sheets at December 31, 2020. The investment is accounted for under the equity method. See Note 15, Fair Value Measurements, to the consolidated financial statements.

Pelen Limited Liability Company Membership Interest

Investment in Pelen Limited Liability Company Membership Interest

Pelen owns 100% of the historic Sutro Tunnel Company (“Sutro”) which, in turn, owns the Sutro townsite, the historic six-mile Sutro Tunnel, the federal land grants and mining rights extending 1,000 feet on each side of the six-mile tunnel, the rights to the tunnel’s water, and patented mining claims and private lands on Gold Hill.

In January 2018, the Company issued 295,082 shares of restricted common stock as initial payment to acquire 25% of the total membership interests of Pelen. In November 2018, the Company issued 351,637 shares of restricted common stock as additional shares based on the shortfall of the aggregate proceeds for the initial shares.

On April 24, 2020, the Company completed the acquisition of 25% of the total membership interests of Pelen, settling all remaining amounts due. The total purchase price was $0.6 million, paid in stock and cash and recorded as Investment in Pelen Limited Liability Company, a non-current asset on the consolidated balance sheets at December 31, 2020. The investment is accounted for under the equity method.

Purchase Option for Pelen Limited Liability Company

On September 1, 2020, the Company paid $100,000 for a one-year option (the “Option”) to purchase the remaining 75% of the membership interests of Pelen, for a purchase price of $3,750,000. The Option can be extended for a second year for an additional option fee of $100,000, with the purchase price increased to $4,400,000; and can be extended for a third year for another additional option fee of $100,000, with the purchase price increased again to $5,000,000. If the Option is exercised, half of all option payments will be credited to the purchase price. The $100,000 option payment is included in Prepaid expenses and other current assets on the consolidated balance sheets at December 31, 2020.

Sutro Tunnel Company Mineral Exploration and Mining Lease

On September 1, 2020, the Company entered into a new mineral exploration and mining lease with Sutro, which is wholly-owned by Pelen. The lease covers patented mining claims, exploration rights, and access over and through town lots in Gold Hill and Virginia City, Nevada. The lease also provides the right to explore the Sutro Tunnel. The previous lease with Sutro expired December 31, 2017, and had been extended on a month-to-month basis.

Sierra Springs Opportunity Fund, Inc. Investment

Investment in Sierra Springs Opportunity Fund Inc.

During 2018 and 2019, Comstock’s Board of Directors approved the Company entering into an investment in a certain opportunity zone fund in northern Nevada. During 2019, Comstock invested $335,000 into a qualified opportunity zone fund Sierra Springs Opportunity Fund, Inc. (“SSOF”). Sierra Springs Enterprises, Inc. (“SSE”) is wholly owned by SSOF. It is anticipated the Company could own approximately 9% of SSOF upon issuance by SSOF of 75.0 milli

on authorized shares to investors. The Company’s chief executive officer is the president and a director of SSOF and an executive and a director of SSE.

Comstock’s $335,000 investment in SSOF is recorded on the consolidated balance sheets at December 31, 2020, and 2019, as Investment in Sierra Springs Opportunity Fund, Inc., a non-current asset. The investment is accounted for at cost less impairment because there is no ready market for the investment units. Management has identified no events or changes in circumstances that might have had a significant adverse effect on the carrying value of the investment. Management concluded it was impractical to estimate fair value due to the early stage of the fund and the absence of a public market for its stock.

Silver Springs Properties

On September 26, 2019, as amended on November 30, 2019, December 26, 2019, March 31, 2020, June 30, 2020, October 1, 2020, and December 30, 2020, the Company entered into agreements with SSE to sell the Company’s two Silver Springs properties (the “Silver Springs Properties”), including 98 acres of industrial land and senior water rights for $6.5 million and 160 acres of commercial land along with its rights in the membership interests in Downtown Silver Springs (“DTSS”) for $3.6 million. Accordingly, the properties are classified as assets held for sale on the consolidated balance sheets at December 31, 2020 and 2019.

On December 9, 2019, the Company purchased 100% of the membership interests in DTSS, including 160 acres of centrally located land in Silver Springs, Nevada, and related approvals for a commercial downtown development. The DTSS acquisition was accounted for as an asset acquisition, as DTSS did not meet the definition of a business. The Company paid total consideration of $4.1 million. Based on the agreement with SSE to sell the Silver Springs Properties, the carrying value of the land was adjusted to the contract value of $3.6 million less estimated costs to sell, resulting in an impairment of $0.5 million, charged to other expense in the consolidated statements of operations for the year ended December 31, 2019.

As of December 31, 2020, the Company has received deposits in cash and escrow from SSE totaling $0.4 million towards the purchase of the Silver Springs Properties, recorded in Deposits under current liabilities on the consolidated balance sheets. The transactions are expected to close during 2021.

Advance to Sierra Springs Opportunity Fund Inc.

As of December 31, 2020, the Company had advanced SSOF $1,650,000, for deposits and payments on land and other facilities related to investments in qualified businesses in the opportunity zone. The advances are expected to be repaid during 2021, upon the sale of the Company’s Silver Springs Properties to SSE.

As of December 31, 2020, the advances totaling $1,650,000 are recorded as a current asset on the consolidated balance sheets in Notes receivable and advances, net. The Company’s maximum exposure to loss as a result of its involvement with SSOF and SSE is limited to the total of its current investment in and advances to SSOF. See Note 22, Subsequent Events, to the consolidated financial statements.

LINICO Corporation Investment

On February 15, 2021, the Company, Aqua Metals Inc., a Delaware corporation (“AQMS”) and LINICO Corporation, a Nevada corporation (“LiNiCo”) entered into a Series A Preferred Stock Purchase Agreement (the “LiNiCo Stock Purchase Agreement”). Pursuant to the LiNiCo Stock Purchase Agreement, and subject to the satisfaction or waiver of specified conditions, the Company will make an initial purchase of 6,250 shares of LINICO Series A Convertible Preferred Stock (“Series A Preferred”) in exchange for 3,000,000 shares of Company restricted common stock and $4.5 million in cash payments. The Series A Preferred shares will have a conversion price of $1.25 per share.

Pursuant to the LiNiCo Stock Purchase Agreement, the Company and AQMS entered into warrant agreements wherein the Company has the right to purchase 2,500 shares of Series A Preferred for a total exercise amount of $2.5 million and AQMS has the right to purchase 500 shares of Series A Preferred for a total exercise amount of $500,000. The Series A Preferred received by the Company pursuant to the exercise of the warrant may be converted into common stock at conversion price of (i) $1.25, if exercised on or before February 15, 2022 or (ii) $2.00, if exercised after February 15, 2022.

Pursuant to certain terms and conditions of an industrial lease between LiNiCo and Aqua Metal Reno Inc., entered into on February 15, 2021 (the “LiNiCo Lease Agreement”), the Company also may exercise the right to purchase the land, buildings and related improvements located at 2500 Peru Drive, McCarran, Nevada 89343 for (i) $14,250,000, if the purchase is made on or prior to October 1, 2022 or (ii) $15,250,000, if the purchase is made after October 1, 2022, See Note 22, Subsequent Events to the consolidated financial statements).

COVID-19

The outbreak of the coronavirus (aka “COVID-19”) has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures, including the implementation of social distancing measures, quarantine periods and travel bans, have caused material disruptions to many businesses and negatively impacted economic activities. Global equity markets have experienced significant volatility. Governments and their central banks have reacted with significant fiscal and monetary interventions designed to mitigate the impacts and stabilize economic conditions. The impact and ultimate duration of the COVID-19 outbreak is currently unknown, as is the efficacy of these governmental interventions.

On January 11, 2021 Nevada Governor Steve Sisolak and the Nevada Department of Health and Human Services, Division of Public and Behavioral Health, Nevada State Immunization Program (NSIP) announced the NSIP is working with Nevada’s local health departments, hospitals, and clinics to distribute COVID-19 vaccines as they become available. NSIP is identifying facilities that have the capacity to properly stock, administer, and maintain COVID-19 vaccine and meet additional federal and state requirements.

Governor Sisolak signed Emergency Directive 033 that became effective on October 1, 2020, to facilitate larger gatherings and events while still diminishing personal contact and increasing the level of disinfection in high use areas. The controlling guidance below accompanies the requirements set forth in Directive 033. In order to minimize the risk of contracting and spreading the virus, minimum strict adherence to safety and infection prevention measures must be followed. All event venues, gathering organizers, hosts and individuals throughout the State must be fully compliant to ensure a successful next step in our reopening. The controlling guidance below is for planning, coordinating, or hosting in-person gatherings (e.g., events, conventions, corporate meetings, services, ceremonies and celebrations). These gatherings may take place in outdoor or indoor venues, including but not limited to, community centers, fellowship halls and gatherings spaces in faith-based buildings, halls, rental space in event centers, or outdoor event spaces. The guidance includes, but is not limited to, implementing 6-foot physical distancing practices, wearing face coverings at all times, conducting health screenings for all events, employees, and visitors by measuring temperature, and assessing detectible symptoms, among other required practices.

The Company is operating in alignment with these guidelines for protecting the health of our employees, partners, and suppliers, and limiting the spread of COVID-19, that have already resulted in delays of MCU’s plans for commencing mercury recovery testing on the Comstock District and in the Philippines. It is not currently possible to reliably estimate the length and severity of these delays and the impact on the Company’s financial condition, and that of its subsidiaries and partners, in future periods. See Note 2, Significant Transactions, to the consolidated financial statements.

Outlook

The Company has approved a three-year, strategic plan with specific performance objectives designed to deliver per-share value over the next three years, while positioning the Company for continued growth beyond 2023. The plan objectives include establishing and growing the value of our existing mineral properties and royalty stakes, commercializing and growing a global, ESG-compliant, profitable mercury remediation business, and separately monetizing over $25 million in non-strategic assets for funding this growth. The specific performance objectives include:

Commercialize a global, ESG-compliant, profitable, mercury remediation and other critical mineral systems:

• Establish the technical efficacy of MCU’s Comstock Mercury System, and protect the intellectual property;
• Deploy and operate the first international mercury remediation project by deploying MCU’s second and third mercury remediation systems into the Philippines;
• Identify, evaluate and prioritize a pipeline of potential mercury remediation projects; then deploy the third and fourth mercury remediation projects, producing extended, superior cash flow returns; and
• Assess and acquire accretive, ESG-based, strategic and critical mineral expansion opportunities.

Establish and grow the value of our mineral properties:

• Establish the Dayton Resource area’s maiden, stand-alone mineral resource estimate;
• Expand the Dayton-Spring Valley Complex through exploration drilling and geophysical modelling;
• Develop the expanded Dayton-SV Complex toward full economic feasibility, supporting a decision to mine;
• Entitle the Dayton-SV Complex with geotechnical, metallurgical, environmental studies and permitting; and
• Validate the Comstock NSR Royalty portfolio (e.g., Lucerne Mine, Occidental Lode, Comstock Lode).

Monetize non-strategic assets and build a quality organization:

• Monetize our third-party, junior mining securities responsibly, for $12.5 million or more;
• Monetize our non-mining assets for $12.5 million, excluding the Gold Hill Hotel;
• Grow the value of our Opportunity Zone investments to over $30 million; and
• Deploy a systemic organization, capable of accelerating growth and handling complexity.

The plan is designed to deliver per-share value over the next three years, while positioning the Company for continued growth.

Our annual operating expenditures, excluding depreciation, are planned at approximately $6.0 million, with approximately $2.0 million of that amount being reimbursed under the various Tonogold agreements, resulting in net operating expenses for 2021, of approximately $4.0 million.

During the second quarter of 2021, the Company expects to close the sale of certain properties located in Silver Springs, Nevada, to Sierra Springs Enterprises Inc., for total proceeds of approximately $10.0 million. The agreements, as amended, included $0.4 million of non-refundable deposits made and released to the Company from escrow. The Company will use a portion of the proceeds from the sale to pay the outstanding $3.3 million of its three remaining unsecured promissory notes entered into on August 6, 2020 and two additional promissory notes, entered into on December 4, 2020, with the Concorde Trust and GHF Inc. (the “Promissory Notes”), plus accrued interest.

The Company’s 2021 plans also include updating the Dayton’s current resource estimate and continuing southerly into Spring Valley with incremental exploration programs that include recently completed geophysical surveys, surface exploration and definition drilling of targets identified by the geophysical surveys, surface mapping, prior drilling and deeper geological interpretations that all lead to publishing a new, SK-1300 compliant, mineral resource estimate.

Tonogold is currently permitting a drilling program for the Storey County exploration targets, including the leased mineral claims, just north of the Lucerne area, and announced on September 8, 2020, the commencement of a fully funded drilling program, estimated at $7 million, in one of the most historically significant portions of the Comstock Lode. Tonogold’s initial drilling will focus on the nearly two-mile mineralized strike length where most of the historical production was located, and some of the highest known gold and silver grades were encountered on the Comstock Lode and the Occidental Lode.

The Company’s remaining 2021 plans include advancing the investment in and the commercialization of MCU’s mercury remediation processing technologies. The Company expects to increase its funding of MCU-P to $2.0 million during the first quarter of 2021, meaning, at that time, it will increase its ownership of MCU to 25%, in addition to its 50% ownership of MCU-P, the first joint venture in the Philippines.

MCU-P has delivered its first international system to the Philippines and plans to commence reclamation operations in March 2021. MCU-P will operate under a joint venture agreement with Clean Ore Solutions, a Philippine Company, for mercury extraction and remediation of Mount Diwalwal and the Naboc River, one of the most mercury polluted, gold mining regions in the world. This represents the first real international opportunity for large-scale mercury remediation and environmental reclamations, using MCU’s systems, with the objective of establishing MCU as a leader in mercury remediation projects and, in particular, contamination caused by artisanal and small-scale miners.

MCU will continue trial operations on the Comstock throughout 2021, at the Company’s American Flat processing facility, to validate and fine-tune the mercury extraction and remediation process, with the objective of reclaiming and remediating the Company’s existing properties within the CRMS, enhancing the values of, and evaluating the potential economic feasibility for, these properties and creating new global growth opportunities in mercury remediation by demonstrating MCU’s technological and operational effectiveness, efficiency, and feasibility.

Equity Raises

During the years ended December 31, 2020 and 2019, the Company issued 7,744,277 and 12,168,834 shares of common stock, respectively. During 2020, 5,921,219 common shares were issued through equity issuance and private placement agreements, at an average price per share of $0.73 and gross proceeds of $4.3 million ($4.1 million, net of issuance fees). During 2019, 8,282,124 common shares were issued through equity issuance and private placement agreements at an average price per share of $0.54 and gross proceeds of approximately $4.5 million ($3.8 million, net of issuance fees). Common shares outstanding at December 31, 2020 and 2019 totaled 34,980,766 and 27,236,489, respectively. See Item 1, Business, Financing Events, and Note 14, Equity, to the consolidated financial statements.

Comparative Financial Information

Below we set forth a summary of comparative financial information for the years ended December 31, 2020 and 2019.

The Company ceased processing material from its leach pad in December 2016, resulting in no mining revenues for the years ended December 31, 2020 and 2019.

Real estate revenue increased $22,068 for the year ended December 31, 2020, as compared to the year ended December 31, 2019, primarily related to an increase from the Daney Ranch lease signed September 1, 2020, and higher rental utilization on other properties, partially offset by a decrease in rentals of our metallurgical labs at the Company’s processing site and a decreased rental rate with the Gold Hill Hotel lessees.

Real estate operating costs increased $764,765 for the year ended December 31, 2020, as compared to the year ended December 31, 2019, substantially due to higher depreciation expense of $683,173 associated with recognizing the depreciation that would have been charged for previous periods while the Gold Hill Hotel and Daney Ranch properties were classified as assets held for sale. In addition, $38,184 of current period depreciation was recorded for those properties for the year ended December 31, 2020. Other depreciation, maintenance and utility costs accounted for the remainder of the increase.

Costs applicable to mining revenue decreased by $1.3 million for the year ended December 31, 2020, as compared to the year ended December 31, 2019 as a result of certain assets becoming fully depreciated, and the sale of Comstock LLC. These costs consist solely of depreciation expense on temporarily idled mining equipment, processing facilities and heap leach pads.

Exploration and pre-development costs increased by $0.1 million for the year ended December 31, 2020. as compared to the year ended December 31, 2019, primarily due to the cost of conducting an airborne geophysical survey of the Company’s resource areas and exploration targets, partially offset by lower costs for permits, licenses and fees, water payments and payroll.

Mine claim and costs decreased by $38,314 for the year ended December 31, 2020 compared to 2019, primarily due to timing of reimbursements from Tonogold.

Environmental and reclamation costs increased by $0.4 million for the year ended December 31, 2020, as compared to the year ended December 31, 2019, primarily due to a reduction of approximately $0.4 million in the reclamation obligation estimate in 2019, resulting from reclamation activities completed by the Company.

General and administrative expenses increased by $0.2 million for the year ended December 31, 2020, as compared to the year ended December 31, 2019. The increase is a result of higher director fees, and insurance costs.

The Company recorded a gain of $18.3 million on the sale and deconsolidation of Comstock LLC during the year ended December 31, 2020, the entity that owns the Lucerne Mine, resource area and related permits. There was no comparable prior year transaction.

Other income of $2.6 million for the year ended December 31, 2020 consisted of increases in the fair values of the contingent forward asset of $765,880 and derivative asset related to MCU of $265,127, net gains and changes in fair value of Tonogold securities of $620,537, favorable changes in fair value of make whole obligations and reimbursements related to investments in MCU and Pelen of $496,604, and other income totaling $1.1 million from the sum of interest income, qualified Paycheck Protection Program proceeds, accounts payable settlements, and other items, partially offset by a decrease in the fair value of the Tonogold Note of $642,997.

Other income was $2.4 million for the year ended December 31, 2019, primarily resulting from a $2.2 million gain

On termination of an option agreement with Tonogold and a $1.5 million increase in the fair value of Tonogold CPS, partially offset by unfavorable changes in fair value of the MCU make whole obligation of $452,740, preferred stock issuance costs of $432,000, and other net expenses totaling $369,881.

Interest income increased by $0.4 million for the year ended December 31, 2020, as compared to the year ended December 31, 2019, primarily due to interest received on the Tonogold Note.

Interest expense decreased by $0.5 million for the year ended December 31, 2020, as compared to the year ended December 31, 2019, primarily due to lower average debt outstanding, including the early retirement of the Debenture in August 2020, partially offset by a higher interest rate and discounts on the Promissory Notes, and lower interest expense reimbursements.

Net income was $14.9 million for the year ended December 31, 2020, as compared to a net loss of $3.8 million for the years ended December 31, 2019. The increase of $18.7 million resulted from the gain on sale and deconsolidation of Comstock LLC of $18.3 million and the $0.6 million increase in other income and expense, net described above, partially offset by the $0.2 million increase in total costs and expenses described above.

Liquidity and Capital Resources

The consolidated financial statements are prepared on the going concern basis of accounting which assumes the realization of assets and the satisfaction of liabilities in the ordinary course of business. The Company’s current capital resources include cash and cash equivalents and other net working capital resources, planned sales of Tonogold securities, and proceeds from the planned sale of non-mining assets, primarily the Silver Springs Properties.

The Company has recurring net losses from operations and an accumulated deficit of $221.0 million as of December 31, 2020. For the year ended December 31, 2020, the Company generated net income of $14.9 million and used $3.8 million of cash in operating activities. As of December 31, 2020, the Company had cash and cash equivalents of $2.4 million. Through December 31, 2020, the Company had converted 3.9 million of the 6.1 million in Tonogold CPS held by the Company, in exchange for 21,777,778 common shares of Tonogold and received $2.6 million in proceeds from redemption of the remaining CPS, representing 120% of the remaining face value. The Company also realized approximately $3.2 million in cash proceeds from the sale of 8,645,918 Tonogold common shares at an average price of approximately $0.37 per share. At December 31, 2020, the Company holds 13,131,860 Tonogold common shares with an estimated value of $3.9 million, in addition to the $4.5 million face value of the Note, with payment due to the Company on September 20, 2021.

At December 31, 2020, the Company had debt obligations with a face value of $3.6 million with maturities on or before November 1, 2021.

On April 30, 2020, the Company received a Paycheck Protection Program (“PPP”) grant of $0.3 million, as part of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), and the rules promulgated thereunder. The amounts received were used to fund payroll costs and the Company expects all proceeds received to be forgiven.

The Company intends to fund its operations over the next twelve months from existing cash and cash equivalents, and proceeds from the Offering, planned sales of Tonogold common shares, the repayment of the Tonogold Note and the planned sale of the Silver Springs Properties. These expected sources of funds are significantly in excess of current debt obligations and cash expected to be used in operating activities. 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 and other means, there is no assurance the Company will be able to obtain additional equity capital or other financing, if needed. However, as a result of the funding sources described above, management believes the Company will have sufficient funds to sustain its operations during the 12 months following the date of issuance of the consolidated financial statements included herein, including financing required for the LiNiCo transactions described below.

On February 15, 2021, the Company filed a current report on Form 8-K regarding an investment in LINICO Corporation (“LiNiCo”) pursuant to the Series A Preferred Stock Purchase Agreement and related transactions. See Note 22, Subsequent Events, to the consolidated financial statements.

On March 2, 2021, the Company entered into equity purchase agreements to issue and sell 4.0 million shares of common stock at a price of $4.00 per share. The offering of the shares closed on March 4, 2021, resulting in expected net offering proceeds of $15.0 million. See Item 1, Financing Events, and Note 22, Subsequent Events, to the consolidated financial statements.

On March 4 2021, the Company repaid $3.2 million, representing all amounts outstanding under the Promissory Notes, including principal, earned original issue discount and accrued interest expense. See Note 11, Long-Term Debt, and Note 22, Subsequent Events, to the consolidated financial statements.

On March 4, 2021, the Company made an $812,500 payment to Northern Comstock LLC representing, pursuant to the Northern Comstock operating agreement, a one-time acceleration of required capital contributions when the Company receives net cash proceeds from sources other than operations that exceed $6,250,000. See Item 2, Properties, Northern Comstock LLC, and Note 21, Related Party Transactions, and Note 22, Subsequent Events, to the consolidated financial statements.

Net cash used in operating activities for the year ended December 31, 2020, was $3.8 million as compared to net cash used in operating activities of $2.3 million for the prior year. The Company’s use of cash in the years ended December 31, 2020 and 2019, was primarily related to general and administrative, exploration, mine claim cost and environmental expenditures. The 2020 increase in cash used primarily resulted from 2019 decreases in prepaid expenses and increases in accrued expenses.

Net cash provided by investing activities for the year ended December 31, 2020, was $3.2 million, primarily from $2.9 million in proceeds from the sale of Tonogold common shares, $2.6 million in proceeds from redemption of the remaining CPS, representing 120% of the face value, $1.1 million in payments received from Tonogold, and $0.2 million of proceeds from deposits and sale of mining and non-mining assets, partially offset by advances made to SSOF of $1.7 million, investments in and loans to MCU-P of $1.2 million, investments in MCU of $0.4 million, payments on Pelen make-whole liability of $0.2 million, and option payments to purchase the remaining membership interests in Pelen of $0.1 million.

Net cash provided by investing activities for the year ended December 31, 2019, was $2.6 million, primarily from $5.9 million in proceeds from Tonogold for payments toward the purchase of Comstock LLC and $0.3 million in deposits for the sale of the Silver Springs Properties, offset by $2.4 million in property purchases, $0.8 million in deposits made for the investment in MCU and $0.3 million for the investment in SSOF.

Net cash provided by financing activities for the year ended December 31, 2020, was $2.0 million, primarily resulting from net proceeds from the sale of the Company’s common stock of $4.2 million and proceeds from issuance of Promissory Notes of $5.5 million, offset by principal payments on long term debt of $7.6 million and common stock issuance costs of $0.1 million. Net cash provided by financing activities for the year ended December 31, 2019, was $0.2 million, primarily due to net proceeds from the sale of common stock of $4.1 million and issuance of convertible preferred stock of $1.1 million, offset by principal payments on long-term debt of $4.7 million and common stock issuance costs of $0.3 million.

Future operating expenditures above management’s expectations, including exploration and pre-development expenditures, in excess of planned proceeds from sales of Tonogold common shares, the Tonogold Note and the Silver Springs Properties, amounts raised from the issuance of equity under the S-3 Shelf, or declines in the market value of properties held for sale or the share price of the Company’s common stock, would adversely affect the Company’s financial condition, results of operations and cash flows. If the Company was unable to obtain necessary additional funds, this could have an immediate material adverse effect on liquidity and 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 the Company would be able to take any such actions on favorable terms, in a timely manner, or at all.

Critical Accounting Estimates

The SEC has requested that all registrants address their most critical accounting policies. The SEC has indicated that a “critical accounting policy” is one which is both important to the representation of the registrant’s financial condition and results and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. We base our estimates on past experience and on various other assumptions our management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results will differ, and may differ materially from these estimates under different assumptions or conditions. Additionally, changes in accounting estimates could occur in the future from period to period. Our management has discussed the development and selection of our most critical financial estimates with the Audit and Finance Committee of our Board of Directors. The following paragraphs identify our most critical accounting policies:

Determination of Fair Values

Management determines the fair value of a financial instrument based on the amount that could be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value is calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity. In addition, the fair value of liabilities includes consideration of non-performance risk, including the party’s own credit risk.

Impairment of Mineral Rights and Properties, Plant and Equipment

The Company assesses its mineral rights and properties, plant and equipment for possible impairment whenever events or changes in circumstances indicate the carrying value of the assets may not be recoverable. Such indicators include changes in the Company’s business plans, changes in precious metal prices and significant downward revisions of estimated mineralization quantities. If the carrying value of an asset exceeds the future undiscounted cash flows expected from the asset, an impairment charge is recorded for the excess of carrying value of the asset over its estimated fair value.

Determination as to whether and how much an asset is impaired involves management estimates on highly uncertain matters such as future commodity prices, the effects of inflation and technology improvements on operating expenses, and the outlook for global or regional demand conditions for gold and silver. However, the impairment reviews and calculations are based on assumptions that are consistent with the Company’s business plans and long-term investment decisions. Management does not believe there are impairments present in mineral rights and properties, plant, and equipment.

Reclamation and Remediation Obligations

Reclamation costs are allocated to expense over the life of the related assets and are periodically adjusted to reflect changes in the estimated present value resulting from the passage of time and revisions to the estimates of either the timing or amount of the reclamation and remediation costs. Reclamation obligations are based on when the spending for an existing environmental disturbance will occur. We review, on at least an annual basis, the reclamation obligation at each mine site in accordance with guidance for accounting for asset retirement obligations.

Reclamation obligations for inactive mines are accrued based on management’s best estimate of the costs expected to be incurred at a site. Such cost estimates include, where applicable, ongoing care, maintenance and monitoring costs. Changes in estimates at inactive mines are reflected in earnings in the period an estimate is revised.

Accounting for reclamation and remediation obligations requires management to make estimates unique to each mining operation of the future costs we will incur to complete the reclamation and remediation work required to comply with existing laws and regulations. Actual costs incurred in future periods could differ from amounts estimated. Additionally, future changes to environmental laws and regulations could increase the extent of reclamation and remediation work required. Any such increases in future costs could materially impact the amounts charged to earnings for reclamation and remediation.

Income Taxes

Our income tax expense and deferred tax assets and liabilities reflect management’s best assessment of estimated future taxes to be paid. Deferred income taxes arise from temporary differences between the tax and financial statement recognition of revenue and expense. In evaluating our ability to recover our deferred tax assets, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. In projecting future taxable income, we develop assumptions including the amount of future state, federal and foreign pretax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates that we are using to manage the underlying businesses. Valuation allowances are recorded as reserves against net deferred tax assets by the Company when it is determined that net deferred tax assets are not likely to be realized in the foreseeable future.

The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations. Income tax positions must meet a more-likely-than-not recognition threshold to be recognized.

Item 7a. Quantitative and Qualitative Disclosures about Market Risk

Metal Price – Changes in the market price of gold may significantly affect our profitability and cash flow. Gold prices fluctuate widely due to factors such as: demand, global mine production levels, investor sentiment, central bank reserves, and the value of the U.S. dollar.

Interest Rate Risk – Our exposure to market risk is confined to our cash and cash equivalents, all of which have maturities of less than three months and bear and pay interest in U.S. dollars. Since we invest in highly liquid, relatively low yield investments, we do not believe interest rate changes would have a material impact on us.

Our risk associated with fluctuating interest expense is limited to other short-term obligations we may incur in our normal operations. 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.

—- See full 2020 Form 10K here —-