10-K 1 lode-2014x1231x10k.htm 10-K LODE-2014-12.31-10K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________________________________________________________ 
FORM 10-K
_______________________________________________________________________ 
ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014  
or 
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 001-35200
  COMSTOCK MINING INC.
(Exact name of registrant as specified in its charter)
Nevada
1040
65-0955118
(State or other jurisdiction of
incorporation or organization)
(Primary Standard Industrial
Classification Code Number)
(I.R.S. Employer Identification
No.)
P.O. Box 1118
Virginia City, NV 89440
(775) 847-5272
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Securities Registered pursuant to Section 12(b) of the Act: Common Stock, par value $.000666 per share
Securities Registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ¨  No ý
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ¨  No ý
Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ý  No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period of time that the registrant was required to submit and post such files). Yes ý No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. 
Large accelerated filer  ¨
Accelerated filer                  x
Non-accelerated filer  ¨
Smaller reporting company   ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨  No ý
The aggregate market value of the 92,530,500 shares of voting stock held by non-affiliates of the registrant based on the closing price on the NYSE MKT LLC on June 30, 2014 was $154,525,935.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
 
 
Shares Outstanding
Title of Class
 
January 26, 2015
Common Stock
 
89,740,513
DOCUMENTS INCORPORATED BY REFERENCE




TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 




Cautionary Notice Regarding Forward-Looking Statements
 
Certain statements contained in this report on Form 10-K or incorporated by reference into this Form 10-K may constitute forward-looking statements within the meaning of applicable securities laws. All statements, other than statements of historical facts, are forward-looking statements. Forward-looking statements include statements about matters such as: future prices and sales of, and demand for, our products; future industry market conditions; future changes in our exploration activities, production capacity and operations; future exploration, production, operating and overhead costs; operational and management restructuring activities; future employment and contributions of personnel; tax and interest rates; capital expenditures and their impact on us; nature and timing of restructuring charges and the impact thereof; productivity, business process, rationalization, investment, acquisition, consulting, operational, tax, financial and capital projects and initiatives; contingencies; environmental compliance and changes in the regulatory environment; and future working capital, costs, revenues, business opportunities, debt levels, cash flows, margins, earnings and growth.
 
The words “believe,” “expect,” “anticipate,” “estimate,” “project,” “plan,” “should,” “intend,” “may,” “will,” “would,” “potential” and similar expressions identify forward-looking statements, but are not the exclusive means of doing so. These statements are based on assumptions and assessments made by our management in light of their experience and their perception of historical and current trends, current conditions, possible future developments and other factors they believe to be appropriate. Forward-looking statements are not guarantees, representations or warranties and are subject to risks and uncertainties, many of which are unforeseeable and beyond our control, and could cause actual results, developments and business decisions to differ materially from those contemplated by such forward-looking statements. Some of those risks and uncertainties include the risk factors discussed in Item 1A, “Risk Factors” and the following: current global economic and capital market uncertainties; the speculative nature of gold or mineral exploration, including risks of diminishing quantities or grades of qualified resources and reserves; operational or technical difficulties in connection with exploration or mining activities; contests over our title to properties; potential dilution to our stockholders from our recapitalization and balance sheet restructuring activities; potential inability to continue to comply with government regulations; adoption of or changes in legislation or regulations adversely affecting our businesses; permitting constraints or delays, business opportunities that may be presented to, or pursued by, us; changes in the United States or other monetary or fiscal policies or regulations; interruptions in our production capabilities due to unexpected equipment failures; fluctuation of prices for gold or certain other commodities (such as silver, zinc, cyanide, water, diesel fuel, and electricity); changes in generally accepted accounting principles; geopolitical events; potential inability to implement our business strategies; potential inability to grow revenues organically; potential inability to attract and retain key personnel; interruptions in delivery of critical supplies and equipment raw materials due to credit or other limitations imposed by vendors; assertion of claims, lawsuits and proceedings against us; potential inability to maintain an effective system of internal controls over financial reporting; potential inability or failure to timely file periodic reports with the SEC; potential inability to list our securities on any securities exchange or market; and work stoppages or other labor difficulties. Occurrence of such events or circumstances could have a material adverse effect on our business, financial condition, results of operations or cash flows or the market price of our securities. All subsequent written and oral forward-looking statements by or attributable to us or persons acting on our behalf are expressly qualified in their entirety by these factors. Except as may be required by securities or other law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.



Glossary
 

“Adit” means a horizontal or nearly horizontal underground passage coming to the surface at one end of a mine.

“Assay” means to test minerals by chemical or other methods for determining the amount of metals contained therein.

“Claim” means a mining interest giving its holder the right to prospect, explore for and exploit minerals within a defined area.

“Feasibility study” means a comprehensive study undertaken to determine the economic feasibility of a project; typically to determine if a construction and/or production decision can be made.

“Grade” means the amount of precious metal in each ton of ore, expressed as troy ounces per ton.

“Heap leaching” means a process whereby gold and silver are extracted by "heaping" crushed ore onto impermeable leach pads and applying a weak cyanide solution that dissolves the gold and silver from the ore into a precious metal-laden solution for further recovery.

“Lode” is a vein-like deposit or rich supply of or source of gold or other minerals.

“Mineralized material” is a body that contains mineralization that has been delineated by appropriately spaced drilling and/ or underground sampling to estimate a sufficient tonnage and average grade of metal(s). Such a deposit does not qualify as a reserve until a comprehensive evaluation based upon unit cost, grade, recoveries, and other material factors conclude legal and economic feasibility of extraction at the time of reserve determination.

“NSR” means net smelter return royalty.

“Ore” means a mineral-bearing rock, which may be rich enough to be mined at a profit.

“Oxide” means ore in which some of the minerals have been oxidized (i.e., combined with oxygen through exposure to air or water) from surface exposure, fracturing, faulting, or exposure to high temperatures. Oxidation tends to make the ore more porous and permits a more complete permeation of cyanide solutions so that minute particles of gold in the interior of the minerals will be more readily dissolved. Oxide ore is generally processed using a heap leach method.

“Placer” means alluvial deposit containing particles or larger pieces of gold or other minerals.

“Probable reserves” means reserves for which quantity and grade and/or quality are computed from information similar to that used for proven (measured) reserves, but the sites for inspection, sampling and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven (measured) reserves, is high enough to assume continuity between points of observation.

“Proven reserves” means reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes; grade and/or quality are computed from the results of detailed sampling and (b) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth, and mineral content of reserves are well-established.

“Quartz” is one of the most common of all rock-forming minerals and one of the most important constituents of the earth's crust. Quartz may be transparent, translucent, or opaque; it may be colorless to colored.

“Recovery” means that portion of the metal contained in the ore that is successfully extracted by processing, can also be expressed as a percentage.

“Reserves” or “ore reserves” mean that part of a mineral deposit, which could be economically and legally extracted or produced at the time of the reserve determination.

“Stripping ratio” or “strip ratio” means the ratio of waste tons to ore tons mined.

“Sulfide” means a compound of sulfur and a metallic element. Sulfide ore is generally processed using milling methods.




“Tailings” means refuse materials resulting from the washing, concentration, or treatment of ore.

“Ton” means a short ton (2,000 pounds).

“Vein” is a deposit of non-sedimentary origin, which may or may not contain valuable minerals; lode.

“Waste” means rock or other material lacking sufficient grade and/or other characteristics to be economically processed or stockpiled as ore. To access an ore deposit it is often necessary to remove waste.





PART I

 
Item 1. Business
 
OUR COMPANY
 
Unless the context otherwise indicates, the terms “Comstock,” “we,” “us,” “our,” “our Company” or “the Company” mean Comstock Mining Inc. and its consolidated subsidiaries.
 
The Company is a producing, Nevada-based, gold and silver mining company with extensive, contiguous property in the historic Comstock and Silver City mining districts (collectively, the “Comstock District”). The Comstock District is located within the western portion of the Basin and Range Province of Nevada, between Reno and Carson City. The Company began acquiring properties and developing projects in the Comstock District in 2003. Since then, the Company has consolidated a substantial portion of the historic Comstock District, secured permits, built an infrastructure and brought exploration projects into production.
 
Because of the Comstock District’s historical significance, the geology is well known and has been extensively studied by the Company, our advisors and many independent researchers. We have expanded our understanding of the geology of the project area through vigorous surface mapping and drill hole logging. The volume of geologic data is immense, and thus far the reliability has been excellent, particularly in the various Lucerne Mine areas. We have amassed a large library of historic data and detailed surface mapping of Comstock District properties and continue to obtain historic information from private and public sources. We use such data in conjunction with information obtained from our current mining operations, to target geological prospective exploration areas and plan exploratory drilling programs.

Our Lucerne Resource area is located in Storey County, Nevada, approximately three miles south of Virginia City and 30 miles southeast of Reno. Our Dayton Resource area is located in Lyon County, Nevada, approximately six miles south of Virginia City. Access to the properties is by State Route 342, a paved highway.

Our business plan is to deliver stockholder value by validating qualified resources (measured and indicated) and reserves (proven and probable) of at least 3,250,000 gold equivalent ounces from our first two resource areas, Lucerne and Dayton, and significantly grow the commercial development of our operations through coordinated district wide plans that are economically feasible, with a low-cost management focus and socially responsible. These plans are focused on expanding the Lucerne Mine, both with surface and underground development targets and commissioning a second, Dayton mine. The Company has already met the first three intermediate resource objectives by validating measured and indicated resources containing more than 2,000,000 gold equivalent ounces.

The Company achieved initial production and held its first pour of gold and silver on September 29, 2012. The Company produced 20,815 gold equivalent ounces in 2013, the Company's first full year in production and 22,925 gold equivalent ounces in 2014. That is, the Company produced 17,739 ounces of gold and 186,482 ounces of silver in 2013, and 19,601 ounces of gold and 222,416 ounces of silver in 2014. The Company increased production every quarter during 2014, exiting the year at an annualized weekly rate of approximately 36,000 gold equivalent ounces, with December 2014, totaling 3,176 gold equivalent ounces, the highest month since production started.

The Company, during the fourth quarter of 2014, and further again in January 2015, received unanimous approval to significantly amend and expand permitted and allowable uses throughout its entire Lucerne Resource Area, containing the Company's largest, classified gold and silver resources. The amendment applies to both surface and underground mining; processing and milling; mine definition; exploration; development and other ancillary uses. The Company expects that this approval will facilitate further expansion of its current surface mining activities in the Lucerne Mine Area, specifically from the current Lucerne West-side mining activities over and into the East-side mining activities. The Company is also evaluating the feasibility of near term underground mining opportunities, potentially accessible from the current West-side mining activities.



We continue acquiring additional properties in the Comstock District, expanding our footprint and creating opportunities for exploration, mining, and processing. The Company now owns or controls approximately 8,306 acres of mining claims and parcels in the Comstock and Silver City Districts. The acreage is comprised of approximately 2,210 acres of patented claims (private lands) and surface parcels (private lands) and approximately 6,096 acres of unpatented Lode, Placer and Mill site mining claims, which the Bureau of Land Management (“BLM”) administers. In addition to land holdings, the Company secures options on over 1,300 more acres.

The Company’s hospitality segment owns and operates the Gold Hill Hotel and related cottages. The hospitality segment is not generally seasonal in nature except for the period November through February when tourism population volumes are commonly lower.
 
Financial information for each of our segments is disclosed in footnote 14 to the consolidated financial statements. 
 

Current Projects
 
The Company’s headquarters, mine operations and heap leach processing facility are in Storey County, Nevada, at 1200 American Flat Road, approximately three miles south of Virginia City, Nevada and 30 miles southeast of Reno, Nevada. The Company has focused to date on the Lucerne Resource area (including the east-side target within this area), the Dayton Resource area and the Spring Valley exploration target. We also plan on focusing exploration on the Northern Extension, Northern Targets, and Occidental Target areas subsequent to the exploration and development of Lucerne, Dayton and Spring Valley. The Company’s existing heap leach processing facility for gold and silver was redesigned and expanded in late 2013 and again in the fourth quarter of 2014 to accommodate new production plans.
 
The Lucerne Resource area has been the focus of the Company’s exploration and development efforts since 2007. It includes the previously mined Billie the Kid, Hartford and Lucerne mining claims, and extends northeasterly to the area of the historic Woodville bonanza, and north to the historic Justice and Keystone mines. The Company has the key mining permits required for this area. The Lucerne Resource area is approximately 5,000 feet long, with an average width of 600 feet, representing less than three percent of the land holdings controlled by the Company and is the site of our current production activities. The east-side target within this area ranks as one of the Company’s top exploration and production expansion targets.
 
The Dayton Resource area is southwest of Silver City in Lyon County, Nevada. It generally includes the Dayton, Kossuth and Alhambra claims, including the old Dayton mine workings, south to where the Kossuth claim crosses State Route 341. The historic Dayton mine was the last major underground mining operation in the Comstock District, before being closed after the War Production Board promulgated Limitation Order L-208, 7 F. R. 7992 on October 8, 1942, that closed down all gold mining operations in the United States and its territories. The Dayton Resource area ranks as one of the Company’s top exploration and potential mine production targets. Recently, the Lyon County Board of Commissioners approved a strategic master plan and zoning changes on the Dayton, Kossuth and Alhambra mining claims and other properties located in the Dayton Resource Area, enabling a more practical, comprehensive feasibility study for mining.

The Spring Valley exploration target lies at the southern end of the Comstock District, where the mineralized structures lie mostly concealed beneath a veneer of sediment gravels. The area includes the Kossuth claim south of State Route 341, the Dondero property, the New Daney lode mining claims, and the Company’s placer mining claims in Spring Valley and Gold Canyon.
 
The Northern Extension, Northern Targets and Occidental areas represent exploration target areas that contain many historic mining operations, including the Overman, Con Imperial, Caledonia, and Yellow Jacket mines, among others. Previous operators have explored the various mines in this area, some of which have led to mineralized material inventories. We believe that our consolidation of the Comstock District has provided us with opportunities to utilize the historical information available to identify drilling targets with significant potential.
 


7



Figure-1 Comstock Mining’s Claims in Storey and Lyon Counties, Nevada

8



Our Comstock exploration activities include open pit gold and silver test mining. As defined by the Securities Exchange Commission (“SEC”) Industry Guide 7, we have not yet established any proven or probable reserves at our Comstock Lode Project.
 
Employees
 
As of December 31, 2014, we have 114 full-time mining employees, inclusive of our general and administrative function. We also have 8 full-time and 2 part-time hospitality employees working for the Gold Hill Hotel, Inc.
 
Principal Markets
 
We sell our production on world markets at prices established by commodity markets. These prices are not within our control. We had revenues of $24,736,929 in our second full year of production in our mining segment and $846,432 of revenues in our hospitality segment during the year ended December 31, 2014. We had operating losses of $8,278,166 and $414,540 in our mining and hospitality segments, respectively, during the year ended December 31, 2014. We had total assets of $45,029,258 and $1,426,614 in our mining and hospitality segments, respectively, as of December 31, 2014. We did not have a hospitality segment for any period prior to fiscal year 2011. See footnote 14 to our audited consolidated financial statements for additional information regarding our segments.
 
Government Regulation
 
Mining operations and exploration activities are subject to various national, state, and local laws and regulations in the United States, which govern prospecting, development, mining, production, exports, taxes, labor standards, occupational health, waste disposal, protection of the environment, mine safety, hazardous substances, and other matters. We have obtained or have pending applications for substantially all of those licenses, permits, and other authorizations currently required for our exploration and other programs. We believe that we are in compliance in all material respects with applicable mining, health, safety and environmental statutes and regulations. Capital expenditures relating to compliance with laws and regulations that regulate the discharge of materials into the environment, or otherwise relating to the protection of the environment, comprise a substantial part of our historical capital expenditures and our anticipated future capital expenditures. For example, we incur certain expenses and liabilities associated with our reclamation obligations. See “Reclamation” section below.
 
Reclamation
 
We are generally required to mitigate long-term environmental impacts by stabilizing, contouring, resloping, and revegetating various portions of a site after mining and mineral processing operations are completed. These reclamation efforts are conducted in accordance with plans reviewed and approved by the appropriate regulatory agencies.
 
The Nevada Revised Statutes and regulations promulgated by the Nevada State Environmental Commission and the Nevada Division of Environmental Protection, Bureau of Mining and Reclamation require a surety bond to be posted for mining projects so that after completion of the work on such mining projects, the sites are left safe, stable and capable of providing for a productive post-mining use. Over the past three years, the Company has provided a reclamation surety bond, through the Lexon Surety Group (“Lexon”), with the State of Nevada's Bureau of Mining Regulation and Reclamation (“BMRR”). The BMRR, with concurrence from Storey County, has approved our most recent reclamation plan, as revised, and our estimated total costs related thereto of approximately $8.6 million, that is, $7.1 million for BMRR and an additional $1.5 million for Storey County. For the years ended December 31, 2013, and 2012, the Company had provided estimates and surety bonds in the amounts of $5.2 million and $4.7 million, respectively.

As part of the surety agreement, the Company agreed to pay a 2.0% annual bonding fee and has signed a corporate guarantee. The cash collateral percentage due to Lexon is approximately 30% of the total state bond amount of $8.6 million. At December 31, 2014, $2.5 million of the required collateral has been deposited and the remaining $0.1 million, payable in installments, is recorded as an accrued expense. 
 
Competition
 
We compete with other mineral exploration and mining companies in connection with the acquisition of gold and other mineral properties and the attraction and retention of human capital. Such competitors may have substantially greater financial resources than we do.


9


History
 
The Company began acquiring properties and developing projects in the Comstock District in 2003. The Company produced over 12,000 ounces of gold and over 53,000 ounces of silver from 2004-2006 from our existing Lucerne mine and American Flat heap leach processing facilities. Our test mining activities were concluded in January 2007, when based on our longer-term production plans, we prioritized land consolidation and mine planning. The Company restarted mining operations in the third quarter of 2012 and resumed pouring doré bars of silver and gold in September 2012. In 2013, we accomplished the first major phase of our production plan goal by pouring 20,815 gold equivalent ounces. In 2014, the Company's second full year in production, the Company produced 22,925 gold equivalent ounces, that is, 19,601 ounces of gold and 222,416 ounces of silver.
 
Customers
 
All accounts receivable amounts related to mining are due from a single customer. Substantially all mining revenues recorded to date relate to the same customer. As gold can be sold through numerous gold market traders worldwide, the Company is not economically dependent on a limited number of customers for the sale of its product. The hospitality segment has numerous customers and is not dependent on any one customer.
 
Financing Events
 
During 2014, the Company completed one equity financing transaction resulting in over $11.9 million in gross financing (approximately $11 million, net of issuance costs) to fund working capital, ramp up of initial operations, acquire properties, plant and equipment, and support mine development and other general corporate matters.
    
On February 11, 2014, the Company entered into a new $5 million revolving credit facility (the “Revolving Credit Facility”) with Auramet International, LLC ("Auramet"), pursuant to which the Company may have borrowings up to $5 million outstanding at any given time. Interest is payable at 9.5% per annum, and was paid in advance on the closing date of the Revolving Credit Facility. The indebtedness under the Revolving Credit Facility is secured by a security interest in certain real estate owned by the Company within the Company’s starter mine and a first priority security interest in all personal property of the Company and its wholly-owned subsidiary Comstock Mining LLC, subject to any existing or future Permitted Liens (as defined under the Revolving Credit Facility). The Revolving Credit Facility contains a covenant that requires the Company to maintain a minimum liquidity balance of $1 million (including cash and cash equivalents, plus 90% of the value of any doré that has been picked up by a secured carrier but not yet paid for, as of any date of determination). The Revolving Credit Facility additionally contains customary representations, warranties, affirmative covenants, negative covenants, and events of default, as well as conditions to borrowings. On February 12, 2014, the Company drew the entire line representing cash proceeds of approximately $4.6 million, net of prepaid interest and fees of approximately $0.4 million recognized as a component of prepaid assets in the condensed consolidated balance sheets and amortized over the life of the payment terms using the effective interest rate method. In addition, the Company paid Auramet additional loan fees of approximately $0.3 million via the issuance of 137,105 shares of common stock included as a component of prepaid assets in the condensed consolidated balance sheets. The Company further agreed to make additional loan fee payments if the value of 63,505 of such shares of common stock issued to Auramet was less than $123,835 when sold. This resulted in the recognition of a contingent debt obligation payment derivative (see footnote 4). The Revolving Credit Facility will be repaid through 14 bi-weekly cash payments of $357,143 beginning August 8, 2014 and ending February 6, 2015. On January 27, 2015, the Company and Auramet agreed to increase the facility up to $8.0 million and extend the facility from the current maturity of February 6, 2015 to February 6, 2017.



10


 

Item 1A. Risk Factors
 
An investment in our securities involves risk. You should carefully consider the following risk factors, in addition to those discussed elsewhere in this report, in evaluating our Company, its business, its industry and prospects. The risks described below are not the only ones facing us. Additional risks not presently known to us, or that we currently deem immaterial, may also have a material adverse effect on us. The following risks could cause our business, financial condition, results of operations or cash flows to be materially and adversely affected. In that case, the market price of our securities could decline, and you could lose part or all of your investment.
 

You may lose all or part of your investment.
 
If we are unable to find and mine adequate quantities of gold and silver ore, it is unlikely that the cash generated from our internal operations will suffice as a primary source of the liquidity necessary for anticipated working capital requirements. There is no assurance that the Company’s initiatives to improve its liquidity and financial position will be successful. Accordingly, there is substantial risk that the Company will be unable to continue as a going concern. In the event of insolvency, liquidation, reorganization, dissolution or other winding up of the Company, the Company’s creditors and preferred stockholders would be entitled to payment in full out of the Company’s assets before holders of common stock would be entitled to any payment, and the claims on such assets may exceed the value of such assets.
 
Because we may never earn significant revenues from our mine operations, our business may fail.
 
Our first full year of production was 2013. We have yet to generate positive earnings and there can be no assurance that we will ever operate profitably. We have a limited operating history. The success of our Company is significantly dependent on the uncertain events of the discovery and exploitation of mineralized materials on our properties or selling the rights to exploit those materials. If our business plan is not successful and we are not able to operate profitably, then our securities may become worthless and investors may lose all of their investment in our Company.
 
We recognize that if we are unable to generate significant revenues from the exploration and exploitation of our mineralized materials in the future, we will not be able to earn profits or continue operations. There is no history upon which to base any assumption as to the likelihood that we will prove successful, and we can provide no assurance that we will generate significant revenues or ever achieve profitability. If we are unsuccessful in addressing these risks, our business will fail and investors may lose all of their investment in our Company.
 
Transportation difficulties and weather interruptions may affect and delay proposed mining operations and impact our business plans.
 
Our mining properties are accessible by road. The climate in the area is hot and dry in the summer but cold and subject to snow in the winter, which could, at times, hamper accessibility depending on the winter season precipitation levels. As a result, our exploration and mining plans could be delayed for several months each year. Such delays could affect our anticipated business operations and increase our expenses.
 
Supplies and equipment needed for exploration may not always be available. If we are unable to secure exploration supplies we may have to delay our anticipated business operations.
 
Competition and unforeseen limited sources of supplies needed for our proposed exploration work could result in occasional shortages of supplies of certain products, equipment or materials. There is no guarantee we will be able to obtain certain products, equipment and/or materials as and when needed, without interruption, or on favorable terms, if at all. Such delays could affect our anticipated business operations and increase our expenses.
 

11


We have invested capital in high-risk mineral projects where we have not conducted sufficient exploration and engineering studies.
 
We have invested capital and have otherwise been involved in various mineral properties and projects in the Comstock District where we have not conducted sufficient exploration and engineering studies to minimize the risk of project failure to the extent that is typical in the mining industry considering our size. Our mineral projects involve high risks because we have not invested sufficiently in the characterization of mineralized material, geologic analysis, metallurgical testing, mine planning and economic analysis to the same extent that other mining companies might deem reasonable. Standard industry practice calls for a mining company to prepare a formal mine plan and mining production schedule and have these documents reviewed and validated by a third party specialist. We have not had a formal mine plan and mining production schedule economically validated by a third party specialist.
 
We will not be successful unless we recover precious metals and sell them for a profit.
 
Our success depends on our ability to recover precious metals, process them, and successfully sell them for more than the cost of production. The success of this process depends on the market prices of metals in relation to our costs of production. We may not be able to generate a profit on the sale of gold or other minerals because we have limited control over our costs and have no ability to control the market prices. The total cash costs of production at any location are frequently subject to great variation from year to year as a result of a number of factors, such as the changing composition of ore grade or mineralized material production, and metallurgy and exploration activities in response to the physical shape and location of the ore body or deposit. In addition, costs are affected by the price of commodities, such as fuel and electricity. Such commodities are at times subject to volatile price movements, including increases that could make production unprofitable. A material increase in production costs or a decrease in the price of gold or other minerals could adversely affect our ability to earn a profit on the sale of gold or other minerals.
 
We do not have proven or probable reserves, and there is no assurance that the quantities of precious metals we produce will be sufficient to recover our investment and operating costs.
 
Our success depends on our ability to produce sufficient quantities of precious metals to recover our investment and operating costs. We do not have proven or probable reserves. Substantial expenditures are required to acquire existing gold properties with established reserves or to establish proven or probable reserves through drilling and analysis. We do anticipate expending large sums for additional drilling and analysis which may or may not establish proven or probable reserves on our properties. We drill in connection with our mineral exploration and mining activities and not with the purpose of establishing proven and probable reserves. While we estimate the amount of mineralized material we believe exists on our properties, our calculations are subject to uncertainty due to several factors, including the quantity and grade of ore, metal prices and recoverability of minerals in the mineral recovery process. There is a great degree of uncertainty attributable to the calculation of any mineralized material, particularly where there has not been significant drilling, mining and processing. Until the mineralized material located on our properties is actually mined and processed, the quantity and quality of the mineralized material must be considered as an estimate only. In addition, the estimated value of such mineralized material (regardless of the quantity) will vary depending on metal prices. Any material change in the estimated value of mineralized material may negatively affect the economic viability of our properties. In addition, there can be no assurance that we will achieve the same recoveries of metals contained in the mineralized material as in small-scale laboratory tests or that we will be able to duplicate such results in larger scale tests under on-site conditions or during production. There can be no assurance that our exploration activities will result in the discovery of sufficient quantities of mineralized material to recover our investment and operating costs.
 

12


The cost of our exploration and acquisition activities is substantial, and there is no assurance that the quantities of minerals we discover or acquire will justify commercial operations or replace reserves established in the future.
 
Mineral exploration, particularly for gold and other precious metals, is highly speculative in nature, involves many risks, and frequently is nonproductive. There can be no assurance that our exploration and acquisition activities will be commercially successful. If gold mineralization is discovered, it may take a number of years from the initial phases of drilling until production is possible, during which time the economic feasibility of production may change. Substantial expenditures are required to acquire existing gold properties, to establish ore reserves through drilling and analysis, to develop metallurgical processes to extract metal from the ore, and in the case of new properties, to develop the processing facilities and infrastructure at any site chosen for mineral exploration. There can be no assurance that any gold reserves or mineralized material that may be discovered or acquired in the future, if any, will be in sufficient quantities or of adequate grade to justify commercial operations or that the funds required for mineral production operation can be obtained on a timely or reasonable basis, if at all. Mining companies must continually replace mineralized material or reserves depleted by production. There can be no assurance that we will be successful in replacing any reserves or mineralized material acquired or established in the future.
 
The price of gold and silver fluctuate on a regular basis and a downturn in price could negatively impact our operations and cash flow.
 
Our operations will be significantly affected by changes in the market price of gold and silver if we are able to produce gold or other minerals. Gold and silver prices can fluctuate widely and may be affected by numerous factors, such as expectations for inflation, levels of interest rates, currency exchange rates, central bank sales, forward selling or other hedging activities, demand for precious metals, global or regional political and economic crises and production costs in major gold-producing regions, such as but not limited to South Africa and the former Soviet Union. The aggregate effect of these factors, all of which are beyond our control, is impossible for us to predict. If gold or silver prices decline substantially, it could adversely affect the realizable value of our assets and potentially, future results of operations and cash flow.
 
The use of hedging instruments may not prevent losses being realized on subsequent price decreases or may prevent gains being realized from subsequent price increases.
 
We may from time to time sell some future production of gold pursuant to hedge positions. If the gold price rises above the price at which future production has been committed under these hedge instruments, we will have an opportunity loss. If the gold price falls below that committed price, we may experience losses if a hedge counterparty defaults under a contract when the contract price exceeds the gold price. As of December 31, 2014, we have no material open hedge positions.
 
Since our business consists of exploring for, producing from, or acquiring gold and silver prospects, the drop in the price of gold or silver will negatively affect our asset values, cash flows, potential revenues and profits.
 
We plan to pursue opportunities to acquire properties with gold or silver mineralized material or reserves with exploration potential. The price that we pay to acquire these properties will be influenced, in large part, by the price of gold and silver at the time of the acquisition. Our potential future revenues are expected to be derived from the production and sale of gold and silver from these properties or from the sale of some of these properties. The value of any gold reserves and other mineralized material, and the value of any potential mineral production therefrom, will vary in direct proportion to variations in those mineral prices. The price of gold and silver has fluctuated widely as a result of numerous factors beyond our control. The effect of these factors on the price of gold and silver, and therefore the economic viability of our projects, cannot accurately be predicted. Any drop in the price of gold or silver would negatively affect our asset values, cash flows, potential revenues and profits.
 
We compete with other mineral exploration and mining companies which could lead to the loss of opportunities.
 
We compete with other mineral exploration and mining companies or individuals, including large, established mining companies with substantial capabilities and financial resources, to acquire rights to mineral properties containing gold and other minerals. There is a limited supply of desirable lands available for claim staking, lease or other acquisition. There can be no assurance that we will be able to acquire such properties when competing against competitors with substantially greater financial resources than we have.


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The estimation of the ultimate recovery of gold and silver from the Lucerne Mine, although based on standard industry sampling and estimating methods, is subjective. Actual recoveries may vary from our estimations.
 
Our Lucerne Mine utilizes the heap leach process to extract gold and silver from ore. The heap leach process extracts gold and silver by placing ore on an impermeable pad and applying a diluted cyanide solution that dissolves a portion of the contained gold and silver, which are then recovered in metallurgical processes. We use several integrated steps in the process of extracting gold and silver to estimate the metal content of ore placed on the leach pad. Although we refine our estimates as appropriate at each step in the process, the final amounts are not determined until a third-party smelter converts the doré and determines final ounces of gold and silver available for sale. We then review this end result and reconcile it to the estimates we developed and used throughout the production process. Based on this review, we adjust our estimation procedures when appropriate. Due to the complexity of the estimation process and the number of steps involved, among other things, actual recoveries can vary from estimates, and the amount of the variation could be significant and could have a material adverse impact on our financial condition and results of operations.
 
Each of these factors not only applies to our current and future operations at the Lucerne Mine, but will also apply to any other active mine property and any future development of other properties not yet in production. In the case of mines that we may develop in the future, we will not have the benefit of actual experience in our estimates with respect to those mines, and there is a greater likelihood that actual results will vary from the estimates.
 
Resource and other mineralized material calculations are estimates only, and are subject to uncertainty due to factors including metal prices, inherent variability of the ore and recoverability of metal in the mining process.
 
The calculation of mineral resources, other mineralized material and grading are estimates and depend upon geological interpretation and statistical inferences or assumptions drawn from drilling and sampling analysis, which may prove to be unpredictable. There is a degree of uncertainty attributable to the calculation of mineral resources and corresponding grades. Until mineral resources and other mineralized materials are actually mined and processed, the quantity of ore and grades must be considered as an estimate only. In addition, the quantity of mineral resources and other mineralized materials and ore may vary depending on metal prices. Any material change in the quantity of mineral resources, other mineralized materials, mineralization, grade or stripping ratio may affect the economic viability of our properties. In addition, we can provide no assurance that gold recoveries or other metal recoveries experienced in small-scale laboratory tests will be duplicated in larger scale tests under on-site conditions or during production.

Our mining production depends on the availability of sufficient water supplies.

Our mining operations require significant quantities of water for mining, ore processing and related support facilities. Most of our mining operations are in areas where water is scarce and competition among users for continuing access to water is significant. Continuous production at our mines is dependent on our ability to maintain our water rights and claims, and the continuing physical availability of the water supplies.

Cost estimates and timing of new projects are uncertain, which may adversely affect our expected production and profitability.
 
The capital expenditures and time required to develop and explore our properties, including the Lucerne Mine and the Dayton Resource area, are considerable and changes in costs, construction schedules or both, can adversely affect project economics and expected production and profitability. There are a number of factors that can affect costs and construction schedules, including, among others:
 
availability of labor, energy, transportation, equipment, and infrastructure;
changes in input commodity prices and labor costs;
fluctuations in currency exchange rates;
availability and terms of financing;
changes in anticipated tonnage, grade and metallurgical characteristics of the ore to be mined and processed;
recovery rates of gold and other metals from the ore;
difficulty of estimating construction costs over a period of year;
delays in completing any environmental review or in obtaining environmental or other government permits;
weather and severe climate impacts;
potential delays related to social and community issues.

We currently recover gold and silver from oxide ores at the Lucerne Mine. Oxide heap leach mining and processing has inherent variation, therefore, the costs and yields from this type of operation could vary greatly from our estimates.

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Our activities are inherently hazardous and any exposure may exceed our insurance limits or may not be insurable.
 
Mineral exploration and operating activities are inherently hazardous. Operations in which we have direct or indirect interests will be subject to all the hazards and risks normally incidental to exploration and production of gold and other metals, any of which could result in work stoppages, damage to property and possible environmental damage. The nature of these risks is such that liabilities might exceed any applicable liability insurance policy limits. It is also possible that the liabilities and hazards might not be insurable, or we could elect not to insure ourselves against such liabilities because of the high premium costs, in which event, we could incur significant costs that could have a material adverse effect on our financial condition.
 
Our ability to execute our strategic plans depends upon our success in obtaining a variety of required governmental approvals that may be opposed by third-parties.
 
We do not possess all of the governmental approvals necessary to conduct the full extent of the operations contemplated by our strategic plan. Those operations will be delayed, hindered or prevented to the extent that we are unable to obtain the necessary permits and approvals in a timely fashion or at all. This inability may occur due to a variety of factors, including opposition by third parties, such as members of the public or environmental groups. We expect that future permit and approval applications and issuances will meet with similar opposition. We may encounter delays and added costs if permits and approvals are challenged.
 
Mining companies are increasingly required to consider and provide benefits to the communities in which they operate

As a result of public concern about the real or perceived detrimental effects of economic globalization and global climate impacts, businesses generally, and corporations in natural resource industries, face increasing public scrutiny of their activities. These businesses are under pressure to demonstrate that, as they seek to generate satisfactory returns on investment to shareholders, other stakeholders, including employees, governments, and communities surrounding operations benefit and will continue to benefit from their commercial activities. Such pressures tend to be particularly focused on companies whose activities are perceived to have a high impact on their social and physical environment. The potential consequences of these pressures include reputational damage, legal suits, increasing social investment obligations and pressure to increase taxes and royalties payable to governments and communities.

Our operations are subject to strict environmental laws and regulations, which could result in added costs of operations and operational delays.
 
Our operations are subject to strict environmental regulations, which could result in additional costs and operational delays. All phases of our operations are subject to environmental regulation. Environmental legislation is evolving in the United States generally, and Nevada specifically, in a manner that may require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects, and a heightened degree of responsibility for companies and their officers, directors, and employees. There is no assurance that any future changes in environmental regulation will not negatively affect our projects.
 
At the state level, mining operations in Nevada are regulated by the Nevada Division of Environmental Protection, or NDEP. Nevada state law requires our Nevada projects to hold Nevada water pollution control permits, which dictate operating controls and closure and post-closure requirements directed at protecting surface and ground water. In addition, we are required to hold Nevada reclamation permits required under Nevada law. These permits mandate concurrent and post-mining reclamation of mines and require the posting of reclamation bonds sufficient to guarantee the cost of mine reclamation. Other Nevada regulations govern operating and design standards for the construction and operation of any source of air contamination and landfill operations. Any changes to these laws and regulations could have a negative impact on our financial performance and results of operations by, for example, requiring changes to operating constraints, technical criteria, fees or surety requirements.


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Regulations and pending legislation governing issues involving climate change could result in increased operating costs which could have a material adverse effect on our business.

Our business is an energy-intensive undertaking, resulting in a significant carbon footprint. A number of governments or governmental bodies have introduced or are contemplating regulatory changes in response to the potential impacts of climate change that are viewed as the result of emissions from the combustion of carbon-based fuels. In December 2009, the EPA issued an endangerment finding under the U.S. Clean Air Act that current and projected concentrations of certain mixed greenhouse gases, including carbon dioxide, in the atmosphere threaten the public health and welfare. Regulations have been adopted and additional laws or regulations may be promulgated in the U.S. to address the concerns raised by such endangerment finding. Legislation and increased regulation and requirements regarding climate change could impose increased costs on us and our suppliers, including increased energy, capital equipment, environmental monitoring and reporting and other costs to comply with such regulations. Until the timing, scope and extent of any future requirements becomes known, we cannot predict the effect on our financial condition, financial position, results of operations and ability to compete.

Extreme weather events (such as increased frequency or intensity of hurricanes or prolonged drought) have the potential to disrupt operations at our projects. Where appropriate, our projects have developed emergency plans for managing extreme weather conditions; however, extended disruptions to supply lines due to extreme weather could result in interruption of activities at the project sites, delay or increase the cost of construction of the projects, or otherwise adversely affect our business.
 
Because our land holdings are within the Carson River Mercury Superfund Site, our operations are subject to certain soil sampling and potential remediation requirements, which may result in added costs and delays; and we are also potentially subject to further costs as the result of on-going government investigation and future remediation decisions.
 
Substantially all of our land holdings are within the Carson River Mercury Superfund Site (CRMS) Study Area and portions are within the risk area boundaries identified by NDEP and the United States Environmental Protection Area (USEPA). These risk areas have been defined due to the known or suspected presence of certain contaminants of concern, including mercury, arsenic and lead. To comply with the agencies’ requirements in these areas, the Company conducts soil sampling pursuant to a plan that has been approved by the NDEP. This sampling is intended to demonstrate the absence of contamination before mining, processing or other operations in that area. If contamination above agency-established levels of concern is encountered, the Company intends to excavate and process such materials for metals recovery wherever feasible. If metals recovery is not feasible, the Company may avoid or defer excavating in that area, remove the materials for disposal, or cover the area with clean fill material. Through this sampling program and, if necessary, removal of contaminated materials, the Company intends to enable the NDEP and USEPA to better define the Carson River Superfund Site and the currently designated risk areas so as to eventually exclude our land holdings from such areas and from the Site itself to the maximum extent feasible. The NDEP and USEPA are continuing to study the ecological and human health risks that may be presented by contaminated sediments in certain portions of the Carson River watershed and downstream areas. The agencies’ studies indicate that these contaminants are primarily associated with historic mining tailings that have been redistributed into these waterways. The agencies have not adopted a remedial plan for these sediments nor have they decided whether remediation will be undertaken. Thus, there is no assurance that the Company will not be asked to undertake additional investigatory or remediation activities or to pay for such activities by the agencies or that future changes in CRMS-related requirements will not negatively affect our operations.
 
Our insurance and surety bonds for environmental-related issues are limited.
 
Our insurance and surety bonds against environmental risks are limited as to the maximum protection against potential liability for pollution or other hazards as a result of the disposal of waste products occurring from exploration and production. Further, there is no assurance that insurance carriers or surety bond providers will be able to meet their obligations under our arrangements with them. In the event that our environmental liabilities and costs exceed the coverage provided by our insurance carriers and surety bond providers or such parties are unable to meet their obligations, we would have limited funds available to us to remedy such liabilities or costs or for future operations. If we are unable to fund the cost of remedying an environmental problem, we also might be required to enter into an interim compliance measure pending completion of the required remedy.
 

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We are subject to federal and state laws that require environmental assessments and the posting of bonds, which add significant costs to our operations and delays in our projects.
 
Mining companies must post a bond or other surety to guarantee the cost of post-mining reclamation. These requirements could add significant additional cost and delays to any mining project undertaken by us. Our mineral exploration operations are required to be covered by reclamation bonds deemed adequate by regulators to cover these risks. We believe we currently maintain adequate reclamation bonds for our operations.
 
The Bureau of Land Management (“BLM”) requires that mining operations on lands subject to its regulation obtain an approved plan of operations subject to environmental impact evaluation under the National Environmental Policy Act. Any submission or significant modification to a plan of operations may also require the completion of an environmental assessment or Environmental Impact Statement prior to approval.

We may be subject to litigation.

We may be subject to legal proceedings. Due to the nature of our business, we may be subject to a variety of regulatory investigations, claims, lawsuits and other proceedings in the ordinary course of our business. The results of these legal proceedings cannot be predicted with certainty due to the uncertainty inherent in litigation, including the effects of discovery of new evidence or advancement of new legal theories, the difficulty of predicting decisions of judges and juries and the possibility that decisions may be reversed on appeal. There can be no assurances that these matters will not have a material adverse effect on our business.
 
Title claims against our properties could require us to compensate parties making such claims, if successful, and divert management’s time from operations.
 
There may be challenges to our title in the properties in which we hold material interests. If there are title defects with respect to any of our properties, we might be required to compensate other persons or perhaps reduce our interest in the affected property. The validity of unpatented mineral claims, which constitute most of our holdings in the United States, is often uncertain and may be contested by the federal government and other parties. The validity of an unpatented mineral claim, in terms of both its location and its maintenance, depends on strict compliance with a complex body of federal and state, statutory and decisional law. Although we have attempted to acquire satisfactory title to our properties, we have not obtained title opinions or title insurance with respect to the acquisition of the unpatented mineral claims. The investigation and resolution of title issues would divert management’s time from ongoing exploration programs.
 
Our business depends on a limited number of key personnel, the loss of who could negatively affect us.
 
Our officers and employees are important to our success. If any of them becomes unable or unwilling to continue in their respective positions, and we are unable to find suitable replacements, our business and financial results could be materially negatively affected.

Our business may be adversely affected by information technology disruptions.

Cybersecurity incidents are increasing in frequency, evolving in nature and include, but are not limited to, installation of malicious software, unauthorized access to data and other electronic security breaches that could lead to disruptions in systems, unauthorized release of confidential or otherwise protected information and the corruption of data. We believe that we have implemented appropriate measures to mitigate potential risks. However, given the unpredictability of the timing, nature and scope of information technology disruptions, we could be subject to manipulation or improper use of our systems and networks or financial losses from remedial actions, any of which could have a material adverse effect on our financial condition and results of operations.
 

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Our stock is a penny stock and trading of our stock may be restricted by the SEC’s penny stock regulations, which may limit a stockholder’s ability to buy and sell our stock.
 
Our stock is a penny stock. Rule 3a51-1 generally defines “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers that sell to persons other than established customers and “accredited investors.” The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 (excluding one’s primary residence) or annual income exceeding $200,000 individually or $300,000 jointly with their spouse. The penny stock rules (including Rule 15g-9) require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC, which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that, prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock. The Financial Industry Regulatory Authority (FINRA) sales practice requirements may also limit a stockbroker’s ability to buy or sell our stock.
 
In addition to the “penny stock” rules promulgated by the SEC, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives, and other information. Under interpretation of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy or sell our stock and have an adverse effect on the market for our shares.
 
The price of the Company’s common stock may fluctuate significantly, which could negatively affect the Company and holders of its common stock.
 
The market price of the Company’s common stock may fluctuate significantly from time to time as a result of many factors, including:
investors’ perceptions of the Company and its prospects;
investors’ perceptions of the Company’s and/or the industry’s risk and return characteristics relative to other investment alternatives;
investors’ perceptions of the prospects of the mining and commodities markets;
difficulties between actual financial and operating results and those expected by investors and analysts;
our inability to obtain permits or otherwise fail to reach Company objectives;
changes in our capital structure;
trading volume fluctuations;
actual or anticipated fluctuations in quarterly financial and operational results;
volatility in the equity securities market; and
sales, or anticipated sales, of large blocks of the Company’s common stock.


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If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.
 
The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. We have relatively little research coverage by securities and industry analysts. If no additional industry analysts commence coverage of the Company, the trading price for our common stock could be negatively impacted. If one or more of the analysts who cover us downgrades our common stock or publishes inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our common stock could decrease, which could cause our stock price and trading volume to decline.
 
We do not expect to pay any cash dividends for the foreseeable future.
 
We currently expect to retain all available funds and future earnings, if any, for use in the operation and growth of our business and do not anticipate paying any cash dividends in the foreseeable future. Any future determination to pay cash dividends will be at the discretion of our Board, subject to compliance with applicable law, our organizational documents (including the certificates of designations for our preferred stock, which prohibit cash dividends to common stockholders without the consent of preferred stockholders) and any contractual provisions, including under agreements for indebtedness we may incur, that restrict or limit our ability to pay dividends, and will depend upon, among other factors, our results of operations, financial condition, earnings, capital requirements and other factors that our Board deems relevant. Investors seeking cash dividends in the foreseeable future should not purchase our common stock.
 
Restrictions imposed by the terms of the Company’s preferred stock may inhibit growth.
 
The certificates of designations of our preferred stock substantially limit the ability of the Company to incur debt, issue securities, enter into merger or acquisition transactions, redeem capital stock, or pay dividends to common shareholders, among other things. Such restrictions could significantly impact the Company’s ability to take certain actions that potentially could enhance shareholder value.
 
Holders of common stock are minority stockholders of the Company.
 
Mr. John V. Winfield, the Chairman of our Board of Directors, and entities that he controls (the “Winfield Group”), through its ownership of common stock, preferred shares and warrants of the Company, owns approximately 32.2% of the economic interests of the Company’s capital stock and approximately 68.8% of the voting security interests, in each case on an as converted basis, as of December 31, 2014. As a result, the ability of holders of common stock to determine the management and policies of the Company is significantly limited.
 
Outstanding convertible securities, options, warrants and restricted shares may result in substantial dilution.
 
At December 31, 2014, we had outstanding 82,480,600 shares of common stock. In addition, we had outstanding preferred shares, options, warrants and restricted shares. At December 31, 2014, shares of preferred shares and warrants were convertible into, or exercisable for, a total of approximately 55.3 million additional shares of our common stock, subject to further anti-dilution provisions. At December 31, 2014, approximately 3.6 million unvested restricted shares were outstanding.
 
The terms of the Operating Agreement of Northern Comstock LLC may significantly dilute the ownership interests of the common stock.
 
The Operating Agreement of Northern Comstock LLC provides for capital contributions by the Company in the form of shares of Series A-1 Convertible Preferred Stock (the “Series A-1 Preferred Stock”) unless Northern Comstock LLC requests payment in cash. The Operating Agreement provides for additional capital contributions of 862.5 shares of Series A-1 Preferred Stock (approximately 1.3 million shares of common stock as converted) on each anniversary of the Operating Agreement through and including the 39th anniversary, if no requests for contributions in cash were made. If an event of default occurs under the Operating Agreement, the additional capital contributions could be accelerated and the entire unpaid amount of the Company’s capital contribution, up to the aggregate of 30,188 shares of Series A-1 Preferred Stock (approximately 46.4 million shares of common stock as converted) issuable under the Operating Agreement, could become issuable immediately at the option of Northern Comstock LLC. In addition, the Operating Agreement provides that each time more than 200,000 additional gold equivalent ounces of measured and indicated resources are validated, the capital contributions for such year will be accelerated to $5 million or 5,000 shares of Series A-1 Preferred Stock.
 

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The Company may issue additional common stock or other equity securities in the future that could dilute the ownership interest of existing stockholders.
 
The Company is currently authorized to issue 3,950,000,000 shares of common stock, of which 82,480,600 shares were issued and outstanding as of December 31, 2014, and 50,000,000 shares of preferred stock, of which 48,648 Preferred Shares are issued and outstanding as of the December 31, 2014. To maintain its capital at desired levels or to fund future growth, the Board may decide from time to time to issue additional shares of common stock, or securities convertible into, exchangeable for or representing rights to acquire shares of common stock. The sale of these securities may significantly dilute stockholders’ ownership interest and the market price of the common stock. New investors in other equity securities issued by the Company in the future may also have rights, preferences and privileges senior to the Company’s current stockholders that may adversely impact its current stockholders.

We have made and may in the future pursue investments in other companies, which could harm our operating results.

We have made, and could make in the future, investments in other companies, including privately-held companies in a development stage. Many of these private equity investments are inherently risky because the companies' businesses may never develop, and we may incur losses related to these investments. In addition, we may be required to write down the carrying value of these investments to reflect other-than-temporary declines in their value, which could have a material adverse effect on our financial position and results of operations.

We may pursue acquisitions of other companies or new properties, which could harm our operating results, may disrupt our business and could result in unanticipated accounting charges.

Acquisitions of other companies or new properties may create additional, material risks for our business that could cause our results to differ materially and adversely from our expected or projected results. Such risk factors include the effects of possible disruption to the expansion of our production capacity, permit requirements, debt incurred or capital stock issued to make such acquisitions, the impact of any such acquisition on our financial results, negative customer reaction to any such acquisition and our ability to successfully integrate an acquired company's operations with our operations. If the purchase price of any acquired businesses exceeds the current fair values of the net tangible assets of such acquired businesses, we would be required to record material amounts of goodwill or other intangible assets, which could result in significant impairment and amortization expense in future periods. These charges, in addition to the results of operations of such acquired businesses and potential restructuring costs associated with an acquisition, could have a material adverse effect on our business, financial condition and results of operations. We cannot forecast the number, timing or size of future acquisitions, or the effect that any such acquisitions might have on our operating or financial results. Furthermore, potential acquisitions, whether or not consummated, will divert our management's attention and may require considerable cash outlays at the expense of our existing operations. In addition, to complete future acquisitions, we may issue equity securities, incur debt, assume contingent liabilities or have amortization expenses and write-downs of acquired assets, which could adversely affect our profitability.

 
Item 2. Properties
 
Comstock Mine Project
 
Location, Access, and Title to the Property
 
The Comstock Mine Project is located in Storey and Lyon Counties, Nevada. The property is physically situated just south of Virginia City, Nevada. Paved state routes from Reno, Carson City, and Virginia City provide access to the property. The Comstock Mine Project has been the focus of our efforts since 2007, and has been the subject of four National Instruments 43-101 technical reports published in May and August 2010, November 2011 and January 2013.
 
Our property rights to the mineral estate of the Comstock Mine Project consist of five mineral leases, one joint venture (providing exclusive rights to exploration, development, mining and production), and fee ownership of real property and mining claims administered by the BLM. This project has 107 patented and 339 unpatented mineral lode claims, as well as 25 unpatented placer claims. The Comstock Mine Project holdings consist of approximately 8,306 acres of mining claims and parcels. The acreage is comprised of approximately 2,210 acres of patented claims (private lands) and surface parcels (private lands) and approximately 6,096 acres of unpatented mining claims which the Bureau of Land Management, (“BLM”) administers.
 


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The Comstock Mine Project mineral leases are as follows:
 
Fred Garrett - Lease
 
On April 1, 2008, we entered into a mineral exploration and mining lease agreement with Fred Garrett et al, covering one patented claim located in Storey County, Nevada. The lease remains in effect as long as exploration, development, mining, or processing operations are being conducted on a continuous basis, without a lapse of activity for more than 180 days. We pay a royalty to the lessor of $250 per month or a 3% net smelter royalty (“NSR”), whichever is greater. We are responsible for the payment and filing of annual maintenance fees, if any, and taxes for these claims.
 
James Obester Lease
 
On August 1, 2008, we entered into a mineral exploration and mining lease agreement with James Obester, covering ten unpatented claims located in Storey County. The lease remains in effect as long as exploration, development, mining, or processing operations are conducted on a continuous basis, without a lapse of activity of more than 180 days. We pay a royalty to the lessor amounting to $200 per month for the first two years and later increasing to $300 per month for the following three years, and then increasing to $500 per month thereafter. In addition, a NSR royalty percentage is applicable. The royalty percentage is a 2% NSR when the market price of gold is $900 or less per ounce and 3% NSR when gold is greater than $900 per ounce. We are also responsible for payment and filing of annual maintenance fees, if any, and taxes for these claims.
 
Railroad & Gold - Lease
 
On October 1, 2009, we entered into a mineral exploration and mining lease agreement with Railroad and Gold, LLC covering nine patented mining claims and sixteen unpatented mining claims in Storey County. The lease also includes rights for nine town lots and a rural parcel in American Flats. The lease is for an initial term of 15 years, but remains in effect for as long as exploration, development, mining, or processing operations are conducted on a continuous basis. We made an initial payment of $25,000 for the lease. The Company makes annual advance minimum royalty payments, which started with $30,000 on the first anniversary, and increasing by $5,000 each year. We are also required to pay a 4% NSR, which will be reduced by the sum of previously paid advance minimum royalties. We are also responsible for payment and filing of annual maintenance fees, if any, and taxes for these claims.
 
New Daney - Lease
 
On June 2, 2010, we entered into a Mineral Exploration and Mining Lease agreement with New Daney Company, Inc. covering seven unpatented lode claims.  These claims are located in Lyon County and are contiguous with the Company’s Spring Valley mineral holdings. All production from the property is subject to a 3% NSR. Once permits have been obtained to put the property into production, lease payments will be treated as advance royalties, which will be credited against the NSR. The Company makes advance minimum royalty payments of $200 per month. The lease is for an initial term of five years. We have the option, if we believe the property warrants further development, to extend an additional five years and then continuously thereafter as long as exploration, development, mining, or processing operations are conducted on a continuous basis.

Renegade Mineral Holdings - Lease
 
On October 14, 2010, we acquired twenty-six unpatented lode-mining claims along the southern extension of the Occidental Lode structure in Storey County, Nevada. The historic Occidental Lode, also referred to as the Brunswick Lode, is located 1.5 miles due east of and sub-parallel to the veins of the main Comstock Lode. These claims adjoined and extended the Company’s previous holdings of six patented and six unpatented claims, significantly expanding the Company’s position on the Occidental Lode. The Lease has an initial term of three years and, in the event we determine that exploration results warrant further development, then the term can be extended initially for two additional six-year terms and then continuously thereafter as long as the Company is producing on property adjacent to or in the vicinity of these claims. The agreement includes a 3% NSR from production with the gold price capped at $2,000 per ounce. We are also responsible for payment and filing of annual maintenance fees, if any, and taxes for these claims.
 

21


Northern Comstock Minerals
 
On October 20, 2010, the Company entered into an operating agreement (the “Operating Agreement”) to form Northern Comstock LLC (“Northern Comstock”) with Mr. Winfield, our Chairman and largest shareholder, and an entity controlled by Mr. Winfield, DWC Resources, Inc. (“DWC”). As part of the Operating Agreement, the Company obtained rights relating to certain property formerly owned by DWC in Storey County, Nevada (the “DWC Property”) and two groups of properties leased by Mr. Winfield in Storey County, Nevada from the Sutro Tunnel Company (the “Sutro Property”) and Virginia City Ventures (the “VCV Property”).
 
Pursuant to the terms of the Operating Agreement for Northern Comstock, DWC contributed the DWC Property to Northern Comstock and John Winfield contributed his rights under the Sutro Property and the VCV Property to Northern Comstock. The Company contributed 862.5 shares of Series A-1 Preferred Stock in each annual period from 2010 to 2013, and contributes its services in the area of mine exploration, development and production to Northern Comstock. The terms of the Operating Agreement provide that on each anniversary of the Operating Agreement, up to and including the thirty-ninth (39th) anniversary, the Company will make additional capital contributions in the amount of $862,500, in the form of Series A-1 Preferred Stock or cash (upon request of Northern Comstock, which request for cash can be denied by the Company in certain circumstances). In addition the Operating Agreement provides that each time more than 200,000 gold equivalent ounces of measured and indicated resources are validated, the capital contributions for such year will be accelerated to $5 million or 5,000 shares of Series A-1 preferred stock.
 
The Operating Agreement provides the Company with the exclusive rights of development, production, mining and exploration on the respective properties and requires the Company to make certain expenditures toward that end. Under the terms of the Operating Agreement, all cash flows from the bullion or other minerals recovered from the ore mined out of the ground but untreated and minerals produced from the milling or reduction of ore to a higher grade produced from the DWC Property, Sutro Property or VCV Property, as applicable, or finished products produced from any such property, will be distributed to the Company after the payment of royalties associated with such properties.
 
Mineral production from the DWC Property is subject to a royalty on a sliding scale. At market gold prices over $750 per ounce, production of the first 500,000 ounces is subject to a 3% NSR. Production over 500,000 ounces is subject to a 6% NSR. Mineral production from the DWC Property is also subject to a 1% NSR payable to Mr. Art Wilson.
 
Mineral production on the Sutro Property is subject to a royalty on a sliding scale to John Winfield. At gold prices over $250 per ounce, production of the first 500,000 ounces is subject to a 1% NSR. Production over 500,000 ounces is subject to a 2% NSR. A separate royalty of 5% NSR is also payable to the Sutro Tunnel Company on all production from the Sutro Property. Mineral production from the VCV Property is subject to a 5% NSR. The Company makes advance minimum royalty payments of $6,000 per year on each of the Sutro Property and the VCV Property leases. Each lease is for an initial term of five years. We have the option, if we believe the property warrants further development, to extend an additional five years and then continuously thereafter as long as exploration, development, mining, or processing operations are conducted on a continuous basis.
 
The Como Project
 
The Como Project is located in Lyon County, Nevada, approximately 15 miles east of Carson City. The Company performed geological reconnaissance on this property, but has not drilled or collected any samples. We own a 100% interest in eight unpatented lode-mining claims, covering an area of approximately 168 acres in Lyon County, Nevada, that comprise the Como Project.

Facilities Area
 
The heap leach facility and former Company headquarters originally occupied a 40-acre site in Storey County, Nevada, at 1200 American Flat Road, approximately three miles south of Virginia City and 30 miles southeast of Reno, Nevada. The property was included in the acquisition of Plum Mining by the Company in November 2003. The site has expanded, through land acquisitions, to 100 acres. The Company’s headquarters is at our Corporate Campus at 117, 119 and 123 American Flat Rd. in Gold Hill, Nevada, covering a 5 acre parcel. Our active mining and reclamation operations currently take place over a nearly 100 acre area.
 

22


Present Condition of Property and Work Performed
 
We have completed extensive geological mapping, sampling, and drilling on a portion of the Comstock Mine Project property, in order to characterize the mineralized material. We have performed metallurgical testing, mine planning, and economic analysis, and have produced internal reports of our mineralized material inventory. However, we have not established reserves that meet the requirements of SEC Industry Guide 7. Therefore, any activities that we perform on our lands and claims are considered exploratory in nature, including test mining.
 
Description of Equipment and other Infrastructure Facilities
 
We own or lease all property and equipment necessary to conduct mining and doré bar processing operations sufficient to support our current production rates.
 
Geology, Structure and Mineralization
 
Gold and silver mineralization in the Lucerne Resource area is highly dependent on geologic attributes including but not limited to: multiple episodes of mineralization; numerous fault structures of varying orientations that acted as fluid conduits for precious metal transport; and amenable host rocks for deposition of economic concentrations of precious metals.   The primary host rocks for the current Comstock resource areas are early Miocene age volcanic rocks, primarily andesitic to rhyolite volcanic flows, domes and intrusive rocks.
 
Mineralization in the Lucerne Resource area is located in the historic mine sites of the Lucerne open-cut, Silver Hill, Hartford and Billie the Kid. The mentioned historic mines extracted precious metals from mining veins developed within the northwest striking Silver City fault zone. Detailed studies by our geologic staff have identified within the Silver City fault zone four definitive sub-parallel northwest striking mineralized structures. The spacing between each of these structures is approximately 100 to 150 feet.
 
Our geologists have also identified structurally complex zones developed within the Silver City fault zone that have enhanced precious metals grade of contiguous mineralization averaging 0.10 gold ounce per ton for 200 feet. The structural complexity is explained by cross-cutting east-west and northeast striking mineralized structures intersecting with the northwesterly striking assembly of Silver City fault zone structures. 
 
During 2014, the mineralized material extracted from the Lucerne Resource area progressively increased in silver content. In early 2014, the silver to gold ratio was approximately 10:1. As the open cut developed the northern Justice portion of the Lucerne and deepened down-dip along the Silver City fault zone the silver to gold ratio increased. The silver to gold ratio peaked in December to a high of 18:1. The 2014 year to date weighted average of silver to gold ratio was 17.5: 1. This compares to historic ratios of silver to gold of 100:1 located in the northern Comstock District. Currently, exploration drilling has identified gold and silver mineralization over a strike distance of nearly one mile, with definition and in-fill drilling on 50 to 100 foot centers over almost one mile. Mineralization is open-ended to the north and south along strike and down-dip to the east, including the recently discovered Chute Zone in the eastern portion of the Lucerne.
 
Future Exploration Potential
 
The Comstock Mining district is a well-known, historic mining district, with over 150 years of production-based history. We have access to extensive reports and maps on various properties in the district, but to-date, we have only conducted detailed geologic exploration and resource modeling on less than 10% of our approximate 8,306 acre land position. We are conducting an ongoing exploration program to locate and test surface mineral targets, as well as deep underground "bonanza" targets, by using historic compilation, geological mapping, geochemical and geophysical investigations and drilling.

The Company recently completed a five month, extensive, dedicated geological exercise, started in May 2014, that included compiling, interpreting, and feasibility modeling for expanded surface mining and initial underground mine development. The effort started with the construction of detailed, 50-foot spaced geologic cross-sections covering the entire length of the East-side (approximately 2,400 feet). The models incorporate all available data, including existing drill holes, historic underground mine maps, current western mine development and the Company’s detailed surface geologic maps.


23


The sectional compilation resulted in several important findings. The work confirmed that the lode is comprised of a group of northwest trending, sub-parallel mineralized structures, rather than a simple vein system confined to a single fault zone. These structural groups coalesce into a single 150-foot wide zone in the central part of the East-side area. The faults (structures) diverge to the north and south to create zones up to 600-feet wide. The Company also discovered dike-like masses of quartz porphyry that have intruded into the main lode and may have a direct relationship to the known mineralization.

The Company has also utilized the sectional data to develop level plans at elevations between 4800’ and 5340’, spaced 20 feet apart vertically, and extending along the entire length of the East-side. The Company has also configured and integrated the underground mine workings into the plans. The drilling program will be significantly complemented and enhanced by the near-term access into the historic adits and tunnels from the Woodville Bonanza. The Company is preparing to access those former mines to sample, map and validate known extensions to these geological structures. The results from the underground program will be incorporated into the sectional data along with newly derived grade shells and grade models and an initial, phased reserve model will be created for this area. The new access to the Woodville Bonanza structures could represents a significant opportunity for additional, valuable data that could position the Company for an accelerated, efficient underground mine plan in Lucerne Area.


 Item 3.  Legal Proceedings
 
The Company’s mining and exploration activities are subject to various laws and regulations governing the protection of the environment. These laws and regulations are continually changing and are generally becoming more restrictive. The Company believes its operations are in compliance with applicable laws and regulations in all material respects. The Company has made, and expects to make in the future, expenditures to comply with such laws and regulations, but cannot predict the full amount of such future expenditures.

On January 31, 2014, the Comstock Residents Association (the “CRA”) and two of its members filed a civil action in the Third Judicial District Court of the State of Nevada in and for Lyon County (the “Court”) against the Lyon County Board of Commissioners (the “Commissioners”) and the Company, asking the Court to reverse the Commissioners’ decision to grant an application for master plan amendment and zone change submitted and approved by the Commissioners on January 2, 2014 (the “Application”). Prior to the approval of the Application, the master plan designation and zoning precluded from mining on certain property of the Company in the area of Silver City, Lyon County. Generally, the CRA argues, among other things, that the Commissioners should not have approved the Application because the master plan and zoning designations on that property had been in place for more than forty years. The Company believes that the Commissioners properly exercised their statutory authority and the Company, in cooperation with the Commissioners and the Lyon County District Attorney, is aggressively opposing the action of the CRA.

From time to time, we are involved in lawsuits, claims, investigations and proceedings that arise in the ordinary course of business. We maintain insurance to mitigate losses related to certain risks. There are no matters pending or threatened that we expect to have a material adverse impact on our business, results of operations, financial condition or cash flow.
 
Item 4.  Mine Safety Disclosures
 
Under Section 1503(a) of the Dodd-Frank Wall Street and Consumer Protection Act, mine operations are required to include in their periodic reports filed with the SEC certain information concerning mine safety violations and other regulatory matters. The required information is included in Exhibit 95 to this report.

24



PART II
 
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
Price Range of Common Stock
 
Our common stock is traded on the NYSE MKT LLC exchange under the symbol “LODE.” The following table sets forth the quarterly high and low sales prices of our common stock for the periods set forth below:
 
Quarterly Period
High
 
Low
2014
 
 
 
Fourth Quarter
$
1.36

 
$
0.65

Third Quarter
$
1.69

 
$
1.19

Second Quarter
$
1.77

 
$
1.56

First Quarter
$
2.06

 
$
1.63

 
 
 
 
2013
 

 
 

Fourth Quarter
$
1.90

 
$
1.64

Third Quarter
$
2.23

 
$
1.64

Second Quarter
$
2.06

 
$
1.65

First Quarter
$
2.20

 
$
1.78

 
The last reported sale price of our common stock on the NYSE MKT on January 26, 2015, was $1.01 per share. As of January 26, 2015, the number of holders of record was approximately 535.
 
Performance Graph

The following information is not deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C under the Exchange Act or to the liabilities of Section 18 of the Exchange Act, and will not be deemed to be incorporated by reference into any filing under the Exchange Act or the Securities Act of 1933, as amended, except to the extent we specifically incorporate it by reference into such filing.

The following graph compares our cumulative total stockholder return from December 31, 2009 with those of the NYSE MKT Composite Index and the Market Vectors Gold Miners Index. The graph assumes that U.S. $100 was invested on December 31, 2009 in (1) our common stock, (2) the NYSE MKT Composite Index and (3) the Market Vectors Gold Miners Index. The measurement points utilized in the graph consist of the last trading day in each calendar year, which closely approximates the last day of our respective fiscal year. The historical stock performance presented below is not intended to and may not be indicative of future stock performance.


25


Comparison of 5-Year Cumulative Total Return
among Comstock Mining, the NYSE MKT Composite Index
and the Market Vectors Gold Miners Index.


                

 
12/31/2009

 
12/31/2010

 
12/31/2011

 
12/31/2012

 
12/31/2013

 
12/31/2014

LODE
100.00

 
240.28

 
126.32

 
157.38

 
125.19

 
51.43

NYSE MKT Composite Index
100.00

 
108.70

 
101.04

 
111.89

 
134.81

 
142.10

Market Vectors Gold Miners
100.00

 
129.69

 
110.07

 
95.90

 
43.43

 
36.47


Equity Compensation Plan Information
 
See Equity Compensation Plan Information under Item 11. Executive Compensation and also below for information on plans approved by our stockholders.

 
Recent Sales of Unregistered Securities
 
Set forth below is information regarding shares of common stock issued by us during the year ended December 31, 2014, and additional issuances through January 26, 2015 that were not registered under the Securities Act and not previously disclosed in a quarterly report on Form 10-Q or in a current report on Form 8-K. Also included is the consideration, if any, received by us for such shares and information relating to the section of the Securities Act, or rule of the SEC, under which exemption from registration was claimed.


26


On November 17, 2014, the Company issued 1,538,462 of Rule 144 restricted shares of common stock to R M Wunderlich Trust towards the purchase of 70 acres of land with four residences and additional vacant land (the "Dayton" property), directly adjacent to the Company's holdings in Gold Canyon and Spring Valley.

On December 15, 2014, the Company issued 15,000 restricted shares of Rule 144 restricted shares of common stock to Mr. Timothy Collins towards the purchase of 1.5 acres of land, located in American Flat and directly adjacent to the Company's processing facilities.

On January 23, 2015, the Company issued 36,145 restricted shares of Rule 144 restricted shares of common stock to Robert Carrington towards the purchase of mineral rights, located near the Company's mining operations.

No underwriters were involved in the foregoing issuances of securities. The offers, sales and issuances of the securities described above were deemed to be exempt from registration under the Securities Act in reliance upon Section 4(2) of the Securities Act. The issuance of stock that was a private offering to accredited investors within the meaning of Rule 501 of Regulation D of the Securities Act. Each of the recipients of securities in these transactions had adequate access, through directorship, business or other relationships, to information about us.
 
The disclosure required pursuant to Items 201(d) and (e) of Regulation S-K is incorporated by reference to our definitive proxy statement.
 
Dividend Policy
 
We have never declared or paid any dividends on our common stock. We do not anticipate paying any cash dividends on our common stock in the foreseeable future. We currently intend to retain future earnings, if any, to finance operations and the expansion of our business. Any future determination to pay cash dividends will be at the discretion of the board of directors and will depend upon our financial condition, operating results, capital requirements and other factors the board of directors deems relevant. We are restricted from declaring or paying common stock dividends in cash under the terms of our Preferred Stock.

27



Item 6. Selected Financial Data
 
 
YEARS ENDED DECEMBER 31,
 
2014
 
2013
 
2012
 
2011
 
2010
REVENUES
 
 
 

 
 

 
 

 
 

Revenue - Mining
$
24,736,929

 
$
24,103,013

 
$
4,504,457

 
$

 
$

Revenue - Hospitality
846,432

 
723,574

 
634,159

 
473,386

 

Total revenues
25,583,361

 
24,826,587

 
5,138,616

 
473,386

 

 
 
 
 
 
 
 
 
 
 
COST AND EXPENSES
 
 
 

 
 

 
 

 
 

Costs applicable to mining revenue
19,126,632

 
26,495,665

 
3,554,727

 

 

Hospitality operating costs
1,260,972

 
1,117,225

 
928,897

 
570,039

 

Exploration and mine development
2,658,473

 
3,012,790

 
11,901,250

 
7,115,382

 
3,148,899

Mine claims and costs
3,750,866

 
3,735,267

 
3,280,059

 
2,354,917

 
787,728

Environmental and reclamation
1,107,170

 
1,756,935

 
3,123,994

 
31,028

 
1,933

General and administrative
6,371,954

 
9,641,507

 
12,669,323

 
5,956,561

 
3,125,256

Total cost and expenses
34,276,067

 
45,759,389

 
35,458,250

 
16,027,927

 
7,063,816

 
 
 
 
 
 
 
 
 
 
LOSS FROM OPERATIONS
(8,692,706
)
 
(20,932,802
)
 
(30,319,634
)
 
(15,554,541
)
 
(7,063,816
)
 
 
 
 
 
 
 
 
 
 
Total other income (expense), net
(946,067
)
 
(414,218
)
 
(442,639
)
 
3,872,229

 
(53,262,603
)
 
 
 
 
 
 
 
 
 
 
LOSS BEFORE INCOME TAXES
(9,638,773
)
 
(21,347,020
)
 
(30,762,273
)
 
(11,682,312
)
 
(60,326,419
)
 
 
 
 
 
 
 
 
 
 
INCOME TAX BENEFIT

 

 

 
76,081

 

 
 
 
 
 
 
 
 
 
 
NET LOSS
(9,638,773
)
 
(21,347,020
)
 
(30,762,273
)
 
(11,606,231
)
 
(60,326,419
)
 
 
 
 
 
 
 
 
 
 
DIVIDENDS ON CONVERTIBLE PREFERRED STOCK
(3,672,785
)
 
(4,016,705
)
 
(4,370,247
)
 
(4,696,766
)
 
(1,276,902
)
 
 
 
 
 
 
 
 
 
 
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS
$
(13,311,558
)
 
$
(25,363,725
)
 
$
(35,132,520
)
 
$
(16,302,997
)
 
$
(61,603,321
)
 
 
 
 
 
 
 
 
 
 
Net loss per common share – basic
$
(0.17
)
 
$
(0.42
)
 
$
(0.87
)
 
$
(0.66
)
 
$
(3.18
)
 
 
 
 
 
 
 
 
 
 
Net loss per common share – diluted
$
(0.17
)
 
$
(0.42
)
 
$
(0.87
)
 
$
(0.66
)
 
$
(3.18
)
 
 
 
 
 
 
 
 
 
 
Total assets
$
46,455,872

 
$
43,999,996

 
$
47,864,545

 
$
29,974,152

 
$
37,121,524

Long-term debt and capital lease obligations, including current portion
11,598,483

 
7,907,474

 
13,731,655

 
1,437,081

 
1,452,411

Total stockholders' equity
22,241,100

 
20,243,748

 
18,394,562

 
16,597,675

 
24,666,005


28



Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion provides information that we believe is relevant to an assessment and understanding of the consolidated results of operations and financial condition of the Company. It should be read in conjunction with the consolidated financial statements and accompanying notes also included in this 10-K.
 
The following discussion addresses matters we consider important for an understanding of our financial condition and results of operations as of and for the year ended December 31, 2014, as well as our future results.

Overview
 
The Company is a producing, Nevada-based, gold and silver mining company with extensive, contiguous property in the historic Comstock and Silver City mining districts (collectively, the “Comstock District”). The Comstock District is located within the western portion of the Basin and Range Province of Nevada, between Reno and Carson City. The Company began acquiring properties and developing projects in the Comstock District in 2003. Since then, the Company has consolidated a substantial portion of the Comstock District, secured and expanded permits, built an infrastructure and brought the exploration project into production.
 
Because of the Comstock District’s historical significance, the geology is well known and has been extensively studied by the Company, our advisors and many independent researchers. We have expanded our understanding of the geology of the project area through vigorous surface mapping, geophysical analysis, exploration drilling, drill hole logging and extensive geological cross-sectional analysis and mine planning. The volume of geologic data is immense, and thus far the reliability has been excellent, particularly in the various Lucerne Mine areas. We have amassed a large library of historic data and detailed surface mapping of Comstock District properties and continue to obtain historic information from private and public sources. We use such data in conjunction with information obtained from our current mining operations, to target geologically prospective exploration areas and plan exploratory programs, including drilling.

Our Lucerne Resource area is located in Storey County, Nevada, approximately three miles south of Virginia City and 30 miles southeast of Reno. Our Dayton Resource area is located in Lyon County, Nevada, approximately six miles south of Virginia City. Access to the properties is by State Route 342, a paved highway.
 
Our business plan is to deliver stockholder value by validating qualified resources (measured and indicated) and reserves (proven and probable) of at least 3,250,000 gold equivalent ounces from our first two resource areas, Lucerne and Dayton; and significantly grow the commercial development of our operations through coordinated district wide plans that are economically feasible and socially responsible. The Company has already met the first three intermediate resource objectives by validating measured and indicated resources containing more than 2,000,000 gold equivalent ounces. The Company achieved initial production and held its first pour of gold and silver on September 29, 2012. The Company produced approximately 20,815 and 22,925 gold equivalent ounces in 2013 and 2014, respectively. That is, the Company produced 17,739 ounces of gold and 186,482 ounces of silver in 2013, and 19,601 ounces of gold and 222,416 ounces of silver in 2014. The Company increased production every quarter during 2014, exiting the year at an annualized weekly rate of approximately 36,000 gold equivalent ounces, with December 2014, totaling 3,176 gold equivalent ounces, the highest month since production started.

During the fourth quarter of 2014, and further again in January 2015, the Company received unanimous approval to significantly amend the Company’s existing Special Use Permit No. 2000-222-A-3, expanding allowable mining and processing uses throughout its entire Lucerne Resource Area, containing the Company's largest, classified gold and silver resources. The amendment applies to both surface and underground mining; processing and milling; mine definition; exploration; development and other ancillary uses. The Company expects that this approval will facilitate further expansion of its current surface mining activities in the Lucerne Mine Area, specifically from the current Lucerne West-side mining activities over and into the East-side mining activities. The Company is also evaluating the feasibility of near term underground mining opportunities, potentially accessible from the current West-side mining activities.
 
We continue acquiring additional properties in the Comstock District, expanding our footprint and creating opportunities for exploration and mining.  The Company now owns or controls approximately 8,306 acres of mining claims and parcels in the Comstock and Silver City Districts J. The acreage is comprised of approximately 2,210 acres of patented claims (private lands) and surface parcels (private lands) and approximately 6,096 acres of unpatented mining claims, which the Bureau of Land Management (“BLM”) administers.


29


Automatic conversion of Series A-2 Preferred Stock and Series B Preferred Stock
 
If the daily volume weighted average price exceeds $4.50 for any 20 Trading Days during any 30 consecutive trading day period, then all outstanding shares of the Series A-2 Preferred Stock and Series B Preferred Stock will be forced to convert into shares of common stock, based on the then-effective conversion price. The Company will provide each holder with notice within one trading day of meeting the requirements specifying the shares of Preferred Stock held by each holder and the date three trading days later when the conversion will take effect.


Equity Raises
 
On May 8, 2014, the Company announced a public offering of its common stock. On May 9, 2014, the Company announced that it entered into an underwriting agreement to sell 6,500,000 shares of the Company’s common stock (the “Shares”) at a public offering price of $1.59 per share. The Company also announced that it granted the underwriters a 30-day option to purchase up to an additional 975,000 shares of common stock to cover over-allotments. The Company closed the sale of 7,475,000 shares (including the Shares delivered pursuant to the underwriters' exercise of the over-allotment option) on May 14, 2014. As a result of the offering, the Company received net cash proceeds of approximately $11 million.

 
Our Team
 
We believe we have exceptional mine engineering, geological, geo-statistical, metallurgical, safety, regulatory, environmental, financial and operating competencies on our management team. As of December 31, 2014, we have 114 full-time employees. We also have 8 full-time and 2 part-time hospitality employees working for the Gold Hill Hotel, Inc. In addition, we have strengthened our system through agreements and relationships with certain key partners.

Corrado De Gasperis has been President and CEO of Comstock Mining since April 2010, and appointed to the Board of Directors in June 2011. He brings over 27 years of industrial metals and mining manufacturing, operational and financial management, and capital markets experience. Previously, he served as the Chief Executive Officer of Barzel Industries Inc. (formerly Novamerican Steel Inc.) from April 2006 through September 2009. Barzel operated a network of 15 manufacturing, processing and distribution facilities in the United States and Canada that offered a wide range of metal solutions to a variety of industries, including construction, infrastructure development and mining. From 2001 to 2005, he served as Chief Financial Officer of GrafTech International Ltd., a global manufacturer of industrial graphite and carbon-based materials, in addition to his duties as Vice President and Chief Information Officer, which he assumed in 2000. He served as Controller of GrafTech from 1998 to 2000. From 1987 to 1998, Mr. De Gasperis was a certified public accountant with KPMG LLP. As a Senior Assurance Manager in the Manufacturing, Retail and Distribution Practice, he served major clients like General Electric and Union Carbide Corporation. KPMG announced his admittance, as a Partner, effective July 1, 1998.

Mr. De Gasperis holds a BBA from the Ancell School of Business at Western Connecticut State University, with honors. Mr. De Gasperis is also a founding member and the Chairman of the Board of Directors of the Comstock Foundation for History and Culture, a Director of the Gold Hill Hotel, Inc., and a Director of Nevada Works, furthering Northern Nevada’s economic development plans. He is also a Member of the NYSE Markets Advisory Committee, the Northern Nevada Development Authority, and the Northern Nevada Network.

Laurence "Larry" Martin has been the Director of Exploration & Mineral Development since 2010, and Chief Geologist since 2008. He brings over 31 years of successful precious metals exploration, mine development and production experience. He participated and supervised exploration projects in Northwest Territories, Canada, Liberia, West Africa, Mexico, Honduras, and areas within the western region of the United States. Mr. Martin’s production experience is exemplified by supervisory positions in the following Nevada mines: Manhattan, Borealis, Hog Ranch, and Denton-Rawhide.

Mr. Martin’s geologic technical expertise overlapped into the environmental and civil engineering disciplines of geology. He was instrumental in the evaluation of geologic design parameters at the proposed nuclear repository site located at Yucca Mountain, Nevada. Mr. Martin participated in the geo-technical evaluation of the environmentally sensitive sites of Hanford Nuclear Reservation, Washington and Anniston military depot, Alabama; and the rock product dam project, East Side Reservoir Project, California. Most recently, Larry’s focus has been in Nevada precious metals exploration projects including: the Sleeper Gold Project and, currently, the Comstock Mine Project. Mr. Martin received his Bachelor of Science in Geologic Engineering from Colorado School of Mines in 1978. He is a Qualified Person (QP) and a Certified Professional Geologist (CPG) accredited by American Institute of Professional Geologists (AIPG). Mr. Martin is a certified expert witness by the 9th District Appellate United States Federal Court in the categories of Exploration and Structural Geology.

30


Stephen "Steve" Russell has been Senior Mine Geologist since 2010. He has over 35 years of experience in precious metal mine planning, grade control, open pit mine production, including extensive heap leaching processing, and exploration. Mr. Russell has extensive Nevada mine planning and production experience and is a recognized authority in the Comstock District. He also has international exploration experience in Chile and China. Mr. Russell’s career includes extensive and specific project work in the Comstock Lode District as a Mine Geologist, Exploration Geologist, and Mine Project Planning, including direct experience in the Company’s near term production areas including the Lucerne, Dayton and Spring Valley Projects.

Mr. Russell is a graduate of California State University in Fresno, where he obtained a B.A. in Industrial Technology in 1971, a B.A. in Geology in 1974, and a Masters in Geology in 1976, with a thesis on stratigraphy and structure of Mesozoic meta-volcanic rocks. He is an industry-published author of unique Western U.S. structural geology.

Harold “Hal” Galbraith joined Comstock Mining in March 2014 as Director of Mining and brings over 30 years of experience in open pit, gold, silver and copper operations, as well as surface coal mining operations, maintenance systems, technical services, and industrial engineering support. He has held a variety of positions including Mine Manager, Mine Production Superintendent, Sr. Production Engineer, Assistant Superintendent of Production, Senior Mining Engineer, Senior Projects Engineer, Long and Short Range Planner, and Safety Coordinator.

Mr. Galbraith holds a Bachelor of Science in Mining Engineering from the Pennsylvania State University.

Timothy George joined Comstock Mining in 2014, as Senior Mine Engineer and brings nearly 10 years of experience in mine design, modeling and optimization. Mr. George has evaluated blast and loading designs in copper mining, coordinated production and maintenance activities in coal mines and has extensive long-term, strategic mine design, phasing and near term production scheduling, including geological and block model manipulation, fleet simulations and optimizations for surface mining as well as engineering design and boundary optimization for underground mining.

Mr. George holds a Bachelor of Science Degree in Mining Engineering, Cum Laude, from the University of Arizona.

R. Kenneth Joy joined Comstock Mining in 2013, most recently as Director of Strategic Project Management and brings over 12 years of experience in heavy industry and commercial civil engineering, above and underground utility and earthwork construction, permitting and complex construction project and multi-project management, including projects for the United States Forest Service.

Mr. Joy holds a Bachelor of Science Degree in Civil Engineering from the University of Nevada, Reno.

Brett "Randy" Harris has been the Director of Safety since 2010, and has over 35 years of experience in the fields of occupational health, safety and security. He has worked with organizations like Round Mountain Gold Corp. in Round Mountain, NV, Golden Predator Mines in Winnemucca and Imlay, NV and was most recently with the Turquoise Ridge Joint Venture between Barrick Gold and Newmont Mining Corporation. Mr. Harris also spent five years with the State of Nevada Mine Safety and Training Section as a Safety Specialist.

Mr. Harris has been involved with volunteer firefighting, search and rescue, EMT and ambulance services with Storey County, Silver City and Round Mountain. His safety training includes certification by the International Society of Mine Safety Professionals, OSH Standards 1910 Level I & II, and International Loss Control. Important to Comstock Mining's near-term and longer-term plans, he has strong safety expertise in both surface and underground mining.

Judd Merrill became Chief Accounting Officer in 2014, and has been our Controller since 2011. Mr. Merrill brings strong financial planning, treasury and cash management experience in the mining sector in addition to his broader financial accounting, reporting and internal control experience, having worked as Controller of Fronteer Gold Inc. and Assistant Controller at Newmont Mining Corp., both in Nevada. He also worked for Meridian Gold Company and Deloitte & Touche LLP.

Mr. Merrill holds a Bachelor of Science in Accounting from Central Washington University and a Masters of Business Administration from the University of Nevada, Reno and is a Certified Public Accountant.


31


Rachel Yelderman joined Comstock Mining in 2012, and became Director, Environmental and Permitting in 2014. She brings 8 years of experience in environmental planning, permitting, bonding and reclamation experience.  Ms. Yelderman represents the primary interface between the Company and its primary regulators, both at the state and federal levels, and is instrumental and integral in the project management of reclamation, historical restorations and planned mining and processing expansions. Prior to joining Comstock Mining Inc., she managed environmental permitting and reclamations in surface mining and other industrial activities with Energy Futures Holdings Corp.’s Luminant Power Generation division and Brazos Environmental and Engineering Services Inc.

Ms. Yelderman holds a Bachelor of Science Degree in Environmental Studies from Baylor University.

Elaine Barkdull-Spencer joined Comstock Mining in 2013, as Director of External Relations and brings nearly 15 years of experience in economic, business and community development, government relations, and stakeholder management. Prior to joining Comstock Mining, Ms. Spencer worked directly with the Nevada mining industry, as President of the Barkdull Spencer Agency, LLC, providing community and stakeholder management services and facilitating sustainability plans and projects for mining dependent communities.  Prior to that, Ms. Spencer was Executive Director at the Elko County Economic Diversification Authority and Chief Executive Officer of the Elko Chamber of Commerce.

Ms. Barkdull-Spencer holds an Advanced Professionalism Certificate from University of Nevada, Reno.  She also holds various independent professional certifications.


Exploration
 
In December 2014, the Company launched the 2014-2015 exploration and development drilling program (the “Program”) with four major objectives, 1) expanding the Lucerne East-side gold and silver resources, mine plan and current surface mining into the Company’s newly permitted area; 2) accelerating underground feasibility and developing high-grade, underground mine plans for that same newly permitted area; 3) expanding the Dayton gold and silver resources and developing a mine plan for potential future production; and 4) establishing a third major resource in the Spring Valley target area.

The first phase is expected to include 35 reverse circulation (RC) drill holes totaling approximately 11,000 feet and 11 core holes totaling approximately 5,000 feet on the Lucerne East-side. The planned initial investment of approximately $1 million will allow for the expansion of surface mining and help assess the feasibility of specific underground mining opportunities we have identified. The subsequent phases of exploration drilling for the Lucerne will extend farther south and east and will likely consist of an additional 30,000 feet of RC drilling for an additional investment of $1 million.

The Company recently completed a five month, extensive, dedicated geological exercise, started in May 2014, that included compiling, interpreting, and feasibility modeling for expanded surface mining and initial underground mine development. The effort started with the construction of detailed, 50-foot spaced geologic cross-sections covering the entire length of the East-side (approximately 2,400 feet). The models incorporate all available data, including existing drill holes, historic underground mine maps, current western mine development and the Company’s detailed surface geologic maps.

The sectional compilation resulted in several important findings. The work confirmed that the lode is comprised of a group of northwest trending, sub-parallel mineralized structures, rather than a simple vein system confined to a single fault zone. These structural groups coalesce into a single 150-foot wide zone in the central part of the East-side area. The faults (structures) diverge to the north and south to create zones up to 600-feet wide. The Company also discovered dike-like masses of quartz porphyry that have intruded into the main lode and may have a direct relationship to the known mineralization.
 
The Company has also utilized the sectional data to develop level plans at elevations between 4800’ and 5340’, spaced 20 feet apart vertically, and extending along the entire length of the East-side. The Company has also configured and integrated the underground mine workings into the plans. The drilling program will be significantly complemented and enhanced by the near-term access into the historic adits and tunnels from the Woodville Bonanza. The Company is preparing to access those former mines to sample, map and validate known extensions to these geological structures. The results from the underground program will be incorporated into the sectional data along with newly derived grade shells and grade models and an initial, phased reserve model will be created for this area. The new access to the Woodville Bonanza structures could represent a significant opportunity for additional, valuable data that could position the Company for an accelerated, efficient underground mine plan in Lucerne Area.


32


The East-side of Lucerne encompasses a nearly half-mile long segment of the Gold Hill/Silver City extension of the Comstock Lode. The East-side already has an extensive amount of drilling, including historic and more recent drilling that represents over 740 drill holes with an aggregate total footage of 270,000 feet (that is, over 51 miles), that the Company is using to evaluate the eastward projection of the Silver City fault zone. Our data also includes historic production records from mines within the East-side area (from the years 1860 to 1940) that totaled approximately 295,495 gold equivalent ounces from about 551,576 tons of material, or an average gold equivalent grade of 0.535 ounces per ton. Most of this production came from underground workings. These East-side, near-surface, mineralized areas represent the Company’s most significant, ongoing development. The historic Woodville Bonanza represents a near surface, intermediate and deeper, higher grade, primarily oxidized mineralized targets and the Chute Zone represents intermediate and deeper, higher grade, primarily oxidized mineralized targets that have been intersected in drill holes to depths of about 800 feet. In addition, the East-side development also includes the evaluation of a significant amount of grade-containing tonnage from historical waste dumps from past surface and underground operations.
 
The total Program also includes the Dayton Resource Area and Spring Valley. These areas are scheduled for approximately 80,000 feet of RC drilling and approximately 20,000 feet of core drilling at a total investment of approximately $2.9 million and $2.0 million, respectively.


Production
 
During 2014, the Company completed its second full year of production and transitioned from Billie the Kid and Hartford patented claims in the Lucerne West-side Mine to the higher-grade Justice and Lucerne patents, also in the Lucerne West-side Mine. We completed the planned mining for the Billie the Kid, Hartford and Justice patents during 2014, while continuing to mine the Lucerne patent through 2014 and 2015. The Company's operates a heap leach based, gold and silver production system, including a zinc-precipitate based Merrill-Crowe processing plant. The Company, under the existing water pollution control permit with the State of Nevada, has the crushing and processing capacity to operate at a rate of up to 4.0 million tons of material crushed and stacked, per annum. The Merrill Crowe system facilitates that capacity with an operating fluid processing rate of over 1,000 gallons per minute. In October 2014, the Company renewed its existing water pollution control permit for five more years while receiving authorization for a 9th cell into the leach pad design. The Company's eight existing cells continue under solution until the target gold and silver recovery rates have been achieved and the ninth cell is planned for construction in the first quarter of 2015.

33



The following table presents mining operations and production by quarter:

 
1Q 2014
 
 
2Q 2014
 
 
3Q 2014
 
 
4Q 2014
 
 
Total 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mining Operations
 
 
 
 
 
 
 
 
 
 
 
 
 
Tons Mined
947,852

 
 
944,166

 
 
1,131,985

 
 
1,061,233

 
 
4,085,236

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Processing
 
 
 
 
 
 
 
 
 
 
 
 
 
Tons Crushed
205,686

 
 
122,026

 
 
191,013

 
 
182,029

 
 
700,754

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted Average Grade Per Ton Au
0.024

 
 
0.034

 
 
0.026

 
 
0.039

 
 
0.030

Weighted Average Grade Per Ton Ag
0.345

 
 
0.546

 
 
0.564

 
 
0.680

 
 
0.527

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Estimated Au Ounces Stacked
5,016

 
 
4,191

 
 
4,926

 
 
7,110

 
 
21,243

Estimated Ag Ounces Stacked
70,989

 
 
66,607

 
 
107,822

 
 
123,692

 
 
369,110

Estimated Au Equivalent* Ounces Stacked
6,140

 
 
5,205

 
 
6,584

 
 
8,806

 
 
26,735

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Au Ounces Poured and Sold
4,507

(1) 
 
4,763

(1) 
 
5,002

(1) 
 
5,329

 
 
19,601

Ag Ounces Poured and Sold
49,358

(1) 
 
48,626

(1) 
 
61,096

(1) 
 
63,336

 
 
222,416

Au Equivalent* Ounces Poured
5,290

(1) 
 
5,499

(1) 
 
5,936

(1) 
 
6,200

 
 
22,925

 
 
 
 
 
 
 
 
 
 
 
 
 
 
* Au Equivalent ounces = Au ounces (actual) + (Ag ounces (actual) ÷ the ratio of average gold to silver prices)
63.14

 
 
65.69

 
 
65.03

 
 
72.93

 
 
66.7

____________________     
(1) updated with final settlement assays

The following table presents weighted average grades of gold and silver by quarter:

 
Weighted Average per ton Gold
 
Weighted Average per ton Silver
 
 
 
 
Q1, 2013
0.018

 
0.258

Q2, 2013
0.017

 
0.344

Q3, 2013
0.025

 
0.449

Q4, 2013
0.025

 
0.406

2013
0.020

 
0.363

 
 
 
 
Q1, 2014
0.024

 
0.345

Q2, 2014
0.034

 
0.546

Q3, 2014
0.026

 
0.564

Q4, 2014
0.039

 
0.680

2014
0.030

 
0.527



    

34


The Company produced 20,815 and 22,925 gold equivalent ounces in 2013 and 2014, respectively. The Company increased production every quarter in 2014, exiting the year at an annualized weekly rate of approximately 36,000 gold equivalent ounces, with December 2014, totaling 3,176 gold equivalent ounces, the highest month since production started. The Company averaged over 440 gold-equivalent ounces poured per week in 2014. The Company continuously adjusted its operations to improve grade, maximize yields and increase tons crushed and stacked throughout 2014, and averaged over 705 gold-equivalent ounces poured per week throughout December of 2014. Overall during 2014, the Company crushed and stacked 700,754 dry tons of mineralized material, delivering 21,243 estimated ounces of recoverable gold and 369,110 estimated ounces of recoverable silver to the leach pads, positioning the Company well for growth. Material placed on the heap leach pads remains under solution until the target recovery rates are achieved. Throughout this period, the recovery of gold and silver continues, but the most effective economic recovery of gold and silver takes between 45 to 60 days to complete. The Company estimates it will recover 81% of the recoverable gold and 50% of the recoverable silver from the portion of the heap under leach the longest. Preliminary laboratory metallurgical test results suggest that ultimate heap leach recovery will meet or exceed the estimated ounces of recoverable gold and silver.
 
For the quarter ended December 31, 2014, the Company realized an average sales price of $1,232.79 per ounce of gold and $16.70 per ounce of silver. In comparison, commodity market prices averaged $1,200.36 per ounce of gold and $16.47 per ounce of silver.

For the year ended December 31, 2014, the Company realized an average sales price of $1,272.28 per ounce of gold and $18.93 per ounce of silver. In comparison, commodity market prices in 2014 averaged $1,266.20 per ounce of gold and $19.08 per ounce of silver.

During the fourth quarter of 2014, and further again in January 2015, the Company received unanimous approval to significantly amend the Company’s existing Storey County Special Use Permit No. 2000-222-A-3 (“Storey SUP”), expanding allowable mining and processing uses throughout its entire Lucerne Resource Area, containing the Company's largest, classified gold and silver resources.

Comstock Mining applied for amendments to significantly modify and expand permitted and allowable uses throughout its entire Lucerne Resource Area, containing the Company's largest, classified gold and silver resources and its recently expanded American Flat processing area. The amendments applied to local county, state and federal permits. The most significant expansion of permitted uses was the Storey County existing Storey SUP, that applies to both surface and underground mining; processing and milling; mine definition; exploration; development and other ancillary uses. Some of the more salient features are highlighted below.

The Storey County SUP expands the overall permitted boundary to over 1,280 acres (from 185 acres), allowing for substantial expansion of mining and processing operations, including the Eastside of Lucerne. Additionally it expands the permitted private property boundary to approximately 400 acres (from 78 acres) for processing to the south and west of the existing processing facility in American Flat, consistent with recent strategic acquisitions of adjacent private lands. The permit allows for ongoing mine definition and exploration for the assessment of mineral deposits, including their location, extent, depth, and grade, for the subsequent phasing of the active mine; it allows for the re-alignment of State Route 342, enabling access to significant resources both under and just east of the current alignment. The permit establishes new and best practices for environmentally responsible mining, including concurrent land reclamation, restoration and preservation of one of the most historically significant and progressive mining districts in Nevada. This permit supports the ongoing development of the county’s significant mineral resources without impeding the growth of the tourism-based economy of the Comstock Lode.


35



The Company also received a five-year renewal of its Water Pollution Control Permit (WPCP), NEV2000109, from the NDEP Bureau of Mining Regulation and Reclamation. The permit, effective October 22, 2014, authorizes construction, operation, and closure of the approved heap leaching facilities in Storey County. Additionally, the permit allows for the construction of an additional cell to the existing heap leach facility. The Company currently has eight active cells and anticipates construction of an additional cell in the first half of 2015. The Water Pollution Control permit also allows processing rates of up to 4 million tons of mineralized material to be placed on the leach pad per annum.

On November 6, 2014, the Company received a revised Nevada Division of Environmental Protection (NDEP) Bureau of Air Pollution Control permit, allowing for longer operating hours and increased throughput. The Company submitted an application to revise its existing OPTC, AP1041-2761. The revisions allow the Company to increase the maximum allowable throughput of gold bearing material to 7,300,000 tons per 12-month rolling period and increase the hours of operation to 20 hour per day from the current limit of 12.

The Company has submitted an application to amend Right-of-Way (ROW) grant NVN 091237, submitted to the BLM's Sierra Front Field Office along with a draft Plan of Development. The existing ROW would expire on December 31, 2017. The ROW amendment would provide an expanded roadway that can accommodate oversized haul trucks, and allow the Company to deliver material from the mine to the processing facility, both located on private land. To evaluate this proposal, the BLM has prepared the American Flat Road/Lucerne Access Right-of-Way Draft EA.  This analysis has been prepared to comply with the National Environmental Policy Act and National Historic Preservation Act. The draft EA analyzes the following activities:

Modifications to the American Flat Road to facilitate safe use of the roadway;
Realignment of a portion of the American Flat Road to segregate public traffic from haul traffic; and
Use of several "wedges" of public land in the Lucerne Pit for haul-through purposes.

The Lucerne Haul Road would be used exclusively for haul-through purposes by the Company.


36


The Company is currently mining in the Lucerne Mine that includes, among others, the Lucerne and Billie the Kid mining patents. Mined material is currently hauled, on a non-exclusive-use road, to the heap-leach processing facility under an existing right-of-way that was just recently extended to December 31, 2017.

Concurrently, the BLM and consulting parties are preparing a Memorandum of Agreement (MOA) under the National Historic Preservation Act to resolve potential adverse effects to nine historic properties in the project area.  The BLM will hold a separate workshop on the MOA.

The public review and comment period ended on December 9, 2014.

The Company also announced in January 2015, that it has engineered an at-grade crossing that enables it to more efficiently access mine areas east of the Lucerne Resource Area without any major infrastructural changes to the State Route 342 ("SR 342"). The modification allows the Company's haul trucks to move material from the East-side Lucerne resource area across SR 342 to the Company's American Flat processing facilities. The Company is in the process of assessing mine opportunities and preparing mine plans for parcels to the east of SR 342. Storey County's Board of Commissioners found, unanimously, that these plans conform to the Company's existing Special Use Permit N0. 2000-222-A-5.


Operating Costs

During fiscal year 2014, actual Lucerne Mine cost applicable to mining revenue was $23.3 million, $19.1 million net of silver by-product credits as compared to $30.6 million, $26.5 million net of silver by-product credits in 2013, a 24% reduction of cost applicable to mining when comparing 2014 to 2013, despite pouring more gold and silver in 2014. Cost applicable to mining revenue include mining and processing labor, maintenance, drilling, blasting and assaying, hauling, crushing and related maintenance cost, among others. Cost applicable to mining revenue also includes $6.7 million and $4.7 million of depreciation for 2014 and 2013, respectively.

During the year ended December 31, 2014, the Company continued focusing on reducing costs applicable to mining, targeting $6.5 million in reductions for 2014, as compared to 2013, and an additional $3.5 million in administration and all other costs. The Company reduced costs applicable to mining by approximately $8.4 million, for 2014, as compared to 2013, primarily from reduced staffing in crushing, related maintenance, mining, drilling and blasting, logistics, mine development and related cost reductions. The Company further reduced general, administrative and all other costs by another $3.3 million, exceeding the combined target of $10 million by nearly $2 million.


2015 Outlook
 
The Company expects positive net income and positive cash flow from all operating and investing activities during the first half of 2015, while also commencing expansion and mining activities to the east of the Lucerne mine, developments of an underground Lucerne mine, and finalizing a Dayton mine plan and commencing permitting for the Dayton Resource Area.
 
Through the end of 2014, the Company continued transitioning into production at higher rates and grades with lower sustainable costs. Under our current mine plan, the Company anticipates expanding operations to the east side of the Lucerne pit accessing material at lower stripping ratios and consistent and higher grades. The Company continues to focus on increasing production and expects to realize additional cost savings into 2015 by synchronizing operations, lower strip ratios and additional savings in non-mining operating expenses.
 
The Company updated its financial analysis for the remainder of the Lucerne Mine and anticipates annual operating expenses, including all mining and processing costs, of less than $18 million per annum, a more than $5 million reduction over fiscal year 2014. The Company has also identified $1.5 million of potential cost reductions in all other non-mining activities, including general, administrative and environmental areas. 


37


Recent Developments

The Company engineered an at-grade crossing that enables it to more efficiently access mine areas east of the Lucerne Resource Area without any major infrastructural changes to the State Route 342 (“SR 342”). The modification allows the Company’s haul trucks to move material from the East-side Lucerne resource area across SR 342 to the Company’s American Flat processing facilities. The Company is in the process of assessing mine opportunities and preparing mine plans for parcels to the east of SR 342.  Storey County’s Board of Commissioners found, unanimously, that these plans conform to the Company’s existing Special Use Permit N0. 2000-222-A-5.

 
Land and Mineral Right Acquisitions
 
We will continue to increase our footprint in the Comstock District through strategic acquisitions.  We consider the historic Comstock district central to our growth strategy. The following acquisitions described below were completed in 2014.

On February 26, 2014, the Company entered into an agreement to purchase 78 Acres adjacent to its processing facility on American Flat Road, Storey County, Nevada. The purchase price of $1,107,000 comprised of a $20,000 cash payment and $1,087,000 in Company restricted common stock. No transfer of deed will take place prior to Seller receiving the proceeds from the sale of shares. On March 7, 2014, the Company issued 543,500 restricted shares of common stock to Dan and Caroline Salzwimmer towards the purchase of this property. Escrow is scheduled to close on June 30, 2015.

On February 26, 2014, the Company entered into an agreement to purchase buildings and mining claims adjacent to its processing facility on American Flat Road, Storey County, Nevada. The purchase price of $893,000 comprised of a $20,000 cash payment and $873,000 in Company restricted common stock. No transfer of deed will take place prior to Seller receiving the proceeds from the sale of shares. On March 7, 2014, the Company issued 436,500 restricted shares of common stock to Dan and Caroline Salzwimmer towards the purchase of this property. Escrow is scheduled to close on June 30, 2015.

On June 26, 2014, the Company closed escrow on an open purchase agreement for 5 vacant lots near its mining and processing operation. The property known as (the "5 Vacant Lots") is located in Virginia City, Nevada. The purchase price of $194,332 comprised of $45,000 cash payment and 88,888 shares of common stock with a fair value of $149,332.

August 4, 2014, the Company entered into an agreement to purchase land and a building near its mine offices in Gold Hill, Nevada. The purchase price of $420,000 was comprised of a $32,000 cash payment and $388,000 in Company restricted common stock. On August 26, 2014 the Company issued 235,151 restricted shares of common stock towards the purchase of this property. No transfer of deed will take place prior to Seller receiving the proceeds from the sale of shares. As of December 31, 2014, no transfer of deed has occurred under the agreement. Accordingly, the related properties and equity issued were not given accounting consideration in the Company's consolidated financial statements. Escrow is scheduled to close on October 30, 2015.

On September 9, 2014, the Company completed the purchase of 435 acres near its mining and processing operations. The purchase price of $720,331 was comprised of $54,706.38 cash payment and 468,750 shares of common stock with a fair value of $665,625.

On October 1, 2014, the Company entered into a purchase agreement to purchase 70 acres of land and buildings near its mining operation. The purchase price of $2,300,000 is comprised of $500,000 cash payment with $490,000 due prior to the closing date, and $1,800,000 in Company restricted common shares. No transfer of deed will take place prior to Seller receiving the proceeds from the sale of shares. On November 17, 2014, the Company issued 1,538,462 restricted shares of common stock to Robert Bachler towards the purchase of this property. Escrow is scheduled to close February 27, 2015.

On October 15, 2014, the Company completed the purchase of property known as "commercial VC properties" located in Virginia City, Nevada. The purchase price of $251,595 was comprised of $51,595 cash payment and 170,940 shares of common stock with a fair value of $200,000.

On October 29, 2014, the Company completed the purchase of nearly 7.5 acres of land known as ("Vacant Land") located in Virginia City, Nevada. The purchase price of $141,299 was finalized with a cash payment of $141,299.

In addition, during the year ended 2014, the Company completed six purchases of land property strategically located near its mining and processing operations. The total purchase price of $235,765.35 was comprised of $205,765.35 cash payment and a $30,000 notes payable agreement.

38



Comparative Financial Information
 
Below we set forth a summary of comparative financial information for the twelve months ended December 31, 2014, 2013 and 2012.
 
 
2014
 
2013
 
2012
 
Difference
2014 versus 2013
 
Difference
2013 versus 2012
Revenue - Mining
$
24,736,929

 
$
24,103,013

 
$
4,504,457

 
$
633,916

 
$
19,598,556

Revenue - Hospitality
846,432

 
723,574

 
634,159

 
122,858

 
89,415

 
 
 
 
 
 
 


 


Costs applicable to mining revenue
19,126,632

 
26,495,665

 
3,554,727

 
(7,369,033
)
 
22,940,938

Hospitality operating costs
1,260,972

 
1,117,225

 
928,897

 
143,747

 
188,328

Exploration and mine development
2,658,473

 
3,012,790

 
11,901,250

 
(354,317
)
 
(8,888,460
)
Mine claims and costs
3,750,866

 
3,735,267

 
3,280,059

 
15,599

 
455,208

Environmental and reclamation
1,107,170

 
1,756,935

 
3,123,994

 
(649,765
)
 
(1,367,059
)
General and administrative
6,371,954

 
9,641,507

 
12,669,323

 
(3,269,553
)
 
(3,027,816
)
Loss for Operations
(8,692,706
)
 
(20,932,802
)
 
(30,319,634
)
 
12,240,096

 
9,386,832

OTHER INCOME (EXPENSE)
 
 
 

 
 

 
 
 
 
Change in fair value of derivatives
(963,169
)
 
454,681

 
438,519

 
(1,417,850
)
 
16,162

Interest expense
(997,112
)
 
(1,157,535
)
 
(929,837
)
 
160,423

 
(227,698
)
Interest and other income
1,014,214

 
2,101

 
48,679

 
1,012,113

 
(46,578
)
Gain on settlement of debt obligation

 
286,535

 

 
(286,535
)
 
286,535

Net Loss
$
(9,638,773
)
 
$
(21,347,020
)
 
$
(30,762,273
)
 
$
11,708,247

 
$
9,415,253

 

Mining revenue increased by $633,916 in 2014 as compared to year ended 2013. This increase is primarily the result of higher ounces produced in 2014 offset somewhat by a lower gold price in comparison to 2013 and 2012. In the year ended 2014, the company produced and shipped 19,601 ounces of gold at the average selling price of $1,272. In comparison, the company produced and shipped 17,739 ounces of gold at the average selling price of $1,362 and 2,583 ounces of gold at the average selling price of $1,744 for the years ended 2013 and 2012, respectively.
 
The hospitality revenue was $846,432 and for the year ended December 31, 2014. The increase of $122,858 from 2014 to 2013 and the increase of $89,415 from 2013 to 2012 was primarily the result of focused marketing and improvement activities.

Hospitality operating costs increased $143,747 for the year ended December 31, 2014 as compared to the year ended December 31, 2013. This increase primarily resulted from higher consulting and employee wages associated with increased marketing and sales, including severance costs associated with changes in the delivery model. Hospitality operating costs increased $188,328 for the year ended 2013 compared to the same period in 2012. This increase primarily resulted from marketing efforts toward growing sales and improved utilization of the hospitality assets

Costs applicable to mining revenue significantly decreased by $7,369,033 for the year ended December 31, 2014, as compared to 2013. The decrease resulted from lower mining, maintenance, material costs from less variation associated with mining start up activities, production scheduling and includes a 2013, $1.5 million write down in the value of our inventory caused by then declining gold prices. The Company also effectively eliminated redundant costs associated with the temporary use of longer haul routes in the first quarter of 2013, and from eliminating outsourcing of hauling, processes and certain mining equipment. Costs applicable to mining revenue significantly increased by $22,940,938 for the year ended 2013 as compared to the year ended 2012. The increase is primarily the result of a full year of production in 2013 as compared to four months of production in 2012.


39


Exploration and mine development decreased by $354,317 in 2014, as compared to 2013 and $8,888,460 in 2013, as compared to 2012. The decrease primarily resulted from shifting the Company's focus from exploration to production activities. Exploration activities in 2013 and 2014 primarily represented geological support, grade, and metallurgical analysis and assessment.

Mine claim and costs remained fairly consistent for the years ended 2014, 2013 and 2012. Mine claim costs consist of annual claim filing fees and annual payments related to the Northern Comstock Joint Venture.

Environmental and reclamation costs decreased by $649,765 in 2014, as compared to year ended 2013. The decrease is the result of lower environmental consulting costs as a result of completion of environmental studies. Environmental and reclamation expenses decreased $1,367,059 for the year ended 2013, as compared to the year ended 2012. The decrease is primarily for the reduction of environmental costs associated with soil sampling and other related land preparations.

General and administrative expenses decreased by $3,269,553 for the year ended 2014, as compared to the year ended 2013. This decrease is primarily the result of lower stock-based compensation expense, lower consulting and third party expenses and lower administrative costs. General and administrative expenses increased by $3,027,816 for the year ended 2013 as compared to the year ended 2012. This increase is primarily the result of $3,644,602 related to stock-based compensation expense and, to a lesser extent, increases in insurance, travel and other administrative costs.
 
Change in fair value of derivatives decreased by $1,417,850 for the year ended December 31, 2014, as compared to the year ended December 31, 2013. This change is primarily the result of the decrease in stock prices during the year which caused an increase in the debt derivative obligation related to make whole provisions of the agreement with The Golden Goose Mine. The change in fair value of open gold call options, forwards and shares for outstanding debt obligation is also accounted for in this change.
 
Interest and other income increased by $1,012,113 in 2014 as compared by 2013. During the year ended December 31, 2014, a portion of the tax indemnity liability lapsed, and accordingly, the Company recognized a reduction in the loss contingency accrual of approximately $1 million. Interest income decreased by $46,578 during the year ended 2013 as compared to the year ended 2012. This decrease resulted from an overall decrease in income generating cash and cash equivalents and available-for-sale securities during the year ended 2012.

During the year ended December 31, 2013, we recognized a non-recurring gain on the settlement of our Auramet Facility obligations of approximately $287,000.

Net loss was $9,638,773 and $21,347,020 for the years ended December 31, 2014 and 2013, respectively. The decrease of $11,708,247 from 2014 to 2013 was primarily the result of focused costs reduction and savings activities in hauling, related maintenance, mining, consulting, and stock based compensation expense and slightly higher revenue from production. The decrease of $9,415,253 from 2013 to 2012 was primarily the result of focused production and process improvements activities across entire operations during 2013.


 Liquidity and Capital Resources

Total current assets were $8.6 million at December 31, 2014. Cash and cash equivalents on hand at December 31, 2014 totaled $5.3 million. Inventories, stockpiles, and mineralized material on leach pad totaled $2.2 million.

In February 2014, the Company entered into a $5 million revolving credit facility (the “Revolving Credit Facility”) with Auramet International, LLC (“Auramet”), which the Company borrowed against during February 2014. On January 27, 2015, the Company and Auramet agreed to increase the facility up to $8.0 million and extend the facility from the current maturity of February 6, 2015 to February 6, 2017. The Company also incurred an additional $3.0 million in debt obligations by purchasing and financing mining vehicles and equipment from Caterpillar, resulting in significant reductions in equipment operating and rental expenses. The Company believes it has the ability to make its debt payments within the normal course of business for at least the next twelve months. In May 2014, the Company raised $11.9 million in gross proceeds (approximately $11 million, net of issuance costs) through an underwritten public offering of 7,475,000 shares of our common stock at a price of $1.59 per share.


40


Net cash used in operating activities for the twelve months ended December 31, 2014 was approximately $2.4 million as compared to $10.3 million for the year ended 2013. Our use of cash in 2014 was primarily from uses for working capital, including an increase of inventories of $1.0 million, the reduction of accounts payables and other accrued expenses of $2.1 million and increase in accounts receivable of $0.3 million. Our use of cash in 2013 was primarily from operating losses associated with ramping up production, and the $2.7 million of gold produced and directly transferred as payment on our Auramet Facility that was completely paid off.

Net cash used in investing activities for the year ended December 31, 2014, was $3.3 million, primarily as the result of capital asset purchases of $2.6 million and bond deposit increases of $0.8 million, net of $0.2 million of proceeds received from the sale of equipment that was previously used in mining development and production activities. Cash used in investing for the year ended 2013 was approximately $6.7 million, primarily as the result of capital assets purchases of $6.0 million and bond deposit increases of $1.3 million, net of $597 thousand of proceeds received from the sale of equipment that was previously used in mining development and production activities.

Net cash provided by financing activities for fiscal year 2014 was $8.6 million, comprised of proceeds of approximately $11 million from the sale of securities and proceeds of $4.6 million from the revolving credit facility (the “Revolving Credit Facility”) with Auramet International, LLC, partially off-set by the pay-down of our long-term debt obligations of approximately $7.0 million. Net cash provided by financing activities for the year ended 2013 was $13.4 million, comprised of proceeds of approximately $18.3 million from the sale of securities in two public offerings totaling 9,146,920 shares of our common stock at prices of $2.00 and $2.11 per share, partially off-set by the pay-down of our long-term debt obligations of approximately $4.9 million.

The Company was an exploration company for most of its existence and transitioned into production in the Lucerne Mine late in 2012, and accordingly, has incurred net operating losses and negative cash flows from operations every year since inception. During fiscal year 2014, the Company's second full year of production, the Company was able to increase production rates while significantly decreasing costs. The Company continues reducing costs applicable to mining and related costs. The Company realized annual mining, mine development and related savings of approximately $8.4 million (exceeding the target of over $6.5 million) from reduced staffing in crushing, related maintenance, mining, drilling and blasting, logistics and additional $3.3 million in administration cost reductions, totaling approximately $11.7 million, year on year savings. The Company has identified an additional $6 million of annualized savings for 2015, as compared to 2014.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which considers the realization of assets and discharge of liabilities in the normal course of business and does not include any adjustments that might result from the outcome of uncertainties noted below. At December 31, 2014, the Company has cash and cash equivalents of $5.3 million. During 2014, the Company incurred a net loss of $9.6 million, used $2.4 million of cash in operations, primarily for working capital and used $7.0 million for debt repayments. The Company continues its efforts to increase production, reduce costs and working capital needs, improve efficiencies, and maximize funds available for working capital.

The Company’s current capital resources include cash and cash equivalents and other working capital resources, cash generated through operations, and existing financing arrangements, including a $5 million revolving credit facility (the “Revolving Credit Facility”) with Auramet International, LLC ("Auramet"), pursuant to which the Company may have borrowings up to $5 million outstanding at any given time. On January 27, 2015, the Company and Auramet agreed to increase the facility up to $8.0 million and extend the facility from the current maturity of February 6, 2015 to February 6, 2017. 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, borrowings, or other means. There is no assurance that the Company will be able to obtain additional equity capital or other financing, if needed. The Company believes it will have sufficient funds to sustain its operations during the next 12 months as a result of the sources of funding detailed above.

Future production rates and gold prices below management’s expectations would adversely affect the Company’s results of operations, financial condition and cash flows. If the Company was unable to obtain any necessary additional funds, this could have an immediate material adverse effect on liquidity. In such case, the Company could be required to limit or discontinue certain business plans, activities or operations, reduce or delay certain capital expenditures or sell certain assets or businesses. There can be no assurance that the Company would be able to take any of such actions on favorable terms, in a timely manner or at all.


41


The Revolving Credit Facility with Auramet International, LLC, contains a covenant that requires the Company to maintain a minimum liquidity balance of $1 million (including cash and cash equivalents, plus 90% of the value of any doré that has been picked up by a secured carrier but not yet paid for, as of any date of determination). The Revolving Credit Facility additionally contains customary representations, warranties, affirmative covenants, negative covenants, and events of default, as well as conditions to borrowings. The Company is in compliance with all required covenants.

The Company’s recurring losses and negative cash flow from operations require an ongoing assessment of our ability to continue as a going concern. The consolidated financial statements included in this report do not include any adjustments that might result from the outcome of this uncertainty.

For 2015, the Company plans on spending up to $2.8 million in capital expenditures, primarily infrastructure and development needs for the expansion of the Lucerne Mine and related heap leach processing capacity, including expansion for cell 9 of approximately $1.5 million the at-grade crossing of $0.4 million for mining of the East Side of the Lucerne resource area. The Company also plans to pay down an additional $5.9 million of long-term debt obligations, including $1.1 million on the Revolving Credit Facility.


Contractual Obligations
 
Our contractual obligations at December 31, 2014 are summarized as follows:
 
 
Payments Due by Period
 
 
 
Less than
 
1 - 3
 
4 - 5
 
More Than
Contractual Obligations
Total
 
1 Year
 
Years
 
Years
 
5 Years
Long-term debt and capital lease obligations (1)
$
12,337,721

 
$
6,271,631

 
$
5,819,500

 
$
77,527

 
$
169,063

Operating Leases (2)
30,978,900

 
937,900

 
2,824,500

 
1,892,000

 
25,324,500

Reclamation and remediation obligations (3)
5,908,700

 

 
5,908,700

 

 

 
$
49,225,321

 
$
7,209,531

 
$
14,552,700

 
$
1,969,527

 
$
25,493,563

 
(1) 
Amounts represent principal of $11,598,483 and estimated interest payments of $739,238, assuming no early extinguishment.
(2) 
The Company leases certain properties under operating leases expiring at various dates through 2049. See Note 20 to the Consolidated Financial Statements. Amounts include minimum rental and minimum advance royalty payments.
(3) 
We are required to mitigate long-term environment impacts by stabilizing, contouring, resloping, and revegetating various portions of a site after mining and mineral processing operations are completed. These reclamation efforts are conducted in accordance with plans reviewed and approved by the appropriate regulatory agencies. The Nevada State Environmental Commission and Division of Environmental Protection and other agencies have approved our most recent reclamation plans, as revised, of approximately $5.2 million. In addition, the Company placed a $1.5 million reclamation surety bond through the Lexon Surety Group ("Lexon") with Storey County in October 2014.


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 committee of our Board of Directors.  The following paragraphs identify our most critical accounting policies:
 

42


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 that 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.
 
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.
 
Stock-Based Compensation
 
We measure share-based compensation cost at the grant date based on the value of the award and recognize the cost as an expense over the term of the vesting period.  Judgment is required in estimating the fair value of share-based awards granted and their expected forfeiture rate.  If actual results differ significantly from these estimates, stock-based compensation expense and our results of operations could be materially impacted.
 
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.
 

43


Derivative Instruments
 
The Company has previously recorded derivatives relating to contingent dividend payments on our Preferred Shares and gold forwards, calls and puts. These derivatives are recorded on the balance sheet at fair market value. Changes in the fair market value of derivatives are recorded in the consolidated statements of operations. Management applies judgment in estimating the fair value of derivative instruments that are sensitive to assumptions that include various observable and unobservable market inputs. These inputs include variables such as volatility, stock price, expected life, probability of conversions, commodity prices, commodity volatilities, and interest rates. Variations in these factors could materially affect amounts credited or charged to earnings to reflect the changes in fair market value of derivatives.

Inventories, Stockpiles and Mineralized Material on Leach Pads
 
Inventories, including stockpiles and mineralized material on leach pads are carried at the lower of cost or net realizable value. Cost is comprised of production costs for mineralized material produced and processed. Production costs include the costs of materials, costs of processing, direct labor, stock-based compensation, mine site and processing facility overhead costs, and depreciation, depletion and amortization.
 
Stockpiles - Stockpiles represent mineralized material that has been extracted from the mine and is available for further processing. Stockpiles are measured by estimating the number of tons added and removed from the stockpile. Stockpile tonnages are verified by periodic surveys. Costs are allocated to stockpiles based on relative values of material stockpiled and processed using current mining costs incurred up to the point of stockpiling the material, including applicable overhead, depreciation, and depletion relating to mining operations, and removed at each stockpile’s average cost per ton. We record stockpiles at the lower of average cost or net realizable value (“NRV”) and carrying values are evaluated at least quarterly. NRV represents the estimated future sales price based on short-term and long-term metals prices, less estimated costs to complete production and bring the product to sale. The primary factors that influence the need to record write-downs of stockpiles include short-term and long-term metals prices and costs for production inputs such as labor, fuel and energy, materials and supplies, as well as realized mineralized material grades and actual production levels. If short-term and long-term metals prices decrease, the value of the stockpiles may decrease, and it may be necessary to record a write-down of stockpiles to NRV. Cost allocation to stockpiles and the NRV measurement involves the use of estimates and assumptions unique to each mining operation regarding current and future operating and capital costs, metal recoveries, production levels, commodity prices, engineering data and other factors. A high degree of judgment is involved in determining such assumptions and estimates and no assurance can be given that actual results will not differ significantly from those estimates and assumptions.
 
Mineralized Material on Leach Pads - The Company utilizes a heap leaching process to recover gold from its mineralized material. Under this method, the mineralized material is placed on leach pads where it is treated with a chemical solution, which dissolves the gold contained in the material. The resulting gold-bearing solution is further processed in a facility where the gold is recovered. Costs are added to mineralized material on leach pads based on current mining and processing costs, including applicable depreciation and depletion relating to mining and processing operations. Costs are transferred from mineralized material on leach pads to subsequent stages of in-process inventories as the gold-bearing solution is processed. The value of such transferred costs of mineralized material on leach pads is based on the average cost per estimated recoverable ounce of gold on the leach pad. The estimates of recoverable gold on the leach pads are calculated from the quantities of material placed on the leach pads (measured tons added to the leach pads), the grade of material placed on the leach pads (based on assay data) and a recovery percentage. In general, leach pads recover approximately 95% of the recoverable ounces in the first six months of leaching, declining each month thereafter until the leaching process is complete.  Although the quantities of recoverable material placed on the leach pads are reconciled by comparing the grades of material placed on pads to the quantities of gold actually recovered (metallurgical balancing), the nature of the leaching process inherently limits the ability to precisely monitor inventory levels. As a result, the metallurgical balancing process is constantly monitored and estimates are refined based on actual results over time.
 
Variations between actual and estimated quantities resulting from changes in assumptions and estimates that do not result in write-downs to NRV are accounted for on a prospective basis. The significant assumptions in determining the NRV apart from production cost and capitalized expenditure assumptions include gold prices. If short-term and long-term metals prices decrease, the value of the material on leach pads may decrease, and it may be necessary to record a write-down of mineralized material on leach pads to NRV.
 

44


In-process Inventories - In-process inventories represent mineralized materials that are currently in the process of being converted to a saleable product through the Merrill-Crowe process. The value of in-process material is measured based on assays of the material fed into the process and the projected recoveries of material.  In-process inventories are valued at the average cost of the material fed into the process attributable to the source material coming from the mines, stockpiles and/or leach pads plus the in-process conversion costs, including applicable depreciation relating to the process facilities incurred to that point in the process.

At December 31, 2014 the Company's estimate of recoverable gold ounces in stockpiles and on the leach pad increased from previously estimated 68% to 81%. This change increased our recoverable gold ounces in ore placed on leach pad during the fiscal year 2014, by approximately 2,762 and as a result inventories and stockpiles and mineralized material on leach pad increased and costs applicable to mining revenue decreased by approximately $2.1 million.

At December 31, 2014, if our estimate of recoverable gold ounces on the leach pad decreased by 1% or 2%, recoverable gold ounces in ore on leach pads and in stockpiles would decrease by 524 ounces or 1,048 ounces, respectively, which would require a write-down of stockpiles and mineralized materials on leach pads by $0.5 million or $0.9 million, respectively. A 1% or 2% increase to our estimate of recoverable gold ounces in ore on leach pads would increase the estimated recoverable ounces by the aforementioned amounts and increase stockpiles and mineralized materials on leach pads by $0.5 million and $0.9 million, respectively.
 

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 capital leases and 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.

At December 31, 2014, if our estimate of recoverable gold ounces on the leach pad decreased by 1% or 2%, recoverable gold ounces in ore on leach pads and in stockpiles would decrease by 524 ounces or 1,048 ounces, respectively, which would require a write-down of stockpiles and mineralized materials on leach pads by $0.5 million or $0.9 million, respectively. A 1% or 2% increase to our estimate of recoverable gold ounces in ore on leach pads would increase the estimated recoverable ounces by the aforementioned amounts and increase stockpiles and mineralized materials on leach pads by $0.5 million and $0.9 million, respectively.


45



Item 8. Financial Statements and Supplementary Data
 
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014, 2013 AND 2012

 
Financial Statement Schedule
 
Comstock Mining Inc. and Subsidiaries
 
The following consolidated financial statement schedule of Comstock Mining Inc. and subsidiaries is filed as part of this Form 10-K. All other schedules have been omitted because they are not applicable, not required, or the information is included in the consolidated financial statements or notes thereto.
 
 
Exhibits. The exhibits listed in the accompanying index to exhibits immediately following the financial statements are filed as part of, or hereby incorporated by reference into, this Form 10-K.

46


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Comstock Mining Inc.
Virginia City, Nevada

We have audited the accompanying consolidated balance sheets of Comstock Mining Inc. and subsidiaries (the "Company") as of December 31, 2014 and 2013, and the related consolidated statements of operations, changes in stockholders' equity, and changes in cash flows for each of the three years in the period ended December 31, 2014. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Comstock Mining Inc. and subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2014, based on the criteria established in Internal Control-Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated January 29, 2015 expressed an unqualified opinion on the Company's internal control over financial reporting.


/s/ Deloitte & Touche LLP

Salt Lake City, Utah
January 29, 2015


F-1


COMSTOCK MINING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2014 AND 2013
 
December 31, 2014
 
December 31, 2013
ASSETS
 

 
 

 
 
 
 
CURRENT ASSETS:
 

 
 

Cash and cash equivalents
$
5,308,804

 
$
2,409,446

Accounts receivable
322,406

 
14,629

Inventories
428,235

 
591,961

Stockpiles and mineralized material on leach pad
1,743,053

 
547,480

Prepaid expenses
833,360

 
2,396,747

Total current assets
8,635,858

 
5,960,263

 
 
 
 
MINERAL RIGHTS AND PROPERTIES, Net
7,318,175

 
7,470,780

PROPERTIES, PLANT AND EQUIPMENT, Net
26,207,062

 
25,275,440

RECLAMATION BOND DEPOSIT
2,642,804

 
2,742,804

RETIREMENT OBLIGATION ASSET
1,619,101

 
2,491,956

OTHER ASSETS
32,872

 
58,753

 
 
 
 
TOTAL ASSETS
$
46,455,872

 
$
43,999,996

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 
 

 
 
 
 
CURRENT LIABILITIES:
 

 
 

Accounts payable
$
2,265,723

 
$
3,131,029

Accrued expenses
4,408,568

 
7,043,335

Long-term debt obligations and capital lease – current portion
5,897,219

 
2,675,800

Derivative liabilities
33,298

 
250,000

Total current liabilities
12,604,808

 
13,100,164

 
 
 
 
LONG-TERM LIABILITIES:
 

 
 

Long-term debt and capital lease obligations
5,701,264

 
5,231,674

Long-term reclamation liability
5,908,700

 
5,424,410

Total long-term liabilities
11,609,964

 
10,656,084

 
 
 
 
Total liabilities
24,214,772

 
23,756,248

 
 
 
 
COMMITMENTS AND CONTINGENCIES


 


 
 
 
 
STOCKHOLDERS’ EQUITY:
 

 
 

Common stock, $.000666 par value, 3,950,000,000 shares authorized,
82,480,600 and 70,188,937 shares issued and outstanding
at December 31, 2014 and 2013, respectively
54,932

 
46,746

Convertible Preferred Stock; 50,000,000 shares authorized
7.5% Series A-1 convertible preferred stock; $.000666 par value,
   1,500,000 shares authorized, 24,362 shares issued and outstanding at
   December 31, 2014 and 2013, respectively
16

 
16

7.5% Series A-2 convertible preferred stock, $.000666 par value,
250,000 shares authorized, 1,610 shares issued and outstanding
at December 31, 2014 and 2013, respectively
1

 
1

7.5% Series B convertible preferred stock, $.000666 par value,
600,000 shares authorized, 22,676 and 24,193 shares issued and outstanding
at December 31, 2014 and 2013, respectively
15

 
16

Additional paid-in capital
210,795,244

 
199,167,304

Accumulated deficit
(188,609,108
)
 
(178,970,335
)
Total stockholders’ equity
22,241,100

 
20,243,748

 
 
 
 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
46,455,872

 
$
43,999,996

See notes to the consolidated financial statements.

F-2


COMSTOCK MINING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012
 
2014
 
2013
 
2012
REVENUES
 

 
 

 
 

Revenue - Mining
$
24,736,929

 
$
24,103,013

 
$
4,504,457

Revenue - Hospitality
846,432

 
723,574

 
634,159

Total revenues
25,583,361

 
24,826,587

 
5,138,616

 
 
 
 
 
 
COST AND EXPENSES
 

 
 

 
 

Costs applicable to mining revenue
19,126,632

 
26,495,665

 
3,554,727

Hospitality operating costs
1,260,972

 
1,117,225

 
928,897

Exploration and mine development
2,658,473

 
3,012,790

 
11,901,250

Mine claims and costs
3,750,866

 
3,735,267

 
3,280,059

Environmental and reclamation
1,107,170

 
1,756,935

 
3,123,994

General and administrative
6,371,954

 
9,641,507

 
12,669,323

Total cost and expenses
34,276,067

 
45,759,389

 
35,458,250

 
 
 
 
 
 
LOSS FROM OPERATIONS
(8,692,706
)
 
(20,932,802
)
 
(30,319,634
)
 
 
 
 
 
 
OTHER INCOME (EXPENSE)
 

 
 

 
 

Change in fair value of derivatives
(963,169
)
 
454,681

 
438,519

Interest expense
(997,112
)
 
(1,157,535
)
 
(929,837
)
Interest and other income
1,014,214

 
2,101

 
48,679

Gain on settlement of debt obligations

 
286,535

 

Total other expense, net
(946,067
)
 
(414,218
)
 
(442,639
)
 
 
 
 
 
 
NET LOSS
(9,638,773
)
 
(21,347,020
)
 
(30,762,273
)
 
 
 
 
 
 
DIVIDENDS ON CONVERTIBLE PREFERRED STOCK
(3,672,785
)
 
(4,016,705
)
 
(4,370,247
)
 
 
 
 
 
 
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS
$
(13,311,558
)
 
$
(25,363,725
)
 
$
(35,132,520
)
 
 
 
 
 
 
Net loss per common share – basic
$
(0.17
)
 
$
(0.42
)
 
$
(0.87
)
 
 
 
 
 
 
Net loss per common share – diluted
$
(0.17
)
 
$
(0.42
)
 
$
(0.87
)
 
 
 
 
 
 
Weighted average common shares outstanding — basic
78,586,266

 
60,580,742

 
40,497,098

 
 
 
 
 
 
Weighted average common shares outstanding — diluted
78,586,266

 
60,580,742

 
40,497,098


See notes to the consolidated financial statements.

F-3


COMSTOCK MINING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012
 
 
Convertible Preferred Stock
 
 
 
 
 
 
 
 
 
 
 
Series A-1
 
Series A-2
 
Series B
 
Common Stock
 
Additional Paid-in Capital
 
Accumulated
Deficit
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
Amount
 
Amount
 
Total
BALANCE - January 1, 2012
22,637

 
$
15

 
6,672

 
$
4

 
29,907

 
$
20

 
28,990,630

 
$
19,308

 
$
143,439,370

 
$
(126,861,042
)
 
$
16,597,675

Common stock issued for:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Public offering
 
 
 
 
 
 
 
 
 
 
 
 
13,325,521

 
8,875

 
26,541,122

 
 
 
26,549,997

Public offering issuance cost
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(2,858,871
)
 
 
 
(2,858,871
)
Vested restricted stock
 

 
 

 
 

 
 

 
 

 
 

 
609,500

 
406

 
(406
)
 
 

 

Payment of dividends
 
 
 
 
 
 
 
 
 
 
 
 
2,148,934

 
1,431

 
(1,431
)
 
 
 

Purchase of properties, plant and equipment
 
 
 
 
 
 
 
 
 
 
 
 
170,986

 
114

 
444,586

 
 
 
444,700

Payment of long term debt obligation
 

 
 

 
 

 
 

 
 

 
 

 
31,721

 
21

 
74,979

 
 

 
75,000

Stock-based compensation
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
5,887,593

 
 

 
5,887,593

Deemed dividend on beneficial conversion
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
1,242,927

 
 

 
1,242,927

feature related to convertible preferred stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1,242,927
)
 
 
 
(1,242,927
)
Issuance of Series A-1 convertible preferred
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 

stock for mineral lease
862

 
1

 
 

 
 

 
 

 
 

 
 

 
 

 
2,466,749

 
 

 
2,466,750

Contingent dividend related to convertible
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
preferred stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(6,009
)
 
 
 
(6,009
)
Conversion of Series A-2 convertible preferred
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
stock into common stock
 

 
 

 
(1,401
)
 

 
 

 
 

 
2,152,217

 
1,433

 
(1,433
)
 
 

 

Conversion of Series B convertible preferred
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
stock into common stock
 
 
 
 
 
 
 
 
(1,508
)
 
(1
)
 
913,910

 
609

 
(608
)
 
 
 

Cashless exercise of warrants and options
 

 
 

 
 

 
 

 
 

 
 

 
122,848

 
82

 
(82
)
 
 

 

Net Loss
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
(30,762,273
)
 
(30,762,273
)
BALANCE - December 31, 2012
23,499

 
16

 
5,271

 
4

 
28,399

 
19

 
48,466,267

 
32,279

 
175,985,559

 
(157,623,315
)
 
18,394,562

Common stock issued for:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Public offering
 
 
 
 
 
 
 
 
 
 
 
 
9,146,920

 
6,091

 
18,743,909

 
 
 
18,750,000

Public offering issuance costs
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(459,515
)
 
 
 
(459,515
)
Vested restricted stock
 
 
 
 
 
 
 
 
 
 
 
 
1,199,300

 
799

 
(799
)
 
 
 

Payment of dividends
 

 
 

 
 

 
 

 
 

 
 

 
2,167,398

 
1,443

 
(1,443
)
 
 

 

Payment of long-term debt obligation
 
 
 
 
 
 
 
 
 
 
 
 
1,037,141

 
691

 
1,914,309

 
 
 
1,915,000

Deemed dividend on beneficial conversion
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
304,724

 
 

 
304,724

feature related to convertible preferred stock