Comstock Holding Companies, Inc. 10-K

Item 8. Financial Statements and Supplementary Data COMSTOCK HOLDING COMPANIES, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm (PCAOB ID # 248 )................................................................. F- 1 Consolidated Balance Sheets at December 31, 2022 and 2021 ........................................................................................... F- 3 Consolidated Statements of Operations for the Years Ended December 31, 2022 an d 2021 .............................................. F- 4 Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2022 and 2021 ........... F- 5 Consolidated Statements of Cash Flows for the Years Ended December 31, 2022 and 2021 ............................................. F- 6 Notes to Consolidated Financial Statements ........................................................................................................................ F- 7 16 Table of Contents Report of Independent Registered Public Accounting Firm Board of Directors and Stockholders Comstock Holding Companies, Inc. Opinion on the financial statements We have audited the accompanying consolidated balance sheets of Comstock Holding Companies, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. Basis for opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical audit matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Realizability of Deferred Tax Assets and Valuation Allowance Assessment As described further in Note 12 to the consolidated financial statements, the Company assesses available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of existing deferred tax assets. The Company has historically recorded valuation allowances for certain tax attributes and other deferred tax assets. During 2022, after weighing all available positive and negative evidence, the Company released $1.4 million of the valuation allowance as management deemed estimated future taxable income to be sufficient to realize additional deferred tax assets related to tax credit carryforwards and net operating losses. The principal consideration for our determination that the realizability of deferred tax assets is a critical audit matter is that the estimate of future taxable income is an accounting estimate subject to a high level of estimation uncertainty. There is inherent uncertainty and subjectivity related to management’s judgments and assumptions regarding the Company’s future taxable income, the determination of which is complex in nature and may be affected by future operations of the Company and market or economic conditions. As such, significant auditor judgment was required. F-1 Table of Contents Our audit procedures related to the realizability of deferred tax assets included the following, among others. • We obtained an understanding of the design and tested implementation of controls relating to the evaluation of the realizability of deferred tax assets and the estimation of future taxable income; • We evaluated management’s assumptions regarding the Company’s estimated future taxable income, including tracing to underlying supporting documents and future development plans • With the assistance of our income tax specialists, we evaluated the nature of each of the deferred tax assets, including their expiration dates and their projected utilization when compared to projections of future taxable income. /s/ GRANT THORNTON LLP We have served as the Company’s auditor since 2020. Arlington, Virginia March 29, 2023 F-2 Table of Contents COMSTOCK HOLDING COMPANIES, INC. Consolidated Balance Sheets (In thousands, except per share data) December 31, 2022 2021 Current assets: Cash and cash equivalents $ 11,722 $ 15,823 Accounts receivable, net 504 46 Accounts receivable - related parties 3,291 1,697 Prepaid expenses and other current assets 264 197 Current assets held for sale — 2,313 Total current assets 15,781 20,076 Fixed assets, net 421 264 Intangible assets 144 — Leasehold improvements, net 119 — Investments in real estate ventures 7,013 4,702 Operating lease assets 7,625 7,245 Deferred income taxes, net 11,355 11,300 Other assets 15 15 Total assets $ 42,473 $ 43,602 Liabilities and Stockholders' Equity Current liabilities: Accrued personnel costs $ 4,959 $ 3,468 Accounts payable and accrued liabilities 742 783 Current operating lease liabilities 791 616 Current liabilities held for sale — 1,194 Total current liabilities 6,492 6,061 Credit facility - due to affiliates — 5,500 Operating lease liabilities 7,127 6,745 Total liabilities 13,619 18,306 Commitments and contingencies (Note 8) Stockholders' equity: Series C preferred stock; $ 0.01 par value; 20,000 shares authorized; none issued or outstanding as of December 31, 2022; 3,441 issued and outstanding as of December 31, 2021 — 6,765 Class A common stock; $ 0.01 par value; 59,780 shares authorized; 9,337 issued and 9,252 outstanding as of December 31, 2022; 8,102 issued and 8,017 outstanding as of December 31, 2021 93 81 Class B common stock; $ 0.01 par value; 220 shares authorized, issued, and outstanding as of December 31, 2022 and 2021 2 2 Additional paid-in capital 201,535 200,617 Treasury stock, at cost ( 86 shares of Class A common stock) ( 2,662 ) ( 2,662 ) Accumulated deficit ( 170,114 ) ( 179,507 ) Total stockholders' equity 28,854 25,296 Total liabilities and stockholders' equity $ 42,473 $ 43,602 See accompanying Notes to Consolidated Financial Statements. F-3 Table of Contents COMSTOCK HOLDING COMPANIES, INC. Consolidated Statements of Operations (In thousands, except per share data) Year Ended December 31, 2022 2021 Revenue $ 39,313 $ 31,093 Operating costs and expenses: Cost of revenue 29,371 24,649 Selling, general, and administrative 1,784 1,285 Depreciation and amortization 206 94 Total operating costs and expenses 31,361 26,028 Income (loss) from operations 7,952 5,065 Other income (expense): Interest expense ( 222 ) ( 235 ) Gain (loss) on real estate ventures 121 ( 14 ) Other income (expense), net 2 6 Income (loss) from continuing operations before income tax 7,853 4,822 Provision for (benefit from) income tax 125 ( 11,217 ) Net income (loss) from continuing operations 7,728 16,039 Net income (loss) from discontinued operations, net of tax ( 381 ) ( 2,430 ) Net income (loss) $ 7,347 $ 13,609 Impact of Series C preferred stock redemption 2,046 — Net income (loss) attributable to common stockholders $ 9,393 $ 13,609 Weighted-average common stock outstanding: Basic 8,974 8,213 Diluted 9,575 9,095 Net income (loss) per share: Basic - Continuing operations $ 1.09 $ 1.95 Basic - Discontinued operations ( 0.04 ) ( 0.29 ) Basic net income (loss) per share $ 1.05 $ 1.66 Diluted - Continuing operations $ 1.02 $ 1.76 Diluted - Discontinued operations ( 0.04 ) ( 0.26 ) Diluted net income (loss) per share $ 0.98 $ 1.50 See accompanying Notes to Consolidated Financial Statements. F-4 Table of Contents COMSTOCK HOLDING COMPANIES, INC. Consolidated Statements of Changes in Stockholders' Equity (In thousands) Series C Class A Class B Preferred Stock Common Stock Common Stock Treasury Accumulated Shares Amount Shares Amount Shares Amount APIC stock deficit Total Balance as of December 31, 2020 3,441 $ 6,765 7,953 $ 79 220 $ 2 $ 200,147 $ ( 2,662 ) $ ( 193,116 ) $ 11,215 Issuance of common stock, net of shares withheld for taxes — — 149 2 — — ( 252 ) — — ( 250 ) Stock-based compensation — — — — — — 722 — — 722 Net income (loss) — — — — — — — — 13,609 13,609 Balance as of December 31, 2021 3,441 $ 6,765 8,102 $ 81 220 $ 2 $ 200,617 $ ( 2,662 ) $ ( 179,507 ) $ 25,296 Issuance of common stock, net of shares withheld for taxes — — 235 2 — — ( 570 ) — — ( 568 ) Redemption of Series C preferred stock ( 3,441 ) ( 6,765 ) 1,000 10 — — 709 — 2,046 ( 4,000 ) Stock-based compensation — — — — — — 779 — — 779 Net income (loss) — — — — — — — — 7,347 7,347 Balance as of December 31, 2022 — $ — 9,337 $ 93 220 $ 2 $ 201,535 $ ( 2,662 ) $ ( 170,114 ) $ 28,854 See accompanying Notes to Consolidated Financial Statements. F-5 Table of Contents COMSTOCK HOLDING COMPANIES, INC. Consolidated Statements of Cash Flows (In thousands) Year Ended December 31, 2022 2021 Operating Activities - Continuing Operations Net income (loss) from continuing operations $ 7,728 $ 16,039 Adjustments to reconcile net income (loss) from continuing operations to net cash provided by (used in) operating activities: Depreciation and amortization 206 94 Stock-based compensation 834 633 (Gain) loss on real estate ventures ( 121 ) 14 Distributions from real estate ventures 162 — Deferred income taxes ( 55 ) ( 11,300 ) Changes in operating assets and liabilities: Accounts receivable ( 1,932 ) 1,886 Prepaid expenses and other current assets ( 67 ) ( 11 ) Accrued personnel costs 1,491 1,135 Accounts payable and accrued liabilities ( 41 ) ( 41 ) Other assets and liabilities 192 239 Net cash provided by (used in) operating activities 8,397 8,688 Investing Activities - Continuing Operations Investments in real estate ventures ( 2,709 ) ( 2,058 ) Proceeds from sale of CES 1,016 — Distributions from real estate ventures 220 3,522 Purchase of fixed assets/leasehold improvements/intangibles ( 626 ) ( 188 ) Net cash provided by (used in) investing activities ( 2,099 ) 1,276 Financing Activities - Continuing Operations Payments under credit facility - due to affiliates ( 5,500 ) — Loan proceeds — 121 Loan payments — ( 126 ) Redemption of Series C preferred stock ( 4,000 ) — Payment of taxes related to the net share settlement of equity awards ( 568 ) ( 222 ) Net cash provided by (used in) financing activities ( 10,068 ) ( 227 ) Discontinued Operations Operating cash flows, net ( 305 ) ( 881 ) Investing cash flows, net — ( 36 ) Financing cash flows, net ( 26 ) ( 29 ) Net cash provided by (used in) discontinued operations ( 331 ) ( 946 ) Net increase (decrease) in cash and cash equivalents ( 4,101 ) 8,791 Cash and cash equivalents, beginning of period 15,823 7,032 Cash and cash equivalents, end of period $ 11,722 $ 15,823 Supplemental Cash Flow Information Cash paid for interest $ 222 $ 234 Cash paid for income tax, net 92 $ 8 Supplemental Disclosure of Non-Cash Investing and Financing Activities Issuance of Series A common stock to redeem Series C preferred stock $ 4,230 $ — Right of use assets and lease liabilities at commencement 1,224 — Accrued liability settled through issuance of common stock — 28 See accompanying Notes to Consolidated Financial Statements. F-6 Table of Contents COMSTOCK HOLDING COMPANIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (In thousands, except per share data or otherwise indicated) 1. Company Overview Comstock Holding Companies, Inc. ("Comstock" or the "Company"), founded in 1985 and incorporated in the state of Delaware in 2004, is a leading real estate asset manager and developer of mixed-use and transit-oriented properties in the Washington, D.C. region. On March 31, 2022, the Company completed the sale of Comstock Environmental Services, LLC ("CES"), a wholly owned subsidiary, to August Mack Environmental, Inc. ("August Mack") for approximately $ 1.4 million of total consideration. (See Note 3 for additional information). On June 13, 2022, the Company completed two separate significant transactions to further deleverage its balance sheet and enhance its long-term revenue outlook and growth potential. The first one with CP Real Estate Services, LC (“CPRES”), an entity owned by Christopher Clemente, Comstock’s Chief Executive Officer, redeemed all outstanding Series C preferred stock at a significant discount to carrying value. Secondly, the Company executed a new asset management agreement with Comstock Partners, LC ("CP"), an entity controlled by Mr. Clemente and wholly owned by Mr. Clemente and certain family members, which covers its Anchor Portfolio of assets (the "2022 AMA"). (See Notes 10 and 14 for additional information). 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. 2. Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and include the accounts of the Company and its consolidated subsidiaries. Intercompany balances and transactions have been eliminated. Certain prior period amounts have been reclassified to conform to current period presentation. The Company has reflected CES as a discontinued operation in its consolidated statements of operations for all periods presented. Unless otherwise noted, all amounts and disclosures throughout these Notes to Consolidated Financial Statements relate to the Company's continuing operations. (See Note 3 for additional information). Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Significant items subject to such estimates, include, but are not limited to, the valuation of equity method investments, incentive fee revenue recognition, and the valuation of deferred tax assets. Assumptions made in the development of these estimates contemplate both the macroeconomic landscape and the Company's anticipated results, however actual results may differ materially from these estimates. Fiscal Year Comstock uses a fiscal reporting calendar which begins on January 1 and ends on December 31. The fiscal years presented are the years ended December 31, 2022 (“2022”) and December 31, 2021 (“2021”). Each of the Company’s fiscal quarters ends on the last day of the calendar month. Segment Information Operating segments are defined as components of a business that can earn revenue and incur expenses for which discrete financial information is evaluated on a regular basis by the chief operating decision maker (“CODM”) in order to decide how to allocate resources and assess performance. Prior to June 30, 2021, the Company operated its business through two segments: Asset Management and Real Estate Services. Given the classification of CES as a discontinued operation, the Company now manages its business as one reportable operating segment. F-7 Table of Contents Cash and Cash Equivalents Cash and cash equivalents are comprised of cash and short-term investments with maturities of three months or less when purchased. The carrying amount of cash equivalents approximates fair value due to the short-term maturity of these investments. Accounts Receivable Accounts receivable are recorded at the amount invoiced. The Company records an allowance for doubtful accounts on an as-needed basis to reduce the trade accounts receivables balance by the estimated amounts that may become uncollectible in the future. The allowance for doubtful accounts estimate is based on the accounts receivable aging report, historical collection experience, and the payee's general financial condition. The Company does not record an allowance for doubtful accounts on accounts receivable from related parties due to the nature of the receivables and collection history. As of December 31, 2022, the Company's allowance for doubtful accounts was $ 0.1 million. Concentrations of Credit Risk Financial instruments that subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents, and accounts receivable from related parties. The Company maintains cash and cash equivalents in financial institutions that management believes to be financially sound and with minimal credit risk. At times the Company's deposits exceed federally insured limits, however management believes that the Company’s credit risk exposure is mitigated by the financial strength of the banking institutions in which the deposits are held. The Company does a significant amount of business with related parties, demonstrated by related parties accounting for 98.5 % of its consolidated revenue and 86.7 % of its accounts receivable in 2022. The Company generally does not obtain collateral or other security to support financial instruments subject to credit risk, but monitors the credit standing of its related party entities. Investments in Real Estate Ventures The Company invests in certain real estate ventures that qualify for equity method accounting treatment. Based on elections made at the investment date, the Company has elected to record certain equity method investments at fair value. With this treatment, investments are recorded at fair value on the consolidated balance sheets and subsequently remeasured at each reporting period. 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. Assumptions about the discount rate are based on a weighted average cost of capital built up from various interest rate components applicable to the Company. Assumptions about the growth rate and future financial performance of a reporting unit are based on the Company's forecasts, business plans, economic projections and anticipated future cash flows. Market multiples are derived from recent transactions among comparable real estate properties of similar size, construct, and location. The net change in the fair value of the investments is recorded on the consolidated statements of operations as other income (expense). In addition, the Company performs an analysis on its investments in real estate ventures to determine if they qualify as a variable interest entity (“VIE”). For an entity in which we have acquired an interest, the entity will be considered a VIE if either of the following characteristics are met: (i) the entity lacks sufficient equity to finance its activities without additional subordinated financial support, or (ii) equity holders, as a group, lack the characteristics of a controlling financial interest. If an entity is determined to be a VIE, the Company then determines if it is the primary beneficiary to determine if the entity needs to be included in its consolidated financial results. The primary beneficiary has both (i) the power to direct the activities that most significantly impact the VIE’s economic performance, and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the entity. The Company considers a variety of factors in identifying the entity that holds the power to direct matters that most significantly impact the VIE’s economic performance, including evaluating the nature of relationships and activities of the parties involved and, where necessary, determining which party within a related-party group is most closely associated with the VIE and would therefore be considered the primary beneficiary. The Company determines primary beneficiary status of a VIE at the time of investment and performs ongoing reassessments to evaluate whether changes in the entity’s capital structure or changes in the nature of its involvement with the entity result in a change to the VIE designation or a change to its consolidation conclusion. (See Note 5 for additional information) Fixed Assets Fixed assets are carried at cost less accumulated depreciation and are depreciated on a straight-line basis over their estimated useful lives , which are as follows: F-8 Table of Contents Asset Class Estimated Useful Life Leasehold improvements Shorter of asset life or related lease term Furniture and fixtures 7 years Office equipment 5 years Vehicles 5 years Computer equipment 3 years Capitalized software 3 years Evaluation of Long-Lived Assets The Company evaluates the recoverability of its long-lived assets for impairment whenever events or circumstances indicate that the carrying amount of the assets may not be recoverable. Recoverability is measured by comparing the carrying amount of the asset to the future undiscounted cash flows the asset is expected to generate. If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset. Goodwill and Intangible Assets On an annual basis, and at interim periods when circumstances require, the Company tests the recoverability of any goodwill and intangible assets balances that exist at that time and reviews for indicators of impairment. The Company performs 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. To test for the recoverability of goodwill and indefinite-lived intangible assets, the Company first performs a qualitative assessment based on economic, industry and company-specific factors for all or selected reporting units to determine whether the existence of events and circumstances indicates that it is more likely than not that the goodwill or indefinite-lived intangible asset 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 each 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. Fair Value Measurement The Company applies fair value accounting for all financial assets and liabilities that are reported at fair value in the financial statements on a recurring basis. Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The accounting guidance establishes a defined three-tier hierarchy to classify and disclose the fair value of assets and liabilities on both the date of their initial measurement as well as all subsequent periods. The hierarchy prioritizes the inputs used to measure fair value by the lowest level of input that is available and significant to the fair value measurement. The three levels are described as follows: • Level 1 : Observable inputs. Quoted prices in active markets for identical assets and liabilities; • Level 2 : Observable inputs other than the quoted price. Includes quoted prices for similar instruments, quoted prices for identical or similar instruments in inactive markets and amounts derived from valuation models where all significant inputs are observable in active markets; and • Level 3 : Unobservable inputs. Includes amounts derived from valuation models where one or more significant inputs are unobservable and require the Company to develop relevant assumptions. The Company evaluates its financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level of classification as of each reporting period. Leases 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 a right-of-use ("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. Operating lease assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments (e.g. rent) over the lease term beginning at the commencement date. The operating lease assets are adjusted for lease incentives, deferred rent, and initial direct costs, if incurred. The related lease expense is recognized on a straight-line basis over the lease term. F-9 Table of Contents The Company's leases generally do not include an implicit rate; therefore, an incremental borrowing rate is used that is based on information available at the lease commencement date in determining the present value of future minimum lease payments. The Company typically looks to the floating rate of interest charged under the Company's existing credit facility at the time of lease commencement when determining the incremental borrowing rate. For the purposes of recognizing operating lease assets and liabilities, the Company has elected the practical expedient to not recognize an 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. Revenue The Company’s revenue streams, revenue recognition policies, and cost of revenue details are summarized by the following: Asset Management/Property Management Asset management pricing includes a cost-plus management fee or a market-rate fee form of variable consideration, and the Company earns whichever is higher. Property Management pricing is generally in the form of a monthly management fee based upon property-level cash receipts, square footage under management, or some other variable metric. In addition, property management revenue includes reimbursable expenses such as payroll and other employee costs for those performing services at managed properties. Asset and property management services represent a series of distinct daily services rendered over time. The revenue for asset and property management services is presented gross for any services provided by the Company's employees and presented net of third-party reimbursements in instances where the Company does not control third-party services delivered to the client. Consistent with the transfer of control for distinct, daily services to the customer, revenue is typically recognized at the end of each period for the fees associated with the services performed. Capital Markets Compensation for commercial mortgage and structured financing services is received via fees paid upon successful commercial financing from third-party lenders. The earned fees are contingent upon the funding of the loan, which represents the transfer of control for services to the customer. Therefore, the Company's performance obligation is satisfied at the point in time of the funding of the loan, when there is a present right to payment. Leasing Compensation for providing strategic advice and execution for owners, investors, and occupiers is received in the form of a commission. The commission is paid upon signing of the lease by the tenant, therefore the Company's performance obligation is satisfied at the time of the contractual event, where there is a present right to payment. Project & Development Services Fees for project and development services for owners and occupiers of real estate are typically variable and based on a percentage of the total project cost. Project and development services represent a series of performance obligations delivered over time, therefore the Company recognizes revenue over time for these services accordingly. Incentive Fees Pursuant to the 2022 AMA, incentive compensation fees revenue ("Incentive Fees") may be earned on certain managed real estate assets if defined triggering events, which are differentiated based on the classification of the assets, are achieved. (See Note 14 for additional information) Incentive Fees are calculated as a percentage of the imputed profit that would be realized upon the hypothetical sale or recapitalization of the asset (or assets) for which triggering event criteria were met. The calculation of imputed profit is based on a fair market value assessment that includes highly variable financial inputs and must also consider macro-economic and environmental factors that may affect fair market value. Due to the subjective and potentially volatile nature of this variable consideration, revenue is only recognized on Incentive Fees for each managed asset when 1) any material uncertainties associated with the valuation of real estate assets that drive Incentive Fees are substantially resolved and 2) it is probable that a significant reversal in the amount of related cumulative Incentive Fee revenue recognized will not occur. As a result, the Company has only F-10 Table of Contents recognized Incentive Fees at or near each asset's respective triggering event (as detailed in the 2022 AMA) when imputed profit can be reasonably calculated and relied upon to not materially change. Cost of Revenue Cost of revenue is composed primarily of employment expenses for personnel dedicated to providing services to the Anchor Portfolio as well as the costs and expenses of the Company related to maintaining the public listing of its shares and complying with related regulatory and reporting obligations pursuant to the 2022 AMA. It also includes payroll and other reimbursable expenses incurred under the Company's various property management agreements. Stock-Based Compensation Stock-based compensation expense for restricted stock units is measured based on the fair value of the Company’s common stock on the grant date. The Company utilizes the Black-Scholes option pricing model to estimate the grant-date fair value of stock option awards. The exercise price of stock option awards is set to equal the quoted closing market price of the underlying common stock at the date of the grant. The following weighted-average assumptions are also used to calculate the estimated fair value of stock option awards: • Expected volatility : The expected volatility of the Company’s shares is estimated using the historical stock price volatility over the most recent period commensurate with the estimated expected term of the awards. • Expected term : The Company determines the expected term by calculating the weighted-average period of time between the grant date and exercise or post-vesting cancellation date of all outstanding stock options. • Dividend yield : The Company has not paid dividends and does not anticipate paying a cash dividend in the foreseeable future and, accordingly, uses an expected dividend yield of zero. • Risk-free interest rate : The Company bases the risk-free interest rate on the implied yield available on a U.S. Treasury note with a term equal to the estimated expected term of the awards. The Company applies the graded vesting attribution method to recognize compensation expense for stock-based awards. Using this method, the estimated grant-date fair value of the award is recognized over the requisite service period for each separately vesting tranche as though each tranche of the award is, in substance, a separate award. This advanced recognition expense from future vesting tranches results in the accelerated recognition of the overall compensation cost related to the award. The Company has elected to account for forfeitures as they occur. For awards with a performance-based vesting condition, the Company accrues stock-based compensation expense if it is probable that the performance condition will be achieved. Income Taxes Income taxes are accounted for under the asset and liability method in accordance with ASC 740. 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 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 statements of operations. For interim periods, an income tax provision (benefit) is recognized based on the estimated annual effective tax rate expected for the entire fiscal year. The interim annual estimated effective tax rate is based on the statutory tax rates then in effect, as adjusted for estimated changes in 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 permanent differences and discrete items result in variances to the effective tax rate from period to period. Impacts from significant pre-tax, non-recognized subsequent events are excluded from the interim estimated annual effective rate until the period in which they occur. Net Income (Loss) per Share Basic net income (loss) per share is calculated by dividing net income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding during the period, without consideration for common share equivalents or any impacts from Preferred Stock activity. Common share equivalents consist of the incremental common shares issuable upon the exercise of stock options and vesting of restricted stock unit awards. Diluted net income (loss) per common share is calculated by dividing net income (loss) attributable to common stockholders by the fully diluted weighted-average number of common F-11 Table of Contents shares outstanding during the period. The diluted weighted-average common shares outstanding amount includes the impact of common share equivalents, which are the incremental shares of common stock that would be issuable upon the hypothetical exercise of stock options and vesting of restricted stock unit awards. The common stock equivalents are calculated using the treasury stock method and average market prices during the periods, and are included in the diluted net income (loss) per share calculation unless their inclusion would be anti-dilutive. Recent Accounting Pronouncements - Not Yet Adopted In June 2016, the FASB issued ASU 2016-13, “ Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments .” This guidance is intended to introduce a revised approach to the recognition and measurement of credit losses, emphasizing an updated model based on current expected credit losses ("CECL") rather than incurred losses. The standard will become effective for the Company for financial statement periods beginning after December 15, 2022, and early adoption is permitted. The Company is currently evaluating the impact this guidance will have on its financial statements and related disclosures. 3. Discontinued Operations On March 31, 2022, the Company completed the sale of CES to August Mack in accordance with the Asset Purchase Agreement for approximately $ 1.4 million of total consideration, composed of $ 1.0 million in cash and $ 0.4 million of cash held in escrow that is subject to net working capital and other adjustments. The Company executed this divestiture to enhance its focus and pursue continued growth initiatives for its core asset management business. The following table reconciles major line items constituting pretax income (loss) from discontinued operations to net income (loss) from discontinued operations as presented in the consolidated statements of operations (in thousands): Year Ended December 31, 2022 2021 Revenue $ 1,460 $ 7,400 Cost of revenue ( 1,562 ) ( 5,571 ) Selling, general, and administrative ( 403 ) ( 2,417 ) Depreciation and amortization — ( 60 ) Other income (expense) 87 ( 103 ) Goodwill impairment — ( 1,702 ) Pre-tax income (loss) from discontinued operations ( 418 ) ( 2,453 ) Provision for (benefit from) income tax ( 37 ) ( 23 ) Net income (loss) from discontinued operations $ ( 381 ) $ ( 2,430 ) The Company recognized a net loss of $ 0.2 million on the divestiture of CES, calculated by comparing the final adjusted purchase price to the carrying value of the net assets sold in the transaction as of March 31, 2022. These amounts reflect the finalized transaction costs and net working capital adjustments. The cumulative goodwill impairment charge in 2021 was a result of the Company performing the quantitative two-step impairment test and determining that the carrying value of CES significantly exceeded its fair value at the time of measurement, which was estimated using Level 1 inputs. The following table reconciles the carrying amounts of major classes of assets and liabilities of discontinued operations to total assets and liabilities of discontinued operations that were classified as held for sale in the consolidated balance sheet as of December 31, 2021 (in thousands): F-12 Table of Contents Carrying amounts of major classes of assets held for sale: Accounts receivable $ 2,075 Prepaid expenses and other current assets 129 Total current assets 2,204 Fixed assets, net 106 Intangible assets, net 3 Total assets $ 2,313 Carrying amounts of major classes of liabilities held for sale: Accrued personnel costs $ 153 Accounts payable and accrued liabilities 1,015 Loans payable 26 Total liabilities $ 1,194 4. Fixed Assets & Intangible Assets The following table provides a detailed breakout of fixed assets, by type (in thousands): December 31, 2022 2021 Computer equipment and capitalized software $ 538 $ 1,106 Furniture and fixtures 80 77 Office equipment 60 46 Vehicles 83 46 Total fixed assets 761 1,275 Accumulated depreciation ( 340 ) ( 1,011 ) Total fixed assets, net $ 421 $ 264 Depreciation expense for the years ended December 31, 2022 and 2021 was $ 0.2 million and $ 0.1 million, respectively. On May 6, 2022, the Company purchased the rights to the www.comstock.com domain name for $ 0.1 million. The Company has recorded the domain name purchase as an indefinite-lived intangible asset on its consolidated balance sheets that will be tested annually for impairment. 5. Investments in Real Estate Ventures The Company's unconsolidated investments in real estate ventures are recorded on the consolidated balance sheets at fair value. The following table summarizes these investments (in thousands): December 31, Description 2022 2021 Investors X $ 1,369 $ 1,484 The Hartford 953 1,211 BLVD Forty Four 2,135 2,007 BLVD Ansel 2,556 — Total $ 7,013 $ 4,702 The Company’s maximum loss exposure on each of its unconsolidated investments in real estate ventures is equal to the carrying amount of the investment. Additional details on each investment are as follows: F-13 Table of Contents Investors X On April 30, 2019, the Company entered into a master transfer agreement with CPRES which entitled the Company to priority distribution of residual cash flow from its Class B membership interest in Comstock Investors X, L.C. ("Investors X"), an unconsolidated variable interest entity that owns the Company's residual homebuilding operations. As of December 31, 2022, the residual cash flow primarily relates to anticipated proceeds from the sale of rezoned residential lots and returns of cash securing outstanding letters of credit and cash collateral posted for land development bonds covering work performed by subsidiaries owned by Investors X. The cash will be released as bond release work associated with these projects is completed. (See Note 14 for additional information). The Hartford In December 2019, the Company entered into a joint venture with CP to acquire a Class-A office building adjacent to Clarendon Station on Metro’s Orange Line in Arlington County’s premier transit-oriented office market, the Rosslyn-Ballston Corridor. Built in 2003, the 211,000 square foot mixed-use Leadership in Energy and Environmental Design (“LEED”) GOLD building is being leased to multiple high-quality tenants. In February 2020, the Company arranged for DivcoWest to purchase a majority ownership stake in the Hartford Building and secured a $ 87.0 million loan facility from MetLife. As part of the transaction, the Company entered into asset management and property management agreements to manage the property. Fair value is determined using an income approach and sales comparable approach models. As of December 31, 2022, the Company’s ownership interest in the Hartford was 2.5 %. (See Note 14 for additional information). BLVD Forty Four In October 2021, the Company entered into a joint venture with CP to acquire a stabilized 15-story, luxury high-rise apartment building in Rockville, Maryland that was built in 2015, which we rebranded as BLVD Forty Four. Located one block from the Rockville Station on Metro's Red Line and in the heart of the I-270 Technology and Life Science Corridor, the 263 -unit mixed use property includes approximately 16,000 square feet of retail and a commercial parking garage. In connection with the transaction, the Company received an acquisition fee and is entitled to receive investment related income and promote distributions in connection with its equity interest in the asset. The Company also provides asset, residential, retail and parking property management services for the property in exchange for market rate fees. Fair value is determined using an income approach and sales comparable approach models. As of December 31, 2022, the Company’s ownership interest in BLVD Forty Four was 5.0 %. (See Note 14 for additional information). BLVD Ansel In March 2022, the Company entered into a joint venture with CP to acquire BLVD Ansel, a newly completed 18-story, luxury high-rise apartment building with 250 units located adjacent to the Rockville Metro Station and BLVD Forty Four in Rockville, Maryland. BLVD Ansel features approximately 20,000 square feet of retail space, 611 parking spaces, and expansive amenities including multiple private workspaces designed to meet the needs of remote-working residents. In connection with the transaction, the Company received an acquisition fee and is entitled to receive investment related income and promote distributions in connection with its equity interest in the asset. The Company will also provide asset, residential, retail and parking property management services for the property in exchange for market rate fees. Fair value is determined using an income approach and sales comparable approach models. As of December 31, 2022, the Company’s ownership interest in BLVD Ansel was 5.0 %. (See Note 14 for additional information). The following table below summarizes the activity of the Company’s unconsolidated investments in real estate ventures that are reported at fair value (in thousands): Balance as of December 31, 2020 $ 6,307 Investments 2,058 Distributions ( 3,522 ) Change in fair value ( 141 ) Balance as of December 31, 2021 $ 4,702 Investments 2,709 Distributions ( 382 ) Change in fair value ( 16 ) Balance as of December 31, 2022 $ 7,013 F-14 Table of Contents Other Investments In addition, the Company has a joint venture with Superior Title Services, Inc. ("STS") to provide title insurance to its clients. The Company records this co-investment using the equity method of accounting and adjusts the carrying value of the investment for its proportionate share of net income and distributions. The carrying value of the STS investment is recorded in "other assets" on the Company's consolidated statement of balance sheets. The Company's proportionate share of net income and distributions are recorded in gain (loss) on real estate ventures in the consolidated statements of operations, and were $ 0.1 million and $ 0.1 million for the years ended December 31, 2022 and 2021, respectively. The following tables summarize the combined financial information for our unconsolidated investments in real estate ventures accounted for at fair value or under the equity method (in thousands): Year Ended December 31, Combined Statements of Operations: 2022 2021 Revenue $ 20,825 $ 17,670 Operating income (loss) 11,550 8,878 Net income (loss) $ ( 7,360 ) ( 316 ) 6. Leases The Company has operating leases for office space leased in various buildings for its own use. The Company's leases have remaining terms ranging from 5 to 10 years. The Company's lease agreements do not contain any residual value guarantees or material restrictive covenants. Lease costs related to the Company's operating leases are primarily reflected in "cost of revenue" in the consolidated statements of operations, as they are a reimbursable cost under the Company's respective asset management agreements. (See Note 14 for additional information). The following table summarizes operating lease costs, by type (in thousands): Year Ended December 31, 2022 2021 Operating lease costs Fixed lease costs $ 1,045 $ 994 Variable lease costs 361 318 Total operating lease costs $ 1,406 $ 1,312 The following table presents supplemental cash flow information related to the Company's operating leases (in thousands): Year Ended December 31, 2022 2021 Cash paid for lease liabilities: Operating cash flows from operating leases $ 1,350 $ 1,213 As of December 31, 2022 the Company's operating leases had a weighted-average remaining lease term of 7.75 years and a weighted-average discount rate of 4.25 %. F-15 Table of Contents The following table summarizes future lease liability payments (in thousands): Year Ending December 31, Operating Leases 2023 $ 1,141 2024 1,167 2025 1,194 2026 1,222 2027 1,204 Thereafter 3,568 Total future lease payments 9,496 Imputed interest ( 1,578 ) Total lease liabilities $ 7,918 The Company does not have any lease liabilities which have not yet commenced as of December 31, 2022. 7. Debt Credit Facility - Due to Affiliates On March 19, 2020, the Company entered into a Revolving Capital Line of Credit Agreement with CPRES, pursuant to which the Company secured a $ 10.0 million capital line of credit (the “Credit Facility”), on which it made a $ 5.5 million initial draw with an April 30, 2023 maturity date. Under the terms, the Credit Facility provides for an initial variable interest rate of the Wall Street Journal Prime Rate plus 1.00 % per annum on advances made under the Credit Facility, payable monthly in arrears. On September 30, 2022, the Company paid down its $ 5.5 million outstanding principal balance on the Credit Facility in full. As of December 31, 2022, the Credit Facility remained available for use and the Company had no outstanding debt or financing arrangements for which future payments are due . 8. Commitments and Contingencies The Company maintains certain non-cancelable operating leases that contain various renewal options. (See Note 6 for additional information) The Company is subject to litigation from time to time in the ordinary course of business; however, the Company does not expect the results, if any, to have a material adverse impact on its results of operations, financial position, or liquidity. The Company records a contingent liability when it is both probable that a liability has been incurred and the amount can be reasonably estimated; however, the Company is not aware of any reasonably possible losses that would have a material impact on its results of operations, financial position, or liquidity. The Company expenses legal defense costs as they are incurred. 9. Fair Value Disclosures As of December 31, 2022, the carrying amount of cash and cash equivalents, accounts receivable, other current assets, and accounts payable approximated fair value because of the short-term nature of these instruments. As of December 31, 2022, the Company had certain equity method investments in real estate ventures that it elected to record at fair value using significant unobservable inputs (Level 3). (See Note 5 for additional information) The Company may also value its non-financial assets and liabilities, including items such as long-lived assets, at fair value on a non-recurring basis if it is determined that impairment has occurred. Such fair value measurements typically use significant unobservable inputs (Level 3), unless a quoted market price (Level 1) or quoted prices for similar instruments, quoted prices for identical or similar instruments in inactive markets, or amounts derived from valuation models (Level 2) are available. 10. Stockholders' Equity Common Stock The Company's certificate of incorporation authorizes the issuance of Class A common stock and Class B common stock, each with a par value of $ 0.01 per share. Holders of Class A common stock and Class B common stock are entitled to dividends when, F-16 Table of Contents as and if, declared by the Company's board of directors, subject to the rights of the holders of all classes of stock outstanding having priority rights to dividends. Holders of Class A common stock are entitled to one vote per share and holders of Class B common stock are entitled to fifteen votes per share. Shares of our Class B common stock are convertible into an equivalent number of shares of our Class A common stock and generally convert into shares of our Class A common stock upon transfer. As of December 31, 2022, the Company had not declared any dividends. Preferred Stock The Company's certificate of incorporation authorizes the issuance of Series C non-convertible preferred stock with a par value of $ 0.01 per share. Series C Preferred Stock has a discretionary, non-cumulative, dividend feature and is redeemable by holders in the event of liquidation or change in control of the Company. On June 13, 2022, the Company entered into a Share Exchange and Purchase Agreement ("SEPA") with CPRES, pursuant to which the Company acquired from CPRES all outstanding shares of its non-convertible and non-redeemable Series C preferred stock for (i) 1.0 million shares of the Company’s Class A common stock, valued at the consolidated closing bid price of the Class A shares on Nasdaq on the business day immediately preceding the entry into the SEPA and (ii) $ 4.0 million in cash. The SEPA was unanimously approved by the independent directors of the Company. Upon completion of the transaction, all of the shares of Series C preferred stock were immediately cancelled and fully retired. At the time of the transaction, the total carrying value of the Series C preferred stock (including the related additional paid-in capital) was $ 10.3 million. The share exchange was accounted for as a redemption; therefore, the $ 2.0 million difference between the carrying value and the $ 8.3 million fair value of the consideration paid upon redemption was added to net income to arrive at income attributable to common stockholders and calculate net income (loss) per share. (See Note 13 for additional information) Stock-based Compensation On February 12, 2019, the Company approved the 2019 Omnibus Incentive Plan (the “2019 Plan”), which replaced the 2004 Long-Term Compensation Plan (the “2004 Plan”). The 2019 Plan provides for the issuance of stock options, stock appreciation rights ("SARs"), restricted stock, restricted stock units, dividend equivalents, performance awards, and stock or other stock-based awards. The 2019 Plan mandates that all lapsed, forfeited, expired, terminated, cancelled and withheld shares, including those from the predecessor plan, be returned to the 2019 Plan and made available for issuance. The 2019 Plan originally authorized 2.5 million shares of the Company's Class A common stock for issuance. As of December 31, 2022, there were 1.6 million shares of Class A common stock available for issuance under the 2019 Plan. During the years ended December 31, 2022 and 2021, the Company recorded stock-based compensation expense of $ 0.8 million and $ 0.6 million, respectively. Stock-based compensation costs are included in selling, general, and administrative expense on the Company's consolidated statements of operations. As of December 31, 2022, there was $ 0.7 million of total unrecognized stock-based compensation, which is expected to be recognized over a weighted-average period of 2.84 years. Restricted Stock Units Restricted stock unit (“RSU”) awards granted to employees are subject to continued employment and generally vest in four annual installments over the four years period following the grant dates. The Company also grants certain RSU awards to management that contain additional vesting conditions tied directly to a defined performance metric for the Company (“PSUs”). The actual number of PSUs that will vest can range from 60 % to 120 % of the original grant target amount, depending upon actual Company performance below or above the established performance metric targets. The Company estimates performance in relation to the defined targets when calculating the related stock-based compensation expense. F-17 Table of Contents The following table summarizes all restricted stock unit activity (in thousands, except per share data): RSUs Outstanding Weighted-Average Grant Date Fair Value Balance as of December 31, 2021 847 $ 2.28 Granted 219 4.63 Released ( 223 ) 2.64 Canceled/Forfeited ( 141 ) 2.51 Balance as of December 31, 2022 702 $ 2.95 Stock Options Non-qualified stock options generally expire 10 years after the grant date and, except under certain conditions, the options are subject to continued employment and vest in four annual installments over the four-year period following the grant dates. The following table summarizes all stock option activity (in thousands, except per share data and time periods): Options Outstanding Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term (Years) Aggregate Intrinsic Value Balance as of December 31, 2021 397 $ 2.89 5.7 $ 998 Granted — — Exercised ( 203 ) 3.14 Canceled/Forfeited ( 3 ) 2.24 Expired ( 60 ) 3.97 Balance as of December 31, 2022 131 $ 4.08 4.4 $ 172 Exercisable as of December 31, 2022 125 $ 4.18 3.2 $ 158 The Company granted no stock options during the years ended December 31, 2022 and 2021. The total grant date fair value of stock options vested and total intrinsic value of stock options exercised for the years ended December 31, 2022 and 2021 were immaterial. 11. Revenue All the Company's revenue was for the years ended December 31, 2022 and 2021 was generated in the United States. The following tables summarize the Company’s revenue by line of business, customer type, and contract type (in thousands): Year Ended December 31, 2022 2021 Revenue by Line of Business Asset management $ 26,680 $ 22,539 Property management 9,398 6,939 Parking management 3,235 1,615 Total revenue $ 39,313 $ 31,093 F-18 Table of Contents Year Ended December 31, 2022 2021 Revenue by Customer Type Related party $ 38,719 $ 30,887 Commercial 594 206 Total revenue $ 39,313 $ 31,093 Year Ended December 31, 2022 2021 Revenue by Contract Type 1 Fixed-price $ 7,048 $ 7,626 Cost-plus 22,652 16,729 Variable 9,613 6,738 Total revenue $ 39,313 $ 31,093 1 Certain contracts contain multiple revenue streams with characteristics that lend to classification in more than one category For the year ended December 31, 2022, the Company recognized revenue from Incentive Fees of $ 3.9 million, stemming from an operating asset triggering event on October 1, 2022. This operating asset triggering event was the first in series of annual operating asset triggering events that are scheduled each October 1 through 2024. All Incentive Fees recognized in the current period are related to services performed in prior periods for which revenue recognition criteria were previously constrained. There was no Incentive Fee revenue recognized for the year ended December 31, 2021. 12. Income Tax The following table summarizes the components of the provision for (benefit from) income tax (in thousands): Year Ended December 31, 2022 2021 Current: Federal $ — $ — State 180 104 Total current taxes 180 104 Deferred: Federal 1,281 358 State ( 195 ) 1,302 Total deferred taxes 1,086 1,660 Other: Valuation allowance ( 1,141 ) ( 12,981 ) Provision for (benefit from) income taxes $ 125 $ ( 11,217 ) The following table presents a reconciliation the statutory federal income tax rate to the Company's effective income tax rate: F-19 Table of Contents Year Ended December 31, 2022 2021 Federal statutory rate 21.00 % 21.00 % State income taxes, net of federal benefit 5.67 % 5.17 % Permanent differences ( 2.40 ) % ( 1.08 ) % Return to provision 0.00 % 0.00 % Change in valuation allowance ( 14.54 ) % ( 266.00 ) % Change in state tax rate ( 5.70 ) % ( 0.26 ) % Other ( 2.45 ) % 8.55 % Effective tax rate 1.59 % ( 232.62 ) % 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. Prior to 2021, the Company had recorded valuation allowances for certain tax attributes and deferred tax assets due the existence of sufficient uncertainty regarding the future realization of those deferred tax assets through future taxable income. In June 2021, based on financial performance trends and forecasts of future operating results, the Company determined that it was more likely than not that a portion of the deferred tax assets related to its net operating loss ("NOL") carryforwards would be utilized in future periods. As a result, the Company recorded an $ 11.3 million income tax benefit in the second quarter of 2021 that represented a partial release of its valuation allowance. For the years ended December 31, 2022 and 2021, the Company recorded net decreases to its valuation allowance of $ 1.4 million and $ 13.0 million, respectively. If, in the future, the Company believes that it is more likely than not that the rest of the deferred tax benefits will be realized, the full valuation allowance will be reversed. Conversely, if future results of operations are lower than currently forecasted, the Company may need to re-establish a valuation allowance accordingly. The following table summarizes the components of the Company's deferred tax assets and liabilities (in thousands): December 31, 2022 2021 Deferred tax assets: Net operating loss and tax credit carryforwards $ 33,532 $ 34,773 Stock-based compensation 481 485 Investments in affiliates 1,237 1,335 Right of use lease liability 2,017 1,935 Bonus accrual 1,246 917 Goodwill amortization ( 1 ) 362 Valuation allowance ( 25,214 ) ( 26,599 ) Total deferred tax assets 13,298 13,208 Deferred tax liabilities: Right of use lease asset ( 1,943 ) ( 1,904 ) Depreciation and amortization — ( 4 ) Total deferred tax liabilities ( 1,943 ) ( 1,908 ) Net deferred income tax assets (liabilities) $ 11,355 $ 11,300 As of December 31, 2022, the Company had $ 131.7 million of net operating loss (“NOL") carryforwards. These NOLs, if unused, will begin expiring in 2028. Under Code Section 382 (“Section 382”) rules, if a change of ownership is triggered, the Company’s NOL assets and possibly certain other deferred tax assets may be impaired. Given Section 382’s broad definition, an ownership change could be the unintended consequence of otherwise normal market trading in the Company’s stock that is outside of the Company’s control. In an effort to preserve the availability of these NOLs, the Company has adopted a Section 382 rights agreement that is scheduled to expire on March 27, 2025. The Section 382 rights agreement helps to reduce the likelihood of an unintended “ownership change”, thus preserving the value of these future tax benefits. We estimate that as of December 31, 2022, the three-year cumulative shift in ownership of the Company’s stock had not triggered a limitation in the use of our NOL asset. F-20 Table of Contents As of December 31, 2022, there were no uncertain tax positions that, if recognized, would affect the Company's effective tax rate. We file U.S. and state income tax returns in jurisdictions with varying statutes of limitations. All of our income tax returns remain subject to examination by federal and state tax authorities due to the availability of our NOL carryforwards. 13. Net Income (Loss) Per Share The following table sets forth the calculation of basic and diluted net income per share (in thousands, except per share data): Year Ended December 31, 2022 2021 Numerator: Net income (loss) from continuing operations - Basic and Diluted $ 7,728 $ 16,039 Impact of Series C preferred stock redemption 2,046 — Net income (loss) from continuing operations attributable to common stockholders - Basic and Diluted 9,774 16,039 Net income (loss) from discontinued operations - Basic and Diluted ( 381 ) ( 2,430 ) Net income (loss) attributable to common shareholders - Basic and Diluted $ 9,393 $ 13,609 Denominator: Weighted-average common shares outstanding - Basic 8,974 8,213 Effect of common share equivalents 601 882 Weighted-average common shares outstanding - Diluted 9,575 9,095 Net income (loss) per share: Basic - Continuing operations $ 1.09 $ 1.95 Basic - Discontinued operations ( 0.04 ) ( 0.29 ) Basic net income (loss) per share $ 1.05 $ 1.66 Diluted - Continuing operations $ 1.02 $ 1.76 Diluted - Discontinued operations ( 0.04 ) ( 0.26 ) Diluted net income (loss) per share $ 0.98 $ 1.50 The following common share equivalents have been excluded from the computation of diluted net income (loss) per share because their effect was anti-dilutive (in thousands): Year Ended December 31, 2022 2021 Restricted stock units — — Stock options 31 40 Warrants 89 64 14. Related Party Transactions On June 13, 2022, CHCI Asset Management, L.C. (“CAM”), an entity wholly owned by the Company, entered into a new master asset management agreement with CP to manage and administer CP’s commercial real estate portfolio (the "Anchor Portfolio") and the day to-day operations of CP and its subsidiaries (the “2022 AMA”). This agreement superseded in its entirety the previous asset management agreement between CAM and CPRES dated April 30, 2019 (the “2019 AMA”). The 2022 AMA increased the base fees collected, expanded the services that qualify for additional supplemental fees, extended the term through 2035, and most notably introduced a mark-to-market incentive fee based on the imputed profit of Anchor Portfolio assets, generally as each is stabilized and as further specified in the agreement. Entry into the 2022 AMA was unanimously approved by the independent directors of the Company. Consistent with the structure of the 2019 AMA, the 2022 AMA engages CAM to provide investment advisory, development, and asset management services necessary to build out, stabilize, and manage assets in the Anchor Portfolio, which currently consists F-21 Table of Contents primarily of two of the larger transit-oriented, mixed-use developments in the Washington D.C. area (Reston Station and Loudoun Station) that are owned by CP Entities and ultimately controlled by Mr. Clemente. Pursuant to the fee structures set forth in both the 2022 AMA and 2019 AMA, CAM is entitled to receive an annual payment equal to the greater of the "Cost-Plus Fee" or the "Market Rate Fee". The Cost-Plus Fee is equal to the sum of (i) the comprehensive costs incurred by or for providing services to the Anchor Portfolio, (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 of a public company, and (iii) a fixed annual payment of $ 1.0 million. The Market Rate Fee calculation is defined in the respective asset management agreements as the sum of the fees detailed in the following table: Description 2022 AMA 2019 AMA Asset Management Fee 2.5 % of Anchor Portfolio revenue 2.5 % of Anchor Portfolio revenue Entitlement Fee 15 % of total re-zoning costs Encompassed in Development and Construction Fee Development and Construction Fee 5 % of development costs (excluding previously charged Entitlement Fees) 4 % of development costs Property Management Fee 1 % of Anchor Portfolio revenue 1 % of Anchor Portfolio revenue Acquisition Fee 1 % on first $ 50 million of purchase price; 0.5 % above $ 50 million 0.5 % of purchase price Disposition Fee 1 % on first $ 50 million of sale price; 0.5 % above $ 50 million 0.5 % of sale price In addition to the annual payment of either the Market Rate Fee or the Cost-Plus Fee, CAM is also entitled on an annual basis to receive certain supplemental fees, as detailed for the respective asset management agreements in the following table: Description 2022 AMA 2019 AMA Incentive Fee When receiving Market Rate Fee: On a mark-to-market basis, equal to 20 % of the imputed profit of certain real estate assets comprising the Anchor Portfolio for which a Triggering Event 1 has occurred, after calculating a compounding preferred return of 8 % on CP invested capital (the “Market Incentive Fee”) When receiving the Cost-Plus Fee: On a mark-to-market basis, an incentive fee equal to 10 % of the imputed profit of certain real estate assets comprising the Anchor Portfolio for which a Triggering Event 1 has occurred, after calculating a compounding preferred return of 8 % on CP invested capital (the “Base Incentive Fee”) 10 % of the free cash flow of each of the real estate assets comprising the Anchor Portfolio after calculating a compounding preferred return of 8 % on CPRES invested capital Investment Origination Fee 1 % of raised capital 1 % of raised capital Leasing Fee $ 1 /per sqft. for new leases and $ 0.50 / per sqft. for lease renewals $ 1 / per sqft. for new leases and $ 0.50 / per sqft. for lease renewals Loan Origination Fee 1 % of any Financing Transaction or other commercially reasonable and mutually agreed upon fee 1 % of any Financing Transaction or other commercially reasonable and mutually agreed upon fee 1 Triggering events are differentiated between operating assets (i.e. those already in service) and assets under development. Operating asset triggering events are scheduled for specific dates, whereas triggering events for assets under development are tied to various metrics that indicate stabilization, such as occupancy and leasing rates. The 2022 AMA will terminate on January 1, 2035 (“Initial Term”), and will automatically renew for successive additional one year terms (each an “Extension Term”) unless CP delivers written notice of non-renewal of the 2022 AMA at least 180 days prior to the termination date of the Initial Term or any Extension Term. Twenty-four months after the effective date of the 2022 AMA, CP is entitled to terminate the 2022 AMA without cause upon 180 days advance written notice to CAM. In the event of such a termination and in addition to the payment of any accrued annual fees due and payable as of the termination date under the 2022 AMA, CP is required to pay a termination fee equal to two times the Cost-Plus Fee or Market Rate Fee paid to CAM for the calendar year immediately preceding the termination. F-22 Table of Contents Residential, Commercial, and Parking Property Management Agreements The Company entered into separate residential property management agreements with properties owned by CP Entities under which the Company receives fees to manage and operate the properties, including tenant communications, leasing of apartment units, rent collections, building maintenance and day-to-day operations, engagement and supervision of contractors and vendors providing services for the buildings, and budget preparation and oversight. The Company entered into separate commercial property and parking management agreements with several properties owned by CP Entities under which the Company receives fees to manage and operate the office and retail portions of the properties, including tenant communications, rent collections, building maintenance and day-to-day operations, engagement and supervision of contractors and vendors providing services for the buildings, and budget preparation and oversight. These property management agreements each have initial terms of one year with successive, automatic one-year renewal terms. 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 The Company has construction management agreements with properties owned by CP Entities under which the Company receives fees to provide certain construction management and supervision services, including construction supervision and management of the buildout of certain tenant premises. The Company receives a flat construction management fee for each engagement under a work authorization based upon the construction management or supervision fee set forth in the applicable tenant’s lease, which fee is generally 1 % to 4 % of the total costs (or total hard costs) of construction of the tenant’s improvements in its premises, or as otherwise agreed to by the parties. Lease Procurement Agreements The Company has lease procurement agreements with properties owned by CP Entities under which the Company receives certain finders fees in connection with the procurement of new leases for such properties where an external broker is not engaged on behalf of the CP Entities. Such leasing fees are supplemental to the fees generated from the Company's management agreements referenced above and are generally 1 - 2 % of the future lease payments to be received by the CP Entity from the executed lease. Business Management Agreements On April 30, 2019, CAM entered into a Business Management Agreement with Investors X, whereby CAM provides Investors X with asset and professional services related to the wind down of the Company’s divested homebuilding operations and the continuation of services related to the Company’s divested land development activities. The aggregate fee payable to CAM from Investors X under the Business Management Agreement is $ 0.9 million payable in 15 quarterly installments of $ 0.1 million each and ending on December 31, 2022. The Company considers Investors X to be a variable interest entity over which it does not have the power to direct activities that most significantly impact economic performance, therefore it is not the primary beneficiary of Investors X and does not have to consolidate the entity into its financial results. (See Note 5 for additional information). On July 1, 2019, CAM entered into a Business Management Agreement (the “BC Management Agreement”) with CPRES, whereby CAM provides CPRES with professional management and consultation services, including, without limitation, consultation on land development and real estate transactions, for a residential community located in Monteverde, Florida. The BC Management Agreement is structured in successive renewable one-year terms. The BC Management Agreement provides that CPRES will pay CAM an annual management fee equal to $ 0.3 million, payable in equal monthly installments during the term commencing on July 1, 2019, and will reimburse CAM for certain expenses. The Hartford In December 2019, the Company made an investment related to the purchase of the Hartford, a stabilized commercial office building located at 3101 Wilson Boulevard in the Clarendon area of Arlington County, Virginia. In conjunction with the investment, the Company entered into an operating agreement with CP to form Comstock 3101 Wilson, LC, to purchase the Hartford. Pursuant to the Operating Agreement, the Company held a minority membership interest of the Hartford and the remaining membership interests of the Hartford are held by CP. In February 2020, the Company, CP and DWF VI 3101 Wilson Member, LLC (“DWF”), an unaffiliated, third party, equity investor in the Hartford, entered into a limited liability company agreement (the “DWC Operating Agreement”) to form DWC 3101 Wilson Venture, LLC (“DWC”) to, among other things, acquire, own and hold all interests in the Hartford. In furtherance thereof, on February 7, 2020, the Original Operating Agreement was amended and restated (the “A&R Operating Agreement”) to F-23 Table of Contents memorialize the Company’s and CP’s assignment of 100 % of its membership interests in the Hartford to DWC. As a result thereof, DWC is the sole member of the Hartford Owner. The Company and CP, respectively, hold minority membership interests in, and DWF holds the majority membership interest in, DWC. ( See Note 5 for additional information). BLVD Forty Four/BLVD Ansel In October 2021 and March 2022, the Company entered into joint ventures with CP to acquire BLVD Forty Four and BLVD Ansel, respectively, two adjacent mixed-use luxury high-rise apartment buildings located near the Rockville Metro Station in Montgomery County, Md. The Company considers BLVD Forty Four and BLVD Ansel to be variable interest entities upon which it exercises significant influence; however, considering key factors such as the Company’s ownership interest, participation in policy-making decisions, and oversight of management services by majority equity holders, the Company concluded that the power to direct activities that most significantly impact economic performance is shared. Given that the Company is not the entity most closely associated with the properties, it concluded that it is not the primary beneficiary and does not have a controlling financial interest in either property . (See Note 5 for additional information). Corporate Leases 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 Christopher Clemente, its Chief Executive Officer, and his family as landlords. On November 1, 2022 the Company executed a 3,778 square foot lease expansion agreement with terms that align with the original agreement. ( See Note 6 for additional information). On January 1, 2022, ParkX Management, LC, a subsidiary of the Company, entered into a five-year lease agreement for its parking operations monitoring center with an affiliate controlled and owned by Christopher Clemente, its Chief Executive Officer, and his family as landlords. ( See Note 6 for additional information). Series C Preferred Stock Redemption On June 13, 2022, the Company entered into the SEPA with CPRES, pursuant to which the Company acquired from CPRES all outstanding shares of its non-convertible and non-redeemable Series C preferred stock. ( See Note 10 for additional information) 15. Employee Benefit Plans The Company maintains defined contribution plans covering all full-time employees of the Company who have 90 days of service and are at least 21 years old. An eligible employee may elect to make a before-tax contribution of between 1 % and 90 % of his or her compensation through payroll deductions, not to exceed the annual limit set by law. The Company currently matches the first 3 % of participant contributions limited to 3 % of a participant’s gross compensation (maximum Company match is 4 %). The combined total expense for this plan was $ 0.5 million and $ 0.4 million for the years ended December 31, 2022 and 2021, respectively. F-24 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures None.