TABLE OF CONTENTS
UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

FORM10-Q

☒Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended SeptemberJune 30, 2017

2021

or

☐Transition Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period fromto

Commission File Number1-32375

Comstock Holding Companies, Inc.

(Exact name of registrant as specified in its charter)

Delaware20-1164345

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

1886

1900 Reston Metro Center Drive, 4thPlaza, 10th Floor

Reston, Virginia 20190

(703) 883-1700

230-1985

(Address, including zip code, and telephone number, including area code, of principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
Symbol(s)
Name of each exchange on which registered
Class A common stock, par value $0.01 per shareCHCINASDAQ Capital Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (Section 232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” inRule 12b-2 of the Exchange Act. (check one)

Large accelerated filer☐Accelerated filer☐
Non-accelerated filer☐☒Smaller reporting company☒
Non-accelerated filer☐Smaller reporting company☒
Emerging growth company☐

If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Act).    Yes  ☐    No  ☒

As of NovemberAugust 16, 2017, 3,347,7892021, 8,099,431 shares of Class A common stock, par value $0.01 per share, and 220,250 shares of Class B common stock, par value $0.01 per share, of the registrant were outstanding.


TABLE OF CONTENTS
COMSTOCK HOLDING COMPANIES, INC. AND SUBSIDIARIES

FORM10-Q

INDEX

TABLE OF CONTENTS
Page
PART I – FINANCIAL INFORMATION
1

1

1

2

3

Notes to Consolidated Financial Statements5

4
6
18
20

23
24

23
PART II – OTHER INFORMATION24
23
ITEM 1.
PART II – OTHER INFORMATION

LEGAL PROCEEDINGS26

23

RISK FACTORS26

23

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS26

23
ITEM 6.

EXHIBITS

24
25
28


TABLE OF CONTENTS
PART I – FINANCIAL INFORMATION

ITEM

Item 1.    FINANCIAL STATEMENTS

Financial Statements


COMSTOCK HOLDING COMPANIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share and per share data)

   September 30,
2017		  December 31,
2016		 
   (unaudited)    

ASSETS

   

Cash and cash equivalents

  $2,086  $5,761 

Restricted cash

   1,014   1,238 

Trade receivables

   1,332   613 

Real estate inventories

   48,501   49,842 

Fixed assets, net

   329   255 

Goodwill

   1,702   —   

Other assets, net

   1,049   2,112 
  

 

 

  

 

 

 

TOTAL ASSETS

  $56,013  $59,821 
  

 

 

  

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

   

Accounts payable and accrued liabilities

  $8,828  $7,721 

Notes payable - secured by real estate inventories, net of deferred financing charges

   27,572   26,927 

Notes payable - due to affiliates, unsecured, net of discount and deferred financing charges

   15,078   15,866 

Notes payable - unsecured, net of deferred financing charges

   1,396   911 

Income taxes payable

   29   19 
  

 

 

  

 

 

 

TOTAL LIABILITIES

   52,903   51,444 
  

 

 

  

 

 

 

Commitments and contingencies (Note 8)

   

STOCKHOLDERS’ EQUITY (DEFICIT)

   

Series C preferred stock $0.01 par value, 3,000,000 shares authorized, 579,158 and 0 shares issued and outstanding liquidation preference of $2,896 and $0 at September 30, 2017 and December 31, 2016, respectively

  $442  $—   

Series B preferred stock $0.01 par value, 3,000,000 shares authorized, 0 and 841,848 shares issued and outstanding liquidation preference of $0 and $4,209 at September 30, 2017 and December 31, 2016, respectively

   —     1,280 

Class A common stock, $0.01 par value, 11,038,071 shares authorized, 3,347,789 and 3,035,922 issued, and outstanding, respectively

   33   30 

Class B common stock, $0.01 par value, 220,250 and 390,500 shares authorized, issued, and outstanding, respectively

   2   4 

Additionalpaid-in capital

   177,374   176,251 

Treasury stock, at cost (85,570 shares Class A common stock)

   (2,662)   (2,662) 

Accumulated deficit

   (186,545)  (184,778) 
  

 

 

  

 

 

 

TOTAL COMSTOCK HOLDING COMPANIES, INC. DEFICIT

   (11,356)   (9,875) 

Non-controlling interests

   14,466   18,252 
  

 

 

  

 

 

 

TOTAL EQUITY

   3,110   8,377 
  

 

 

  

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

  $56,013  $59,821 
  

 

 

  

 

 

 

(unaudited)
June 30,
2021		December 31,
2020
ASSETS
Current assets:
Cash and cash equivalents$10,205 $7,032 
Trade receivables26 62 
Trade receivables - related parties3,038 3,568 
Prepaid and other assets265 215 
Current assets held for sale4,100 1,477 
Total current assets17,634 12,354 
Deferred income taxes, net11,310 0 
Equity method investments at fair value3,652 6,307 
Fixed assets, net188 170 
Operating lease right-of-use assets7,582 7,914 
Long term assets held for sale0 1,834 
TOTAL ASSETS$40,366 $28,579 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accrued personnel costs$1,572 $2,333 
Accounts payable and accrued liabilities664 854 
Short term operating lease liabilities592 569 
Short term notes payable48 5 
Current liabilities held for sale2,147 742 
Total current liabilities5,023 4,503 
Long term notes payable - due to affiliates5,500 5,500 
Long term operating lease liabilities, net of current portion7,059 7,361 
TOTAL LIABILITIES$17,582 $17,364 
Commitments and contingencies (Note 9)00
STOCKHOLDERS’ EQUITY
Series C preferred stock $0.01 par value, 20,000,000 shares authorized, 3,440,690 issued and outstanding and liquidation preference of $17,203 at June 30, 2021 and December 31, 2020$6,765 $6,765 
Class A common stock, $0.01 par value, 59,779,750 shares authorized, 8,093,778 and 7,953,729 issued, and 8,008,208 and 7,868,159 outstanding at June 30, 2021 and December 31, 2020, respectively81 79 
Class B common stock, $0.01 par value, 220,250 shares authorized, issued and outstanding at June 30, 2021 and December 31, 20202 2 
Additional paid-in capital200,262 200,147 
Treasury stock, at cost (85,570 shares Class A common stock)(2,662)(2,662)
Accumulated deficit(181,664)(193,116)
TOTAL STOCKHOLDERS' EQUITY$22,784 $11,215 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$40,366 $28,579 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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COMSTOCK HOLDING COMPANIES, INC. AND SUBSIDIARIES

UNAUDITED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share data)

   Three Months Ended
September 30,		  Nine Months Ended
September 30,		 
   2017  2016  2017  2016 

Revenues

     

Revenue—homebuilding

  $13,076  $12,880  $33,375  $32,102 

Revenue—other

   739   223   1,228   685 
  

 

 

  

 

 

  

 

 

  

 

 

 

Total revenue

   13,815   13,103   34,603   32,787 

Expenses

     

Cost of sales—homebuilding

   12,482   11,985   30,804   29,815 

Cost of sales—other

   846   85   1,366   329 

Impairment charges and recovery, net

   —     91   —     91 

Sales and marketing

   401   427   1,122   1,313 

General and administrative

   1,263   1,236   3,735   4,151 

Interest and real estate tax expense

   16   133   16   655 
  

 

 

  

 

 

  

 

 

  

 

 

 

Operating loss

   (1,193)   (854)   (2,440)   (3,567) 

Other income, net

   21   98   69   119 
  

 

 

  

 

 

  

 

 

  

 

 

 

Loss before income tax expense

   (1,172)   (756)   (2,371)   (3,448) 

Income tax expense

   (29)   —     (29)   (57) 
  

 

 

  

 

 

  

 

 

  

 

 

 

Net loss

   (1,201)   (756)   (2,400)   (3,505) 

Net income (loss) attributable tonon-controlling interests

   309   290   (630)   1,174 
  

 

 

  

 

 

  

 

 

  

 

 

 

Net loss attributable to Comstock Holding Companies, Inc.

   (1,510)   (1,046)   (1,770)   (4,679) 

Paid-in-kind dividends on Series B Preferred Stock

   —     87   78   259 

Extinguishment of Series B Preferred Stock

   —     —     (1,011)   —   
  

 

 

  

 

 

  

 

 

  

 

 

 

Net loss attributable to common stockholders

  $(1,510)  $(1,133)  $(837)  $(4,938) 
  

 

 

  

 

 

  

 

 

  

 

 

 

Basic net loss per share

  $(0.45)  $(0.34)  $(0.25)  $(1.49) 

Diluted net loss per share

  $(0.45)  $(0.34)  $(0.25)  $(1.49) 

Basic weighted average shares outstanding

   3,374   3,326   3,299   3,317 

Diluted weighted average shares outstanding

   3,374   3,326   3,299   3,317 

(unaudited)
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Revenues$6,324 $4,505 $13,164 $9,939 
Operating expenses
     Direct costs5,502 3,213 11,580 7,849 
     General and administrative322 390 631 707 
     Sales and marketing8 1 18 1 
Operating income492 901 935 1,382 
Interest expense(58)(77)(116)(226)
Other income, net29 28 18 25 
Income from continuing operations before income tax463 852 837 1,181 
Income tax benefit (expense)11,316 (13)11,314 (14)
Loss on equity method investments carried at fair value(131)(41)(112)(88)
Income from continuing operations11,648 798 12,039 1,079 
Income (loss) from discontinued operations, net of taxes(443)382 (587)89 
Net income$11,205 $1,180 $11,452 $1,168 
Income (loss) per share
Basic:
Continuing operations$1.42 $0.10 $1.47 $0.13 
Discontinued operations$(0.05)$0.05 $(0.07)$0.01 
Income (loss) per share
Diluted:
Continuing operations$1.29 $0.10 $1.34 $0.13 
Discontinued operations$(0.05)$0.05 $(0.07)$0.01 
Basic weighted average shares outstanding8,215 8,056 8,191 8,003 
Diluted weighted average shares outstanding9,061 8,348 9,014 8,294 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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COMSTOCK HOLDING COMPANIES, INC. AND SUBSIDIARIES

UNAUDITED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

CHANGES IN STOCKHOLDERS’ EQUITY

(Amounts in thousands, except per share data)

   Nine Months Ended September 30, 
   2017  2016 

Cash flows from operating activities:

   

Net loss

  $(2,400)  $(3,505) 

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

   

Amortization of loan discount, loan commitment and deferred financing fees

   876   832 

Deferred income tax benefit

   —     7 

Depreciation expense

   123   144 

Earnings from unconsolidated joint venture, net of distributions

   15   25 

Stock compensation

   238   56 

Impairment charges

   —     813 

Changes in operating assets and liabilities:

   

Purchaser escrow deposits

   405   42 

Trade receivables

   (425)   (182) 

Real estate inventories

   1,497   (9,953) 

Other assets

   796   527 

Accrued interest

   793   391 

Accounts payable and accrued liabilities

   1,046   4,560 

Income taxes payable

   10   21 
  

 

 

  

 

 

 

Net cash provided by (used in) operating activities

   2,974   (6,222) 
  

 

 

  

 

 

 

Cash flows from investing activities:

   

Business acquisition, net of cash acquired

   (582)   —   

Purchase of fixed assets

   (17)   (32) 

Principal received on note receivable

   27   26 

Collateral for letters of credit

   (181)   (32) 
  

 

 

  

 

 

 

Net cash used in investing activities

   (753)   (38) 
  

 

 

  

 

 

 

Cash flows from financing activities:

   

Proceeds from notes payable

   19,936   24,157 

Payments on notes payable

   (22,442)   (28,390) 

Loan financing costs

   (145)   (70) 

Distributions tonon-controlling interests

   (3,156)   (4,413) 

Contributions fromnon-controlling interests

   —     5,000 

Repurchase of Series C preferred stock

   (89)   —   

Taxes paid related to net share settlement of equity awards

   —     (8) 
  

 

 

  

 

 

 

Net cash used in financing activities

   (5,896)   (3,724) 
  

 

 

  

 

 

 

Net decrease in cash and cash equivalents

   (3,675)   (9,984) 

Cash and cash equivalents, beginning of period

   5,761   12,448 
  

 

 

  

 

 

 

Cash and cash equivalents, end of period

  $2,086  $2,464 
  

 

 

  

 

 

 

Supplemental cash flow information:

   

Interest paid, net of interest capitalized

  $(686)  $(44) 

Supplemental disclosure fornon-cash activity:

   

Business acquisition notes payable

  $1,710  $—   

Seller’s note payable

  $115  $—   

Accrued liability settled through issuance of stock

  $63  $43 

Increase in Series B preferred stock value in connection with dividends paidin-kind

  $24  $78 

Conversion of Class B common stock to Class A common stock

  $2  $—   

Extinguishment of Series B Preferred Stock

  $1,011  $—   

thousands)

(unaudited)

Series C
Preferred Stock
Class AClass B
Additional
paid-in
capital
Treasury
stock
Accumulated
deficit
Total
SharesAmountSharesAmountSharesAmount
Balance at December 31, 20203,441 $6,765 7,953 $79 220 $2 $200,147 $(2,662)$(193,116)$11,215 
Stock compensation and issuances— — 143 2 — — 182 — — 184 
Accrued liability settled through issuance of stock— — 1 — — — 7 — — 7 
Shares withheld related to net share settlement of restricted stock awards— — (39)— — — (195)— — (195)
Net income— — — — — — — — 247 247 
Balance at March 31, 20213,441 $6,765 8,058 $81 220 $2 $200,141 $(2,662)$(192,869)$11,458 
Stock compensation and issuances— — 51 1 — — 180 — — 181 
Accrued liability settled through issuance of stock— — 1 — — — 7 — — 7 
Shares withheld related to net share settlement of restricted stock awards— — (16)(1)— — (66)— — (67)
Net income— — — — — — — — 11,205 11,205 
Balance at June 30, 20213,441 $6,765 8,094 $81 220 $2 $200,262 $(2,662)$(181,664)$22,784 


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COMSTOCK HOLDING COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands)
(unaudited)
Series C
Preferred Stock
Class AClass B
Additional
paid-in
capital
Treasury
stock
Accumulated
deficit
Total
SharesAmountSharesAmountSharesAmount
Balance at December 31, 20193,441 $6,765 7,850 $78 220 $2 $199,372 $(2,662)$(195,198)$8,357 
Stock compensation and issuances— — 52 1 — — 212 — — 213 
Accrued liability settled through issuance of stock— — 11 — — — 20 — — 20 
Shares withheld related to net share settlement of restricted stock awards— — (16)— — — (31)— — (31)
Net loss— — — — — — — — (12)(12)
Balance at March 31, 20203,441 $6,765 7,897 $79 220 $2 $199,573 $(2,662)$(195,210)$8,547 
Stock compensation and issuances— — 52 0 — — 204 — — 204 
Accrued liability settled through issuance of stock— — 9 — — — 20 — — 20 
Shares withheld related to net share settlement of restricted stock awards— — (16)— — — (30)— — (30)
Net income— — — — — — — — 1,180 1,180 
Balance at June 30, 20203,441 $6,765 7,942 $79 220 $2 $199,767 $(2,662)$(194,030)$9,921 

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



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COMSTOCK HOLDING COMPANIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six Months Ended June 30,
20212020
Cash flows from operating activities attributable to continuing operations:
Net income$12,039 $1,079 
Adjustment to reconcile net income to net cash used in operating activities
Amortization and depreciation expense42 61 
Earnings from unconsolidated joint venture, net of distributions12 93 
Stock compensation306 373 
Change in fair value of equity method investment112 88 
Deferred income taxes, net(11,310)0 
Changes in operating assets and liabilities:
Trade receivables - related parties530 756 
Trade receivables36 21 
Prepaid and other assets(63)(164)
Accrued personnel costs(759)(2,087)
Accounts payable and accrued liabilities(174)408 
Lease liabilities51 0 
Net cash provided by operating activities822 628 
Cash flows from investing activities attributable to continuing operations:
Distributions from equity method investments carried at fair value2,543 717 
Purchase of fixed assets(60)(43)
Net cash provided by investing activities2,483 674 
Cash flows from financing activities attributable to continuing operations:
Proceeds from notes payable120 5,554 
Payments on notes payable(77)(5,750)
Taxes paid related to net share settlement of equity awards(211)(50)
Net cash used in financing activities(168)(246)
Cash flows attributable to discontinued operations:
Operating cash flows, net92 (690)
Investing cash flows, net(36)(30)
Financing cash flows, net(20)(704)
Net cash provided by (used in) discontinued operations36 (1,424)
Net increase (decrease) in cash and cash equivalents3,173 (368)
Cash and cash equivalents, beginning of period7,032 3,511 
Cash and cash equivalents, end of period$10,205 $3,143 
Supplemental cash flow information:
Interest paid$116 $256 
Supplemental disclosure for non-cash investing and financing activities:
Accrued liability settled through issuance of stock$14 $40 
PPP loan forgiven$1,954 $0 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts are in thousands, except per share data, number of units, or as otherwise noted)

(unaudited)

1. ORGANIZATION AND BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of Comstock Holding Companies, Inc. and subsidiaries (“Comstock”, “CHCI” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form10-Q and Article 8 of RegulationS-X. S-X and other applicable rules and regulations of the Securities and Exchange Commission (“SEC”). Such condensed financial statements do not include all of the disclosures required by GAAP for complete financial statements. In our opinion, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation have been included in the accompanying unaudited condensed consolidated financial statements. The Company has evaluated subsequent events through the date these condensed consolidated financial statements were issued and has included all necessary adjustments and disclosures. For further information and a discussion of our significant accounting policies, other than discussed below, refer to our audited consolidated financial statements in our Annual Report on Form10-K for the fiscal year ended December 31, 2016.

2020.

Comstock Holding Companies, Inc., incorporated in 2004 as a Delaware corporation, is a multi-faceted real estate developmentasset management and construction services company primarily focused in the Washington, D.C. metropolitan area (Washington, D.C.Metropolitan Statistical Area. In February 2021, the Company amended the entity names for several subsidiaries as part of operational efficiency enhancements initiated in the first quarter of 2021. The entity names were changed for the following Company subsidiaries: (a) CDS Asset Management, LC is now CHCI Asset Management, LC, (b) Comstock Commercial Management, LC is now CHCI Commercial Management, LC, (c) Comstock Residential Management, LC is now CHCI Residential Management, LC, and (d) CDS Capital Management, L.C. is now CHCI Capital Management, LC.
The Company operates through 4 primarily real estate focused subsidiaries – CHCI Asset Management, LC (“CAM”), Northern VirginiaCHCI Residential Management, LC, CHCI Commercial Management, LC, and Maryland suburbs of Washington, D.C.). We have substantial experience with building a diverse range of products, including multi-family homes, single-family homes, townhouses,mid-rise condominiums, high-rise multi-family condominiums andmixed-use (residential and commercial) developments.Park X Management, LC. References in these consolidated financial statementsConsolidated Financial Statements to “Comstock,” “Company,” “we,” “our” and “us” refer to Comstock Holding Companies, Inc. together in each case with our subsidiaries and any predecessor entities unless the context suggests otherwise.

The Company’s Class A common stock is traded on the NASDAQ Capital Market under the symbol “CHCI” and has no public trading history prior to December 17, 2004.

“CHCI.”

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

The Consolidated Balance Sheet as of December 31, 2020 was derived from the audited financial statements contained in the 2020 Form 10-K.
For the three and ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, comprehensive income (loss) equaled net income (loss);income; therefore, a separate statement of comprehensive income (loss) is not included in the accompanying condensed consolidated financial statements.

Liquidity

Certain amounts in the prior period have been reclassified to conform to the current year presentation of combining 'accounts payable' and Capital Resources

We require capital to operate, to post deposits'accrued liabilities' on new potential acquisitions, to purchase and develop land, to construct homes, to fund related carrying costs and overhead and to fund various advertising and marketing programs to generate sales. These expenditures include payroll, community engineering, entitlement, architecture, advertising, utilities and interest as well as the construction costsCondensed Consolidated Balance Sheets. The reclassification had no effect on the previously reported totals of our homes. Our sources of capital include, and we believe will continue to include, private equity and debt placements (which has included significant participationcurrent liabilities.

Recent Developments
In April 2021, the Company received notification from Company insiders), funds derived from various secured and unsecured borrowings to finance acquisition, development and construction on acquired land, cash flow from operations, which includes the sale and delivery of constructed homes, finished and raw building lotsSmall Business Administration ("SBA") that the Company's Paycheck Protection Program ("PPP") Loan had been forgiven and the potential sale of public debtSBA lender had received payment in full (See Note 8 – Coronavirus Aid and equity securities. The Company is involved in ongoing discussions with lendersRelief and equity sources in an effort to provide additional growth capital to fund various new business opportunities. See Note 13 in the accompanying consolidated financial statements for more details on our credit facilities and Note 11 in the accompanying consolidated financial statements for details on private placement offerings.

We have outstanding borrowings with various financial institutions and other lenders that have been used to finance the acquisition, development and construction of real estate projects. The Company has generally financed its development and construction activities on a single or multiple project basis so it is not uncommon for each of our projects or collection of our projects to have a separate credit facility. Accordingly,Economic Security Act).

On June 16, 2021, the Company typically has had numerous credit facilities and lenders.

Asmade the strategic decision to sell the operations of September 30, 2017, $22.7 million of the Company’s outstanding credit facilities and project related loans mature at various periods through the end of 2017. We are in active discussions with our lenders seeking long term extensions and modifications to these loans. These debt instruments impose certain restrictions on our operations, including speculative unit construction limitations, curtailment obligations, and financial covenant compliance. If we fail to comply with any of these restrictions, an event of default could occur. Additionally, events of default could occur if we fail to make required debt service payments or if we fail to come to agreement on an extension on a certain facility prior to a given loan’s maturity date. Any event of default would likely render the obligations under these instruments due and payable as of that event. Any such event of default would allow certain of our lenders to exercise cross default provisions in our loan agreements with them, such that all debt with that institution could be called into default. We are anticipating that with the successful resolution of the debt extension discussions with our lenders, capital raises from our private placements, current available cash on hand, and additional cash from settlement proceeds at existing and under development communities, the Company will have sufficient financial resources to sustain its operations through the next 12 months, though no assurances can be made that the Company will be successful in its efforts. The Company will also continue to focus on its cost structure in an effort to conserve cash and manage expenses. Such actions may include cost reductions and/or deferral arrangements with respect to current operating expenses.

Recent Developments

On July 17, 2017, JKComstock Environmental Services, LLC (“JK”("CES") a newly formed, wholly owned entity by CDS Capital Management, L.C., a subsidiary of Comstock, purchased allbased on the continued growth of the asset management business as well as its future prospects. For all periods presented, the related operating results are presented as income (loss) from discontinued operations on the Condensed Consolidated Statement of Operations. The assets and liabilities of Monridge Environmental, LLCCES are also designated as held for $2.3 million. JK has its principal office located in Conshohocken, Pennsylvania, and operates in Maryland, Pennsylvania, New Jersey, and Delaware. JK operates as an environmental services company, providing consulting, remediation, and other environmental services. Refer tosale on the Condensed Consolidated Balance Sheets (See Note 16 for further information regarding this transaction.

3 - Discontinued Operations).

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Use of Estimates

Our condensed consolidated financial statements have been prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts for the reporting periods. We base these estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances. We evaluate these estimates and judgementsjudgments on an ongoing basis. Actual results may differ from those estimates under different assumptions or conditions.

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

Recently IssuedAdopted Accounting Standards

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update(“ASU”) 2014-09, “Revenue from Contracts with Customers”(“ASU 2014-09”). ASU 2014-09 provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance.ASU No. 2014-09 will require an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015,December 2019, the FASB issuedASU 2015-14,2019-12, Simplifying the Accounting for Income Taxes, which deferred is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the effective date ofgeneral principles in ASC 740, Income Tax and also clarifies and amends existing guidance to improve consistent application. ASU 2014-09 for one year, which would make the guidance2019-12 will be effective for the Company’s first fiscal year beginning after December 15, 2017. Additionally, the FASB has also decided to permitpublic business entities to early adopt the standard, which allows for either full retrospective or modified retrospective methods of adoption, forannual reporting periods beginning after December 15, 2016.2020, and interim periods within those periods. The Company adopted ASU 2019-12 as of January 1, 2021. The adoption did not have a material impact on our condensed consolidated financial statements.
Recently Issued Accounting Standards
In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments", which modifies how companies recognize expected credit losses on financial instruments and other commitments to extend credit held by an entity at each reporting date. Existing GAAP requires an “incurred loss” methodology whereby companies are prohibited from recording an expected loss until it is probable that the loss has completed its preliminary evaluationbeen incurred. ASU 2016-13 requires companies to use a methodology that reflects current expected credit losses (“CECL”) and requires consideration of a broad range of reasonable and supportable information to record and report credit loss estimates, even when the CECL is remote. Companies will be required to record the allowance for credit losses and deduct that amount from the basis of the impact ofasset. The guidance is effective for the Company for financial statement periods beginning after December 15, 2022, although early adoption of ASU 2014-09 for its homebuilding revenue, and believe that there will likely be no material impact to its consolidated financial statements, except enhanced disclosure regarding revenue recognition, including disclosures of revenue streams, performance obligations, variable consideration and the related judgments and estimates necessary to apply the new standard.is permitted. The Company is still in the process ofcurrently evaluating the impact of the adoption of the standard as it pertains to the revenues from the newly formed entity, JK. The Company continues to evaluate the new standard against its existing accounting policies, including the timing of revenue recognition, and its contracts with customers to determine the effect thethis guidance will have on its consolidated financial statements and what changes to systems and controls may be warranted. The Company expects to adopt the modified retrospective method.

In February 2016, the FASB issuedASU 2016-02, “Leases”. The core principle of the standard is that a lessee should recognize the assets and liabilities that arise from leases. A lessee should recognize in its statement of financial position a liability to make lease payments (the lease liability) anda right-of-use asset representing its right to use the underlying asset for the lease term.ASU 2016-02 is effective for public companies for annual reporting periods beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact this new standard will have on our consolidated financial statements.

In January 2017, the FASB issued ASU2017-01, “Business Combinations (Topic 805), Clarifying the Definition of a Business”, which provides a more robust framework to use in determining when a set of assets and activities (collectively referred to as a “set”) is a business. The standard requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This standard reduces the number of transactions that need to be further evaluated. ASU2017-01 is effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those periods. The amendments in ASU2017-01 should be applied prospectively on or after the effective date. We do not expect the adoption of ASU2017-01 to have a material effect on our consolidated financial statements.

In May 2017, the FASB issued ASU2017-09, “Compensation—Stock Compensation (Topic 718)—Scope of Modification Accounting.” ASU2017-09 reduces both diversity in practice and cost and complexity when changing the terms or conditions of a share-based payment award. The amendments in this update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. ASU2017-09 is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period for which financial statements have not yet been issued. The amendments in this update should be applied prospectively to an award modified on or after the adoption date. We do not expect the adoption of ASU2017-09 to have a material effect on our consolidated financial statements.

related disclosures.

We assessed other accounting pronouncements issued or effective during the three and ninesix months ended SeptemberJune 30, 20172021 and deemed they were either not applicable to us andor are not anticipated to have a material effect on our consolidated financial statements.

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

2. REAL ESTATE INVENTORIES

After impairments and write-offs,INVESTMENTS IN UNCONSOLIDATED ENTITIES

Investments carried at fair value
Based upon elections made at the date of investment, the Company reports the equity method investments in real estate ventures at fair value. For such investments, the Company increases or decreases the investment each reporting period by the change in the fair value and the Company reports the fair value adjustments in the Condensed Consolidated Statement of Operations in the ‘Loss on equity method investments carried at fair value’ line item. Changes in fair value of the Company's investment in Investors X (defined below) are impacted by distributions as the fair value is based on finite cash flows from the wind-down of that entity.
Investors X
The Company has elected to account for the equity method investment in Comstock Investors X, L.C. (“Investors X”), a Variable Interest Entity (“VIE”) that owns the Company’s residual homebuilding operations at fair value. Fair value is determined using a discounted cash flow model based on expected future cash flows for income and realization events of the underlying asset. Expected future cash flows includes contractually fixed revenues and expenses as well as estimates for future revenues and expenses where contracts do not currently exist. These estimates are based on prior experience as well as comparable, third party data.
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As of June 30, 2021 and December 31, 2020, the fair value of the Company’s investment in Investors X is $2.5 million and $5.1 million, respectively. The Company received distributions of $895 thousand and $2.5 million during the three and six months ended June 30, 2021 and recognized a $107 thousand loss in fair value. Our maximum loss exposure in this entity is limited to our investments.
The Hartford
On December 30, 2019, the Company made an investment related to the purchase of a stabilized commercial office building located at 3101 Wilson Boulevard in the Clarendon area of Arlington County, Virginia (the “Hartford”). The Company owns a 2.5% equity interest in the asset at a cost of approximately $1.2 million. The Company has elected to account for the equity method investment in the Hartford at fair value. Fair value is determined using an income approach and sales comparable approach models. As of June 30, 2021 and December 31, 2020, the fair value of the Company’s investment in the Hartford was $1.2 million. During the three and six months ended June 30, 2021, the Company recognized a loss of $24 thousand in fair value. The Company received no distributions during the three and six months ended June 30, 2021.
Fair value of equity method investments are classified as Level 3 of the fair value hierarchy. As of June 30, 2021 and December 31, 2020, the Company had equity method investments in real estate ventures at fair value of $3.7 million and $6.3 million, respectively. The table below shows the change in the Company’s investments in real estate ventures reported at fair value:
Fair value of investments as of December 31, 2020$6,307 
Distributions(2,543)
Change in fair value(112)
Fair value of investments as of June 30, 2021$3,652 
See Note 13 – Related Party Transactions for additional discussion of our investments in real estate ventures at fair value.
Investments using equity method
The Company accounts for its interest in its title insurance joint venture using the equity method of accounting and adjusts the carrying value for its proportionate share of earnings, losses and distributions. The investment in the unconsolidated joint venture was $17 thousand and $29 thousand as of June 30, 2021 and December 31, 2020, respectively, and is included within ‘Prepaid and other assets, net’ in the accompanying Condensed Consolidated Balance Sheets.
The Company’s share of earnings for the three and six months ended June 30, 2021 from this unconsolidated joint venture of $30 thousand and $18 thousand, respectively, is included in ‘Other income (loss), net’ in the accompanying Condensed Consolidated Statement of Operations. The Company’s share of earnings for the three and six months ended June 30, 2020 was $18 thousand and $15 thousand, respectively.
During the three and six months ended June 30, 2021, the Company collected distributions of $30 thousand from this joint venture as a return on investment. During the three and six months ended June 30, 2020, the Company collected 0 distributions and $108 thousand from this joint venture as a return on investment.
3. DISCONTINUED OPERATIONS
On June 16, 2021, the Company made the strategic decision to pursue the sale of CES, the service offerings of which include consulting, environmental studies, remediation services, and site-specific solutions for projects that may have an environmental impact. The Company made this decision to focus on its core asset management operations based on the continued growth and future prospects of the asset management business. CES met the criteria to be classified as a discontinued operation in June 2021. The sale of CES is expected to be completed within the next 12 months.

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The major classes of assets and liabilities designated as held for developmentsale in the Condensed Consolidated Balance Sheets are as follows:
June 30,
2021		December 31,
2020
ASSETS
Trade receivables2,459 1,420 
Trade receivables - related parties90 30 
Prepaid and other assets66 27 
Total current assets held for sale2,615 1,477 
Fixed assets, net105 96 
Goodwill1,377 1,702 
Intangible assets, net3 36 
Total assets held for sale$4,100 $3,312 
LIABILITIES
Accrued personnel costs$135 $109 
Accounts payable and accrued liabilities1,982 633 
Notes payable30 0 
Total liabilities held for sale$2,147 $742 
The following are the operating results for CES which have been reflected within income from discontinued operations:
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Revenue$2,626 $1,960 $4,103 $3,491 
Operating expenses
     Direct costs - real estate services1,958 1,097 3,045 2,479 
     General and administrative653 247 1,039 526 
     Sales and marketing132 220 280 379 
Operating income(117)396 (261)107 
Interest expense(1)(16)(1)(31)
Other income0 2 0 13 
Income (loss) from discontinued operations, before loss on classification(118)382 (262)89 
Loss on classification as held for sale(325)0 (325)0 
Income (loss) from discontinued operations$(443)$382 $(587)$89 
The income tax expense associated with the results of CES are not material.


4. GOODWILL
Goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in a business acquisition. Following an acquisition, we perform an analysis to value the acquired company’s tangible and identifiable intangible assets and liabilities. As of the acquisition date, goodwill consisted primarily of synergies resulting from the
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combination, expected expanded opportunities for growth and production, and savings in corporate overhead costs. Due to the classification of CES as a discontinued operation during the second quarter of 2021, the Company measured CES at its fair value less costs to sell and recognized a $325 thousand charge as a loss on classification as held for sale in income from discontinued operations and an adjustment to goodwill.
As of June 30, 2021 and December 31, 2020, the balance of goodwill was $1.4 million and $1.7 million, respectively, and is classified as held for sale on the Condensed Consolidated Balance Sheets.
5. 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 an ROU asset, representing the Company’s right to use the underlying asset, and a lease liability, representing the Company’s obligation to make lease payments under the terms of the arrangement. For the purposes of recognizing
ROU assets and lease liabilities associated with the Company’s leases, the Company has elected the practical expedient to not recognize a ROU asset or lease liability for short-term leases, which are leases with a term of twelve months or less. 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.
ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. The rates implicit within the Company's leases are generally not determinable; therefore, the Company's incremental borrowing rate is used to determine the present value of lease payments. The determination of the Company’s incremental borrowing rate requires judgment. The Company looks to similar corporate credit ratings and bond yields when determining the incremental borrowing rate. As of November 1, 2020, at the lease commencement of the new ten year lease agreement for the new corporate office in Reston, VA, the Company's incremental borrowing rate was determined to be 4.25%. The lease is with an affiliate controlled and owned by our Chief Executive Officer and family, as landlord. This lease is classified as an operating lease and has a remaining term of nine years. This lease requires us to make fixed annual rental payments plus pay our share of common area, real estate, and utility expenses.

The Company's leases can contain various renewal and termination options. The period which is subject to an option to extend the lease is included in the lease term if it is reasonably certain that the option will be exercised. The period which is subject to an option to terminate the lease is included if it is reasonably certain that the option will not be exercised. Lease costs related to the Company's operating leases are generally recognized as a single ratable lease cost over the lease term.
Lease costs related to the Company's operating leases are reflected within 'Direct costs' in the Condensed Consolidated Statements of Operations as it is a reimbursable cost under the 2019 Asset Management Agreement ("AMA"). The lease costs were as follows (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Operating Lease Cost
Fixed lease cost$249 $0 $497 $0 
Variable lease cost88 0 163 0 
Total operating lease cost$337 $0 $660 $0 
Supplemental cash flow information related to leases was as follows (in thousands):
Six Months Ended June 30,
20212020
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases$280 $0 
Maturities of operating lease liabilities at June 30, 2021 were as follows (in thousands):
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2021$449 
2022917 
2023939 
2024961 
2025984 
Thereafter5,099 
Total lease payments9,349 
Less: imputed interest1,698 
Present Value of lease liabilities$7,651 
6. REVENUE
The Company’s revenues consist primarily of
•Asset Management;
•Property Management;
•Capital Markets;
•Leasing; and
•Project & Development Services.
Asset Management
Asset Management primarily provides comprehensive real estate asset management services to the CDS Portfolio, representing a series of daily performance obligations delivered over time. Pricing includes a cost-plus management fee or a market-rate fee or a market-rate fee form of variable consideration. The Company earns whichever is higher. See Note 13 – Related Party Transactions.
The amount of revenue recognized is presented on a gross basis for any services provided by our employees, as we control them. This is evidenced by our obligation for their performance and our ability to direct and redirect their work, as well as negotiate the value of such services. In the instances where we do not control third-party services delivered to the client, we report revenues net of the third-party reimbursements. 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.
Property Management
Property Management provides on-site day-to-day management services for owners of office, retail, multifamily residential and various other types of properties, representing a series of daily performance obligations delivered over time. 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. Revenues from project management may also include reimbursement of payroll and related costs for personnel providing the services and subcontracted vendor costs. Project management services represent a series of distinct daily services rendered over time. 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.

The amount of revenue recognized is presented gross for any services provided by our employees, as we control them. This is evidenced by our obligation for their performance and our ability to direct and redirect their work, as well as negotiate the value of such services. In the instances where we do not control third-party services delivered to the client, we report revenues net of the third-party reimbursements.
Capital Markets
We offer clients commercial mortgage and structured financing services. We are compensated for our services via a fee paid upon successful commercial financing from third party lenders. The fee earned is contingent upon the funding of the loan, which represents the transfer of control for services to the customer. Therefore, we typically satisfy our performance obligation at the point in time of the funding of the loan, when there is a present right to payment.
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Leasing
We provide strategic advice and execution for owners, investors, and occupiers of real estate in connection with the leasing of office, industrial and retail space. We are compensated for our services in the form of a commission. Our commission is paid upon signing of the lease by the tenant. We satisfy our performance obligation at a point in time; generally, at the time of the contractual event where there is a present right to payment.
Project & Development Services
We provide project and construction management services for owners and occupiers of real estate in connection with the management and leasing of office, industrial and retail space. The fees that we earn are typically variable based upon a percentage of project cost. We are compensated for our services in the form of management fees. Project and construction management services represent a series of performance obligations delivered over time and revenue is recognized over time.
Contract Costs
Expenses, primarily employee commissions, incurred on leasing and capital markets transactions represent substantially all of our incremental costs to obtain revenue contracts. Since the amortization period is one year or less we recognize these costs as an operating expense as they are incurred.
The following table presents the Company’s sales from contracts with customers disaggregated by categories which best represent how the nature, amount, timing and uncertainty of sales are affected by economic factors.
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Revenue by customer
Related party$6,268 $4,493 $13,093 $9,891 
Commercial56 12 71 48 
Total Revenue by customer$6,324 $4,505 $13,164 $9,939 
Revenue by contract type
Fixed-price$873 $1,066 $1,688 $2,025 
Cost-plus3,925 2,758 8,215 6,191 
Time and Material1,526 681 3,261 1,723 
Total Revenue by contract type$6,324 $4,505 $13,164 $9,939 
For the three and six months ended June 30, 2021, $6.3 million and $13.1 million, respectively, of our revenues were earned for contracts where revenue is recognized over time. For the three and six months ended June 30, 2020, $4.1 million and $9.4 million, respectively, of our revenues were earned for contracts where revenue is recognized over time.
For the three and six months ended June 30, 2021, $45 thousand and $54 thousand, respectively, of our revenues were earned for contracts where revenue is recognized at a point in time. For the three and six months ended June 30, 2020, $384 thousand and $571 thousand, respectively, of our revenues were earned for contracts where revenue is recognized at a point in time.
7. DEBT
Notes payable consists of the following:

   September 30,
2017		   December 31,
2016		 

Land and land development costs

  $ 27,810   $33,355 

Cost of construction (including capitalized interest and real estate taxes)

   20,691    16,487 
  

 

 

   

 

 

 
  $ 48,501   $49,842 
  

 

 

   

 

 

 

3. WARRANTY RESERVE

Warranty reserves

June 30,
2021		December 31,
2020
Notes payable - due to affiliates, unsecured5,500 5,500 
Unsecured financing48 5 
Total notes payable$5,548 $5,505 
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As of June 30, 2021, net maturities and/or curtailment obligations of all borrowings are as follows:
2021$48 
20220 
20235,500 
Total$5,548 
Unsecured financing
The Company finances its professional liability insurance policies that renew on March 1 of each year under a premium finance agreement payable within a one year term. At December 31, 2020, the balance on this loan was $5 thousand and the interest rate was 3.3%. As of June 30, 2021, the balance on this loan was $48 thousand and the interest rate was 2.4%.
Notes payable, due to affiliates – unsecured
Revolving Capital Line of Credit
On March 19, 2020, the Company entered into a Revolving Capital Line of Credit Agreement (the “Loan Documents”) with CP Real Estate Services, LC (formerly known as Comstock Development Services, LC) (“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 units settled are establishedan initial variable interest rate of the Wall Street Journal 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 cover potential costsby CDS.  On March 27, 2020, the Company borrowed $5.5 million under the Revolver. The $5.5 million borrowed has a maturity date of April 30, 2023. The effective interest rate at June 30, 2021 and December 30, 2020 was 4.25%.
Comstock Growth Fund
On October 17, 2014, the Company entered into an unsecured promissory note with Comstock Growth Fund, L.C. (“CGF”) whereby CGF made a loan to the Company in the initial principal amount of $10.0 million and a maximum amount available for materialsborrowing of up to $20.0 million with a three year term. On December 18, 2014, the loan agreement was amended and laborrestated to provide for a maximum capacity of $25 million. On May 23, 2018, the Company entered into a Membership Interest Exchange and Subscription Agreement (the “Membership Exchange Agreement”), together with regard to warranty-type claims expected to arise duringa revised promissory note agreement, in which a note (“CGF Note”) with an outstanding principal and accrued interest balance of $7.7 million was exchanged for 1,482,300 shares of the typicalone-year warranty period providedCompany’s Series C Non-Convertible Preferred Stock, par value $0.01 per share and a stated liquidation value of $5.00 per share (the “Series C Preferred Stock”), issued by the Company or withinto CDS. The Company exchanged thetwo-year statutorily mandated structural warranty period preferred equity for condominiums. Because91.5% of CDS membership interest in the Company typically subcontracts its homebuilding work, subcontractors are requiredCGF promissory note. Concurrently, the face amount of the CGF promissory note was reduced to provide the Company with an indemnity and a certificate of insurance$5.7 million. The CGF Note was repaid prior to receiving payments for their work. Claims relating to workmanship and materials are generally the primary responsibility of the subcontractors and product manufacturers. The warranty reserve is established at the time of closing, and is calculated based upon historical warranty cost experience and current business factors. This reserve is an estimate and actual warranty costs could vary from these estimates. Variables used in the calculation of the reserve, as well as the adequacy of the reserve based on the number of homes still under warranty, are reviewed on a periodic basis. Warranty claims are directly charged to this reserve as they arise.

The following table is a summary of warranty reserve activity which is included in ‘Accounts payable and accrued liabilities’ within the consolidated balance sheets:

   Three Months Ended
September 30,		   Nine Months Ended
September 30,		 
   2017   2016   2017   2016 

Balance at beginning of period

  $282   $294   $288   $312 

Additions

   48    111    144    197 

Releases and/or charges incurred

   (58)    (46)    (160)    (150) 
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

  $272   $359   $272   $359 
  

 

 

   

 

 

   

 

 

   

 

 

 

4. CAPITALIZED INTEREST AND REAL ESTATE TAXES

Interest and real estate taxes incurred relating to the development of lots and parcels are capitalized to real estate inventoriesmaturity during the active development period, which generally commences when borrowings are used to acquire real estate assets and ends when the properties are substantially complete or the property becomes inactive. A project becomes inactive when development and construction activities have been suspended indefinitely. Interest is capitalized based on the interest rate applicable to specific borrowings or the weighted average of the rates applicable to other borrowings during the period. Interest and real estate taxes capitalized to real estate inventories are expensed as a component of cost of sales as related units are sold.

The following table is a summary of interest and real estate taxes incurred and capitalized and interest and real estate taxes expensed for units settled:

   Three Months Ended
September 30,		   Nine Months Ended
September 30,		 
   2017   2016   2017   2016 

Interest incurred and capitalized

  $1,063   $811   $3,338   $2,404 

Real estate taxes incurred and capitalized

   64    53    243    170 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest and real estate taxes incurred and capitalized

  $1,127   $864   $3,581   $2,574 
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest expensed as a component of cost of sales

  $829   $579   $1,838   $1,285 

Real estate taxes expensed as a component of cost of sales

   66    64    183    165 
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest and real estate taxes expensed as a component of cost of sales

  $895   $643   $2,021   $1,450 
  

 

 

   

 

 

   

 

 

   

 

 

 

The amount of interest from entity level borrowings that we are able to capitalize in accordance with Accounting Standards Codification (“ASC”) 835 is dependent upon the average accumulated expenditures that exceed project specific borrowings. year ended December 31, 2020.


For the three and ninesix months ended SeptemberJune 30, 2017,2021, the Company expensed $0made interest payments for all debt facilities of interest from entity level borrowings.$59 thousand and $116 thousand, respectively. For the three and ninesix months ended SeptemberJune 30, 2016,2020, the Company expensed $133made interest payments for all debt facilities of $77 thousand and $645, respectively, of interest from entity level borrowings.

Additionally, when a project becomes inactive or is not a qualifying entity, its interest, real estate taxes and indirect production overhead costs are no longer capitalized but rather expensed in the period they are incurred. For$226 thousand, respectively.

During the three and ninesix months ended SeptemberJune 30, 2017,2021, the Company expensed $16 of interest and real estate taxes. Fordid 0t make principal payments for the Revolver. During the three and nine monthssix ended SeptemberJune 30, 2016,2020, the Company expensed $0 and $10retired $5.7 million of interest and real estate taxes.

5. LOSS PER SHARE

The weighted average shares and share equivalents used to calculate basic and diluted earnings (loss) per shareoutstanding borrowings for the threeCGF Note.

8. CORONAVIRUS AID RELIEF AND ECONOMIC SECURITY ACT
Paycheck Protection Plan Loan
In response to the COVID-19 pandemic, the Paycheck Protection Program (the “PPP”) was established under the CARES Act and nine months ended September 30, 2017administered by the U.S. Small Business Administration (“SBA”). Companies who met the eligibility requirements set forth by the PPP could qualify for PPP loans provided by local lenders, which supports payroll, rent and 2016utility expenses (“qualified expenses”). If the loan proceeds are presented infully utilized to pay qualified expenses over the accompanying consolidated statementscovered period, as further defined by the PPP, the full principal amount of operations. Restricted stock awards, stock options and warrants are included in the diluted earnings (loss) per share calculation usingPPP loan may qualify for loan forgiveness, subject to potential reduction based on the treasury stock method and average market priceslevel of full-time employees maintained by the organization during the periods, unless their inclusion would be anti-dilutive.

Ascovered period as compared to a resultbaseline period.

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TABLE OF CONTENTS
In April 2020, the Company received proceeds of $1.95 million under the PPP (the "PPP Loan") provided by Mainstreet Bank (the “Lender”). Based on the term and conditions of the net loss attributableloan agreement, the term of the PPP loan is two years with an annual interest rate of 1% and principal and interest payments will be deferred for the first six-months of the loan term, which has been updated according to common stockholders forthe Paycheck Protection Program Flexibility Act of 2020 (“Flexibility Act”). The Company recognized PPP funding as a contra-expense during the three months ended SeptemberJune 30, 2017, approximately 23 restricted stock awards and 15 warrants2020, when qualified expenses were includedincurred. The Lender received notice that the PPP Loan was fully forgiven by the SBA in the computation of dilutive loss per share. As a result of the net loss attributable to common stockholders for the nine months ended September 30, 2017, approximately 29 restricted stock awards and 18 warrants were included in the computation of dilutive loss per share. For the three and nine months ended September 30, 2016, there were no anti-dilutive shares, therefore, no shares were excluded from the computation of dilutive loss per share.

6. SEGMENT DISCLOSURES

We operate our business through three segments: Homebuilding, Multi-family, and Real Estate Services. We are currently focused on the Washington, D.C. area market.

In our Homebuilding segment, we develop properties with the intent to sell asfee-simple properties or condominiums to individual buyers or to private or institutional investors. Ourfor-sale products are designed to attract first-time, earlymove-up, and secondarymove-up buyers. We focus on products that we are able to offer for sale in the middle price points within the markets where we operate, avoiding the verylow-end andhigh-end products.

In our Multi-family segment, we focus on projects ranging from approximately 75 to 200 units in locations that are supply constrained with demonstrated demand for stabilized assets. We seek opportunities in the multi-family rental market where our experience and core capabilities can be leveraged. We will either position the assets for sale when completed or operate the asset within our own portfolio as rental property. Operating the asset for our own account affords us the flexibility of converting the units to condominiums in the future.

In our Real Estate Services segment, we pursue projects in all aspects of real estate management, including strategic planning, land development, entitlement, property management, sales and marketing, workout and turnaround strategies, financing and general construction. We are able to provide a wide range of construction management and general contracting services to other property owners. Our newly formed entity, JK, also provides real estate related environmental services.

The following table includes the Company’s three reportable segments of Homebuilding, Multi-family, and Real Estate Services. The Homebuilding and Multi-family segments operate solely within the Company’s single Washington, D.C. area reportable geographic segment, while the Real Estate Services operates in the Washington, D.C., New Jersey, and Pennsylvania geographic segments.

   Homebuilding   Multi-family   Real
Estate
Services		   Total 

Three Months Ended September 30, 2017

        

Gross revenue

  $13,076   $—     $739   $13,815 

Gross profit (loss)

   594    —      (110)    484 

Net loss

   (1,000)    —      (201)    (1,201) 

Depreciation and amortization

   15    —      83    98 

Interest expense

   —      —      16    16 

Total assets

   53,258    —      2,755    56,013 

Three Months Ended September 30, 2016

        

Gross revenue

  $12,880   $—     $223   $13,103 

Gross profit (loss)

   895    —      138    1,033 

Net (loss) income

   (894)    —      138    (756) 

Depreciation and amortization

   89    —      —      89 

Interest expense

   133    —      —      133 

Total assets

   56,427    —      148    56,575 

Nine Months Ended September 30, 2017

        

Gross revenue

  $33,375   $—     $1,228   $34,603 

Gross profit (loss)

   2,571    —      (138)    2,433 

Net loss

   (2,168)    —      (232)    (2,400) 

Depreciation and amortization

   125    —      126    251 

Interest expense

   —      —      16    16 

Total assets

   53,258    —      2,755    56,013 

Nine Months Ended September 30, 2016

        

Gross revenue

  $32,102   $—     $685   $32,787 

Gross profit (loss)

   2,287    —      356    2,643 

Net (loss) income

   (3,861)    —      356    (3,505) 

Depreciation and amortization

   144    —      —      144 

Interest expense

   650    —      —      650 

Total assets

   56,427    —      148    56,575 

The Company allocates sales, marketing and general and administrative expenses to the individual segments based upon specifically allocable costs.

7. INCOME TAX

For the three and nine months ended September 30, 2017 the Company recognized income tax expense of $29, and the effective tax rate is 1%. For the three and nine months ended September 30, 2016, the Company recognized income tax expense of $0 and $57, respectively, and the effective tax rate was 2%.

The Company has not recorded any accruals related to uncertain tax positions as of September 30, 2017 and 2016. We file U.S. and state income tax returns in jurisdictions with varying statutes of limitations. The 2014 through 2016 tax years remain subject to examination by federal and most state tax authorities.

At September 30, 2017 and December 31, 2016, due to the uncertainties surrounding the realization of the deferred tax assets, the Company recorded a full valuation allowance.

The Company currently has approximately $139 million in federal and state Net Operating Losses (“NOLs”), which based on current statutory tax rates, have potential fair value of approximately $54 million in tax savings. If unused, these NOLs will begin expiring in 2027. 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. We estimate that as of September 30, 2017, the cumulative shift in ownership of the Company’s stock would not cause an impairment of our NOL asset. However, if an ownership change were to occur, the Section 382 limitation would not be expected to materially impact the Company’s financial position or results of operations as of September 30, 2017, because of the Company’s full valuation allowance on its net deferred tax assets.

8.April 2021.

9. COMMITMENTS AND CONTINGENCIES

Litigation

Currently, we are not subject to any material legal proceedings. From time to time, however, we are named as a defendant in legal actions arising from our normal business activities. Although we cannot accurately predict the amount of our liability, if any, that could arise with respect to legal actions pending against us;us, we do not expectbelieve it is reasonably possible that any such liability will have a material adverse effect on our financial position, operating results and cash flows. We believe that we have obtained adequate insurance coverage, rights to indemnification, or where appropriate, have established appropriate reserves in connection with any such legal proceedings.

Letters of credit, performance bonds and compensating balances

The Company has commitments as a result of contracts with certain third parties, primarily local governmental authorities, to meet certain performance criteria outlined in such contracts. The Company is required to issue letters of credit and performance bonds to these third parties as a way of ensuring that the commitments entered into are met. These letters of credit and performance bonds issued in favor of the Company and/or its subsidiaries mature on a revolving basis, and if called into default, would be deemed material if assessed against the Company and/or its subsidiaries for the full amounts claimed. In some circumstances, we have negotiated with our lenders in connection with foreclosure agreements for the lender to assume certain liabilities with respect to the letters of credit and performance bonds. We cannot accurately predict the amount of any liability that could be imposed upon the Company with respect to maturing or defaulted letters of credit or performance bonds. At September 30, 2017 and 2016, the Company had $1.1 million and $1.4 million in outstanding letters of credit, respectively. At September 30, 2017 and 2016, the Company had $4.0 million and $4.3 million in outstanding performance bonds, respectively. No amounts have been drawn against the outstanding letters of credit or performance bonds.

We are required to maintain compensating balances in escrow accounts as collateral for certain letters of credit, which are funded upon settlement and release of units. The cash contained within these escrow accounts is subject to withdrawal and usage restrictions. As of September 30, 2017 and December 31, 2016, we had approximately $0.9 million and $0.8 million, respectively, in these escrow accounts, which are included in ‘Restricted cash’ in the accompanying consolidated balance sheets.

9. RELATED PARTY TRANSACTIONS

The Company leases its corporate headquarters from an affiliated entity that is wholly-owned by our Chief Executive Officer. Future minimum lease payments under this lease are as follows:

2017

  $54 

2018

   160 
  

 

 

 

Total

  $214 
  

 

 

 

For the three months ended September 30, 2017 and 2016, total payments made under this lease agreement were $52 and $84, respectively. For the nine months ended September 30, 2017 and 2016, total payments made under this lease agreement were $156 and $246, respectively.

On February 23, 2009, Comstock Homes of Washington, L.C., a wholly-owned subsidiary of the Company, entered into a Services Agreement with Comstock Asset Management, L.C., an entity wholly-owned by our Chief Executive Officer, to provide services related to real estate development and improvements, including legal, accounting, marketing, information technology and other additional support services. For the three months ended September 30, 2017 and 2016, the Company billed Comstock Asset Management, L.C. $269 and $222, respectively, for services andout-of-pocket expenses. For the nine months ended September 30, 2017 and 2016, Comstock Asset Management, L.C. was billed $757 and $684, respectively. Revenues from this arrangement are included within ‘Revenue – other’ in the accompanying consolidated statements of operations. As of September 30, 2017 and December 31, 2016, the Company was owed $91 and $132, respectively, under this contract, which is included in ‘Trade receivables’ in the accompanying consolidated balance sheets.

On October 17, 2014, Comstock Growth Fund (“CGF”), an administrative entity managed by the Company, entered into a subscription agreement with Comstock Development Services, LC (“CDS”), an entity wholly-owned by our Chief Executive Officer, pursuant to which CDS purchased membership interests in CGF for a principal amount of $10 million. Other purchasers who purchased interests in the private placement included members of the Company’s management and board of directors and other third-party, accredited investors for an additional principal amount of $6.2 million (the “CGF Private Placement”).

Simultaneously, on October 17, 2014, the Company entered into an unsecured promissory note with CGF whereby CGF made a loan to the Company in the initial principal amount of $10 million and a maximum capacity of up to $20 million. On December 18, 2014, the loan agreement was amended and restated to provide for a maximum capacity of $25 million. All of the other terms of the unsecured promissory note remained the same. The Company borrowed an additional principal loan amount of $6.2 million under the amended and restated CGF promissory note bringing the total aggregate principal amount borrowed to $16.2 million. The CGF loan has a three year term carrying a floating interest rate of LIBOR plus 9.75% with a 10% floor. The loan requires an annual principal repayment in the amount of 10% of the average outstanding balance and a monthly interest payment that will be made in arrears. Purchasers other than CDS who purchased membership interests in CGF received warrants that represent the right to purchase an amount of shares of our Class A common stock, depending upon the investment amount. As of September 30, 2017, and December 31, 2016, there were 76 warrants issued in connection with the CGF Private Placement outstanding, representing the right to purchase shares of our Class A common stock having an aggregate fair value of $433, which was considered as a debt discount. The Company amortizes the debt discount over the three year term of the loan to interest expense. As of September 30, 2017, $11.6 million was outstanding in principal and accrued interest, net of discounts, on the CGF loan. For the three months ended September 30, 2017 and 2016, the Company made interest payments of $0.1 million and $0.4 million, respectively, on the CGF loan. For the nine months ended September 30, 2017 and 2016, the Company made interest payments on the CGF loan of $0.9 million and $1.2 million, respectively.

On December 18, 2014, CGF entered into amended and restated subscription agreements with CDS, members of the Company’s management and board of directors and the other third party accredited investors who participated in the CGF Private Placement (the “Amended CGF Private Placement”). Under the Amended CGF Private Placement, in addition to the warrants described above, the Company entered into a commitment to grant 226,857 shares of our Class A common stock to the purchasers in the Amended CGF Private Placement. On May 12, 2015, the Company issued 226,857un-registered shares of its Class A common stock to the purchasers in the Amended CGF Private Placement. The Amended CGF Private Placement was closed for additional investments on May 15, 2015.

On December 29, 2015, the Company and Stonehenge Funding, L.C. (“Stonehenge”), an entity wholly owned by our Chief Executive Officer, entered into a Note Exchange and Subscription Agreement pursuant to which the note in the original principal amount of $4.5 million issued to the Company by Stonehenge was cancelled in its entirety and exchanged for 772,210 shares of the Company’s Series BNon-Convertible Preferred Stock, par value $0.01 per share and a stated value of $5.00 per share (the “Series B Preferred Stock”). The number of shares of Series B Preferred Stock received by Stonehenge in exchange for the note represented the principal amount outstanding plus accrued interest under the note as of December 29, 2015, which was $3.9 million. The holders of Series B Preferred Stock earn dividends at a rate of 8.75% per annum accruing from the effective date of the Note Exchange and Subscription Agreement.

On March 22, 2017, the Company entered into a Share Exchange Agreement with the holders of the Company’s Series B Preferred Stock pursuant to which the Company exchanged 772,210 shares of the Company’s Series B Preferred Stock for 772,210 shares of the Company’s newly created Series CNon-Convertible Preferred Stock, par value $0.01 per share and a stated value of $5.00 per share. The Series C Preferred Stock has a discretionary dividend feature, as opposed to the mandatory dividend feature in the Series B Preferred Stock. The Series B Preferred Stock, together with all accrued dividends earned through the conversion date, was retired uponre-acquisition and the fair value of the Series C Preferred Stock is recorded in ‘Stockholders’ equity’ in the accompanying consolidated balance sheets. The difference in fair value from the extinguishment of the Series B Preferred Stock and issuance of the Series C Preferred Stock of $1,011 was recorded in ‘Stockholders’ equity’ in the accompanying consolidated balance sheets. For the three and nine months ended September 30, 2016, 17,411 and 51,848 shares of the Series B Preferred Stock, respectively, with a liquidation value of $87 and $259, respectively, were paidin-kind as dividends, and are included in ‘Stockholders’ equity’ in the accompanying consolidated balance sheets. For the nine months ended September 30, 2017, 15,663 shares of the Series B Preferred Stock with a liquidation value of $78 were paidin-kind as dividends and are included in ‘Stockholders’ equity’ in the accompanying consolidated balance sheets.

On March 24, 2017, the Company entered into a share repurchase agreement with Investor Management, L.C., an entity owned by Gregory V. Benson, the former Chief Operating Officer of the Company, whereby the Company agreed to repurchase 193,052 shares of the Series C Preferred Stock held by Investor Management, L.C. for $89. The Series C Preferred Stock acquisition closed on April 4, 2017, and the Series C Preferred Stock was retired.

On December 29, 2015, Comstock Growth Fund II, L.C. (“CGF II”), an administrative entity managed by the Company was created for the purpose of extending loans to the Company. CGF II entered into a subscription agreement with CDS pursuant to which CDS purchased membership interests in CGF II for an initial aggregate principal amount of $5.0 million (the “CGF II Private Placement”).

Simultaneously, on December 29, 2015, the Company and CGF II entered into an unsecured revolving line of credit promissory note in the initial principal amount of $5.0 million and a maximum amount available for borrowing of up to $10.0 million with a two year term, which may be extended an additional year. The interest rate is 10% per annum, and interest payments will be accrued and paidin-kind monthly for the first year, and then paid current monthly in arrears beginning December 31, 2016. As of September 30, 2017 and December 31, 2016, $3.5 million and $3.3 million, respectively, was outstanding in principal and accrued interest on the CGF II loan.

See Note 11 to the consolidated financial statements for a description of the Comstock VIII and Comstock X Private Placements and Note 13 to the consolidated financial statements for a description of the CGF Private Placement and the CGF II Private Placement.

10. NOTE RECEIVABLE

The Company originated a note receivable to a third party in the amount of $180 in September 2014. This note has a maturity date of September 2, 2019 and is payable in monthly installments of principal and interest of $3. This note bears a fixed interest rate of 6% per annum. As of September 30, 2017 and December 31, 2016, the outstanding balance of the note was $75 and $103, respectively, and is included within ‘Other assets’ in the accompanying consolidated balance sheets. The interest income of $1 and $2 for the three months ended September 30, 2017 and 2016, respectively, is included in ‘Other income, net’ in the consolidated statements of operations. The interest income of $4 and $6 for the nine months ended September 30, 2017 and 2016, respectively, is included in ‘Other income, net’ in the consolidated statement of operations.

11. VARIABLE INTEREST ENTITY

Included within the Company’s real estate inventories at September 30, 2017 and December 31, 2016 are several projects that are determined to be variable interest entities (“VIEs”). These entities have been established to own and operate real estate property and were deemed VIEs primarily based on the fact that the equity investment at risk is not sufficient to permit the entities to finance their activities without additional financial support. The Company determined that it was the primary beneficiary of these VIEs as a result of its majority voting and complete operational control of the entities.

On August 23, 2012, the Company formed New Hampshire Ave. Ventures, LLC, a joint venture of its subsidiary, Comstock Ventures XVI, L.C., and 6000 New Hampshire Avenue, LLC, for the purpose of acquiring, developing and constructing a111-unit project (the “NHA Project”) in Washington, D.C. The Company evaluated the joint venture and determined that the equity investment at risk is not sufficient to permit the entity to finance its activities without additional financial support. The Company determined that it was the primary beneficiary of the VIE as a result of its complete operational control of the activities that most significantly impact the economic performance and obligation to absorb losses, or receive benefits. The Company contributed its ownership interest in Comstock Ventures XVI, L.C. to Comstock Investors VII, L.C. (“Comstock VII”) on March 13, 2013. During the nine months ended September 30, 2016, New Hampshire Ave. Ventures, LLC distributed $1.9 million to itsnon-controlling interest member, 6000 New Hampshire Avenue, LLC. No such distributions were made during the three and nine months ended September 30, 2017.

In December 2013, Comstock Investors VIII, L.C. (“Comstock VIII”) entered into subscription agreements with certain accredited investors (“Comstock VIII Class B Members”), pursuant to which Comstock VIII Class B Members purchased membership interests in Comstock VIII for an aggregate amount of $4.0 million (the “Comstock VIII Private Placement”). In connection with the Comstock VIII Private Placement, the Company issued 15 warrants for the purchase of shares of the Company’s Class A common stock tothe non-affiliated accredited investors, having an aggregate fair value of $131. Comstock VIII Class B Members included unrelated third-party accredited investors along with members of the Company’s board of directors and the Company’s former Chief Operating Officer and the former Chief Financial Officer. The Comstock VIII Class B Members are entitled to a cumulative, preferred return of 20% per annum, compounded annually on their capital account balances. The Company has the right to repurchase the interests of the Comstock VIII Class B Members at any time, provided that (i) all of the Comstock VIII Class B Members’ interests are acquired, (ii) the purchase is made in cash and (iii) the purchase price equals the Comstock VIII Class B Members’ capital accounts plus an amount necessary to cause the preferred return to equal a cumulative cash on cash return equal to 20% per annum. The proceeds from the Comstock VIII Private Placement have been used for the construction of the following projects: The Townes at HallCrest in Sterling, Virginia consisting of 42 townhome units, and Townes at Maxwell Square Condominium in Frederick, Maryland consisting of 45 townhome condominium units (collectively, the “Investor VIII Projects”). Proceeds of the Comstock VIII Private Placement were utilized to provide capital needed to complete the Investor VIII Projects in conjunction with project financing for the Investor VIII Projects, to reimburse the Company for prior expenditures incurred on behalf of the Investor VIII Projects, and for general corporate purposes of the Company. The Company evaluated Comstock VIII and determined that the equity investment at risk is not sufficient to permit the entity to finance its activities without additional financial support and the Company was the primary beneficiary as a result of its complete operational control of the activities that most significantly impact the economic performance and its obligation to absorb losses, or receive benefits accordingly, the Company consolidates this entity. In January 2017, the Company fully redeemed the remaining equity interest of Class B Members in Comstock VIII after paying $1.9 million in distributions. During the nine months ended September 30, 2016, the Company paid distributions in the amount of $2.5 million to itsnon-controlling interest member.

In June 2015, Comstock Investors IX, L.C. (“Comstock IX”) entered into subscription agreements with third-party accredited investors (“Comstock IX Class B Members”), pursuant to which Comstock IX Class B Members purchased membership interests in Comstock IX for an aggregate amount of $2.5 million (the “Comstock IX Private Placement”). The Comstock IX Class B Members are entitled to a cumulative, preferred return of 20% per annum, compounded annually on their capital account balances. The Company has the right to repurchase the interests of the Comstock IX Class B Members at any time, provided that (i) all of the Comstock IX Class B Members’ interests are acquired, (ii) the purchase is made in cash and (iii) the purchase price equals the Comstock IX Class B Members’ capital accounts plus any amount necessary to cause the preferred return to equal a cumulative cash on cash return equal to 20% per annum. The proceeds from the Comstock IX Private Placement have been utilized (A) for the current construction of the Marrwood East project of 35 single family homes in Loudoun County Virginia, (B) to reimburse the Company for prior expenditures incurred on behalf of the Marrwood East project and (C) for general corporate purposes of the Company. The Company evaluated Comstock IX and determined that the equity investment at risk is not sufficient to permit the entity to finance its activities without additional financial support and the Company was the primary beneficiary as a result of its complete operational control of the activities that most significantly impact the economic performance and its obligation to absorb losses or receive benefits. Accordingly, the Company consolidates this entity. During the three and nine months ended September 30, 2017, the Company paid distributions in the amount of $0.2 million to itsnon-controlling interest member. No distributions were made in 2016. Subsequent to quarter end, in October 2017, the Company paid $3.3 million, fully redeeming the remaining equity interest of the Comstock IX Class B Member. Refer to Note 17 for further discussion of this subsequent event.

In August 2016, Comstock Investors X, L.C. (“Comstock X”) entered into a subscription agreement with an accredited investor (“Comstock X Class B Member”), pursuant to which the Comstock X Class B Member purchased membership interests in Comstock X for an initial amount of $5.0 million, which is part of an aggregate capital raise of $14.5 million (the “Comstock X Private Placement”). The Comstock X Class B Member is Comstock Development Services, LC (“CDS”), an entity wholly owned by Christopher Clemente, our Chief Executive Officer. In October 2016, the Comstock X Class B Member purchased additional interests in the Comstock X Private Placement in an amount of $9.5 million resulting in an aggregate subscription amount of $14.5 million. In connection with the Comstock X Private Placement, the Company issued a total of 150 warrants for the purchase of shares of the Company’s Class A common stock, having an aggregate fair value of $258. The Comstock X Member is entitled to a cumulative, preferred return of 6% per annum, compounded annually on the capital account balance. The Company has the right to repurchase the interest of the Comstock X Class B Member at any time, provided that (i) all of the Comstock X Class B Members’ interest is acquired, (ii) the purchase is made in cash and (iii) the purchase price equals the Comstock X Class B Members’ capital account plus accrued priority return. Proceeds of the Comstock X Private Placement are being utilized (A) to provide capital needed to complete the projects known as The Townes at Totten Mews, consisting of 40 townhomes in Washington, D.C., and The Towns at 1333, consisting of 18 townhomes in the City of Alexandria, Virginia (collectively, the “Investor X Projects”), (B) to reimburse the Company for prior expenditures incurred on behalf of the Investor X Projects, and (C) for general corporate purposes of the Company. The Company evaluated Comstock X and determined that the equity investment at risk is not sufficient to permit the entity to finance its activities without additional financial support and the Company was the primary beneficiary of the VIE as a result of its complete operational control of the activities that most significantly impact the economic performance and its obligation to absorb losses, or receive benefits. Accordingly, the Company consolidates this entity. On June 14, 2017, the Comstock X Private Placement was amended to provide for the first $1.0 million of profit earned to be allocated first to the Company. During the nine months ended September 30, 2017, the Company paid distributions of $1.0 million to itsnon-controlling interest member. No distributions were made in 2016. Subsequent to quarter end, in October 2017, the Operating Agreement for Investor X was amended to increase the maximum capital raise to $19.5 million. The Company raised an additional $5.0 million through the Investor X entity. Refer to Note 17 for further discussion of this subsequent event.

The distributions to and contributions from the VIEs discussed above are included within the‘Non-controlling interest’ in the consolidated balance sheets for the periods presented.

At September 30, 2017 and December 31, 2016, total assets of these VIEs were approximately $31.5 million and $38.1 million, respectively, and total liabilities were approximately $17.3 million and $18.5 million, respectively. The classification of these assets is primarily within ‘Real estate inventories’ and the classification of liabilities are primarily within ‘Accounts payable and accrued liabilities’ and ‘Notes payable – secured by real estate inventories’ in the accompanying consolidated balance sheets.

12. UNCONSOLIDATED JOINT VENTURE

The Company accounts for its interest in its title insurance joint venture using the equity method of accounting and periodically adjusts the carrying value for its proportionate share of earnings, losses and distributions. The carrying value of the investment is included within ‘Other assets’ in the accompanying consolidated balance sheets and our proportionate share of the earnings from the investment are included in ‘Other income, net’ in the accompanying consolidated statements of operations for the periods presented. Our share of the earnings for the three and nine months ended September 30, 2017, are $23 and $47, respectively. During the three and nine months ended September 30, 2016, our share of earnings from this joint venture was $34 and $50, respectively. During the nine months ended September 30, 2017 and 2016, the Company collected total distributions of $62 and $75, respectively, as a return on investment.

Summarized financial information for the unconsolidated joint venture is as follows:

   Three Months Ended September 30,   Nine Months Ended September 30, 
   2017   2016   2017   2016 

Statement of Operations:

        

Total net revenue

  $73   $96   $180   $186 

Total expenses

   27    28    87    86 
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $46   $68   $93   $100 
  

 

 

   

 

 

   

 

 

   

 

 

 

Comstock Holding Companies, Inc. share of net income

  $23   $34   $47   $50 
  

 

 

   

 

 

   

 

 

   

 

 

 

13. CREDIT FACILITIES

Notes payable consisted of the following:

   September 30,
2017		   December 31,
2016		 

Construction revolvers

  $8,305   $6,429 

Development and acquisition notes

   14,719    16,278 

Mezzanine notes

   1,472    1,424 

Line of credit

   2,132    2,929 

Secured-other

   1,100    —   
  

 

 

   

 

 

 

Total secured notes

   27,728    27,060 

Deferred financing charges, net of amortization

   (156)    (133) 
  

 

 

   

 

 

 

Net secured notes

   27,572    26,927 

Unsecured financing, net of unamortized deferred financing charges of $72 and $121

   1,396    911 

Notes payable, unsecured, net of $1.9 million and $2.1 million discount and unamortized deferred financing charges, respectively

   15,078    15,866 
  

 

 

   

 

 

 

Total notes payable

  $44,046   $43,704 
  

 

 

   

 

 

 

As of September 30, 2017, maturities and/or curtailment obligations of all borrowings are as follows:

2017

  $22,713 

2018

   13,958 

2019

   5,543 

2020

   122 

2021 and thereafter

   1,710 
  

 

 

 

Total

  $44,046 
  

 

 

 

As of September 30, 2017, the Company had $22.7 million of its credit facilities and project related loans scheduled to mature during the remainder of 2017, and we are in active discussions with our lenders seeking long-term extensions.

Construction, development and mezzanine debt – secured

The Company enters into secured acquisition and development loan agreements from time to time to purchase and develop land parcels. In addition, the Company enters into secured construction loan agreements for the construction of its real estate inventories. The loans are repaid with proceeds from home closings based upon a specific release price, as defined in each respective loan agreement.

As of September 30, 2017, and December 31, 2016, the Company had secured construction revolving credit facilities with a maximum loan commitment of $24.8 million and $26.6 million, respectively. The Company may borrow under these facilities to fund its home building activities. The amount the Company may borrow is subject to applicable borrowing base provisions and the number of units under construction, which may also limit the amount available or outstanding under the facilities. The facilities are secured by deeds of trust on the real property and improvements thereon, and the borrowings are repaid with the net proceeds from the closings of homes sold, subject to a minimum release price. As of September 30, 2017, and December 31, 2016, the Company had approximately $16.5 million and $20.2 million, respectively, of unused construction loan commitments. The Company had $8.3 million and $6.4 million of outstanding construction borrowings as of September 30, 2017 and December 31, 2016, respectively. Interest rates charged under these facilities include the London Interbank Offered Rate (“LIBOR”) and prime rate pricing options, subject to minimum interest rate floors. At September 30, 2017 and December 31, 2016, the weighted average interest rate on the Company’s outstanding construction revolving facilities was 4.8% and 4.6% per annum, respectively. The construction credit facilities have maturity dates ranging from October 2017 to March 2019, including extensions subject to the Company meeting certain conditions. Subsequent to September 30, 2017, $0.5 million of the outstanding construction revolving credit facilities matured. We are in active discussions with the lender to secure an extension on this borrowing.

As of September 30, 2017, and December 31, 2016, the Company had approximately $28.5 million and $27.8 million, respectively, of aggregate acquisition and development maximum loan commitments of which $14.7 million and $16.3 million, respectively, were outstanding. These loans have maturity dates ranging from November 2017 to March 2019, including extensions subject to certain conditions, and bear interest at a rate based on LIBOR and prime rate pricing options, with interest rate floors ranging from 4.75% to 12.0% per annum. As of September 30, 2017, and December 31, 2016, the weighted average interest rate was 6.5% and 5.2% per annum, respectively.

As of September 30, 2017, the Company had one mezzanine loan that is being used to finance the development of the Momentum | Shady Grove project. The maximum principal commitment amount of this loan was $1.1 million, of which $1.2 million and $1.4 million of principal and accrued interest was outstanding at September 30, 2017 and December 31, 2016, respectively. This financing carries an annual interest rate of 12% of which 6% is paid on a monthly basis with the remaining 6% being accrued and paid at maturity. This financing has a maturity date of December 31, 2017 and is guaranteed by the Company and our Chief Executive Officer.

Line of credit – secured

At September 30, 2017 and December 31, 2016, the Company had a secured revolving line of credit with a maximum capacity of $3.0 million, of which $2.1 million and $2.9 million, respectively, were outstanding at September 30, 2017 and December 31, 2016. This line of credit is secured by the first priority security interest in the Company’s wholly owned subsidiaries’ in the Washington, D.C. metropolitan area and guaranteed by our Chief Executive Officer. The Company uses this line of credit to finance the predevelopment related expenses and deposits for current and future projects and bears a variable interest rate tied to aone-month LIBOR plus 3.25% per annum, with an interest rate floor of 5.0%. This line of credit calls for the Company to adhere to financial covenants, as defined in the loan agreement such as, minimum net worth and minimum liquidity, measured quarterly and minimum EBITDA measured on an annual basis and matures on December 31, 2017. The Company obtained a waiver from the financial institution for not meeting the minimum liquidity measure as of September 30, 2017, but it was in compliance with the minimum net worth requirement as dictated by the line of credit agreement as of September 30, 2017.

Secured – other

As of September 30, 2017, the Company had one secured loan related to the newly created entity, JK, with an outstanding balance of $1.1 million. This financing carries a fixed interest rate of 6.0%, and has a maturity date of October 17, 2022. This financing is secured by the assets of JK and is guaranteed by our Chief Executive Officer.

Unsecured financing

As of September 30, 2017, and December 31, 2016, the Company had $0.7 million and $1.0 million, respectively, in outstanding balances under a10-year unsecured note with a bank. Interest is charged on this financing on an annual basis at the Overnight LIBOR rate plus 2.2%. At September 30, 2017 and December 31, 2016, the interest rate was 3.4% and 2.9% per annum, respectively. The maturity date of this financing is December 28, 2018. The Company is required to make monthly principal and interest payments through maturity.

As of September 30, 2017, the Company had two unsecured seller-financed promissory notes with outstanding balances totaling $0.7 million. The first note, in the amount of $0.1 million, carries an annual interest rate of the prime rate plus 5%. This financing has a maturity date of February 27, 2020, and is guaranteed by our Chief Executive Officer. As of September 30, 2017, the interest rate was 9.3%. The second note, resulting from the newly created entity, JK, on July 17, 2017, has an outstanding balance of $0.6 million as of September 30, 2017. This financing carries an annual interest rate of LIBOR plus 3% and has a maturity date of July 17, 2022. See Note 16 for further discussion of the business acquisition.

Notes payable to affiliate – unsecured

Comstock Growth Fund

On October 17, 2014, CGF entered into a subscription agreement with CDS, pursuant to which CDS purchased membership interests in CGF for a principal amount of $10.0 million (the “CGF Private Placement”). Other investors who subsequently purchased interests in the CGF Private Placement included members of the Company’s management and board of directors and other third party accredited investors for an additional principal amount of $6.2 million.

On October 17, 2014, the Company entered into an unsecured promissory note with CGF whereby CGF made a loan to the Company in the initial principal amount of $10.0 million and a maximum amount available for borrowing of up to $20.0 million with a three year term (the “Original Promissory Note”). On December 18, 2014, the loan agreement was amended and restated to provide for a maximum capacity of $25 million. The loan bears interest at a floating rate based on the 30 day LIBOR plus 9.75% per annum with a 10% floor per annum. Interest payments will be made monthly in arrears. There is a principal curtailment requirement of 10% annually based on the average outstanding balance for the prior year. The loan will be used by the Company (i) to finance the Company’s current and future development pipeline, (ii) to repay all or a portion of the Company’s prior private placements, (iii) to repay all or a portion of the Company’s project mezzanine loans, and (iv) for general corporate purposes. The Company is the administrative manager of CGF but does not own any membership interests. The Company had approximately $11.6 million and $11.3 million of outstanding borrowings under the CGF loan, net of discounts, as of September 30, 2017 and December 31, 2016, respectively. As of September 30, 2017 and December 31, 2016, the interest rate was 11.0% and 10.4% per annum, respectively. For the three months ended September 30, 2017 and 2016, the Company made interest payments of $0.1 million and $0.4 million, respectively. For the nine months ended September 30, 2017 and 2016, the Company made interest payments of $0.9 million and $1.2 million, respectively. During the nine months ended September 30, 2017 and 2016, the Company made principal payments to CGF of $1.5 million and $1.6 million, respectively. Subsequent to the September 30, 2017 quarter end, the Company extended the CGF loan to April 16, 2018.

Comstock Growth Fund II

On December 29, 2015, the Company entered into a revolving line of credit promissory note with CGF II whereby CGF II made a loan to the Company in the initial principal amount of $5.0 million and a maximum amount available for borrowing of up to $10.0 million with a two year term, which may be extended an additional year. The interest rate is 10% per annum, and interest payments will be accrued and paid in kind monthly for the first year, and then paid current monthly in arrears beginning December 31, 2016. The funds obtained from the loan are being used by the Company (i) to capitalize the Company’s current and future development pipeline, (ii) to repay all or a portion of the Company’s prior private placements, and (iii) for general corporate purposes. As of September 30, 2017 and December 31, 2016, $3.5 million and $3.3 million, respectively, was outstanding in principal and accrued interest under the CGF II loan.

14. FAIR VALUE DISCLOSURES

The carrying amounts reported in the consolidated balance sheetsCondensed Consolidated Balance Sheets for cash and cash equivalents, accounts receivable, and accounts payable and accrued liabilities are reasonable estimates of their fair values based on their short maturities. The fair value of fixed and floating rate debt is based on unobservable market rates (Level 3 inputs).

The fair value of the fixed and floating rate debt was estimated using a discounted cash flow analysis on the blended borrower rates currently available to the Company for loans with similar terms. The following table summarizesBased on the carrying amount andanalysis, the corresponding fair value of the fixed and floating rate debt:

   September 30,
2017		   December 31,
2016		 

Carrying amount

  $44,046   $43,704 

Fair value

  $43,579   $44,986 

debt approximated carrying value.

Fair value estimates are made at a specific point in time, based on relevant market information about the financial instruments. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Investments in Real Estate Ventures at Fair Value
We report our two investments in real estate ventures at fair value. For such investments, we increase or decrease our investment each reporting period by the change in the fair value and we report these fair value adjustments in the Condensed Consolidated Statements of Operations.
For our investments in real estate ventures at fair value, we estimate the fair value using the level 3 Income Approach or a sales comparable approach to determine a fair value. Critical inputs to fair value estimates include various level 3 inputs such as valuations of the underlying real estate assets and borrowings, which incorporate investment-specific assumptions such as discount rates, capitalization rates, rental and expense growth rates, and asset-specific market borrowing rates. As of June 30, 2021 and December 31, 2020, investments in the real estate ventures at fair value were approximately $3.7 million and $6.3 million, respectively.
Non-Recurring Fair Value Measurements
The Company may also value itsnon-financial assets and liabilities, including items such as real estate inventories and long livedlong-lived assets, at fair value on anon-recurring basis if it is determined that impairment has occurred. Such fair value measurements use significant unobservable inputs and are classified as Level 3.

15.

Due to the classification of CES as a discontinued operation, the Company performed an interim test of goodwill to determine if the carrying amount exceeds its fair value less costs to sell. The fair value of CES was determined using both the market and income based methods. The market approach estimates value based on what other purchasers and sellers in the market have agreed to as a price for comparable businesses. The Company used a range of EBITDA multiples as significant inputs in the valuation. The income approach utilizes assumptions such as discount rates, future cash flow, and revenue growth rates. All of the inputs used are significant unobservable inputs classified as Level 3. The Company then weighted the values determined using the market and income based approaches to determine the overall fair value of CES. The carrying value of $1.7 million exceeded the fair value less costs to sell of $1.4 million resulting in a loss on classification as held for sale of $325 thousand (See Note 3 - Discontinued Operations).
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11. RESTRICTED STOCK, STOCK OPTIONS AND OTHER STOCK PLANS

The Company did not issue restricted stock awards during

During the three and six months ended SeptemberJune 30, 2017. During the nine months ended September 30, 2017,2021, the Company issued 192 thousand0 stock options and 245 thousand165,809 restricted stock awards to employees. NoDuring the three and six months ended June 30, 2020, the Company issued 0 stock options orand 630,352 restricted stock awards were issued during the three and nine months ended September 30, 2016.

to employees.

Stock-based compensation expense associated with restricted stock and stock options is recognized based on the grant date fair value of the award over its vesting period. The following table reflects the consolidated balance sheets and statementsCondensed Consolidated Statements of operationsOperations line items for stock-based compensation for the periods presented:

   Three Months Ended
September 30,		   Nine Months Ended
September 30,		 
   2017   2016   2017   2016 

Real estate inventories - Assets

  $17   $4   $41   $13 

General and administrative - Expenses

   116    15    238    56 
  

 

 

   

 

 

   

 

 

   

 

 

 
  $133   $19   $279   $69 
  

 

 

   

 

 

   

 

 

   

 

 

 

Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
General and administrative$154 $182 $306 $373 
Under net settlement procedures currently applicable to our outstanding restricted stock awards for employees, upon each settlement date and election by the employees, restricted stock awards are withheld to cover the required withholding tax, which is based on the value of the restricted stock award on the settlement date as determined by the closing price of our Class A common stock on the trading day immediately preceding the applicable settlement date. The remaining amounts are delivered to the recipient as shares of our Class A common stock.

As of SeptemberJune 30, 2017,2021, the weighted-average remaining contractual term of unexercised stock options was 76 years. As of SeptemberJune 30, 20172021 and December 31, 2016,2020, there was $0.6$1.2 million and $0.1$1.1 million, respectively, of unrecognized compensation cost related to stock grants.

16. BUSINESS ACQUISITION

options and restricted stock awards.

The Company intends to issue new shares of its Class A common stock upon vesting of restricted stock grants or the exercise of stock options.
12. INCOME (LOSS) PER SHARE
The weighted average shares and share equivalents used to calculate basic and diluted (loss) income from both continuing operations and discontinued operations for the three and six months ended June 30, 2021 and 2020 are presented in the accompanying Condensed Consolidated Statements of Operations. Restricted stock awards, stock options and warrants for the three and six months ended June 30, 2021 and 2020 are included in the diluted income (loss) per share calculation using the treasury stock method and average market prices during the periods, unless their inclusion would be anti-dilutive.
The following share equivalents have been excluded from the continuing operations dilutive share computation for the three and six months ended June 30, 2021 and 2020 as their inclusion would be anti-dilutive:
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Restricted stock awards0 2 0 3 
Stock options33 193 39 209 
Warrants89 657 116 688 
122 852 155 900 
13. RELATED PARTY TRANSACTIONS
Lease for Corporate Headquarters
The Company previously leased its corporate headquarters from an affiliate controlled and owned by our CEO and family. On July 17, 2017, JK Environmental Services, LLC, (“JK”November 1, 2020, the Company relocated its corporate headquarters to a new office space pursuant to a ten year lease agreement with an affiliate controlled and owned by our Chief Executive Officer and family, as landlord.
Asset Management Agreement ("AMA")
On March 30, 2018, CAM, an entity wholly owned by the Company, entered into the AMA with CDS. The effective date of the AMA is January 2, 2018. Pursuant to the AMA, CDS Capital Management, L.C., ahas engaged CAM to manage and administer the CDS’ commercial real estate portfolio and the day to-day operations of CDS and each property-owning subsidiary of CDS (the "CDS
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Portfolio"). Pursuant to the terms of the AMA, CAM will provide investment advisory, development and asset management services necessary to build out, stabilize and manage certain assets.
Pursuant to the AMA, CDS will pay CAM an annual cost-plus fee (the “Annual Fee”) in an aggregate amount equal to the sum of (i) the employment expenses of personnel dedicated to providing services to the CDS Portfolio pursuant to the AMA, (ii) the costs and expenses of the Company related to maintaining the listing of its shares on a securities exchange and complying with regulatory and reporting obligations as a public company, and (iii) a fixed annual payment of $1,000,000.
As of June 30, 2021 and December 31, 2020, the Company had $3.0 million and $3.6 million, respectively, of receivables from related parties, primarily related to the 2019 AMA and payroll and expense reimbursements from affiliated properties. The Company does not record an allowance for doubtful accounts due to the related party nature of the receivables.
2019 Amended Asset Management Agreement ("2019 AMA")
On April 30, 2019, CAM entered into the 2019 AMA with CDS, which amends and restates in its entirety the AMA. Pursuant to the 2019 AMA, CDS will engage CAM to manage and administer the Anchor Portfolio and the day to-day operations of CDS and each property-owning subsidiary of CDS (collectively, the “CDS Entities”). The “Anchor Portfolio” consists of a majority of the properties we currently manage.
Pursuant to the 2019 AMA, the Company provides asset management services related to the build out, lease-up and stabilization, and management of the Anchor Portfolio. CDS pays the Company and its subsidiaries annual fees equal to the greater of either (i) an aggregate amount equal to the sum of (a) an asset management fee equal to 2.5% of revenues generated by properties included in the Anchor Portfolio; (b) a construction management fee equal to 4% of all costs associated with Anchor Portfolio projects in development; (c) a property management fee equal to 1% of the Anchor Portfolio revenues, (d) an acquisition fee equal to up to 0.5% of the purchase price of acquired assets; and (f) a disposition fee equal to 0.5% of the sales price of an asset on disposition; or (ii) an aggregate amount equal to the sum of (x) the employment expenses of personnel dedicated to providing services to the Anchor Portfolio pursuant to the 2019 AMA, (y) the costs and expenses of the Company related to maintaining the public listing of its shares and complying with related regulatory and reporting obligations, and (z) a fixed annual payment of $1,000,000.  
In addition to the annual payment of the greater of either the Market Rate Fee or the Cost Plus Fee (as defined in the 2019 AMA), the Company  also is entitled on an annual basis to the following additional fees: (i) an incentive fee equal to 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 CDS invested capital; (ii) an investment origination fee equal to 1% of raised capital, (iii) a leasing fee equal to $1.00/sf for new leases and $0.50/sf for renewals; and (iv) mutually agreeable loan origination fees related to the Anchor Portfolio.
The 2019 AMA will terminate on December 31, 2027 (“Initial Term”), an extension from the original termination date of December 31, 2022, and will automatically renew for successive additional one year terms (each an “Extension Term”) unless CDS delivers written notice of non-renewal of the 2019 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 2019 AMA, CDS is entitled to terminate the 2019 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 2019 AMA, CDS is required to pay a termination fee equal to (i) the Market Rate Fee or the Cost Plus Fee paid to CAM for the calendar year immediately preceding the termination , and (ii) a one-time payment of the Incentive Fee (as defined in the 2019 AMA) as if the CDS Portfolio were liquidated for fair market value as of the termination date; or the continued payment of the Incentive Fee as if a termination had not occurred.
Residential, Commercial and Parking Property Management Agreements
The Company entered into separate residential property management agreements with properties owned by CDS 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 properties owned by CDS 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 are each for one year initial terms with successive, automatic one year renewal terms, unless sooner terminated. The Company generally receives base management fees under these agreements based
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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 CDS 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.
Business Management Agreement
On April 30, 2019, CAM entered into a Business Management Agreement (the “BMA”) with Investors X, whereby CAM will provide 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 Management Agreement is $937,500, payable in 15 quarterly installments of $62,500 each.
The Hartford Investment
On December 30, 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. The Company’s initial investment related to the purchase of the Hartford is $1.2 million.
In conjunction with the investment, the Company entered into an operating agreement (“Original Operating Agreement”) with Comstock purchasedPartners, LC ("Partners") to form Comstock 3101 Wilson, LC (the “Hartford Owner”), to purchase the Hartford. Pursuant to the Original Operating Agreement, the Company holds a minority membership interest in the Hartford Owner and the remaining membership interests of the Hartford Owner is held by Partners, who is further the Manager of the Hartford Owner. At the closing of the acquisition of the Hartford, the Company received an acquisition fee of $500 thousand and is entitled to asset management, property management, construction management and leasing fees for its management of the Property pursuant to separate agreements between the Hartford Owner, or its affiliates, and the Company, or its affiliates. The Company is also entitled to an incentive fee related to the performance of the investment.
On February 7, 2020, the Company, Partners 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 Owner. In furtherance thereof, on February 7, 2020, the Original Operating Agreement for the Hartford Owner was amended and restated (the “A&R Operating Agreement”) to memorialize the Company’s and Partners’ assignment of 100% of its membership interests in the Hartford Owner to DWC. As a result thereof, DWC is the sole member of the Hartford Owner. The Company and Partners, respectively, hold minority membership interests in, and DWF holds the majority membership interest in, DWC. The Company’s ownership interest in the Hartford remains at 2.5%.
Private Placements and Promissory Notes
On March 19, 2020, the Company entered into the Loan Documents with CDS, pursuant to which the Company secured 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. On April 10, 2020, the capital provided to the Company by the Revolver was utilized to retire all of the business assets of Monridge Environmental, LLCCompany’s 10% corporate indebtedness owed to CGF.
See Note 7 - Debt for $2.3 million. The acquisition was consummated as partfurther description of the Company’s effortsCGF Private Placement and the Revolver.
See Note 6 - Revenue for detail regarding revenue earned from related parties.
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14. INCOME TAXES
For the three and six months ended June 30, 2021, the Company recognized deferred income tax benefit of $11.3 million. For the three and six months ended June 30, 2020, the Company recognized deferred income tax expense of $1 thousand and $13 thousand, respectively. The effective tax rate for the six months ended June 30, 2021 and 2020 is (8191.72)% and (0.85)%, respectively. The effective tax rate decreased as a result of a partial release of the valuation allowance as further discussed below.
A reconciliation of the statutory rate and the effective tax rate follows:
Six Months Ended June 30,
20212020
Federal statutory rate21.00 %21.00 %
State income taxes - net of federal benefit4.93 %4.74 %
Permanent differences(60.56 %)0.16 %
Return to provision adjustments0 %(2.45 %)
Change in valuation allowance(8154.87 %)(18.43 %)
Other, net(2.22)%(5.87)%
Effective tax rate(8191.72)%(0.85)%
The Company previously recorded a valuation allowance to expandreduce its footprintdeferred tax assets to zero. Based upon the available evidence on June 30, 2021, the Company determined it was more likely than not that a portion of deferred tax assets related to the NOL carryforwards would be utilized in future periods.The Company considered all available evidence, including cumulative income in recent years and its current forecast of future income in its analysis. The Company concluded that sufficient positive evidence exists due to the real estate services market. JK has its principal office located in Conshohocken, Pennsylvania, and operates in Maryland, Pennsylvania, New Jersey, and Delaware. JK operates as an environmental services company, providing consulting, remediation, and other environmental services. JK’s operationscumulative positive results achieved since the dateCompany's revised business strategy launched in 2018 and associated long-term related party contract (2019 AMA), which establishes a reasonable expectation of acquisition are included infuture taxable income. As a result, the Company’s consolidated statementCompany partially released the valuation allowance against these deferred tax assets and recorded a deferred income tax benefit of operations$11.3 million for the three and ninesix months ended SeptemberJune 30, 2017.

Based on an evaluation2021. While the Company believes its forecast of future income is reasonable, it is inherently uncertain. If the provisionsCompany’s projections of Accounting Standards Codification Topic 805,Business Combinations, (“ASC 805”), JK Environmental Services, LLC was determinedfuture income are lower than expected, the Company may need to bereestablish the acquirer for accounting purposes. The table below summarizesvaluation allowance.

Deferred income taxes reflect the provisional purchase price allocation based onnet tax effects of temporary differences between the estimated fair valuecarrying amounts of net assets acquired assumed at the date of acquisition. The purchase price allocation is provisional pending completion of the fair value analysis of the acquired assets and liabilities assumed:

ASSETS

  

Net Working Capital

  $141 

Net Fixed Assets

   180 

Intangible Assets(1)

   268 

Goodwill(2)

   1,702 
  

 

 

 

Total Purchase Price

  $2,291 
  

 

 

 

(1)Intangible assets include a non-compete agreement and customer relationships. The amortization period for these intangible assets is one year for the noncompete agreement; and four years for the customer relationships.
(2)Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed, and it is not deductible for income tax purposes. As of the acquisition date, goodwill consisted primarily of synergies resulting from the combination, expected expanded opportunities for growth and production, and savings in corporate overhead costs.

17. SUBSEQUENT EVENTS

On October 10, 2017, the Company extended its note payable with Comstock Growth Fund I. This loan had an initial maturity date of October 17, 2017for financial reporting purposes and the extension provides for a maturity date of April 16, 2018. As of September 30, 2017, the Company had $11.6 million of outstanding principal and interest, net of discounts under this facility.

On October 13, 2017, Comstock Investors X, L.C. amended its Operating Agreement to increase the amount of the aggregate capital raise to $19.5 million. On October 19, 2017, Comstock Investors X received proceeds of $5.0 million under the amended Operating Agreement to beamounts used for the planned constructionincome tax purposes. Components of the Company’s Totten Mews, Townsdeferred tax assets and liabilities at 1333, Richmond Station,June 30, 2021 and Marrwood East projects. As partDecember 31, 2020 and are as follows:

June 30,
2021		December 31,
2020
Deferred tax assets:
Net operating loss and tax credit carryforwards$37,841 $37,899 
Stock based compensation641 648 
Investment in affiliates299 264 
Other18 14 
Depreciation and amortization20 37 
38,819 38,862 
Less - valuation allowance(27,500)(38,780)
Net deferred tax assets11,319 82 
Deferred tax liabilities:
Goodwill amortization(9)(103)
Net deferred tax liabilities(9)(103)
Net deferred tax assets (liabilities)$11,310 $(21)
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The Company currently has approximately $146.0 million in federal and state NOLs. If unused, these NOLs will begin expiring in 2027. Under Internal Revenue Code Section 382 (“Section 382”), if a change in ownership is triggered, the Company’s NOL assets and possibly certain other deferred tax assets may be impaired.
The Company assesses uncertain tax positions and has 0t recorded any accruals related to uncertain tax positions as of this private placement, 50,000 warrants were issued forJune 30, 2021 and 2020. We file U.S. and state income tax returns in jurisdictions with varying statutes of limitations. The 2017 through 2020 tax years remain subject to examination by federal and most state tax authorities.
15. SEGMENT DISCLOSURES
Prior to June 30, 2021, we operated our business through 2 segments: Asset Management and Real Estate Services. After the purchaseclassification of Class A Common Stock atCES as a strike pricediscontinued operation as described in Note - Discontinued Operations, which was included in the Real Estate Services segment, we now operate our business through 1 reportable segment, Asset Management.
In our Asset Management segment, we focus on providing management services to a wide range of $1.73 per share.

On October 16, 2017,real estate owners and businesses that include a variety of commercial real estate uses, including apartments, hotels, office buildings, commercial garages, leased lands, retail stores, mixed-use developments, and urban transit-oriented developments. The properties and businesses we currently manage are located primarily along the Company redeemed the remaining equity interest of the Comstock IX Class B Members by paying $3.3 million, representing final priority returnsWashington, D.C. Metro Silver Line in Fairfax and Loudoun Counties, but we also manage projects in other jurisdictions including Maryland and Virginia. We also provide capital return.

markets and brokerage services.






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COMSTOCK HOLDING COMPANIES, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 2.    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 condensed consolidated financial statements and related notes appearing elsewhere in this report. This discussion and analysis contains forward-looking statements that involve risks and uncertainties. Please see “Cautionary Notes Regarding Forward-looking Statements” for more information. 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 report, particularly under the headings “Cautionary Notes Regarding Forward-looking Statements.” References to dollar amounts are in thousands except per share data, or as otherwise noted.

Cautionary Notes Regarding Forward-looking Statements

This report includes forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by the use of words such as “anticipate,” “believe,” “estimate,” “may,” “likely,” “intend,” “expect,” “will,” “should,” “seeks” or other similar words or expressions. Forward-looking statements are based largely on our expectations and involve inherent risks and uncertainties, many of which are beyond our control. You should not place undue reliance on any forward-looking statement, which speaks only as of the date made. Some factors which may affect the accuracy of the forward-looking statements apply generally to the real estate industry, while other factors apply specifically to us.
Any number of important factors which could cause actual results to differ materially from those in the forward-looking statements including, without limitation:include: general economic and market conditions, including interest rate levels; our ability to service our debt;changes in the real estate markets; inherent risks in investment in real estate; our ability to attract and retain clients; our ability to compete in the markets in which we operate; economic risks in the markets in which we operate, including actions related to government spending; delays in governmental approvals and/or land development activity at our projects; regulatory actions; our ability to maintain compliance with stock market listing rules and standards; fluctuations in operating results; our anticipated growth strategies; shortages and increased costs of labor or building materials; the availabilityadverse weather conditions and cost of land in desirable areas; natural disasters; public health emergencies, including potential risks and uncertainties relating to the coronavirus (COVID-19) pandemic; our ability to raise debt and equity capital and grow our operations on a profitable basis; and our continuing relationships with affiliates. Additional information concerning these and other important risk and uncertainties can be found under the heading “Risk Factors” in our Annual Report on Form10-K for the fiscal year ended December 31, 2016.
Our actual results could differ materially from these projected or suggested by the forward-looking statements. The Company undertakes no obligation to update publicly or revise any forward-looking statements in light of new information or future events, except as required by law.

Overview

We make available, free of charge, on our website, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, as soon as reasonably practicable after these forms are filed with, or furnished to, the SEC. The information on or accessible through our website, www.comstockcompanies.com, is not incorporated by reference into this Quarterly Report on Form 10-Q.
Overview
Comstock Holding Companies, Inc. (“CHCI” or “the Company”) is a multi-faceteddeveloper, operator, and asset manager of mixed-use and transit-oriented development properties in the greater Washington, D.C. metropolitan area, where we focus primarily on select high-growth urban and transitioning “sub-urban” markets. We provide a broad range of real estate asset management services, including development and construction management services, leasing and property management services, debt and equity financing origination, and other real estate related services. Our customers primarily include private and institutional owners and investors in the real estate properties that we manage and various governmental bodies that have a vested interest in public-private partnerships responsible for the development of certain properties that we develop and manage. We also invest capital on behalf of our asset management clients and institutional real estate investors in office, retail, residential and mixed-use properties, generally retaining an economic interest for the Company and providing management services to those properties, thereby enabling the Company to increase its assets under management (“AUM”)  in order to realize competitive advantages of scale and enhance our overall returns. The Company also provides additional fee-based real estate services, including capital markets, brokerage, and title insurance to properties in the Company’s managed portfolio.
As of June 30, 2021, our AUM consisted of 26 operating assets comprising 13 commercial assets totaling approximately 1.9 million square feet and 4 multifamily assets totaling 1,123 units, and 9 commercial garages comprised of over 8,000 parking spaces. Additionally, we have: (i) one commercial asset currently under-construction and scheduled for delivery in
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2022 totaling approximately 250,000 square feet that is 99% pre-leased; and (ii) 18 development pipeline assets consisting of approximately 2.0 million square feet of additional planned commercial development, approximately 1,700 multifamily units and 2 hotel assets that will include 370 keys.
As a vertically integrated real estate operating and investment company, we earn revenue from multiple sources, including fees generated from asset management services that we provide to our managed portfolio of real estate assets on behalf of our asset management clients, and fees from additional real estate related services.
The services we provide pursuant to the asset management agreements covering our AUM properties vary by property, and include property management, development and construction management, leasing management, acquisition and disposition management, origination and negotiation of debt and equity facilities, risk management, and various other property-specific services. Substantially all of the properties included in our managed portfolio are covered by full-service asset management agreements encompassing substantially all aspects of development, construction, and operations management relating to the subject properties. Our long-term asset management contracts generally include material early termination payments to us in the event the contract is prematurely terminated by the asset owner. A limited number of properties in our managed portfolio are covered by service-specific asset management contracts that focus our services on defined critical elements of operations, such as marketing, leasing, and construction management, where the property owner continues to manage other operating functions. Our limited-service asset management agreements generally are anticipated to be short term in nature and do not include material early termination penalties.
Anchoring the Company’s asset management services platform is a long-term full service asset management agreement (the “2019 AMA”) with an affiliated company owned by the Company’s Chief Executive Officer, Christopher Clemente, that encompasses the majority of the properties we currently manage, including two of the largest transit-oriented, mixed-use developments in the Washington, DC area: Reston Station, a 5 million square foot transit-oriented, mixed-use development located in Reston, VA, and Loudoun Station, a nearly 2.5 million square foot transit-oriented, mixed-use development in Ashburn, VA, as well as other additional development assets, which together constitute our anchor portfolio (the “Anchor Portfolio”). The 2019 AMA for our Anchor Portfolio is a long-term agreement with an original term of 10 years that provides for significant financial payments to Comstock in the case of early termination by the asset owner.
In addition to the various recurring asset management fee-based revenue received by the Company, we also generate additional revenue from co-investments with our investment partners in certain property acquisitions and expect to receive performance-based incentive compensation from assets in our Anchor Portfolio and other assets in our managed portfolio. The Company can earn these incentive-based fees upon the occurrence of certain transaction-related events, including asset acquisitions or dispositions, asset related capital market transactions, leasing, marketing and property management, development and construction management, real title services, and when the performance of a subject property meets defined performance metrics. The co-investment business plans are property specific and therefore vary in expected duration but are generally expected to be between four and seven years; but may be accelerated or extended depending upon market conditions or the strategic objectives of the subject joint venture.


Outlook

Although the long-term impact of the COVID-19 pandemic on the commercial real estate market in the greater Washington, DC area remains uncertain, we believe that our Anchor Portfolio is well positioned to withstand potential negative impact of the COVID-19 pandemic. We also believe that our management team is properly aligned with the interests of the Company and its shareholders and is committed to the Company’s objectives of providing exceptional experiences for those that we do business with while enhancing shareholder value. Further, 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 services company. We have substantialmanagement operations are primarily focused on the greater Washington, D.C. region, where we believe our 30-plus years of experience with building a diverse rangeprovides 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.




Managed Portfolio

Reston Station
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Reston Station, located at the terminus of products, including multi-family homes, single-family homes, townhouses,mid-rise condominiums, high-rise multi-family condominiumsPhase I of Metro’s Silver Line, is strategically located midway between Tysons Corner andmixed-use (residential and commercial) developments. We operate our business through three segments: Homebuilding, Multi-family, and Real Estate Services as further discussed in Note 6 to Dulles International Airport. Reston Station is among the consolidated financial statements. Our homebuilding activities are currently focusedlargest mixed-use, transit-oriented developments in the Washington, DC area and the Reston Station neighborhood spans the Dulles Toll Road and surrounds the first, and currently only, Metro rail station in the Dulles Corridor. Covering a total of approximately 60 acres, assets included in Comstock’s managed portfolio cover approximately 37 of the 60-acre neighborhood and will, upon full build-out, include approximately five million square feet of mixed-used development. Currently, Comstock’s managed portfolio of Reston Station has approximately 1.7 million square feet of mixed-use development completed, including 448 residential units, approximately 1.2 million square feet of office, approximately 40,000 square feet of retail and more than 6,000 parking spaces, including one of the largest underground commuter parking garages and bus transit facilities in the region. The Company is providing a wide variety of its real estate and asset management services to the project pursuant to the 2019 AMA, including development and construction management services, leasing management services, property management services, and capital markets services.

Loudoun Station
Loudoun Station, located at the terminus of Phase II of Metro’s Silver Line, is Loudoun County’s first Metro connected development and represents Loudoun County’s beginning transformation into a transit connected community with direct metro rail connectivity to Dulles International Airport, Reston, Tysons Corner, and downtown Washington, D.C. metropolitan area, whichCurrently, Loudoun Station has approximately 1,000,000 square feet of mixed-use development completed, including 675 residential units, approximately 50,000 square feet of Class-A office space, approximately 150,000 thousand square feet of retail spaces including an 11-sceen AMC Cinema, and a 1,500-space Metro commuter parking garage. The Metro Garage is the sixth largest metropolitan statistical areafocus of a public-private partnership between an affiliate of the Company and Loudoun County, Virginia and is managed by a subsidiary of the Company. Phase II of Metro’s Silver Line is under construction and expected to commence passenger service in late 2021 or early 2022. The Company is providing a variety of its real estate and asset management services related to the existing buildings and the future development pursuant to the 2019 AMA, including development and construction management services, leasing management services, property management services, and capital markets services.

Herndon Station
Herndon Station will include up to approximately 340,000 square feet of residential, retail and entertainment spaces, including a performing arts center, and an approximately 700 space parking garage in the United States, whilehistoric downtown portion of the Town of Herndon in western Fairfax County, Virginia. The commercial Garage is the focus of a public private partnership between an affiliate of the Company and the Town of Herndon. The development will also include improvements to existing connections to the adjacent WO&D trail, a popular pedestrian and bicycle route managed by Northern Virginia Regional Parks Authority and Fairfax County Parks Department. The Company is providing a variety of asset management and development services related to the Herndon Station development pursuant to the 2019 AMA.

International Gateway
Since 2018 the Company has, pursuant to an asset management agreement with an unaffiliated property owner, provided asset management, property management, leasing management, and consulting services for a privately owned portfolio of two mixed-use retail/office buildings in Tysons Corner, Virginia, known as International Gateway.

The Hartford Building
In late 2019, the Company partnered with Partners, an entity that is controlled by our Real Estate Services activities are currently focusedCEO, and wholly owned by Mr. Clemente and certain family members, to acquire a Class-A office building immediately 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 building is LEED GOLD certified. In February 2020, the Company arranged for DivcoWest to purchase a majority ownership stake in the New Jersey, Pennsylvania,Hartford Building and Washington, D.C. metropolitan areas.

We are currently operating, or developing in multiple counties throughoutsecured a $87 million loan facility from MetLife. As part of the Washington, D.C. area market. The following table summarizes certain information for our owned or controlled communities as of September 30, 2017:

  Pipeline Report as of September 30, 2017 

Project

 State Product
Type (1)		 Estimated
Units at
Completion		  Units
Settled		  Backlog (8)  Units
Owned
Unsold		  Units
Under
Control (2)		  Total Units
Owned,
Unsettled and
Under Control		  Average
New Order
Revenue Per
Unit to Date		 

City Homes at the Hampshires

 DC SF  38   38   —     —     —     —    $747 

Townes at the Hampshires (3)

 DC TH  73   73   —     —     —     —    $551 

Estates at Falls Grove

 VA SF  19   19   —     —     —     —    $545 

Townes at Falls Grove

 VA TH  110   110   —     —     —     —    $304 

Townes at Shady Grove Metro

 MD TH  36   27   —     9   —     9  $583 

Townes at Shady Grove Metro (4)

 MD SF  3   3   —     —     —     —    $—   

Momentum | Shady Grove Metro (5)

 MD Condo  110   —     —     110   —     110  $—   

Estates at Emerald Farms

 MD SF  84   84   —     —     —     —    $426 

Townes at Maxwell Square

 MD TH  45   45   —     —     —     —    $421 

Townes at Hallcrest

 VA TH  42   42   —     —     —     —    $465 

Estates at Leeland

 VA SF  24   11   2   11   —     13  $451 

Villas | Preserve at Two Rivers 28’

 MD TH  6   6   —     —     —     —    $458 

Villas | Preserve at Two Rivers 32’

 MD TH  10   10   —     —     —     —    $504 

Marrwood East (7)

 VA SF  35   13   16   6   —     22  $638 

Townes at Totten Mews (6)

 DC TH  40   5   3   32   —     35  $540 

The Towns at 1333

 VA TH  18   2   —     16   —     16  $948 

The Woods at Spring Ridge

 MD SF  21   1   6   14   —     20  $674 

Solomons Choice

 MD SF  56   —     —     56   —     56  $—   

Townes at Richmond Station

 VA TH  104   —     —     104   —     104  $—   

Condominiums at Richmond Station

 VA MF  54   —     —     54   —     54  $—   
   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Total

    928   489   27   412   —     439  
   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

(1)“SF” means single family home, “TH” means townhouse, “Condo” means condominium, “MF” means multi-family.
(2)Under land option purchase contract, not owned.
(3)3 of these units are subject to statutory affordable dwelling unit program.
(4)Units are subject to statutory moderately priced dwelling unit program; not considered a separate community.
(5)16 of these units are subject to statutory moderately priced dwelling unit program.
(6)5 of these units are subject to statutory affordable dwelling unit program.
(7)1 of these units is subject to statutory affordable dwelling unit program.
(8)“Backlog” means we have an executed order with a buyer but the settlement did not occur prior to report date.

transaction, the Company entered into asset management and property management agreements to manage the property.

Results of Operations

The following discussion relates to our results from continuing operations.
Three and ninesix months ended SeptemberJune 30, 20172021 compared to three and nine months ended September 30, 2016

Settlements, orders, cancellations and backlog

The following table summarizes certain information related to new orders, settlements, and backlog for the three and nine month periodssix months ended SeptemberJune 30, 2017 and 2016:

   Three Months Ended September 30,  Nine Months Ended September 30, 
   2017  2016  2017  2016 

Gross new orders

   14   21   76   93 

Cancellations

   2   3   12   7 

Net new orders

   12   18   64   86 

Gross new order revenue

  $8,075  $9,249  $38,612  $40,690 

Cancellation revenue

  $752  $1,462  $5,820  $3,025 

Net new order revenue

  $7,323  $7,787  $32,792  $37,665 

Average gross new order price

  $577  $440  $508  $438 

Settlements

   24   33   72   76 

Revenue - homebuilding

  $13,076  $12,880  $33,375  $32,102 

Gross margin - homebuilding

   4.5%   7.0%   7.7%   7.0% 

Average settlement price

  $545  $390  $464  $422 

Backlog units

   27   35   27   35 

Backlog revenue

  $16,369  $16,421  $16,369  $16,421 

Average backlog price

  $606  $469  $606  $469 

2020

Revenue – homebuilding

Revenue from homebuilding increased by $0.2 million to $13.1 million for the three months ended SeptemberJune 30, 2017 as2021 and 2020 was $6.3 million and $4.5 million, respectively. This represents an increase of $1.8 million, or 40.4%, compared to $12.9prior year. Revenue for the six months ended June 30, 2021 and 2020 was $13.2 million and $9.9 million, respectively. This represents an increase of $3.2 million, or 32.4%, compared to prior year. Revenue increased in all periods primarily due to increased costs that are reimbursable from CDS under the 2019 AMA and recognized as revenue along with the growth in assets under management, which were primarily parking garages, and
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construction management fees. The prior period revenue was also reduced by $1.4 million due to the PPP loan under the CARES Act.
Direct costs
Direct costs for the three months ended SeptemberJune 30, 2016. For the three months ended September 30, 2017, the Company settled 24 units (8 units at Marrwood, 1 unit at Emerald Farm, 1 unit at Leeland, 1 unit at The Towns at 1333, 7 units at Falls Grove, 1 unit at The Woods at Spring Ridge,2021 and 5 units at Totten Mews), as compared2020 was $5.5 million and $3.2 million, respectively. This 71.3% increase amounts to 33 units (19 units at Falls Grove, 4 units at Maxwell Square, 1 unit at Two Rivers,a $2.3 million increase to direct costs and 9 units at Hallcrest) for the three months ended September 30, 2016. Our homebuilding gross margin percentage for the three months ended September 30, 2017 decreased by 2.4% to 4.5%, as compared to 6.9% for the three months ended September 30, 2016.

Revenue from homebuilding increased by $1.3 million to $33.4 million for the nine months ended September 30, 2017 as compared to $32.1 million for the nine months ended September 30, 2016. For the nine months ended September 30, 2017, the Company settled 72 units (31 units at Falls Grove, 12 units at Marrwood, 6 units at Emerald Farm, 6 units at Hallcrest, 6 units at Leeland, 1 unit at Shady Grove, 2 units at Two Rivers, 5 units at Totten Mews, 2 units at The Towns at 1333, and 1 unit at The Woods at Spring Ridge), as compared to 76 units (4 units at The Hampshires, 29 units at Falls Grove, 13 units at Maxwell Square, 8 units at Two Rivers, 20 units at Hallcrest, and 2 units at the Estates at Leeland), for the nine months ended September 30, 2016. Our homebuilding gross margin percentage for the nine months ended September 30, 2017 was 7.7%, an increase of 0.6% as compared to 7.1% for the nine months ended September 30, 2016. The overall increase noted in gross margins was mainly the result of the continued effort by the Company to reduce construction and other related costs.

Gross new order revenue, consisting of revenue from all units sold, for the three months ended September 30, 2017 was $8.1 million on 14 units as compared to $9.2 million on 21 units for the three months ended September 30, 2016. Gross new order revenue, consisting of revenue from all units sold, for the nine months ended September 30, 2017 was $38.6 million on 76 units as compared to $40.7 million on 93 units for the nine months ended September 30, 2016. Net new order revenue, representing revenue for all units sold less cancellations, for the three months ended September 30, 2017 was $7.3 million on 12 units as compared to $7.8 million on 18 units for the three months ended September 30, 2016. Net new order revenue, representing revenue for all units sold less cancellations, for the nine months ended September 30, 2017 was $32.8 million on 64 units as compared to $37.7 million on 86 units for the nine months ended September 30, 2016. The decreases are attributable to the number and mix of homes sold.

Revenue – other

Revenue – other increased $0.5 million to $1.2 million for the nine months ended September 30, 2017 as compared to $0.7 million for the nine months ended September 30, 2016. Revenue – other increased $0.5 million to $0.7 million for the three months ended September 30, 2017 as compared to $0.2 million for the three months ended September 30, 2016. The increase in both periods was directly attributable to the acquisition of Monridge Environmental, LLC, by the newly created entity, JK Environmental, LLC (“JK”) in July 2017. The revenues generated from this entity were approximately $0.5 million for the three and nine months ended September 30, 2017. There were no similar acquisitions or revenue components during the three and nine months ended September 30, 2016.

Cost of sales – homebuilding

Cost of sales – homebuilding increased by $0.5 million to $12.5 million during the three months ended September 30, 2017, as compared to $12.0 million during the three months ended September 30, 2016. Cost of sales – homebuilding increased by $1.0 million to $30.8 million during the nine months ended September 30, 2017, as compared to $29.8 million during the nine months ended September 30, 2016. The increase noted wasis primarily attributable to an increase in personnel expenses due to the numbergrowth of units settledour property management and asset management businesses. The prior period payroll and rent expense was also reduced by $1.9 million due to the mix of homes settled duringPPP loan under the three and nineCARES Act.

Direct costs for the six months ended SeptemberJune 30, 2017.

Cost of sales – other

Cost of sales – other increased by $0.72021 and 2020 was $11.6 million and $7.8 million, respectively. This 47.5% increase amounts to $0.8a $3.7 million during the three months ended September 30, 2017, as comparedincrease to $0.1 million during the three months ended September 30, 2016. Cost of sales – other increased by $1.1 million to $1.4 million during the nine months ended September 30, 2017, as compared to $0.3 million during the nine months ended September 30, 2016. The increasedirect costs. This is primarily relates to our new initiatives within our real estate services segment to expand our footprint in the real estate consulting and environmental study fields which includes the acquisition of Monridge Environmental, LLC by JK during the three months ended September 30, 2017.

Sales and marketing

Selling and marketing expenses for the three months ended September 30, 2017 and the three months ended September 30, 2016 was $0.4 million. Selling and marketing expenses for the nine months ended September 30, 2017 decreased by $0.2 million to $1.1 million, as compared to $1.3 million for the nine months ended September 30, 2016. The decrease is attributable to continued benefit froman increase in personnel expenses due to the cost saving measures.

growth of our property management and asset management businesses. The prior period payroll and rent expense was also reduced by $1.9 million due to the PPP loan under the CARES Act.

General and administrative

General and administrative expenses for the three months ended SeptemberJune 30, 2017 increased by $0.1 million2021 and 2020 was $322 thousand and $390 thousand, respectively. For the six months ended June 30, 2021 and 2020, general and administrative costs decreased $76 thousand or 10.7%. The reductions in both periods are primarily attributable to $1.3 million, as compared to $1.2 milliona decrease in stock compensation expense.
Selling and marketing
Selling & marketing expenses for the three months ended SeptemberJune 30, 2016. General2021 and administrative2020 was $8 thousand and $1 thousand, respectively. The expenses for the ninesix months ended SeptemberJune 30, 2017 decreased by $0.5 million to $3.7 million, as compared to $4.2 million for the nine months ended September 30, 2016.2021 and 2020 was $18 thousand and $1 thousand, respectively. The year-over-year decreaseincrease is attributable to attritionan increase in employee head countselling and general overhead cost saving measures.

marketing expenses in the property management business.

Interest expense
For the three months ended June 30, 2021 and 2020, the Company’s interest expense was $58 thousand and $77 thousand, respectively. The 24.6% reduction to interest expense quarter over quarter amounts to an $19 thousand decrease in interest expense primarily related to the remaining interest expense on the Comstock Growth Fund loan which was retired in the prior year.
For the six months ended June 30, 2021 and 2020, the Company’s interest expense was $116 thousand and $226 thousand, respectively. The 48.6% reduction to interest expense quarter over quarter amounts to an $110 thousand decrease in interest expense primarily related to the retiring of the Comstock Growth Fund loan during the three months ended March 30, 2020.
Income taxes

For the three months ended June 30, 2021 and 2020, the Company recognized a deferred income tax benefit of $11.3 million and income tax expense of $13 thousand, respectively. For the six months ended June 30, 2021 and 2020, the Company recognized a deferred income tax benefit of $11.3 million and income tax expense of $14 thousand, respectively. The significant decrease in income tax expense is due to the release of the valuation allowance against the Company's NOL carryforwards at June 30, 2021.
Income (loss) from discontinued operations
For the three and ninesix months ended SeptemberJune 30, 2017,2021, the Companyloss from discontinued operations of $443 thousand and $587 thousand, respectively, represents the loss generated by CES primarily due to the impairment loss recognized on the reclassification to held for sale. The income tax expensefrom discontinued operations of $29,$382 thousand and the effective tax rate is 1%. For$89 thousand for the three and ninesix months ended SeptemberJune 30, 2016,2020, respectively, represents the Company recognized income taxgenerated by CES primarily due to the reduction of payroll expense as a result of $0 and $57, respectively; and as of September 30, 2016 the effective tax rate was 2%.

PPP Loan.

Liquidity and Capital Resources

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We requirefinance our Asset Management operations, capital to operate, to post deposits on new potentialexpenditures, and business acquisitions to purchase and develop land, to construct homes, to fund related carrying costs and overhead and to fund various advertising and marketing programs to generate sales. These expenditures include payroll, community engineering, entitlement, architecture, advertising, utilities and interest as well as the construction costs of our homes. Our sources of capital include, and we believe will continue to include, private equity and debt placements (which has included significant participation from Company insiders),with internally generated funds, derived from various secured and unsecured borrowings to finance acquisition, development and construction on acquired land, cash flow from operations, which includes the sale and delivery of constructed homes, finished and raw building lots and the potential sale of public debt and equity securities. The Company is involved in ongoing discussions with lenders and equity sources in an effort to provide additional growth capital to fund various new business opportunities.

We have outstanding borrowings with various financial institutions and other lenders that have been used to finance the acquisition, development and construction of real estate projects. The Company has generally financed its development and construction activities on a single or multiple project basis so it is not uncommon for each of our projects or collection of our projects to have a separate credit facility. Accordingly, the Company typically has had numerous credit facilities and lenders.

As of September 30, 2017, $22.7 million of the Company’s outstanding credit facilities and project related loans mature at various periods through the end of 2017. We are in active discussions with our lenders seeking long term extensions and modifications to these loans. These debt instruments impose certain restrictions on our operations, including speculative unit construction limitations, curtailment obligations, and financial covenant compliance. If we fail to comply with any of these restrictions, an event of default could occur. Additionally, events of default could occur if we fail to make required debt service payments or if we fail to come to agreement on an extension on a certain facility prior to a given loan’s maturity date. Any event of default would likely render the obligations under these instruments due and payable as of that event. Any such event of default would allow certain of our lenders to exercise cross default provisions in our loan agreements with them, such that all debt with that institution could be called into default. We are anticipating that with the successful resolution of the debt extension discussions with our lenders, capital raisesdistributions from our recent private placement, current available cash on hand,equity method investments, and additional cashborrowings from settlement proceeds at existing and under development communities, the Company will have sufficient financial resources to sustain its operations through the next 12 months, though no assurances can be made that the Company will be successful in its efforts. The Company will also continue to focus on its cost structure in an effort to conserve cash and manage expenses. Such actions may include cost reductions and/or deferral arrangements with respect to current operating expenses.

our credit facilities. See Note 11 and Note 13 to7 in the accompanying condensed consolidated financial statements for details on private placement offerings and for more details on our debt and credit facilities, respectively.

facilities.

Cash Flow

Net from Continuing Operations

For the six months ended June 30, 2021, net cash provided by operating activities was $3.0 million for$822 thousand, which is primarily related to increases in non-cash expenses of the nineamortization of the right-of-use lease asset and stock compensation. The increase was further attributable to a decrease in related party receivables offset by an increase in deferred income taxes related to the release of the valuation allowance as well as payments of accrued personnel costs. For the six months ended SeptemberJune 30, 2017 compared to the2020, net cash provided by operating activities of $0.6 million for the nine months ended September 30, 2016. The $3.3 million netwas $628 thousand, primarily related to non-cash stock compensation and increases in trade receivables offset by a decrease in personnel costs.
Net cash provided by operations duringinvesting activities of $2.5 million and $674 thousand for the ninesix months ended SeptemberJune 30, 20172021 and 2020, respectively, was primarily attributable to increases in accounts payable of $1.0 million, $1.5 million of releases of inventories associated with units settled, increases in accrued interest of $0.8 million, the amortization of loan discounts and other financing fees of $0.9 million, the issuances of $0.2 million of stock compensation, and the increases of $0.8 million of other assets, mainly attributable to the acquisition of Monridge Environmental, LLC, offset by the net loss of $2.4 million. The $6.2 million net cash used by operations during the nine months ended September 30, 2016 was primarily attributable to $10.0 million of inventory acquired, primarily related to the acquisition of three properties during the three months ended September 30, 2016, coupled with a net operating loss of $3.5 million. These were offset by the amortization of loan discounts and other financing fees of $0.8 million, increases in prepaid projects costs of $0.5 million, increases in accrued interest of $0.4 million, and increases in accounts payable and other accrued liabilities of $4.6 million.

Net cash used in investing activities was $0.8 million for the nine months ended September 30, 2017. This was primarily attributable to the cash paid for the acquisition of Monridge Environmental, LLC of $0.6 million and the decrease in collateral for letters of credit for $0.2 million. Net cash used in investing activities was immaterial for the nine months ended September 30, 2016.

distributions from equity method investments.

Net cash used in financing activities was $5.9 million for the ninesix months ended SeptemberJune 30, 2017. This2021 was $168 thousand which was primarily attributablerelated to taxes paid related to net share settlement of equity awards net of proceeds from notes payable. Net cash provided by financing activities was $246 thousand for the distributionssix months ended June 30, 2020 which was primarily related to proceeds from the Revolver of $1.9 million to the Comstock Investor VIII Class B Members to fully redeem their equity interest and a distribution to the Comstock Investor X Class B Members of $1.0 million, along with the pay downs on notes payable of $22.4$5.5 million offset by borrowingsthe retirement of $19.9 million. Net cash used in financing activities was $3.7 million for the nine months ended September 30, 2016. This was primarily attributable to the distributions of $1.9 million to the New Hampshire Avenuenon-controlling interest member, the distributions of $2.5 million to the Comstock Investors VIII Class B Members, along with the pay downs on notes payable of $28.4 million, offset by borrowings of $34.2 million, and a contribution of $5.0 million from the Comstock Investors X Class B Member.

Seasonality

The homebuilding industry usually experiences seasonal fluctuations in quarterly operating results and capital requirements. We typically experience the highest new home order activity in the Spring and Summer, although this activity is also highly dependent on the number of active selling communities, the timing of new community openings and other market factors. Because it typically takes four to six months to construct a new home, we deliver more homes in the second half of the year as Spring and Summer home orders convert to home deliveries. Because of this seasonality, home starts, construction costs and related cash outflows have historically been highest in the second and third quarters, and the majority of cash receipts from home deliveries occur during the second half of the year. We expect this seasonal pattern to continue over the long-term, although it may be affected by volatility in the homebuilding industry and the general economy.

Recently Issued Accounting Standards

See Note 1 to the accompanying consolidated financial statements included in this Quarterly Report on Form10-Q.

Growth Fund loan.

Critical Accounting Policies and Estimates

There have been no other significant changes to our critical accounting policies and estimates during the ninesix months ended SeptemberJune 30, 20172021 from those disclosed in Item 7 included in our Annual Report on Form10-K for the year ended December 31, 2016.

2020.

Recently Issued Accounting Standards
See Note 1 - Organization and Basis of Presentation to the accompanying condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
Off Balance Sheet Arrangements

None.

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable.

ITEM 4.    CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We have evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules13a-15(e) and15d-15(e) of the Exchange Act) as of SeptemberJune 30, 2017.2021. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of SeptemberJune 30, 2017.

2021.

Limitations on the Effectiveness of Controls

We do not expect that our disclosure controls and internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future
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conditions; over time, a control may become inadequate because of changes in conditions or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.

Changes in Internal Control

over Financial Reporting

No changes have occurred in our internal control over financial reporting (as defined in Rules13a-15(f) and15d-15(f) of the Exchange Act) during the quarter ended SeptemberJune 30, 2017,2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

Information regarding legal proceedings is incorporated by reference from Note 89 - Commitments and Contingencies to the accompanying condensed consolidated financial statements included in Part I of this Quarterly Report on Form10-Q.






















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ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors disclosed under “Item 1A. Risk Factors” in our Annual Report onForm 10-K for the year ended December 31, 2016.

ITEM 2. UNREGISTERED SALESTABLE OF EQUITY SECURITIES AND USE OF PROCEEDS

The descriptions of the offerings related to Comstock Investors VII, L.C., Comstock Investors VIII, L.C. and Comstock Investors X, L.C. in Notes 11 and 17, and the description of the offering related to Comstock Growth Fund in Note 13 to the accompanying consolidated financial statements are hereby incorporated by reference. The shares of our Class A common stock, the membership interests and the warrants, as applicable, were offered and sold to purchasers in such offerings in reliance upon exemptions from registration pursuant to Section 4(a)(2) of the Securities Act of 1933 (the “Securities Act”) and Rule 506 of Regulation D promulgated under the Securities Act and the certificates representing the securities shall bear legends to that effect. The shares of our Class A common stock, the membership interests, the warrants and the shares of our Class A common stock issuable upon the exercise of the warrants have not been registered under the Securities Act, and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

CONTENTS

ITEM 6.    EXHIBITS

3.1
  3.1
3.2
3.3
3.4
3.5
  3.53.6
  4.13.7
3.8
4.1
10.61*Asset Purchase Agreement, dated July 14, 2017, between CDS Capital Management, L.C., and Monridge Environmental, LLC.
10.62*Amendment to the Operating Agreement, dated October 13, 2017, between Comstock Investors X, L.C. and Comstock Development Services, L.C.
10.63*Form of Warrant, dated October 13, 2017, between Comstock Investors X, L.C. and Comstock Development Services, L.C.
31.1*
31.2*
32.1*
101*101.INS*Inline XBRL Instance Document
101.SCH*Inline XBRL Taxonomy Extension Schema Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document.
101,DEFInline XBRL Taxonomy Extension Definition Linkbase Document.
101.LABInline XBRL Taxonomy Extension Label Linkbase Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
104The following materialscover page from the Company’sRegistrant's Quarterly Report on Form10-Q for the quarter ended SeptemberJune 30, 2017,2021, formatted in eXtensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheet, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Cash Flows and (iv) the Notes to the Consolidated Financial Statements.Inline XBRL (included in Exhibit 101)

*Filed herewith.

*    Filed herewith.
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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

COMSTOCK HOLDING COMPANIES, INC.
Date: NovemberAugust 16, 20172021By:

/S/ CHRISTOPHER CLEMENTE

s/ CHRISTOPHER CLEMENTE
Christopher Clemente
Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: NovemberAugust 16, 20172021By:

/S/ CHRISTOPHER L. CONOVER

s/ CHRISTOPHER GUTHRIE
Christopher L. Conover
Guthrie
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)

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