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Item 7. Management’s Discussion and Analysis

2022-03-31 compared with 2021-03-31 · 182 added, 134 removed, 10 unchanged (97% of the section changed)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and related notes appearing elsewhere in this Annual Report on Form 10-K.

This discussion and analysis contain forward-looking statements that involve risks and uncertainties.

Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors including, but not limited to, those discussed below and elsewhere in this Annual Report on Form 10-K, particularly under the heading “Cautionary Notes Regarding Forward-looking Statements.”

In early 2018, the Company transitioned its operating platform from being primarily focused on the development and sale of residential homes to our current fee-based services model focused on commercial and mixed-use real estate primarily in the greater Washington, D.C.

We are a developer, operator, and asset manager of mixed-use and transit-oriented development properties in the greater Washington, D.C.

metropolitan area where we primarily focus on select high-growth urban and transitioning “sub-urban” markets.

We also provide additional fee-based real estate services, including corporate planning, capital markets, brokerage, title insurance, design, and environmental consulting and remediation services, to properties in the Company’s managed portfolio and to other clients in the U.S.

Mid-Atlantic Region.

Recent Accounting Pronouncements

Information regarding recent accounting pronouncements is contained in Note 2 in the accompanying Consolidated Financial Statements.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States (“GAAP”), which require us to make certain estimates and judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods.

On an ongoing basis, we evaluate our estimates including those related to the consolidation of variable interest entities (“VIEs”), revenue recognition and the fair value of equity method investments.

We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances.

Actual results may differ materially from these estimates.

A summary of significant accounting policies is provided in Note 2 in the accompanying Consolidated Financial Statements.

The following section is a summary of certain aspects of those accounting policies that require the most difficult, subjective or complex judgments and estimates.

Goodwill impairment

We test our goodwill for impairment on an annual basis, and more frequently when an event occurs, or circumstances indicate that the carrying value of the asset may not be recoverable.

We believe the methodology that we use, including both a discounted cash flow model as well as a market multiple model, to review impairment of goodwill, which includes a significant amount of judgment and estimates, provides us with a reasonable basis to determine whether impairment has occurred.

Investments in real estate ventures at fair value

For investments in real estate ventures reported at fair value, we maintain an investment account that is increased or decreased each reporting period by the difference between the fair value of the investment and the carrying value as of the balance sheet date.

These fair value adjustments are reflected as gains or losses on the Consolidated Statements of Operations.

The fair value of these investments as of the balance sheet date is generally determined using a Discounted Cash Flow (“DCF”) analysis, income approach, or sales comparable approach, depending on the unique characteristics of the real estate venture.

Revenue recognition

Revenues generated through real estate professional services such as asset and property management, administrative support, environmental design, engineering and remediation represent a series of daily performance obligations delivered over time due to the continuous transfer of control to our clients.

For asset and property management, pricing is generally in the form of monthly management fees based on a cost-plus agreement, percentage of property-level cash receipts, square footage under management or some other variable metric recognized over time.

For Real Estate Services, pricing is generally in the form of cost-plus contracts recognized over time.

Equity-based compensation

Compensation costs related to our equity-based compensation plans are recognized within our income statement or capitalized to real estate inventories reported in discontinued operations for awards issued to employees that are involved in production.

The costs recognized are based on the grant-date fair value.

Compensation costs for share-based grants are recognized on a straight-line basis over the requisite service period for the entire award (from the date of grant through the period of the last separately vesting portion of the grant).

The fair value of each option award is calculated on the date of grant using the Black-Scholes option pricing model which includes certain subjective assumptions.

Expected volatilities are calculated based on our historical trading activities.

We recognize forfeitures as they occur.

The risk-free rate for the periods is based on the U.S.

Treasury rates in effect at the time of grant.

The expected term of options is based on the Company’s historical experience.

Income taxes are accounted for under the asset and liability method in accordance with ASC 740, Accounting for Income Taxes .

Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

The effect of a change in tax rates on the deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

We provide a valuation allowance when we consider it “more likely than not” (greater than a 50% probability) that a deferred income tax asset will not be fully recovered.

Adjustments to the valuation allowance are a component of the deferred income tax expense or benefit in the Consolidated Statement of Operations.

The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes and other financial information appearing elsewhere in this Annual Report on Form 10-K.

All references to “2021” and “2020” are referring to the twelve-month period ended December 31 for each of those respective fiscal years.

This section of this Annual Report on Form 10-K generally discusses 2021 and 2020 items and year-to-year comparisons between 2021 and 2020.

The following discussion may contain forward-looking statements that reflect our plans and expectations.

Our actual results could differ materially from those anticipated by these forward-looking statements due to the factors discussed elsewhere in this Annual Report on Form 10-K.

We do not undertake, and specifically disclaim, any obligation to update any forward-looking statements to reflect the occurrence of events or circumstances after the date of such statements except as required by law.

We are a leading developer and manager of mixed-use and transit-oriented properties in the Washington, D.C.

metropolitan area.

As a vertically integrated and multi-faceted asset management and real estate services company, we have designed, developed, constructed, acquired, and managed thousands of residential units and millions of square feet of commercial and mixed-use properties in since 1985.

We provide a broad range of asset management and real estate services to our customers and partners, composed primarily of private and institutional owners, investors in commercial, residential, and mixed-use real estate, and various governmental bodies seeking to leverage the potential of public-private partnerships.

We have broad real estate development and management capabilities that enable us to generate fees for services provided in connection with the real estate assets we manage.

Our experienced team provides a full range of services related to acquisition, development, and operations of real estate assets.

Our revenue includes fees generated from asset management and real estate services that we provide to properties in our managed portfolio.

In addition, we invest capital both on our own account and on behalf of clients and institutional investors seeking above average risk-adjusted returns.

These strategic real estate investments tend to focus on office, retail, residential and mixed-use properties in which we generally retain an economic interest while also providing property management and other real estate services.

The services we provide pursuant to the asset management agreements covering our managed portfolio vary by property and client.

Substantially all the properties included in our managed portfolio are covered by long-term, full-service asset management agreements encompassing all aspects of design, development, construction, and operations management relating to the subject properties.

Anchoring our asset management services platform is a long-term full service asset management agreement with an affiliated company owned by the Comstock’s Chief Executive Officer, Christopher Clemente (the “2019 AMA”).

The 2019 AMA encompasses the majority of the properties we currently manage, including two of the largest transit-oriented, mixed-use developments in the Washington, D.C.

metropolitan area:

Reston Station and Loudoun Station, which along with other development properties under the 2019 AMA constitute our “Anchor Portfolio”.

As of December 31, 2021, our managed portfolio comprised 34 operating assets, including 14 commercial assets totaling approximately 2.2 million square feet, 6 multifamily assets totaling 1,636 units, and 14 commercial garages with over 11,000 parking spaces.

Additionally, we have:

(i) one commercial asset currently under-construction and scheduled for delivery in 2022 totaling approximately 250,000 square feet that is 100.0% pre-leased;

and (ii) 18 development pipeline assets consisting of approximately 2.0 million square feet of additional planned commercial development, approximately 1,900 multifamily units and 2 hotel assets that will include 460 keys.

CES Divestiture

On June 16, 2021, we made the strategic decision to pursue the sale of the operations of Comstock Environmental Services, LLC ("CES"), a subsidiary of Comstock, based on the continued growth and future prospects of the asset management business.

Accordingly, we have reflected CES as a discontinued operation in our consolidated statements of operations for all periods presented, and have also designated CES assets and liabilities as held for sale in our consolidated balance sheets.

Unless otherwise noted, all amounts and disclosures relate to our continuing operations.

For additional information, see Note 3 in the Notes to Consolidated Financial Statements.

On March 31, 2022, we completed the sale of CES to August Mack Environmental, Inc.

("August Mack") for approximately $1.4 million of total consideration, composed of $1.0 million in cash and $0.4 million held in escrow that is subject to net working capital and other adjustments, as set forth in the executed Asset Purchase Agreement with August Mack.

COVID-19 Update

The COVID-19 pandemic has also caused significant volatility in U.S.

and international debt and equity markets, which can negatively impact consumer confidence.

There is significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the U.S.

The extent to which the COVID-19 pandemic affects our financial results will depend on future developments, which are highly uncertain and cannot be predicted.

While we have not experienced a significant impact on our business resulting from COVID-19 to date, future developments may have a negative impact on our results of operations and financial condition.

We continue to monitor the ongoing impact of the COVID-19 pandemic, including the effects of recent notable variants of the virus.

The health and safety of our employees, customers, and the communities in which we operate remains our top priority.

Although the long-term impact of the COVID-19 pandemic on the commercial real estate market in the greater Washington, D.C.

area remains uncertain, we believe that our Anchor Portfolio is well positioned to withstand any future potential negative impacts of the COVID-19 pandemic.

Our management team is committed to executing on the Company's goal to provide exceptional experiences to those we do business with while maximizing shareholder value.

We believe that we are properly staffed for current market conditions and the foreseeable future and that our Company has the ability to manage risk and pursue opportunities for additional growth as market conditions warrant.

Our real estate development and management operations are primarily focused on the greater Washington, D.C.

area, where we believe our 30-plus years of experience provides us the best opportunity to continue leveraging our significant experience acquiring, developing, and managing high quality real estate assets and capitalizing on positive growth trends.

Results of Operations

Year ended December 31, 2020 compared to year ended December 31, 2019

Revenue – asset management

Revenue from asset management for the years ended December 31, 2020 and 2019 was $21.9 million and $19.6 million, respectively.

The 11.8% year over year growth of $2.3 million in revenue was primarily due to increased headcount and other costs that are reimbursable from Comstock Development Services ("CDS") under the 2019 AMA and the other asset management agreements.

The reimbursable costs are recognized as revenue in the period in which the related costs are incurred.

The increased headcount and associated personnel costs are primarily attributable to the additional real estate assets being managed along with the additional management agreements year over year.

Please see Note 2 - Summary of Significant Accounting Policies for more information on the additional management agreements.

Revenue – real estate services

Revenue from real estate services for the years ended December 31, 2020 and 2019 was $6.8 million and $5.7 million, respectively.

The 19.1% increase of $1.1 million is primarily attributable to continued organic revenue growth within our Comstock Environmental business, partially offset by a decrease in closing financing transactions which generated incremental revenue of $0.6 million and $1.1 million during the years ended December 31, 2020 and 2019, respectively.

Direct costs – asset management

Direct costs – asset management for the years ended December 31, 2020 and 2019 was $18.4 million and $16.6 million, respectively.

This 11.4% increase of $1.9 million was primarily related to increased personnel expense from headcount increases as well as from the continued growth of our asset management operations.

Direct costs – real estate services

Direct costs – real estate services decreased by $0.5 million to $4.1 million during the year ended December 31, 2020, as compared to $4.6 million during the year ended December 31, 2019.

The decrease is primarily due to the recognition of $419 thousand in direct costs related to the real estate services segment from the Paycheck Protection Program Loan ("PPP Loan") as a government grant.

Please see Note 9 - CARES Act for more information on the PPP Loan and the Paycheck Protection Program ("PPP").

The grant was recognized during the covered period of the PPP Loan in the second quarter of 2020 as the related payroll costs were incurred, and the Company has complied with the forgiveness conditions attached to the PPP Loan.

General and administrative

General and administrative expenses for the year ended December 31, 2020 increased $1.5 million to $3.0 million, as compared to $1.5 million for the year ended December 31, 2019.

The year-over-year increase is attributable to increases in employee headcount and general overhead increases associated with the increased headcount.

General overhead costs include such items as software expense and non-capitalized computer expenses.

Sales and marketing

Sales and marketing expenses was $661.0 thousand and $383.0 thousand for the years ended December 31, 2020 and 2019, respectively.

The increase is attributable to increased sales development programs launched by our Environmental business unit to grow the business.

The increase in sale development costs has helped drive our 19.1%$1.1 million increase in real estate services revenue year over year.

The following tables set forth consolidated statement of operations data for the periods presented (in thousands):

Year Ended December 31,

Revenue $ 31,093 $ 22,487

Operating costs and expenses:

Cost of revenue 24,649 18,445

Selling, general, and administrative 1,285 1,314

Depreciation and amortization 94 74

Total operating costs and expenses 26,028 19,833

Income (loss) from operations 5,065 2,654

Other income (expense)

Interest expense (235) (344)

For the years ended December 31, 2020 and 2019 non-capitalized interest expense was $379.0 thousand and $474.0 thousand, respectively.

This was a decrease of 20.0%.

The $95.0 thousand decrease was primarily related to the retiring of the Comstock Growth Fund loan in 2020 that carried a higher interest rate than the CDS Note, partially offset by the April 30, 2019 Master Transfer Agreement (“MTA”).

Prior to the MTA certain interest expense was capitalized to homebuilding projects and expensed when the projects were sold.

After the MTA this interest expense is no longer capitalized into homebuilding projects but expensed as incurred.

During the year ended December 31, 2020, the Company recognized an income tax expense related to continuing operations of $25.0 thousand.

During the year ended December 31, 2019, the Company recognized an income tax expense related to continuing operations of $2.0 thousand.

The de minimis income tax expense in both years is primarily attributable to state tax obligations which our federal and state NOLs cannot offset.

Loss from discontinued operations

On April 30, 2019, the Company entered into the Master Transfer Agreement ("MTA") that sets forth certain transactions to complete the Company’s previously announced exit from the homebuilding and land development business in favor of a migration to an asset management model.

Refer to Note 13 – Consolidation of Variable Interest Entities

for further discussion regarding the accounting related to discontinued operations.

The operating results of the discontinued operations that are reflected on the Consolidated Statement of Operations within the net loss from discontinued operations are as follows:

Gain (loss) on equity method investments (14) (160)

Other income 6 16

Income (loss) from continuing operations before income tax 4,822 2,166

Provision for (benefit from) income tax (11,217) 25

Net income (loss) from continuing operations 16,039 2,141

Net income (loss) from discontinued operations, net of tax (2,430) (59)

Net income (loss) $ 13,609 $ 2,082

Comparison of the Years Ended December 31, 2021 and December 31, 2020

The following table summarizes revenue by line of business (in thousands):

Year Ended December 31,

Revenue—homebuilding

2021 2020 Change

Net Sales % Net Sales % $ %

Asset management $ 22,539 72.5 % $ 16,057 71.4 % $ 6,482 40.4 %

Property management 6,939 22.3 % 5,410 24.1 % 1,529 28.3 %

Parking 1,615 5.2 % 1,020 4.5 % 595 58.3 %

Total revenue $ 31,093 100.0 % $ 22,487 100.0 % $ 8,606 38.3 %

Cost of sales—homebuilding

Sales and marketing

General and administrative

Operating loss (273)

Income tax benefit (15)

Net loss from discontinued operations (258)

Net income attributable to non-controlling interests

Net loss attributable to Comstock Holding Companies, Inc.

Revenue increased 38.3% in 2021.

The $8.6 million comparative increase was primarily due to a $3.0 million increase in base asset management fees, driven partially by the $1.4 million impact of the PPP Loan we received in 2020 that reduced the prior year reimbursable cost base.

In addition, in 2021 there was a $2.6 million increase in loan origination fees earned and a $1.4 million increase in revenue stemming from reimbursed payroll costs.

The increases in property management and parking revenue stem from seven additional managed commercial and residential properties and parking facilities in 2021.

Operating costs and expenses

The following table summarizes operating costs and expenses (in thousands):

Year Ended December 31, Change

2021 2020 $ %

Cost of revenue $ 24,649 $ 18,445 $ 6,204 33.6 %

Selling, general, and administrative 1,285 1,314 (29) (2.2) %

Depreciation and amortization 94 74 20 27.0 %

Total operating costs and expenses $ 26,028 $ 19,833 $ 6,195 31.2 %

Operating costs and expenses increased 31.2% in 2021.

The $6.2 million comparative increase was primarily due a $3.9 million increase in payroll costs, driven partially by the $1.5 million impact of the PPP Loan received in 2020 that reduced the prior year balance.

Also contributing to the increase was a $0.9 million increase in co-broker fees incurred in 2021 due to increased capital markets activity, as well as a $0.5 million increase in rent expense due to a rate increase at our corporate headquarters location.

Other income (expense)

The following table summarizes other income (expense) (in thousands):

Year Ended December 31, Change

2021 2020 $ %

Interest expense $ (235) $ (344) $ 109 (31.7) %

Gain (loss) on equity method investments (14) (160) 146 (91.3) %

Other income 6 16 (10) (62.5) %

Total other income (expense) $ (243) $ (488) $ 245 (50.2) %

Other income (expense) decreased 50.2% in 2021.

The $0.2 million comparative decrease was primarily due to a $0.1 million decrease in interest expense as a result of replacing a higher interest rate loan with a lower interest credit facility, as well as $0.1 million net decrease in losses on equity method investments.

Benefit from income taxes was $11.2 million in 2021, compared to an immaterial expense in 2020.

The significant benefit in 2021 was primarily due to the partial $11.3 million release of a deferred tax asset valuation allowance in the second quarter.

This recognized tax benefit was derived from our ability to consistently deliver positive net income from continuing operations over the past 3 years and our expectation that current operations will continue to generate future taxable income.

Non-GAAP Financial Measures

To provide investors with additional information regarding our financial results, we prepare certain financial measures that are not calculated in accordance with generally accepted accounting principles in the United States (“GAAP”), specifically Adjusted EBITDA.

We define Adjusted EBITDA as net income (loss) from continuing operations, excluding the impact of interest expense (net of interest income), income taxes, depreciation and amortization, stock-based compensation, and gain (loss) on equity method investments.

We use Adjusted EBITDA to evaluate financial performance, analyze the underlying trends in our business and establish operational goals and forecasts that are used when allocating resources.

We expect to compute Adjusted EBITDA consistently using the same methods each period.

We believe Adjusted EBITDA is a useful measure because it permits investors to better understand changes over comparative periods by providing financial results that are unaffected by certain non-cash items that are not considered by management to be indicative of our operational performance.

While we believe that Adjusted EBITDA is useful to investors when evaluating our business, it is not prepared and presented in accordance with GAAP, and therefore should be considered supplemental in nature.

Adjusted EBITDA should not be considered in isolation, or as a substitute, for other financial performance measures presented in accordance with GAAP.

Adjusted EBITDA may differ from similarly titled measures presented by other companies.

The following table presents a reconciliation of net income (loss) from continuing operations, the most directly comparable financial measure as measured in accordance with GAAP, to Adjusted EBITDA (in thousands):

Year Ended December 31,

Net income (loss) from continuing operations $ 16,039 $ 2,141

Interest expense, net 235 344

Income taxes (11,217) 25

Depreciation and amortization 94 74

Stock-based compensation 633 701

Gain (loss) on equity method investments 14 160

Adjusted EBITDA $ 5,798 $ 3,445

Seasonality and Quarterly Fluctuations

Liquidity and Capital Resources

We finance our Asset Management and Real Estate Services operations, capital expenditures, and business acquisitions with internally generated funds, borrowings from our credit facilities and long-term debt.

Pursuant to the Master Transfer Agreement (the "MTA"), the Company transferred to CDS management of its Class A membership interests in Investors X, the entity owning the Company’s residual homebuilding operations in exchange for residual cash flows.

The associated debt obligations were also transferred to CDS.

See Note 8 in the accompanying consolidated financial statements for more details on our debt and credit facilities.

On March 19, 2020, the Company entered into a Revolving Capital Line of Credit Agreement (the “Loan Documents”) with CDS, pursuant to which the Company secured a $10.0 million capital line of credit (the “Revolver”).

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.

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

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

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 maturing in 2020 owed to Comstock Growth Fund, L.C.

On April 20, 2020, the Company was granted the PPP Loan in the aggregate amount of $1.95 million pursuant to the PPP under the CARES Act, which was enacted March 27, 2020.

Under the terms of the PPP, PPP loans and accrued interest are forgivable after twenty-four weeks as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels.

The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the forgiveness period.

As of December 31, 2020, the Company had used the entire loan proceeds to fund its payroll and rent expenses.

As a result, the Company believes that it has met the PPP eligibility criteria for forgiveness and has concluded that the loan represents, in substance, a government grant that is expected to be forgiven.

As such, in accordance with IAS 20 “Accounting for Government Grants and Disclosure of Government Assistance”, the Company has recognized the entire loan amount as a reduction to the associated expenses as at December 31, 2020.

The Company does not anticipate taking any action that would cause any portion of the PPP Loan to be ineligible for forgiveness.

However, to the extent that any amount is deemed unforgivable, such amount is payable over 2 to 5 years at an interest rate of 1%, with a deferral of payments for the first 6 months.

Net cash provided by operating activities was $3.4 million for the year ended December 31, 2020.

The $3.4 million net cash provided by operations in 2020 was primarily due to $2.1 million of net income generated during the year.

Net cash provided by operating activities was $8.4 million for the year ended December 31, 2019.

The $8.4 million net cash provided by operations in 2019 was primarily due to $7.8 million in cash provided by discontinued operations.

Net cash used in investing activities was $1.7 million for the year ended December 31, 2020.

This was primarily attributable to the purchase of fixed assets for the new headquarters lease.

Net cash used in investing activities attributable to continuing operations was immaterial for the years ended December 31, 2019.

Net cash used in financing activities was $1.6 million for the year ended December 31, 2020.

This was primarily attributable to the retirement of debt partially offset by proceeds under the Revolver of $5.5 million.

Net cash used in financing activities was immaterial for the year ended December 31, 2019 .

Net cash used in financing activities from discontinued operations was $6.0 million primarily as a result of note payoff related to each lot or unit sale in the Investors X communities.

Liquidity is defined as the current amount of readily available cash and the ability to generate adequate amounts of cash to meet the current needs for cash.

We assess our liquidity in terms of our cash and cash equivalents on hand and the ability to generate cash to fund our operating activities.

Our principal sources of liquidity as of December 31, 2021 were our cash and cash equivalents of $15.8 million and our $4.5 million of available borrowings on our Credit Facility.

Significant factors which could affect future liquidity include the adequacy of available lines of credit, cash flows generated from operating activities, working capital management and investments.

Our primary capital needs are for working capital obligations and other general corporate purposes, including investments and capital expenditures.

Our primary sources of working capital are cash from operations and distributions from investments in real estate ventures.

We have historically financed our operations with internally generated funds and borrowings from our credit facilities.

For further information on our debt and credit facilities, see Note 7 in the Notes to Consolidated Financial Statements.

We believe we currently have adequate liquidity and availability of capital to fund our present operations and meet our commitments on our existing debt.

Share Repurchase Program

In November 2014, our board of directors approved a new share repurchase program authorizing the Company to repurchase up to 429,000 shares of our Class A common stock in one or more open market or privately negotiated transactions.

We made no share repurchases under our share repurchase program in 2020 or 2019.

Trends and Uncertainties

In December 2019, a novel strain of coronavirus (“COVID-19”) surfaced in Wuhan, China.

Through March 2021, the spread of this virus has caused business disruption primarily in the travel, leisure and hospitality industries and with respect to companies that have significant operations or supply chains in China.

The spread of COVID-19 has also caused significant volatility in U.S.

and international debt and equity markets, which can negatively impact consumer confidence.

There is significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the U.S.

economy and consumer confidence.

The extent to which COVID-19 impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions taken to contain it or treat its impact.

While we have not seen a significant impact on our business resulting from COVID-19 to date, if the virus continues to cause significant negative impacts to economic conditions or consumer confidence, our results of operations and financial condition could be adversely impacted.

We made no share repurchases under our share repurchase program in 2021 or 2020, and as of December 31, 2021 there are 404,000 shares of our Class A common stock that remain available for repurchase.

The following table summarizes our cash flows for the periods indicated (in thousands):

Year Ended December 31,

Continuing operations

Net cash provided by (used in) operating activities $ 8,688 $ 3,579

Net cash provided by (used in) investing activities 1,276 1,703

Net cash provided by (used in) financing activities (227) (282)

Total net increase (decrease) in cash - continuing operations 9,737 5,000

Discontinued operations, net (946) (1,479)

Net increase (decrease) in cash and cash equivalents $ 8,791 $ 3,521

Operating Activities

Net cash provided by operating activities increased by $5.1 million in 2021, primarily driven by a $2.8 million incremental cash inflow stemming from changes to our net working capital, including decreased accounts receivable and increased accrued personnel costs.

In addition, there was a $2.3 million increase in net income from continuing operations after adjustments for non-cash items that contributed to the comparative increase.

Investing Activities

Net cash provided by investing activities decreased by $0.4 million in 2021, primarily driven by our $2.0 million real estate investment in BLVD Forty Four, partially offset by a $1.7 million increase in distributions from investments in real estate ventures.

Financing Activities

Net cash used in financing activities decreased by $0.1 million in 2021, primarily driven by a $0.2 million decrease in net loan activity, partially offset by a $0.1 million increase in tax payments related to the net share settlement of equity awards.

Off-Balance Sheet Arrangements

From time to time, we may have off-balance-sheet unconsolidated investments in real estate ventures and other unconsolidated arrangements with varying structures.

For a full discussion of our current investments in real estate ventures, see Note 5 in the Notes to Consolidated Financial Statements.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with GAAP.

Accounting policies, methods and estimates are an integral part of the preparation of consolidated financial statements in accordance with U.S.

GAAP and, in part, are based upon management’s current judgments.

Those judgments are normally based on knowledge and experience with regard to past and current events and assumptions about future events.

Certain accounting policies, methods and estimates are particularly sensitive because of their significance to the consolidated financial statements and because of the possibility that future events affecting them may differ from management’s current judgments.

While there are a number of accounting policies, methods and estimates affecting our consolidated financial statements, areas that are particularly significant include:

• Goodwill impairment

• Investments in real estate ventures at fair value

• Income taxes

Goodwill impairment

On an annual basis as of October 1, and at interim periods when circumstances require, we test the recoverability of our goodwill and intangible assets and review for indicators of impairment.

Examples of such indicators include a significant change in the business climate, increased competition, loss of key personnel, significant or unusual changes in market capitalization, negative or declining cash flows, or a decline in actual or planned revenue or earnings compared with actual and projected results of relevant prior periods.

We perform impairment assessments at the reporting unit level, which is defined as an operating segment or one level below an operating segment, also known as a component.

Given that our goodwill balance on our consolidated balance sheets relates entirely to our Comstock Environmental Services ("CES") line of business, we perform our assessments on that single reporting unit.

To test for the recoverability of goodwill, we first perform a qualitative assessment based on economic, industry and company-specific factors the reporting unit to determine whether the existence of events and circumstances indicates that it is more likely than not that the goodwill is impaired.

Based on the results of the qualitative assessment, two additional steps in the impairment assessment may be required.

The first step would require a comparison of the reporting unit’s fair value to the respective carrying value.

If the carrying value exceeds the fair value, a second step is performed to measure the amount of impairment loss on a relative fair value basis, if any.

As part of our annual goodwill assessment, we determined that there were potential indicators of impairment based on facts and circumstances that have arisen surrounding the divestiture of CES (see " Recent Developments" section above).

Upon performing the quantitative two-step impairment test, we determined that the carrying value of CES significantly exceeded its current fair value, which was estimated using Level 1 inputs.

As a result, we recorded a $1.4 million impairment loss in the fourth quarter 2021 to fully write off the remaining goodwill balance.

This impairment loss, along with the $0.3 million goodwill impairment loss recorded in our fiscal second quarter, resulted in a cumulative $1.7 million goodwill impairment charge in 2021 that is reflected in net income (loss) from discontinued operations in our consolidated statements of operations.

Investments in real estate ventures at fair value

For investments in real estate ventures reported at fair value, we maintain an investment account that is increased or decreased each reporting period by contributions, distributions, and the difference between the fair value of the investment and the carrying value as of the balance sheet date.

These fair value adjustments are reflected as gains or losses in our consolidated statements of operations.

The fair value of these investments as of the balance sheet date is generally determined using a discounted cash flow analysis, income approach, or sales-comparable approach, depending on the unique characteristics of the real estate venture.

Income taxes are accounted for under the asset and liability method.

The deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

The effect of a change in tax rates on the deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

We provide a valuation allowance when we consider it “more likely than not” (greater than a 50% probability) that a deferred income tax asset will not be fully recovered.

Adjustments to the valuation allowance are a component of the income tax provision or benefit in our consolidated statements of operations.

In June 2021, based on our recent financial performance and current forecasts of future operating results, we determined that it was more likely than not that a portion of the deferred tax assets related to our net operating loss ("NOL") carryforwards would be utilized in future periods.

As a result, we recorded an $11.3 million income tax benefit in the second quarter of 2021 that represented a partial release of our valuation allowance.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

Financial Statements and Supplementary Data

Reference is made to the Consolidated Financial Statements, the notes thereto, and the report thereon, commencing on page F-1 of this Annual Report on Form 10-K.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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-K

Item 7. Management’s Discussion and Analysis