NOTE 9         COMMITMENTS AND CONTINGENCIES

COMSTOCK MINERAL ESTATE LEASE PAYMENTS

We lease certain mineral rights and properties under leases expiring at various dates through 2027. Future minimum annual lease payments, including royalty and rental payments, under these existing lease agreements are as follows at March 31, 2025:

NORTHERN COMSTOCK OPERATING AGREEMENT

The Company has an Operating Agreement with Northern Comstock LLC, as amended August 27, 2015. The Operating Agreement requires that the Company make monthly cash contributions of $30,000 for eleven months each calendar year to Northern Comstock LLC and an annual contribution in the amount of $482,500 payable in stock or cash. During the three-months ended March 31, 2025 and 2024, the Company recognized expense associated with the Operating Agreement of $222,236 in selling, general, and administrative expense on the condensed consolidated income statements. At March 31, 2025 and  December 31, 2024, approximately $480,000 and $390,000, respectively, in scheduled cash contributions were included in accounts payable on the condensed consolidated balance sheets. The Company anticipates making these contribution payments through the remainder of the required term ( September 2026) to fully satisfy the obligation.   

RENFUEL LICENSE PAYMENTS

On October 11, 2023, as amended on December 22, 2023, the Company and RenFuel signed an Exclusive License Agreement, pursuant to which RenFuel granted Comstock Fuels an exclusive license to use RenFuel’s patented catalytic esterification and related technologies in North America, Central America, and South America in exchange for ongoing royalty fees based on the production and sales of qualified products. On February 19, 2025, Comstock Fuels and RenFuel executed another amendment to the Exclusive License Agreement to expand the territory from North, Central, South America, Australia, New Zealand, and Vietnam to worldwide except for Europe.

The Company is required to spend a minimum of $250,000 per quarter on commercially reasonable research, development and commercialization activities. As of March 31, 2025, this commitment remains satisfied (see Note 3).

INVESTMENT IN LICENSED TECHNOLOGY

Developer

On March 1, 2024, the Company and Developer entered into the DSA to advance technologies owned by the Company's subsidiary that incorporate applications of intellectual properties owned by the Developer (“Developer IP”). The DSA scope involves research and development to validate integrated applications of the Company's intellectual properties and Developer IP, including baseline applications involving Developer IP alone. The DSA calls for work to be completed in a series of phases, with the first phase (“Phase 1”) consisting of three projects over nine months at a cost to the Company of $116,900 per month, or $1,052,100 in total. Current estimates for the next three projects in the second phase of work under the DSA (“Phase 2”) include $116,900 per month for an additional six months, or $701,400 in total, including $321,160 in residual payments for equipment and supplies purchased in Phase 1 that will be used in Phase 2. For the three-months ended March 31, 2025 and 2024, the Company recorded $350,700 and $116,900, respectively, as research and development expense in the condensed consolidated statements of operations. Phase 2 estimates are subject to upwards variance after data is collected and evaluated from Phase 1. No estimate is available for work beyond Phase 2 at this time, however, the DSA contemplates continuing cooperation for research and development over an initial three-year term. Each phase of work is defined by a detailed scope culminating in specific, measurable, achievable, relevant, and timely milestones and go-no-go decision points. Work under Phase 2 cannot occur without a written notice to proceed from the Company following satisfactory completion of Phase 1 based on stated milestones and decision points. The Phase 2 notice to proceed also cannot be issued until a detailed project plan for Phase 2 is finalized and approved by the Company and Developer.

On March 1, 2024, Developer granted the Company an exclusive license to use Developer IP to produce fuel (“Fuels License”) and treat water (“Water License” and, together with the Fuels License, the “Comstock License Agreements”) in exchange for royalty fees based on the production and sales of qualified products. The Comstock License Agreements also require the Company to pay minimum royalty fees equal to $20,000 on the earlier to occur of 240 days after receiving a patent for the Developer IP, and, commenced on February 15, 2025, and for each year thereafter, (i) $10,000 in year 1 and 2, (ii) $25,000 in year 3 and 4, and (iii) $75,000 in year 5 and thereafter. The Company also agreed to pay for certain outstanding and future patent costs, as well as a new patent filing fees for each new patent application added to the Licensed Patent Rights deriving from Developer individually ($10,000) or together with the Company ($5,000). The scope of the Water License is exclusive unless Comstock elects not to invest a minimum of $100,000 per calendar quarter after completion of Phase 1. All amounts paid to or for the benefit of Developer under the DSA and Comstock License Agreements are credited against future royalties payable under the Comstock License Agreements. The Comstock License Agreements state that new intellectual properties developed by Comstock that derive from the Developer IP shall be assigned to Developer. As of March 1, 2024, an officer and an employee (the “Comstock Inventors”) of the Company invented new developments that derived from Developer IP (“Comstock Developer Inventions”). The Comstock Inventors assigned the Comstock Developer Inventions to Comstock, and Comstock then assigned the Comstock Developer Inventions to Developer. While new developments to the Developer IP made by Comstock after March 1, 2024, are required to be assigned to Developer for no additional consideration, Developer agreed to pay to the Company a technology use fee equal to 20% of any throughput that Developer generates by use and sublicensing of the Comstock Developer Inventions. At  March 31, 2025, in accordance with the funding commitments under the Comstock License Agreements, the Company recognized $205,204 of patent fee expense in accrued expenses and other liabilities on the condensed consolidated balance sheets.

NREL

On October 1, 2024, the Company entered into an agreement with a managing and operating contractor of the U.S. Department of Energy’s (“DOE”) National Renewable Energy Laboratory (“NREL”). This agreement provides that the Company work jointly with the NREL and the Massachusetts Institute of Technology (“MIT”) to develop and validate the process for conversion of lignocellulosic biomass into aromatic sustainable aviation fuel. The agreement provides that the Company fund the research which includes the use of its pilot facility, equipment and laboratory in Wisconsin. The ongoing funding commitment is $1.5 million, $1.7 million, and $1.5 million, during 2025, 2026, and 2027, respectively. For the three-months ended  March 31, 2025, $404,232 has been funded under the agreement and recognized as research and development expense.

On October 1, 2024, the Company entered into an exclusive licensing agreement with the same party whereby the Company obtained exclusive license in existing or future patent rights associated with the research.  The licensing agreement required the Company to pay fees of $100,000 that were recognized as research and development expense during the year ended December 31, 2024.  Under this licensing agreement, the Company will pay a royalty fee equal to 3% of net sales. The agreement includes minimum annual royalty payments that are not applied against future years’ royalty payments. For the three-months ended  March 31, 2025, the Company paid $65,000 in annual royalty fees recognized as research and development expense in our condensed consolidated statement of operations. Annual royalty payments are as follows:

The Company has sublicensing rights and will pay a royalty fee equal to 15% of any such sublicensing revenue to NREL. The royalty fee and the sublicensing fee will be reduced to 2% and 10%, respectively, upon achievement of certain thresholds.

SACL Pte. Ltd.

On January 30, 2025, the Company executed a master license agreement (“Master License Agreement”) with SACL Pte. Ltd. (“SACL”), a Singapore-based project development and management company that intends to develop renewable energy projects in Australia, New Zealand, Vietnam, Cambodia, and Malaysia (the “Territory”). Under the terms of the Master License Agreement, the Company granted SACL (1) a master non-exclusive license to Comstock Fuels’ intellectual property (“Licensed IP”) for the sole purpose of developing, financing, building, and managing of renewable fuels production facilities based on the Licensed IP in the Territory (each, a “Licensed Facility), and (2) limited exclusive rights to market projects based on the Licensed IP in the Territory, subject to SCAL’s satisfaction of commercialization milestones relating to development of its projects; including, without limitation, completion of engineering and financing for SACL’s first Licensed Facility in 2025, followed by commissioning and commencement of production in 2027.

Gresham’s Eastern (Pvt) Ltd. 

On February 12, 2025, the Company also executed a Master License Agreement with Gresham’s Eastern (Pvt) Ltd (“Gresham’s”), a Pakistan-based, sustainable energy engineering, equipment and construction company that intends to develop renewable energy projects in Pakistan. Under the terms of Gresham's Master License Agreement, the Company granted Gresham’s (1) a master non-exclusive license to Comstock Fuels’ intellectual property (“Licensed IP”) for the sole purpose of developing, financing, building, and managing of renewable fuels production facilities based on the Licensed IP in the Territory (each, a “Licensed Facility), and (2) limited exclusive rights to market projects based on the Licensed IP in the Territory, subject to Gresham’s satisfaction of commercialization milestones relating to development of its current and future projects; including, without limitation, completion of engineering and financing for Gresham’s first Licensed Facility in 2025, followed by commissioning and commencement of production in 2027.

Marathon Petroleum Corporation 

Investment Agreements

On February 28, 2025, Comstock Fuels entered into a series of definitive agreements with Virent, involving the purchase of $14.0 million in Comstock Fuels equity as part of Comstock Fuels’ planned Series A preferred equity financing (“Series A Financing”), subject to a $700 million valuation cap (“Investment”). The purchase price includes $1.0 million in cash and $13.0 million in the Marathon SAFE Note issued in exchange for payment-in-kind assets comprised of equipment, related intellectual properties, and other materials located at Marathon’s former renewable fuel demonstration facility in Madison, Wisconsin (“Payment-In-Kind Assets”), on and subject to the terms and conditions of the applicable transaction documents (“Investment Agreements”). On February 28, 2025, the Payment-In-Kind Assets were transferred to the Company. The Payment-In-Kind Assets were valued based on the fair value of the Marathon SAFE, which was recorded as a liability on the condensed consolidated balance sheet as of March 31, 2025. The fair value of the SAFE was determined to be $12.0 million, calculated by discounting the $13.0 million principal amount using estimated time periods and a 35% discount rate (see Note 11). The cash portion of the Investment will be made within five business days of the execution by Comstock Fuels of third-party investment agreements for at least $25,000,000 in planned Series A Financing cash proceeds. The Investment Agreements included (i) a simple agreement for future equity governing the portion of the Investment issued in exchange for the Payment-In-Kind Assets; (ii) an asset transfer agreement to assign the Payment-In-Kind Assets; (iii) a license agreement covering applicable intellectual properties (“License Agreement”); and (iv) a letter agreement to provide post-closing conditions (“Letter Agreement”). Ancillary agreements delivered in connection with the Investment Agreements included a board observer agreement executed as of the Effective Date by and between Comstock Fuels and MPC Investment LLC (“MPC”), a subsidiary of Marathon, under which Comstock Fuels granted MPC board observation rights in connection with the Investment (“Board Observer Agreement”). Separately, Comstock Fuels executed a commercial lease agreement for Marathon’s former renewable fuels facility located in Madison, Wisconsin (“Madison Facility”) (see Note 7).

License Agreement

Comstock Fuels will use the Madison Facility to increase Comstock Fuels’ current pilot production capabilities, including the integration of those facilities with the existing facilities in Wausau, Wisconsin, leveraging Comstock Fuels’ patented, patent pending, and proprietary lignocellulosic biomass refining technologies (“Comstock IP”). The License Agreement provides for the grant by Virent to Comstock Fuels of a non-exclusive, non-transferable, non-assignable, non-sublicensable, perpetual, royalty-free license under the Virent IP solely for research and development purposes associated with the Virent equipment (“Included Virent IP”), excluding applications involving the heterogenous catalysis of biomass-derived sugars (“Reserved License Field”). The License Agreement provides for Virent and Comstock Fuels to coordinate in good faith to obtain an additional license for the Reserved License Field for research and development purposes. Comstock also granted Marathon a reciprocal royalty-free, non-exclusive, sublicensable worldwide license to any improvements or additional intellectual property related to the Included Virent IP, excluding improvements to Comstock IP. The parties additionally agreed to negotiate in good faith for a commercial license in the event that a commercial opportunity is identified for the Included Virent IP, and Virent granted Comstock Fuels a right of first refusal in the event that Virent transfers some or all of the Included Virent IP to a third party, subject to applicable pre-existing rights held by third parties. The Virent IP consists of the transfer of know-how in order to use the Payment-In-Kind Assets and does not represent any standalone value to the Company, thus, no value was assigned to the Virent IP as of  March 31, 2025.

Letter Agreement

The Letter Agreement requires the cash portion of the Investment to be made within five business days of the execution by Comstock Fuels of third-party investment agreements for at least $25,000,000 in Series A equity financing. The Letter Agreement additionally requires Comstock Fuels to grant Virent a lien on the Virent Equipment if Comstock Fuels does not complete $25,000,000 in the Series A equity financing within nine months of the Effective Date. The Letter Agreement additionally reiterated certain elements of the February 6, 2025, term sheet by and between Comstock, including agreement of the parties to execute on or about May 31, 2025, (i) a definitive offtake agreement under which Marathon or its affiliates will purchase advanced biomass-based intermediates and fuels from Comstock Fuels’ planned commercial demonstration facility; and (ii) a joint development agreement under which Marathon or its affiliates will provide support services to Comstock Fuels in exchange for a warrant which creates the option for Marathon to purchase additional equity in Comstock Fuels.

OTHER

The Company agreed to pay each of the independent directors a total of $160,000 annually, in cash or shares of common stock, which includes an annual cash payment of $60,000 plus chair and committee meeting fees. The Chair of each Committee is paid an additional cash payment of $20,000 annually. For the three-months ended March 31, 2025 and 2024, the Company recognized director fees expenses of $200,000 and $225,000, respectively. As of  March 31, 2025 and December 31, 2024, director fees compensation included in accounts payable on the condensed consolidated balance sheet was $114,029 and $177,500, respectively. As of  March 31, 2025 and December 31, 2024, the Company accrued $1,125,000 and $1,000,000, respectively, in director fee compensation associated with the director fees payable expected to be satisfied with shares of the company's common stock that is expected to be issued in 2025 and paid annually and is included in other long-term liabilities on the condensed consolidated balance sheet.

From time to time, we are involved in claims and proceedings that arise in the ordinary course of business. There are no matters pending that we expect to have a material adverse impact on our business, results of operations, financial condition or cash flows.