What changed in this filing

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Item 1. Financial Statements

2021-11-15 compared with 2021-08-16 · 180 added, 113 removed, 464 unchanged (39% of the section changed)

3 unchanged sentences

(in thousands, except share and per share data)

September 30,

2021 December 31,

4 unchanged sentences

Prepaid and other assets 342 215

Deposit for investment 3,526 —

Current assets held for sale 3,374 1,477

19 unchanged sentences

STOCKHOLDERS’ EQUITY

Series C preferred stock $ 0.01 par value, 20,000,000 shares authorized, 3,440,690 issued and outstanding and liquidation preference of $ 17,203 at June 30, 2021 and December 31, 2020

Series C preferred stock $ 0.01 par value, 20,000,000 shares authorized, 3,440,690 issued and outstanding and liquidation preference of $ 17,203 at September 30, 2021 and December 31, 2020

$ 6,765 $ 6,765

Class A common stock, $ 0.01 par value, 59,779,750 shares authorized, 8,093,778 and 7,953,729 issued, and 8,008,208 and 7,868,159 outstanding at June 30, 2021 and December 31, 2020, respectively

Class B common stock, $ 0.01 par value, 220,250 shares authorized, issued and outstanding at June 30, 2021 and December 31, 2020

Class A common stock, $ 0.01 par value, 59,779,750 shares authorized, 8,100,693 and 7,953,729 issued, and 8,015,123 and 7,868,159 outstanding at September 30, 2021 and December 31, 2020, respectively

Class B common stock, $ 0.01 par value, 220,250 shares authorized, issued and outstanding at September 30, 2021 and December 31, 2020

Additional paid-in capital 200,427 200,147

8 unchanged sentences

(in thousands, except per share data)

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

9 unchanged sentences

Income tax benefit (expense) ( 25 ) ( 1 ) 11,289 ( 15 )

Loss on equity method investments carried at fair value ( 131 ) ( 41 ) ( 112 ) ( 88 )

Change in fair value of equity method investments ( 56 ) ( 46 ) ( 168 ) ( 134 )

Income from continuing operations 3,057 400 15,096 1,479

25 unchanged sentences

Balance at June 30, 2021 3,441 $ 6,765 8,094 $ 81 220 $ 2 $ 200,262 $ ( 2,662 ) $ ( 181,664 ) $ 22,784

Stock compensation and issuances — — 7 — — — 182 — — 182

Accrued liability settled through issuance of stock — — 1 — — — 7 — — 7

Shares withheld related to net share settlement of restricted stock awards — — ( 1 ) — — — ( 24 ) — — ( 24 )

Net income — — — — — — — — 2,920 2,920

Balance at September 30, 2021 3,441 $ 6,765 8,101 $ 81 220 $ 2 $ 200,427 $ ( 2,662 ) $ ( 178,744 ) $ 25,869

COMSTOCK HOLDING COMPANIES, INC.

13 unchanged sentences

Balance at June 30, 2020 3,441 $ 6,765 7,942 $ 79 220 $ 2 $ 199,767 $ ( 2,662 ) $ ( 194,030 ) $ 9,921

Stock compensation and issuances — — 3 — — — 179 — — 179

Accrued liability settled through issuance of stock — — 5 — — — 14 — — 14

Shares withheld related to net share settlement of restricted stock awards — — ( 1 ) — — — ( 7 ) — — ( 7 )

Net income — — — — — — — — 423 423

Balance at September 30, 2020 3,441 $ 6,765 7,949 $ 79 220 $ 2 $ 199,953 $ ( 2,662 ) $ ( 193,607 ) $ 10,530

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

2 unchanged sentences

(in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities attributable to continuing operations:

Net income $ 15,096 $ 1,479

Adjustment to reconcile net income to net cash used in operating activities

Adjustment to reconcile net income to net cash provided by operating activities

Amortization and depreciation expense 65 80

1 unchanged sentence

Stock compensation 454 531

Change in fair value of equity method investment 112 88

Deferred income taxes, net ( 11,310 ) —

Change in fair value of equity method investments 168 134

Deferred income tax benefit ( 11,330 ) —

Changes in operating assets and liabilities:

9 unchanged sentences

Purchase of fixed assets ( 91 ) ( 81 )

Net cash provided by investing activities 2,483 674

Deposit paid for investment ( 3,526 ) —

Net cash (used) provided by investing activities ( 646 ) 1,241

Cash flows from financing activities attributable to continuing operations:

7 unchanged sentences

Financing cash flows, net ( 28 ) ( 1,299 )

Net cash provided by (used in) discontinued operations 36 ( 1,424 )

Net increase (decrease) in cash and cash equivalents 3,173 ( 368 )

Net cash used in discontinued operations ( 240 ) ( 1,756 )

Net increase in cash and cash equivalents 2,022 980

Cash and cash equivalents, beginning of period 7,032 3,511

6 unchanged sentences

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

ORGANIZATION AND BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of Comstock Holding Companies, Inc.

and subsidiaries (“Comstock”, “CHCI” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X and other applicable rules and regulations of the Securities and Exchange Commission (“SEC”).

Such condensed financial statements do not include all of the disclosures required by GAAP for complete financial statements.

In our opinion, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation have been included in the accompanying unaudited condensed consolidated financial statements.

The Company has evaluated subsequent events through the date these condensed consolidated financial statements were issued and has included all necessary adjustments and disclosures.

For further information and a discussion of our significant accounting policies, other than discussed below, refer to our audited consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

In our opinion, the accompanying unaudited interim condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, which are necessary to present fairly our financial position, results of operations, comprehensive income, and cash flows.

The consolidated balance sheet at December 31, 2020 has been derived from audited financial statements as of that date.

The unaudited interim condensed consolidated results of operations are not necessarily indicative of the results that may occur for the full fiscal year.

Certain information and footnote disclosure normally included in financial statements prepared in accordance with U.S.

GAAP have been omitted pursuant to instructions, rules, and regulations prescribed by the U.S.

Securities and Exchange Commission (the “SEC”).

We believe that the disclosures provided herein are adequate to make the information presented not misleading when these unaudited interim condensed consolidated financial statements are read in conjunction with the audited financial statements and notes previously distributed in our Annual Report on Form 10-K for the year ended December 31, 2020.

Comstock Holding Companies, Inc., incorporated in 2004 as a Delaware corporation, is a multi-faceted asset management and services company primarily focused in the Washington, D.C.

4 unchanged sentences

is now CHCI Capital Management, LC.

The Company operates through four primarily real estate focused subsidiaries – CHCI Asset Management, LC (“CAM”), CHCI Residential Management, LC, CHCI Commercial Management, LC, and Park X Management, LC.

The Company operates through five primarily real estate focused subsidiaries – CHCI Asset Management, LC (“CAM”), CHCI Real Estate Services, LC, CHCI Residential Management, LC, CHCI Commercial Management, LC, and Park X Management, LC.

References in these Consolidated Financial Statements to “Comstock,” “Company,” “we,” “our” and “us” refer to Comstock Holding Companies, Inc.

together in each case with our subsidiaries unless the context suggests otherwise.

The Company’s Class A common stock is traded on the NASDAQ Capital Market under the symbol “CHCI.”

Throughout this quarterly report on Form 10-Q, amounts are in thousands, except per share data, number of stock options, number of stock awards, or as otherwise noted.

The Consolidated Balance Sheet as of December 31, 2020 was derived from the audited financial statements contained in the 2020 Form 10-K.

For the three and six months ended June 30, 2021 and 2020, comprehensive income equaled net income;

therefore, a separate statement of comprehensive income is not included in the accompanying condensed consolidated financial statements.

Certain amounts in the prior period have been reclassified to conform to the current year presentation of combining 'accounts payable' and 'accrued liabilities' on the Condensed Consolidated Balance Sheets.

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The assets and liabilities of CES are also designated as held for sale on the Condensed Consolidated Balance Sheets (See Note 3 - Discontinued Operations).

On September 29, 2021, the Company completed a refinancing transaction of three Trophy Class office towers owned by an affiliate and managed by the Company pursuant to the 2019 AMA (as defined in Note 13 - Related Party Transactions) which generated approximately $ 2.6 million in net debt and equity origination fees which were recognized as revenue in the accompanying Condensed Consolidated Statement of Operations.

On October 20, 2021, the Company closed on an investment in a 263 -unit stabilized, luxury high-rise apartment building in Rockville, Maryland in a partnership with Comstock Partners, LC ("Partners"), an affiliate.

The Company holds a minority membership interest in the purchasing entity with the majority membership interest and management control held by Partners.

At closing, the Company received a $ 0.5 million acquisition fee and executed market rate asset management, property management, and parking management agreements to manage the property (See note 16 - Subsequent Events).

Use of Estimates

4 unchanged sentences

Actual results may differ from those estimates under different assumptions or conditions.

Material estimates are utilized in the valuation of deferred tax assets, analysis of goodwill impairment, valuation of equity-based compensation, and fair value of financial instruments (including the fair value of our equity method investments).

Material estimates are utilized in revenue recognition, income tax provision or benefit, deferred taxes and valuation allowance, determination of right-of-use assets and lease liabilities, analysis of goodwill impairment, valuation of equity-based compensation, and fair value of financial instruments (including the fair value of our equity method investments).

Recently Adopted Accounting Standards

12 unchanged sentences

The Company is currently evaluating the impact this guidance will have on its consolidated financial statements and related disclosures.

We assessed other accounting pronouncements issued or effective during the three and six months ended June 30, 2021 and deemed they were either not applicable to us or are not anticipated to have a material effect on our consolidated financial statements.

We assessed other accounting pronouncements issued or effective during the three and nine months ended September 30, 2021 and deemed they were either not applicable to us or are not anticipated to have a material effect on our consolidated financial statements.

Other standards previously issued and adopted by the Company have been disclosed in previous filings.

1 unchanged sentence

Investments carried at fair value

Based upon elections made at the date of investment, the Company reports the equity method investments in real estate ventures at fair value.

Based upon elections made at the date of investment, the Company may elect to report the equity method investments in real estate ventures at fair value.

For such investments, the Company increases or decreases the investment each reporting period by the change in the fair value and the Company reports the fair value adjustments in the Condensed Consolidated Statement of Operations in the ‘Loss on equity method investments carried at fair value’ line item.

3 unchanged sentences

Fair value is determined using a discounted cash flow model based on expected future cash flows for income and realization events of the underlying asset.

Expected future cash flows includes contractually fixed revenues and expenses as well as estimates for future revenues and expenses where contracts do not currently exist.

Expected future cash flows include a finite amount of contractually fixed revenues and expenses as well as estimates for future revenues and expenses where contracts do not currently exist.

These estimates are based on prior experience as well as comparable, third party data.

As of June 30, 2021 and December 31, 2020, the fair value of the Company’s investment in Investors X is $ 2.5 million and $ 5.1 million, respectively.

The Company received distributions of $ 895 thousand and $ 2.5 million during the three and six months ended June 30, 2021 and recognized a $ 107 thousand loss in fair value.

As of September 30, 2021 and December 31, 2020, the fair value of the Company’s investment in Investors X is $ 2.0 million and $ 5.1 million, respectively, which by design is expected to decrease as a result of cash flow distributions from the

underlying assets as remaining development projects are completed.

The Company received distributions of $ 428 thousand and $ 3.0 million during the three and nine months ended September 30, 2021 and recognized a $ 56 thousand and $ 163 thousand loss in fair value, respectively.

Our maximum loss exposure in this entity is limited to our investments.

3 unchanged sentences

Fair value is determined using an income approach and sales comparable approach models.

As of June 30, 2021 and December 31, 2020, the fair value of the Company’s investment in the Hartford was $ 1.2 million.

During the three and six months ended June 30, 2021, the Company recognized a loss of $ 24 thousand in fair value.

The Company received no distributions during the three and six months ended June 30, 2021.

Fair value of equity method investments are classified as Level 3 of the fair value hierarchy.

As of June 30, 2021 and December 31, 2020, the Company had equity method investments in real estate ventures at fair value of $ 3.7 million and $ 6.3 million, respectively.

As of September 30, 2021 and December 31, 2020, the fair value of the Company’s investment in the Hartford was $ 1.2 million.

During the three and nine months ended September 30, 2021, the Company recognized no change and a loss of $ 5 thousand in fair value, respectively.

The Company received no distributions during the three and nine months ended September 30, 2021.

Fair value of equity method investments used unobservable inputs that are considered to be Level 3 of the fair value hierarchy.

As of September 30, 2021 and December 31, 2020, the Company had equity method investments in real estate ventures at fair value of $ 3.2 million and $ 6.3 million, respectively.

The table below shows the change in the Company’s investments in real estate ventures reported at fair value:

2 unchanged sentences

Change in fair value ( 168 )

Fair value of investments as of June 30, 2021 $ 3,652

Fair value of investments as of September 30, 2021 $ 3,168

See Note 13 – Related Party Transactions for additional discussion of our investments in real estate ventures at fair value.

1 unchanged sentence

The Company accounts for its interest in its title insurance joint venture using the equity method of accounting and adjusts the carrying value for its proportionate share of earnings, losses and distributions.

The investment in the unconsolidated joint venture was $ 17 thousand and $ 29 thousand as of June 30, 2021 and December 31, 2020, respectively, and is included within ‘Prepaid and other assets, net’ in the accompanying Condensed Consolidated Balance Sheets.

The Company’s share of earnings for the three and six months ended June 30, 2021 from this unconsolidated joint venture of $ 30 thousand and $ 18 thousand, respectively, is included in ‘Other income (loss), net’ in the accompanying Condensed Consolidated Statement of Operations.

The Company’s share of earnings for the three and six months ended June 30, 2020 was $ 18 thousand and $ 15 thousand, respectively.

During the three and six months ended June 30, 2021, the Company collected distributions of $ 30 thousand from this joint venture as a return on investment.

During the three and six months ended June 30, 2020, the Company collected no distributions and $ 108 thousand from this joint venture as a return on investment.

The investment in the unconsolidated joint venture was $ 74 thousand and $ 29 thousand as of September 30, 2021 and December 31, 2020, respectively, and is included within ‘Prepaid and other assets, net’ in the accompanying Condensed Consolidated Balance Sheets.

The Company’s share of earnings for the three and nine months ended September 30, 2021 from this unconsolidated joint venture of $ 57 thousand and $ 75 thousand, respectively, is included in ‘Other income (loss), net’ in the accompanying Condensed Consolidated Statement of Operations.

The Company’s share of earnings for the three and nine months ended September 30, 2020 was $ 1 thousand and $ 16 thousand, respectively.

During the three and nine months ended September 30, 2021, the Company collected distributions of $ 0 and $ 30 thousand, respectively from this joint venture as a return on investment.

During the three and nine months ended September 30, 2020, the Company collected distributions of $ 22 thousand and $ 130 thousand, respectively, from this joint venture as a return on investment.

DISCONTINUED OPERATIONS

4 unchanged sentences

The major classes of assets and liabilities designated as held for sale in the Condensed Consolidated Balance Sheets are as follows:

September 30,

2021 December 31,

11 unchanged sentences

Total liabilities held for sale $ 1,260 $ 742

The following are the operating results for CES which have been reflected within income from discontinued operations:

Three Months Ended June 30, Six Months Ended June 30,

The following are the operating results for CES which have been reflected within income (loss) from discontinued operations:

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

10 unchanged sentences

Income (loss) from discontinued operations $ ( 137 ) $ 23 $ ( 724 ) $ 112

The income tax expense associated with the results of CES are not material.

Goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in a business acquisition.

Following an acquisition, we perform an analysis to value the acquired company’s tangible and identifiable intangible assets and liabilities.

As of the acquisition date, goodwill consisted primarily of synergies resulting from the

combination, expected expanded opportunities for growth and production, and savings in corporate overhead costs.

Due to the classification of CES as a discontinued operation during the second quarter of 2021, the Company measured CES at its fair value less costs to sell and recognized a $ 325 thousand charge as a loss on classification as held for sale in income from discontinued operations and an adjustment to goodwill.

As of June 30, 2021 and December 31, 2020, the balance of goodwill was $ 1.4 million and $ 1.7 million, respectively, and is classified as held for sale on the Condensed Consolidated Balance Sheets.

The income tax expense associated with the results of CES is not material.

Goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in the Company's business acquisition of CES in 2017.

Following the acquisition, we performed an analysis to value the acquired company’s tangible and identifiable intangible assets and liabilities.

As of the acquisition date, goodwill consisted primarily of synergies resulting from the combination, expected expanded opportunities for growth and production, and savings in corporate overhead costs.

Due to the classification of CES as a discontinued operation during the second quarter of 2021, the Company

measured CES at its fair value less costs to sell and recognized a $ 325 thousand impairment expense as a loss on classification as held for sale in income (loss) from discontinued operations and an adjustment to goodwill.

As of September 30, 2021 and December 31, 2020, the balance of goodwill was $ 1.4 million and $ 1.7 million, respectively, and is classified as held for sale on the Condensed Consolidated Balance Sheets.

The determination of whether an arrangement contains a lease and the classification of a lease, if applicable, is made at lease commencement, at which time the Company also measures and recognizes an ROU asset, representing the Company’s right to use the underlying asset, and a lease liability, representing the Company’s obligation to make lease payments under the terms of the arrangement.

For the purposes of recognizing

ROU assets and lease liabilities associated with the Company’s leases, the Company has elected the practical expedient to not recognize a ROU asset or lease liability for short-term leases, which are leases with a term of twelve months or less.

For the purposes of recognizing ROU assets and lease liabilities associated with the Company’s leases, the Company has elected the practical expedient to not recognize a ROU asset or lease liability for short-term leases, which are leases with a term of twelve months or less.

The lease term is defined as the non-cancelable portion of the lease term plus any periods covered by an option to extend the lease if it is reasonably certain that the option will be exercised.

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Lease costs related to the Company's operating leases are generally recognized as a single ratable lease cost over the lease term.

Lease costs related to the Company's operating leases are reflected within 'Direct costs' in the Condensed Consolidated Statements of Operations as it is a reimbursable cost under the 2019 Asset Management Agreement ("AMA").

Lease costs related to the Company's operating leases are reflected within 'Direct costs' in the Condensed Consolidated Statements of Operations as it is a reimbursable cost under the 2019 AMA.

The lease costs were as follows (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

4 unchanged sentences

Supplemental cash flow information related to leases was as follows (in thousands):

Six Months Ended June 30,

Nine Months Ended September 30,

Cash paid for amounts included in the measurement of lease liabilities

Operating cash flows from operating leases $ 422 $ —

Maturities of operating lease liabilities at June 30, 2021 were as follows (in thousands):

Maturities of operating lease liabilities at September 30, 2021 were as follows (in thousands):

Thereafter 5,099

28 unchanged sentences

We are compensated for our services via a fee paid upon successful commercial financing from third party lenders.

The fee earned is contingent upon the funding of the loan, which represents the transfer of control for services to the customer.

The fee earned is contingent upon the funding of the

loan, which represents the transfer of control for services to the customer.

Therefore, we typically satisfy our performance obligation at the point in time of the funding of the loan, when there is a present right to payment.

13 unchanged sentences

The following table presents the Company’s sales from contracts with customers disaggregated by categories which best represent how the nature, amount, timing and uncertainty of sales are affected by economic factors.

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

11 unchanged sentences

$ 10,164 $ 5,891 $ 23,328 $ 15,829

For the three and six months ended June 30, 2021, $ 6.3 million and $ 13.1 million, respectively, of our revenues were earned for contracts where revenue is recognized over time.

For the three and six months ended June 30, 2020, $ 4.1 million and $ 9.4 million, respectively, of our revenues were earned for contracts where revenue is recognized over time.

For the three and six months ended June 30, 2021, $ 45 thousand and $ 54 thousand, respectively, of our revenues were earned for contracts where revenue is recognized at a point in time.

For the three and six months ended June 30, 2020, $ 384 thousand and $ 571 thousand, respectively, of our revenues were earned for contracts where revenue is recognized at a point in time.

For the three and nine months ended September 30, 2021, $ 6.5 million and $ 19.6 million, respectively, of our revenues were earned for contracts where revenue is recognized over time.

For the three and nine months ended September 30, 2020, $ 5.9 million and $ 15.3 million, respectively, of our revenues were earned for contracts where revenue is recognized over time.

For the three and nine months ended September 30, 2021, $ 3.6 million and $ 3.7 million, respectively, of our revenues were earned for contracts where revenue is recognized at a point in time.

For the three and nine months ended September 30, 2020, $ 0 thousand and $ 571 thousand, respectively, of our revenues were earned for contracts where revenue is recognized at a point in time.

Notes payable consists of the following:

September 30,

2021 December 31,

3 unchanged sentences

$ 5,512 $ 5,505

As of June 30, 2021, net maturities and/or curtailment obligations of all borrowings are as follows:

As of September 30, 2021, net maturities and/or curtailment obligations of all borrowings are as follows:

Unsecured financing

1 unchanged sentence

At December 31, 2020, the balance on this loan was $ 5 thousand and the interest rate was 3.3 %.

As of June 30, 2021, the balance on this loan was $ 48 thousand and the interest rate was 2.4 %.

As of September 30, 2021, the balance on this loan was $ 12 thousand and the interest rate was 2.4 %.

Notes payable, due to affiliates – unsecured

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The $ 5.5 million borrowed has a maturity date of April 30, 2023.

The effective interest rate at June 30, 2021 and December 30, 2020 was 4.25 %.

The effective interest rate at September 30, 2021 and December 31, 2020 was 4.25 %.

Comstock Growth Fund

6 unchanged sentences

The CGF Note was repaid prior to maturity during the year ended December 31, 2020.

For the three and six months ended June 30, 2021, the Company made interest payments for all debt facilities of $ 59 thousand and $ 116 thousand, respectively.

For the three and six months ended June 30, 2020, the Company made interest payments for all debt facilities of $ 77 thousand and $ 226 thousand, respectively.

During the three and six months ended June 30, 2021, the Company did no t make principal payments for the Revolver.

During the three and six ended June 30, 2020, the Company retired $ 5.7 million of outstanding borrowings for the CGF Note.

For the three and nine months ended September 30, 2021, the Company made interest payments for all debt facilities of $ 59 thousand and $ 176 thousand, respectively.

For the three and nine months ended September 30, 2020, the Company made interest payments for all debt facilities of $ 131 thousand and $ 256 thousand, respectively.

During the three and nine months ended September 30, 2021, the Company did no t make principal payments on the Revolver.

During the nine months ended September 30, 2020, the Company retired $ 5.7 million of outstanding borrowings for the CGF Note.

CORONAVIRUS AID RELIEF AND ECONOMIC SECURITY ACT

26 unchanged sentences

Critical inputs to fair value estimates include various level 3 inputs such as valuations of the underlying real estate assets and borrowings, which incorporate investment-specific assumptions such as discount rates, capitalization rates, rental and expense growth rates, and asset-specific market borrowing rates.

As of June 30, 2021 and December 31, 2020, investments in the real estate ventures at fair value were approximately $ 3.7 million and $ 6.3 million, respectively.

As of September 30, 2021 and December 31, 2020, investments in the real estate ventures at fair value were approximately $ 3.2 million and $ 6.3 million, respectively.

Non-Recurring Fair Value Measurements

1 unchanged sentence

Such fair value measurements use significant unobservable inputs and are classified as Level 3.

Due to the classification of CES as a discontinued operation, the Company performed an interim test of goodwill to determine if the carrying amount exceeds its fair value less costs to sell.

Due to the classification of CES as a discontinued operation in the second quarter of 2021, the Company performed an interim test of goodwill to determine if the carrying amount exceeded its fair value less costs to sell.

The fair value of CES was determined using both the market and income based methods.

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All of the inputs used are significant unobservable inputs classified as Level 3.

The Company then weighted the values determined using the market and income based approaches to determine the overall fair value of CES.

The Company then weighted the values using the market and income based approaches to determine the overall fair value of CES.

The carrying value of $ 1.7 million exceeded the fair value less costs to sell of $ 1.4 million resulting in a loss on classification as held for sale of $ 325 thousand (See Note 3 - Discontinued Operations).

At September 30, 2021, the Company has determined that the carrying value of CES does not exceed its estimated fair value and therefore no further impairment is required during the three months ended September 30, 2021.

RESTRICTED STOCK, STOCK OPTIONS AND OTHER STOCK PLANS

During the three and six months ended June 30, 2021, the Company issued no stock options and 165,809 restricted stock awards to employees.

During the three and six months ended June 30, 2020, the Company issued no stock options and 630,352 restricted stock awards to employees.

During the three and nine months ended September 30, 2021 and 2020 the Company issued no stock options.

During the three and nine months ended September 30, 2021, the Company issued 0 and 165,809 restricted stock awards to employees, respectively.

During the three and nine months ended September 30, 2020, the Company issued 14,500 and 644,852 restricted stock awards to employees, respectively.

Stock-based compensation expense associated with restricted stock and stock options is recognized based on the grant date fair value of the award over its vesting period.

The following table reflects the Condensed Consolidated Statements of Operations line items for stock-based compensation for the periods presented:

Three Months Ended June 30, Six Months Ended June 30,

The following table reflects the Condensed Consolidated Statements of Operations line items for stock-based compensation reflected in continuing operations for the periods presented:

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

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The remaining amounts are delivered to the recipient as shares of our Class A common stock.

As of June 30, 2021, the weighted-average remaining contractual term of unexercised stock options was 6 years.

As of June 30, 2021 and December 31, 2020, there was $ 1.2 million and $ 1.1 million, respectively, of unrecognized compensation cost related to stock options and restricted stock awards.

As of September 30, 2021, the weighted-average remaining contractual term of unexercised stock options was 6 years.

As of September 30, 2021 and December 31, 2020, there was $ 1.0 million and $ 1.1 million, respectively, of unrecognized compensation cost related to stock options and restricted stock awards.

The Company intends to issue new shares of its Class A common stock upon vesting of restricted stock grants or the exercise of stock options.

INCOME (LOSS) PER SHARE

The weighted average shares and share equivalents used to calculate basic and diluted (loss) income from both continuing operations and discontinued operations for the three and six months ended June 30, 2021 and 2020 are presented in the accompanying Condensed Consolidated Statements of Operations.

Restricted stock awards, stock options and warrants for the three and six months ended June 30, 2021 and 2020 are included in the diluted income (loss) per share calculation using the treasury stock method and average market prices during the periods, unless their inclusion would be anti-dilutive.

The following share equivalents have been excluded from the continuing operations dilutive share computation for the three and six months ended June 30, 2021 and 2020 as their inclusion would be anti-dilutive:

Three Months Ended June 30, Six Months Ended June 30,

The weighted average shares and share equivalents used to calculate basic and diluted (loss) income from both continuing operations and discontinued operations for the three and nine months ended September 30, 2021 and 2020 are presented in the accompanying Condensed Consolidated Statements of Operations.

Restricted stock awards, stock options and warrants for the three and nine months ended September 30, 2021 and 2020 are included in the diluted income (loss) per share calculation using the treasury stock method and average market prices during the periods, unless their inclusion would be anti-dilutive.

The following table sets forth the calculation of basic and diluted net income per share (in thousands, except per share data):

Three Months Ended Sept.

30, Nine Months Ended Sept.

2021 2020 2021 2020

Income from continuing operations $ 3,057 $ 400 $ 15,096 $ 1,479

Income (loss) from discontinued operations, net of taxes $ ( 137 ) $ 23 $ ( 724 ) $ 112

Basic net income per share - weighted-avg.

outstanding shares 8,234 8,078 8,205 8,046

Effect of dilutive securities:

Restricted stock awards, stock options and warrants 838 501 825 369

Diluted net income per share - weighted-avg.

outstanding shares 9,072 8,579 9,030 8,415

Net income per share continuing operations - basic $ 0.37 $ 0.05 $ 1.84 $ 0.18

Income (loss) per share discontinued operations - basic $ ( 0.02 ) $ — $ ( 0.09 ) $ 0.01

Net income per share continuing operations - diluted $ 0.34 $ 0.05 $ 1.67 $ 0.18

Income (loss) per share discontinued operations - diluted $ ( 0.02 ) $ — $ ( 0.08 ) $ 0.01

The following share equivalents have been excluded from the continuing operations dilutive share computation for the three and nine months ended September 30, 2021 and 2020 as their inclusion would be anti-dilutive:

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

Restricted stock awards

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Lease for Corporate Headquarters

The Company previously leased its corporate headquarters from an affiliate controlled and owned by our CEO and family.

The Company previously leased its corporate headquarters from an affiliate controlled and owned by our CEO and his family.

On November 1, 2020, the Company relocated its corporate headquarters to a new office space pursuant to a ten year lease agreement with an affiliate controlled and owned by our Chief Executive Officer and family, as landlord.

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Pursuant to the AMA, CDS will pay CAM an annual cost-plus fee (the “Annual Fee”) in an aggregate amount equal to the sum of (i) the employment expenses of personnel dedicated to providing services to the CDS Portfolio pursuant to the AMA, (ii) the costs and expenses of the Company related to maintaining the listing of its shares on a securities exchange and complying with regulatory and reporting obligations as a public company, and (iii) a fixed annual payment of $ 1,000,000 .

As of June 30, 2021 and December 31, 2020, the Company had $ 3.0 million and $ 3.6 million, respectively, of receivables from related parties, primarily related to the 2019 AMA and payroll and expense reimbursements from affiliated properties.

The Company does not record an allowance for doubtful accounts due to the related party nature of the receivables.

2019 Amended Asset Management Agreement ("2019 AMA")

On April 30, 2019, CAM entered into the 2019 AMA with CDS, which amends and restates in its entirety the AMA.

On April 30, 2019, CAM entered into the 2019 AMA with CDS, which amended and restated in its entirety the AMA.

Pursuant to the 2019 AMA, CDS will engage CAM to manage and administer the Anchor Portfolio and the day to-day operations of CDS and each property-owning subsidiary of CDS (collectively, the “CDS Entities”).

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or the continued payment of the Incentive Fee as if a termination had not occurred.

As of September 30, 2021 and December 31, 2020, the Company had $ 4.6 million and $ 3.6 million, respectively, of receivables from related parties, primarily related to the 2019 AMA and payroll and expense reimbursements from affiliated properties.

The Company does not record an allowance for doubtful accounts due to the related party nature of the receivables.

Residential, Commercial and Parking Property Management Agreements

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These property management agreements are each for one year initial terms with successive, automatic one year renewal terms, unless sooner terminated.

The Company generally receives base management fees under these agreements based

upon a percentage of gross rental revenues for the portions of the buildings being managed in addition to reimbursement of specified expenses, including employment expenses of personnel employed by the Company in the management and operation of each property.

The Company generally receives base management fees under these agreements based upon a percentage of gross rental revenues for the portions of the buildings being managed in addition to reimbursement of specified expenses, including employment expenses of personnel employed by the Company in the management and operation of each property.

Construction Management Agreements

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The aggregate fee payable to CAM from Investors X under the Management Agreement is $ 937,500 , payable in fifteen quarterly installments of $ 62,500 each.

Financing Arrangements

To the extent not contemplated in the 2019 AMA, CDS Entities will, from time to time, directly engage the Company, under separate written agreements, to source and procure debt and/or equity financing for the CDS Entities' real property assets, and the Company receives market rate advisory or finder's fees from the CDS Entities in connection with the Company's provision of such services as further set forth in the separate written agreements.

The Hartford Investment

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The Company’s initial investment related to the purchase of the Hartford is $ 1.2 million.

In conjunction with the investment, the Company entered into an operating agreement (“Original Operating Agreement”) with Comstock Partners, LC ("Partners") to form Comstock 3101 Wilson, LC (the “Hartford Owner”), to purchase the Hartford.

In conjunction with the investment, the Company entered into an operating agreement (“Original Operating Agreement”) with Partners to form Comstock 3101 Wilson, LC (the “Hartford Owner”), to purchase the Hartford.

Pursuant to the Original Operating Agreement, the Company holds a minority membership interest in the Hartford Owner and the remaining membership interests of the Hartford Owner is held by Partners, who is further the Manager of the Hartford Owner.

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Under the terms of the Loan Documents, the Revolver provides for an initial variable interest rate of the WSJ Prime Rate plus 1.00 % per annum on advances made under the Revolver, payable monthly in arrears.

The five-year term facility allows for interim draws that carry a maturity date of 12 months from the initial date of the disbursement unless a longer initial term is agreed to by CDS.

The five-year term

facility allows for interim draws that carry a maturity date of 12 months from the initial date of the disbursement unless a longer initial term is agreed to by CDS.

On March 27, 2020 the Company borrowed $ 5.5 million under the Revolver.

On April 10, 2020, the capital provided to the Company by the Revolver was utilized to retire all of the Company’s 10 % corporate indebtedness owed to CGF.

See Note 7 - Debt for further description of the CGF Private Placement and the Revolver.

See Note 6 - Revenue for detail regarding revenue earned from related parties .

For the three and six months ended June 30, 2021, the Company recognized deferred income tax benefit of $ 11.3 million.

For the three and six months ended June 30, 2020, the Company recognized deferred income tax expense of $ 1 thousand and $ 13 thousand, respectively.

The effective tax rate for the six months ended June 30, 2021 and 2020 is ( 8191.72 )% and ( 0.85 )%, respectively.

The effective tax rate decreased as a result of a partial release of the valuation allowance as further discussed below.

A reconciliation of the statutory rate and the effective tax rate follows:

Six Months Ended June 30,

See Note 6 - Revenue for detail regarding revenue earned from related parties and Note 7 - Debt for further description of the CGF Private Placement and the Revolver.

We use the asset and liability method of accounting for income taxes.

Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse.

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that such tax rate changes are enacted.

The measurement of a deferred tax asset is reduced, if necessary, by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized.

Prior to the quarter ended June 30, 2021, the Company recorded a valuation allowance to reduce its deferred tax assets to zero.

Based upon the available evidence on June 30, 2021, the Company determined it was more likely than not that a portion of deferred tax assets related to the NOL carryforwards would be utilized in future periods.

The Company considered all available evidence, including cumulative income in recent years and its current forecast of future income in its analysis.

The Company concluded that sufficient positive evidence exists due to the cumulative positive results achieved since the Company's revised business strategy launched in 2018 and associated long-term related party contract (2019 AMA), which establishes a reasonable expectation of future taxable income.

As a result, the Company partially released the valuation allowance against these deferred tax assets and recorded a deferred income tax benefit of $ 11.3 million in the second quarter of 2021.

While the Company believes its forecast of future income is reasonable, it is inherently uncertain.

If the Company’s projections of future income are lower than expected, the Company may need to reestablish the valuation allowance.

As of September 30, 2021, we have provided a valuation allowance against consolidated net deferred tax assets of $ 26.6 million, related primarily to deferred tax assets for Federal and state net operating loss carryforwards not expected to be used within their carryforward periods.

We use a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return.

For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities.

We have not identified any uncertain income tax positions that could have a material impact on the consolidated financial statements.

We recognize interest and penalties accrued on any unrecognized tax exposures as a component of income tax expense;

we did not have any such amounts accrued as of September 30, 2021 and December 31, 2020.

We are subject to taxation in various U.S.

jurisdictions and all of our income tax returns remain subject to examination by tax authorities due to the availability of NOL carryforwards.

For interim periods, we recognize an income tax provision/(benefit) based on our estimated annual effective tax rate, calculated for all taxing jurisdictions on a consolidated basis, expected for the entire year.

The interim annual estimated effective tax rate is based on the statutory tax rates then in effect, as adjusted for estimated changes in valuation allowance and estimated permanent differences, and excludes certain discrete items whose tax effect, when material, is recognized in the interim period in which they occur.

These changes in valuation allowance, permanent differences, and discrete items result in variances to the effective tax rate from period to period.

We also have elected to exclude the impacts from significant pre-tax non-recognized subsequent events from our interim estimated annual effective rate until the period in which they occur .

Prior to the adoption of new accounting guidance that we adopted on a prospective basis on January 1, 2021, during periods when we incurred net losses before income taxes, our annual estimated effective tax rate was at times adjusted based on the “loss limitation” requirements applicable to interim tax provisions, resulting in a limited income tax benefit recognized in that period.

The “loss limitation” requirements were removed by the new accounting guidance and, therefore, we were not required to assess any such limitation for 2021.

For the nine months ended September 30, 2021, we recognized an income tax benefit of $ 11.3 million.

The income tax benefit resulted from applying an estimated annual effective tax rate of 0.85 % to pre-tax consolidated income reported during the period, as well as the net effects of certain discrete items occurring which impact our income tax provision in the period in which they occur primarily related to the release of $ 11.3 million valuation allowance in the second quarter of 2021.

There were no other material discrete items occurring during the nine months ended September 30, 2021.

For the three months ended September 30, 2021, we recognized an income tax expense of $ 25 thousand.

The income tax expense resulted from applying an estimated annual effective tax rate of 0.80 % to pre-tax consolidated income reported during the period, as well as the net effects of certain discrete items occurring which impact our income tax provision in the period in which they occur.

There were no material discrete items occurring during the three months ended September 30, 2021.

For the three and nine months ended September 30, 2020, the Company recognized deferred income tax expense of $ 1 thousand and $ 15 thousand, respectively.

The effective tax rate for the three and nine months ended September 30, 2020 was 0 % and ( 0.11 )%, respectively.

The Company currently has approximately $ 146 million in federal and state NOLs.

If unused, these NOLs will begin expiring in 2027.

Under Internal Revenue Code Section 382, if a change in ownership is triggered, the Company’s NOL assets and possibly certain other deferred tax assets may be impaired.

A reconciliation of the statutory rate and the effective tax rate is as follows:

Nine Months Ended September 30,

Federal statutory rate 21.00 % 21.00 %

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Effective tax rate ( 369.93 ) % ( 0.85 ) %

The Company previously recorded a valuation allowance to reduce its deferred tax assets to zero.

The Company considered all available evidence, including cumulative income in recent years and its current forecast of future income in its analysis.

As a result, the Company partially released the valuation allowance against these deferred tax assets and recorded a deferred income tax benefit of $ 11.3 million for the three and six months ended June 30, 2021.

While the Company believes its forecast of future income is reasonable, it is inherently uncertain.

If the Company’s projections of future income are lower than expected, the Company may need to reestablish the valuation allowance.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Components of the Company’s deferred tax assets and liabilities at June 30, 2021 and December 31, 2020 and are as follows:

Components of the Company’s deferred tax assets and liabilities at September 30, 2021 and December 31, 2020 are as follows:

September 30,

2021 December 31,

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Deferred tax liabilities:

Depreciation and amortization 14 —

Goodwill amortization

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$ 11,310 $ ( 21 )

The Company currently has approximately $ 146.0 million in federal and state NOLs.

If unused, these NOLs will begin expiring in 2027.

Under Internal Revenue Code Section 382 (“Section 382”), if a change in ownership is triggered, the Company’s NOL assets and possibly certain other deferred tax assets may be impaired.

The Company assesses uncertain tax positions and has no t recorded any accruals related to uncertain tax positions as of June 30, 2021 and 2020.

and state income tax returns in jurisdictions with varying statutes of limitations.

The 2017 through 2020 tax years remain subject to examination by federal and most state tax authorities.

SEGMENT DISCLOSURES

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Asset Management and Real Estate Services.

After the classification of CES as a discontinued operation as described in Note - Discontinued Operations, which was included in the Real Estate Services segment, we now operate our business through one reportable segment, Asset Management.

After the classification of CES as a discontinued operation as described in Note 3 - Discontinued Operations, which was included in the Real Estate Services segment, we now operate our business through one reportable segment:

Asset Management.

In our Asset Management segment, we focus on providing management services to a wide range of real estate owners and businesses that include a variety of commercial real estate uses, including apartments, hotels, office buildings, commercial garages, leased lands, retail stores, mixed-use developments, and urban transit-oriented developments.

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We also provide capital markets and brokerage services.

SUBSEQUENT EVENTS

On October 20, 2021, the Company closed on an investment in a stabilized, luxury high-rise apartment building located at 44 Maryland Avenue in the City of Rockville, which is within the I-270 Technology and Life Science Corridor in Montgomery County, Maryland (the “Property”) pursuant to a purchase and sale agreement dated July 16, 2021 (as amended, the “Agreement”).

In conjunction with the entry into the Agreement, the Company entered into an operating agreement (“Operating Agreement”) with Partners to form Comstock 44 Maryland, LC (the “Purchaser”) to purchase the Property.

Pursuant to the Operating Agreement, the Company holds a minority membership interest in the Purchaser and management control and the remaining membership interests are held by Partners.

At September 30, 2021, the Company maintained a deposit in escrow pursuant to the Agreement totaling approximately $ 3.5 million.

At closing, the Company’s investment related to the purchase of the Property was reduced to approximately $ 2.1 million in accordance with the Company's initial capital contribution due under the Operating Agreement.

At the closing of the acquisition of the Property, the Company received an acquisition fee of $ 500 thousand.

The Company, or its affiliates, are further entitled to market rate asset management, property management, parking management, construction management and leasing fees for their management of the Property pursuant to separate agreements between the Purchaser, or its affiliates, and the Company, or its affiliates.

COMSTOCK HOLDING COMPANIES, INC.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements