10-Q 1 chci-10q_20190630.htm 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2019

or

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

For the transition period from to

Commission File Number 1-32375

Comstock Holding Companies, Inc.

(Exact name of registrant as specified in its charter)

Delaware | 20-1164345
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.)

1886 Metro Center Drive, 4th Floor

Reston, Virginia 20190

(703) 230-1985

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

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-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” in Rule 12b-2 of the Exchange Act.

Large accelerated filer |  | ☐ | Accelerated filer |  | ☐
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 Rule 12b-2 of the Act). Yes ☐ No ☒

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 B Common Stock Class A Common Stock |  | CHCI |  | NASDAQ Capital Market

As of August 14, 2019, 7,729,904 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.

COMSTOCK HOLDING COMPANIES, INC.

FORM 10-Q

TABLE OF CONTENTS

|  | Page
PART I – FINANCIAL INFORMATION | 1
ITEM 1. | FINANCIAL STATEMENTS (unaudited): | 1
| Consolidated Balance Sheets | 1
| Consolidated Statements of Operations | 2
| Consolidated Statements of Changes in Stockholders’ Equity | 3
| Consolidated Statements of Cash Flows | 4
| Notes to Consolidated Financial Statements | 5
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 19
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 24
ITEM 4. | CONTROLS AND PROCEDURES | 24
PART II – OTHER INFORMATION | 26
ITEM 1. | LEGAL PROCEEDINGS | 26
ITEM 1A. | RISK FACTORS | 26
ITEM 6. | EXHIBITS | 26
SIGNATURES | 27

PART I – FINANCI AL INFORMATION

ITEM 1. | FINANCIAL STATEMENTS

COMSTOCK HOLDING COMPANIES, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(unaudited)

|  | June 30, 2019 |  |  | December 31, 2018 |
ASSETS |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 1,603 |  |  | $ | 854 |
Trade receivables |  |  | 905 |  |  |  | 973 |
Trade receivables - related parties |  |  | 2,307 |  |  |  | 2,950 |
Fixed assets, net |  |  | 221 |  |  |  | 221 |
Goodwill |  |  | 1,702 |  |  |  | 1,702 |
Intangible assets, net |  |  | 136 |  |  |  | 170 |
Lease right-of-use assets |  |  | 142 |  |  |  | — |
Other assets, net |  |  | 303 |  |  |  | 362 |
Assets of discontinued operations (Note 19) |  |  | 20,667 |  |  |  | 27,868 |
TOTAL ASSETS |  | $ | 27,986 |  |  | $ | 35,100 |
LIABILITIES AND STOCKHOLDERS’ EQUITY |  |  |  |  |  |  |  |
Accounts payable and accrued liabilities |  | $ | 1,946 |  |  | $ | 2,776 |
Deferred revenue |  |  | 625 |  |  |  | 1,875 |
Notes payable - secured, net of deferred financing charges |  |  | 804 |  |  |  | 922 |
Notes payable - due to affiliates, unsecured, net of discount |  |  | 4,984 |  |  |  | 4,903 |
Notes payable - unsecured, net of deferred financing charges |  |  | 595 |  |  |  | 595 |
Lease liabilities |  |  | 142 |  |  |  | — |
Liabilities of discontinued operations (Note 19) |  |  | 11,877 |  |  |  | 17,399 |
TOTAL LIABILITIES |  |  | 20,973 |  |  |  | 28,470 |
Commitments and contingencies (Note 10) |  |  |  |  |  |  |  |
STOCKHOLDERS’ EQUITY |  |  |  |  |  |  |  |
Series C preferred stock $0.01 par value, 20,000,000 and 3,000,000 shares authorized, 3,440,690 and 2,799,848 issued and outstanding and liquidation preference of $17,203 and $13,999 at June 30, 2019 and December 31, 2018, respectively |  | $ | 6,765 |  |  | $ | 7,193 |
Class A common stock, $0.01 par value, 59,779,750 and 11,038,071 shares authorized, 7,815,474 and 3,703,513 issued, and 7,729,904 and 3,617,943 outstanding at June 30, 2019 and December 31, 2018, respectively |  |  | 78 |  |  |  | 37 |
Class B common stock, $0.01 par value, 220,250 shares authorized, issued and outstanding at June 30, 2019 and December 31, 2018 |  |  | 2 |  |  |  | 2 |
Additional paid-in capital |  |  | 197,333 |  |  |  | 180,673 |
Treasury stock, at cost (85,570 shares Class A common stock) |  |  | (2,662 | ) |  |  | (2,662 | )
Accumulated deficit |  |  | (194,503 | ) |  |  | (194,319 | )
TOTAL COMSTOCK HOLDING COMPANIES, INC. EQUITY (DEFICIT) |  |  | 7,013 |  |  |  | (9,076 | )
Non-controlling interests |  |  | - |  |  |  | 15,706 |
TOTAL EQUITY |  |  | 7,013 |  |  |  | 6,630 |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |  | $ | 27,986 |  |  | $ | 35,100 |

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

1

COMSTOCK HOLDING COMPANIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

|  | Three Months Ended June 30, |  |  | Six Months Ended June 30, |
|  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Revenues |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Revenue—asset management |  | $ | 4,024 |  |  | $ | 2,960 |  |  | $ | 7,885 |  |  | $ | 5,751 |
Revenue—real estate services |  |  | 898 |  |  |  | 494 |  |  |  | 1,626 |  |  |  | 941 |
Total revenue |  |  | 4,922 |  |  |  | 3,454 |  |  |  | 9,511 |  |  |  | 6,692 |
Expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cost of sales—asset management |  |  | 3,514 |  |  |  | 2,606 |  |  |  | 6,831 |  |  |  | 5,147 |
Cost of sales—real estate services |  |  | 909 |  |  |  | 676 |  |  |  | 1,403 |  |  |  | 853 |
Sales and marketing |  |  | — |  |  |  | 5 |  |  |  | — |  |  |  | 5 |
General and administrative |  |  | 477 |  |  |  | 368 |  |  |  | 781 |  |  |  | 728 |
Interest |  |  | 132 |  |  |  | 24 |  |  |  | 166 |  |  |  | 48 |
Operating (loss) income |  |  | (110 | ) |  |  | (225 | ) |  |  | 330 |  |  |  | (89 | )
Other income, net |  |  | 16 |  |  |  | 46 |  |  |  | 16 |  |  |  | 81 |
(Loss) income before income tax benefit |  |  | (94 | ) |  |  | (179 | ) |  |  | 346 |  |  |  | (8 | )
Income tax benefit |  |  | — |  |  |  | (495 | ) |  |  | — |  |  |  | (495 | )
Net (loss) income from continuing operations |  |  | (94 | ) |  |  | 316 |  |  |  | 346 |  |  |  | 487 |
Net loss from discontinued operations, net of tax |  |  | (159 | ) |  |  | (1,318 | ) |  |  | (530 | ) |  |  | (2,212 | )
Net loss |  |  | (253 | ) |  |  | (1,002 | ) |  |  | (184 | ) |  |  | (1,725 | )
(Loss) Income per share from continuing operations |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic net (loss) income per share |  | $ | (0.01 | ) |  | $ | 0.08 |  |  | $ | 0.07 |  |  | $ | 0.13 |
Diluted net (loss) income per share |  | $ | (0.01 | ) |  | $ | 0.08 |  |  | $ | 0.06 |  |  | $ | 0.13 |
Loss per share from discontinued operations |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic net loss per share |  | $ | (0.02 | ) |  | $ | (0.35 | ) |  | $ | (0.10 | ) |  | $ | (0.60 | )
Diluted net loss per share |  | $ | (0.02 | ) |  | $ | (0.35 | ) |  | $ | (0.10 | ) |  | $ | (0.60 | )
Basic weighted average shares outstanding |  |  | 6,634 |  |  |  | 3,759 |  |  |  | 5,242 |  |  |  | 3,684 |
Diluted weighted average shares outstanding (continuing operations) |  |  | 6,634 |  |  |  | 3,975 |  |  |  | 5,420 |  |  |  | 3,826 |
Diluted weighted average shares outstanding (discontinued operations) |  |  | 6,634 |  |  |  | 3,759 |  |  |  | 5,242 |  |  |  | 3,684 |

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

2

COMSTOCK HOLDING COMPANIES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands)

(unaudited)

|  | Series C |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Additional |  |  |  |  |  |  |  |  |  |  | Non- |  |  |  |  |
|  | Preferred Stock |  |  | Class A |  |  | Class B |  |  | paid-in |  |  | Treasury |  |  | Accumulated |  |  | controlling |  |  |  |  |
|  | Shares |  |  | Amount |  |  | Shares |  |  | Amount |  |  | Shares |  |  | Amount |  |  | capital |  |  | stock |  |  | deficit |  |  | interest |  |  | Total |
Balance at December 31, 2017 |  |  | 579 |  |  |  | 442 |  |  |  | 3,295 |  |  | $ | 33 |  |  |  | 220 |  |  | $ | 2 |  |  | $ | 177,612 |  |  | $ | (2,662 | ) |  | $ | (189,803 | ) |  | $ | 16,987 |  |  | $ | 2,611 |
Stock compensation and issuances |  |  | — |  |  |  | — |  |  |  | 395 |  |  |  | 4 |  |  |  | — |  |  |  | — |  |  |  | 243 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 247 |
Series C preferred conversion of CGF I & II |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 3,156 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 3,156 |
Net (loss) income |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (1,725 | ) |  |  | 280 |  |  |  | (1,445 | )
Balance at June 30, 2018 |  |  | 579 |  |  | $ | 442 |  |  |  | 3,690 |  |  | $ | 37 |  |  |  | 220 |  |  | $ | 2 |  |  | $ | 181,011 |  |  | $ | (2,662 | ) |  | $ | (191,528 | ) |  | $ | 17,267 |  |  | $ | 4,569 |
|  | Series C |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Additional |  |  |  |  |  |  |  |  |  |  | Non- |  |  |  |  |
|  | Preferred Stock |  |  | Class A |  |  | Class B |  |  | paid-in |  |  | Treasury |  |  | Accumulated |  |  | controlling |  |  |  |  |
|  | Shares |  |  | Amount |  |  | Shares |  |  | Amount |  |  | Shares |  |  | Amount |  |  | capital |  |  | stock |  |  | deficit |  |  | interest |  |  | Total |
Balance at December 31, 2018 |  |  | 2,800 |  |  | $ | 7,193 |  |  |  | 3,703 |  |  | $ | 37 |  |  |  | 220 |  |  | $ | 2 |  |  | $ | 180,673 |  |  | $ | (2,662 | ) |  | $ | (194,319 | ) |  | $ | 15,706 |  |  | $ | 6,630 |
Stock compensation and issuances |  |  | — |  |  |  | — |  |  |  | 100 |  |  |  | 1 |  |  |  | — |  |  |  | — |  |  |  | 252 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 253 |
Shares withheld related to net share settlement of restricted stock awards |  |  | — |  |  |  | — |  |  |  | (12 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Warrant exercises |  |  | — |  |  |  | — |  |  |  | 200 |  |  |  | 2 |  |  |  | — |  |  |  | — |  |  |  | 358 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 360 |
Class A stock conversion of non-controlling interest |  |  | — |  |  |  | — |  |  |  | 3,824 |  |  |  | 38 |  |  |  | — |  |  |  | — |  |  |  | 16,050 |  |  |  | — |  |  |  | — |  |  |  | (16,019 | ) |  |  | 69 |
Series C conversion of non-controlling interest |  |  | 641 |  |  |  | (428 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (428 | )
Net (loss) income |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (184 | ) |  |  | 313 |  |  |  | 129 |
Balance at June 30, 2019 |  |  | 3,441 |  |  | $ | 6,765 |  |  |  | 7,815 |  |  | $ | 78 |  |  |  | 220 |  |  | $ | 2 |  |  | $ | 197,333 |  |  | $ | (2,662 | ) |  | $ | (194,503 | ) |  | $ | - |  |  | $ | 7,013 |

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

3

COMSTOCK HOLDING COMPANIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

|  | Six Months Ended June 30, |
|  | 2019 |  |  | 2018 |
Cash flows from operating activities attributable to continuing operations: |  |  |  |  |  |  |  |
Net (loss) |  | $ | (184 | ) |  | $ | (1,725 | )
(Loss) from discontinued operations |  |  | (530 | ) |  |  | (2,212 | )
Net income from continuing operations |  | $ | 346 |  |  | $ | 487 |
Adjustment to reconcile net income from continuing operations to net cash provided by operating activities |  |  |  |  |  |  |  |
Amortization of loan discount, loan commitment and deferred financing fees |  |  | (25 | ) |  |  | 90 |
Deferred income tax benefit |  |  | — |  |  |  | (495 | )
Depreciation expense |  |  | 62 |  |  |  | 111 |
Earnings from unconsolidated joint venture, net of distributions |  |  | 47 |  |  |  | 26 |
Stock compensation |  |  | 211 |  |  |  | 173 |
Changes in operating assets and liabilities: |  |  |  |  |  |  |  |
Trade receivables |  |  | 711 |  |  |  | 281 |
Real estate inventories |  |  | — |  |  |  | 7 |
Other assets |  |  | (8 | ) |  |  | (1,078 | )
Accrued interest |  |  | 64 |  |  |  | — |
Accounts payable and accrued liabilities |  |  | (2,045 | ) |  |  | 3,513 |
Income taxes payable |  |  | — |  |  |  | — |
Net cash provided by operating activities of discontinued operations |  |  | 7,013 |  |  |  | 5,259 |
Net cash provided by operating activities |  |  | 6,376 |  |  |  | 8,374 |
Cash flows from investing activities attributable to continuing operations: |  |  |  |  |  |  |  |
Purchase of fixed assets |  |  | (62 | ) |  |  | (189 | )
Principal received on note receivable |  |  | 20 |  |  |  | 19 |
Net cash used in investing activities |  |  | (42 | ) |  |  | (170 | )
Cash flows from financing activities attributable to continuing operations: |  |  |  |  |  |  |  |
Proceeds from notes payable |  |  | — |  |  |  | 45 |
Payments on notes payable |  |  | (119 | ) |  |  | (253 | )
Loan financing costs |  |  | (28 | ) |  |  | — |
Taxes paid related to net share settlement of equity awards |  |  | 6 |  |  |  | — |
Net cash used in financing activities of discontinued operations |  |  | (5,444 | ) |  |  | (5,166 | )
Net cash used in financing activities |  |  | (5,585 | ) |  |  | (5,374 | )
Net increase in cash, restricted cash and cash equivalents |  |  | 749 |  |  |  | 2,830 |
Cash, restricted cash and cash equivalents, beginning of period |  |  | 854 |  |  |  | 192 |
Cash, restricted cash and cash equivalents, end of period |  | $ | 1,603 |  |  | $ | 3,022 |

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

4

COMSTOCK HOLDING COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

1. ORGANIZATION AND BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of Comstock Holding Companies, Inc. and subsidiaries (“Comstock” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X. Such 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 consolidated financial statements. The Company has evaluated subsequent events through the date these consolidated financial statements were issued and has included all necessary adjustments and disclosures. For further information and a discussion of our significant accounting policies, other than discussed below, refer to our audited consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

Comstock Holding Companies, Inc., incorporated in 2004 as a Delaware corporation, is a multi-faceted real estate development and services company primarily focused in the Washington, D.C. Metropolitan Statistical Area (“MSA”). In 2018, the Company made a strategic decision to transform its operational platform from for sale production homebuilding to asset management, commercial development and complementary real estate related services. On April 30, 2019 the Company announced the exit from the Homebuilding business. Moving forward, the Company will operate through two primary real estate focused platforms – CDS Asset Management, LC (“CAM”) and Comstock Real Estate Services, LC (“CRES”). References in these consolidated financial statements on Form 10-Q to “Comstock,” “Company”, “CAM”, “CRES”, “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.

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

The Condensed Consolidated Balance Sheets were derived from the audited financial statements contained in the Form 10-K.

For the three and six months ended June 30, 2019 and 2018, comprehensive income (loss) equaled net income (loss); therefore, a separate statement of comprehensive income (loss) is not included in the accompanying consolidated financial statements.

Recent Developments

On February 12, 2019, the Company held a special meeting of stockholders (the “2019 Special Meeting”), at which its stockholders approved and adopted the Comstock Holding Companies, Inc. 2019 Omnibus Incentive Plan (the “2019 Plan”). The Company’s board of directors previously approved the 2019 Plan on December 12, 2018, subject to stockholder approval. At the 2019 Special Meeting, the Company’s stockholders approved an amendment to the Company’s Amended and Restated Certificate of Incorporation to increase the number of authorized shares of Class A common stock from 11,038,071 to 59,779,750 and a corresponding increase to the number of authorized shares of all classes of capital stock from 31,428,571 to 80,000,000 (the “Amendment”). The Amendment became effective upon filing with the Secretary of State of the State of Delaware on February 15, 2019 (the “Certificate of Amendment”). Also on February 15, 2019 the Company filed a Certificate of Amendment of the Certificate of Designation of Series C Non-Convertible Preferred Stock of Comstock Holding Companies, Inc. (the “Series C Certificate of Amendment”) with the Secretary of the State of Delaware. The Series C Certificate of Amendment amended the Certificate of Designation to increase the number of shares of Series C Preferred Stock from 3,000,000 to 4,500,000. Refer to the Company’s 10K Annual Report filing on March 29, 2019, which is incorporated herein.

On April 30, 2019, The Company entered into a Master Transfer Agreement (the “MTA”) with Comstock Development Services, LC (“CDS”), an entity wholly owned by Christopher Clemente, the Chief Executive Officer of CHCI, and FR54, LC (“FR54”), an entity also controlled by Mr. Clemente, that sets forth certain transactions to complete CHCI’s previously announced exit from the homebuilding and land development business in favor of a migration to an asset management model. Pursuant to the MTA, the Company issued 1,220,000 shares of series C preferred shares and 3,100,000 shares of Class A common stock to CDS as consideration for the management of and its Class B membership interest in Comstock Investors X, L.C. (“Comstock X”), a Variable Interest Entity (“VIE”) that owns the Company’s residual homebuilding operations. Additionally, pursuant to the MTA, FR54 transferred 579,158 shares of Series C Stock to the Company, which were immediately cancelled, in exchange for the issuance of

5

723,947 newly issued shares of the Company’s Class A common stock. As a result of the MTA, the Company determined that Comstock X is considered held for sale effective April 30, 2019 and therefore Comstock X activities have been reclassified to discontinued operations in the accompanying c onsolidated financial statements. On July 23, 2019, the Comstock X operating agreement was amended to clarify certain definitions resulting in Comstock X no longer being considered a VIE of the Company and therefore the deconsolidation of Comstock X as of that date. Refer to Note 14 – Consolidation of Variable Interest Entities and Note 20 – Subsequent Events for further discussion regarding the future accounting related to this transaction.

On April 30, 2019, CDS Asset Management, L.C. (“CAM”), an entity wholly owned by the Company, also entered into an amended and restated master asset management agreement (the “2019 AMA”) with CDS, which amends and restates in its entirety the asset management agreement between the parties dated March 30, 2018 with an effective date as of January 1, 2018. Pursuant to the 2019 AMA, CDS will engage CAM to manage and administer CDS’ commercial real estate portfolio (“CRE Portfolio”) and the day to-day operations of CDS and each property-owning subsidiary of CDS (collectively, the “CDS Entities”).

Pursuant to the terms of the 2019 AMA, CAM will provide investment advisory, development and asset management services necessary to build out, stabilize and manage the CRE Portfolio. The CRE Portfolio consists primarily of two of the larger transit-oriented, mixed-use developments located at metro stops on Washington D.C. Metro’s Silver Line (Reston Station and Loudoun Station), which are owned by entities of varying ownership interests but all of which are ultimately controlled by Mr. Clemente. Pursuant to the modified fee structure set forth in the 2019 AMA, CDS will pay CAM an annual fee 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 the CRE Portfolio revenues; (b) a construction management fee equal to 4% of all costs associated with CRE Portfolio projects in development; (c) a property management fee equal to 1% of the CRE Portfolio revenues, (d) an acquisition fee equal to up to 0.5% of the purchase price of an acquired asset; and (f) a disposition fee equal to 0.5% of the sales price of an asset on disposition (collectively the “Market Rate Fee”); or (ii) an aggregate amount equal to the sum of (x) the employment expenses of personnel dedicated to providing services to the CRE Portfolio pursuant to the 2019 AMA, (y) the costs and expenses of CHCI related to maintaining the listing of its shares on a securities exchange and complying with regulatory and reporting obligations of a public company, and (z) a fixed annual payment of $1,000,000 (collectively the “Cost Plus Fee”).

In addition to the annual payment of either the Market Rate Fee or the Cost Plus Fee; CAM is also entitled on an annual basis to the following supplemental AMA fees; (i) an incentive fee equal to 10% of the free cash flow of each of the real estate assets comprising the CRE Portfolio after calculating a compounding preferred return of 8% on CDS invested capital (the “Incentive Fee”); (ii) an investment origination fee equal to 1% of raised capital, (iii) a leasing fee equal to $1.00/sf for new leases and $.50/sf for renewals; and (iv) mutually agreeable loan origination fees related to the CRE 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 if the CRE 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.

On April 30, 2019, CAM also entered into a Business Management Agreement (the “BMA”) with Comstock Investors X, L.C. (“Investors X”), an entity owned and controlled by CDS subsequent to the ownership transfer transactions set forth in the MTA, 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 fifteen quarterly installments of $62,500 each.

Use of Estimates

Our consolidated financial statements have been prepared in accordance with GAAP. The preparation of these 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 judgments on an ongoing basis. Actual results may differ from those estimates under different assumptions or conditions. Material estimates are utilized in the valuation of real estate inventories, valuation of deferred tax assets, analysis of goodwill impairment, valuation of equity-based compensation, valuation of preferred stock issuances, capitalization of costs, consolidation of variable interest entities, fair value of debt instruments and warranty reserves.

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Recently Adopted Accounting Standards

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updated (“ASU”) 2016-02, “Leases” (“ASU 2016-02”). 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) and a right-of-use (“ROU”) asset representing its right to use the underlying asset for the lease term. The FASB subsequently issued ASU 2018-10 and ASU 2018-11 in July 2018, which provide clarifications and improvements to ASU 2016-02. ASU 2018-11 also provides the optional transition method which will allow companies to apply the new lease standard at the adoption date instead of at the earliest comparative period presented. ASU 2016-02 is effective for public companies for annual reporting periods beginning after December 15, 2018 and interim periods within those fiscal years. The Company adopted this standard using the modified retrospective method effective January 1, 2019. As permitted by the guidance, the Company elected to retain the original lease classification and historical accounting for initial direct costs for leases existing prior to the adoption date and did not reassess contracts entered into prior to the adoption date for the existence of a lease. The Company also did not recognize ROU assets and lease liabilities for short-term leases, which are leases in existence as of the adoption date with an original term of twelve months or less. As a result of the adoption of the standard, the Company recognized ROU assets and liabilities of $170 thousand as of the adoption date on its condensed consolidated balance sheet. The assets and liabilities recognized upon application of the transition provisions were primarily associated with our existing office leases.

Recently Issued Accounting Standards

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820) – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”), which removes, adds and modifies certain disclosure requirements for fair value measurements in Topic 820. ASU 2018-13 removes the following disclosure requirements: (i) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy and (ii) the entity’s valuation processes for Level 3 fair value measurements. ASU 2018-13 adds the following disclosure requirements: (i) provide information about the measurement uncertainty of Level 3 fair value measurements as of the reporting date rather than a point in the future, (ii) disclose changes in unrealized gains and losses related to Level 3 measurements for the period included in other comprehensive income, and (iii) disclose for Level 3 measurements the range and weighted average of the significant unobservable inputs and the way it is calculated. ASU 2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. We do not expect the adoption of this pronouncement to have a material impact on our consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which is designed to provide financial statement users with more information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. When determining such expected credit losses, the guidance requires companies to apply a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This guidance is effective on a modified retrospective basis for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating the impact this guidance will have on its financial statements and related disclosures.

We assessed other accounting pronouncements issued or effective during the six months ended June 30, 2019 and deemed they were either not applicable to us or are not anticipated to have a material effect on our consolidated financial statements. Other standards previously issued and adopted by the Company have been disclosed in previous filings.

2. TRADE RECEIVABLES & TRADE RECEIVABLES – RELATED PARTIES

Trade receivables include amounts due from real estate services, asset management and commercial development. There is no allowance for doubtful accounts recorded. As of June 30, 2019 and December 31, 2018 the Company had $905 thousand and $973 thousand, respectively.

As of June 30, 2019, and December 31, 2018, the Company had $2.3 million and $3.0 million, respectively, of receivables from related parties, primarily related to the AMA.

3. GOODWILL & INTANGIBLES

On July 17, 2017, Comstock Environmental, an entity wholly owned by CDS Capital Management, L.C., a subsidiary of Comstock, purchased all of the business assets of Monridge Environmental, LLC for $2.3 million. Comstock Environmental has its principal office located in Conshohocken, Pennsylvania, and operates in Maryland, Pennsylvania, New Jersey, and Delaware.

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Comstock Environmental o perates as an environmental services company, providing consulting, remediation, and other environmental services.

Goodwill represents the excess of the acquisition 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. As of June 30, 2019 and December 31, 2018, the balance of goodwill was $1.7 million.

Intangible assets are comprised of customer relationships which have an amortization period of four years. During the three and six months ended June 30, 2019 and June 30, 2018, $17 thousand and $34 thousand of intangible asset amortization, respectively, was recorded in ‘General and administrative’ expense on the Consolidation Statements of Operations.

|  | June 30, |  |  | December 31, |
|  | 2019 |  |  | 2018 |
Intangibles |  |  | 268 |  |  |  | 268 |
Less: accumulated amortization |  |  | (132 | ) |  |  | (98 | )
|  | $ | 136 |  |  | $ | 170 |

As of June 30, 2019, the future estimated amortization expense related to these intangible assets was:

|  | Amortization |
|  | Expense |
2019 (6 months ended December 31, 2019) |  | $ | 33 |
2020 |  |  | 67 |
2021 |  |  | 36 |
Total |  | $ | 136 |

4. LEASES

On January 1, 2019, the Company adopted Accounting Standards Update (“ASU”) 2016-02, Leases, later codified as Accounting Standards Codification ("ASC") 842 ("ASC 842"), using the modified retrospective method. For periods presented prior to the adoption date, the Company continues to follow its previous policy under ASC 840, 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 noncancelable 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 incremental borrowing rate is determined at lease commencement, or as of January 1, 2019 for operating leases in existence upon adoption of ASC 842.

The Company has operating leases for its office facilities as well as for office equipment. The Company's leases have remaining terms of less than one year to 3 years. The 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.

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Maturities of lease liabilities as of June 3 0, 2019 are as follows:

|  | Operating Leases |
2019 (6 months ended December 31) |  | $ | 33 |
2020 |  |  | 59 |
2021 |  |  | 54 |
2022 |  |  | 9 |
Total lease payments |  |  | 155 |
Less: imputed interest |  |  | 13 |
Present Value of lease liabilities |  | $ | 142 |

As of June 30, 2019, operating lease payments include $108 thousand related to options to extend lease terms that are reasonably certain of being exercised. The Company does not have any lease liabilities which have not yet commenced as of June 30, 2019.

5. OTHER ASSETS, NET

Other assets, net consist of the following:

|  | June 30, |  |  | December 31, |
|  | 2019 |  |  | 2018 |
Prepaid assets |  | $ | 155 |  |  | $ | 218 |
Prepaid insurance |  |  | 115 |  |  |  | 45 |
Other |  |  | 33 |  |  |  | 99 |
|  | $ | 303 |  |  | $ | 362 |

6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities consist of the following:

|  | June 30, |  |  | December 31, |
|  | 2019 |  |  | 2018 |
Trade and accrued payables |  | $ | 912 |  |  | $ | 1,380 |
Accrued personnel costs |  |  | 1,034 |  |  |  | 1,396 |
|  | $ | 1,946 |  |  | $ | 2,776 |

7. CONTRACT LIABILITIES

Progress payment balances in excess of revenue recognized, as well as advance payments received from customers, are classified as contract liabilities on the consolidated balance sheet in the financial statement line item titled “Deferred revenue.”

Contract liabilities consisted of the following:

|  | June 30, |  |  | December 31, |
|  | 2019 |  |  | 2018 |
Contract Liabilities: Customer Deposits and Deferred Revenue |  |  |  |  |  |  |  |
Asset Management - Deferred revenue |  |  | 625 |  |  |  | 1,875 |
Total Contract Liabilities |  | $ | 625 |  |  | $ | 1,875 |

Asset Management – Deferred revenue relate to the AMA executed on March 30, 2018 and effective January 2, 2018. See Note 18 – Related Party Transactions for details regarding this transaction and details regarding the amendment executed in April 2019.

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8. REVENUE

The Company’s revenues consist primarily of 1) recurring and supplemental fees earned under the AMA and BMA within the Asset Management segment, 2) commercial and residential property management within the Asset Management segment, 3) environmental engineering and consulting services within the Real Estate Services segment, and 4) revenue generated through other real estate management and consulting services. All of the Company’s revenue streams are U.S. based and substantially all are accounted for as short-term contracts. As such, the performance obligations required to complete contracts have an expected duration of less than one year. As a result, the Company does not disclose the value of unsatisfied performance obligations for contracts in accordance with the optional exemptions related to the disclosure of transaction price allocation under ASC 606. Additionally, incremental costs of obtaining a contract are recognized as an expense when incurred because the amortization period of the asset would have been recognized in one year or less.

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

|  | Three Months Ended June 30, |  |  | Six Months Ended June 30, |
|  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Revenue by customer |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Related party |  | $ | 4,167 |  |  | $ | 2,931 |  |  | $ | 7,971 |  |  | $ | 5,722 |
Commercial |  |  | 755 |  |  |  | 523 |  |  |  | 1,540 |  |  |  | 970 |
Total Revenue by customer |  | $ | 4,922 |  |  | $ | 3,454 |  |  | $ | 9,511 |  |  | $ | 6,692 |
Revenue by contract type |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fixed-price |  | $ | 608 |  |  | $ | 104 |  |  | $ | 1,041 |  |  | $ | 104 |
Cost-plus |  |  | 3,626 |  |  |  | 2,856 |  |  |  | 7,111 |  |  |  | 5,647 |
Time and Material |  |  | 688 |  |  |  | 494 |  |  |  | 1,359 |  |  |  | 941 |
Total Revenue by contract type |  | $ | 4,922 |  |  | $ | 3,454 |  |  | $ | 9,511 |  |  | $ | 6,692 |

Under the recently executed 2019 AMA and most of the Company’s real estate services contracts, performance obligations are satisfied over time. For performance obligations satisfied over time, the objective is to measure progress in a manner which depicts the performance of transferring control to the customer. As such, the company recognizes revenue over time using the “right-to-invoice” practical expedient cost-to-cost revenue recognition model, as this depicts when control of the promised goods and/or services are transferred to the customer. Sales are recognized as the ratio of actual costs of work performed to the estimated costs at completion of the performance obligation (cost-to-cost). As such, these revenues are disaggregated in ‘Related party’ and ‘Commercial’ customers, and ‘Cost-plus’ and ‘Fixed-price’ in the tables above.

Other revenue earned from management, consulting and administrative support services provided, which may or may not be covered by a formal contract, are generally time and material based. Revenue from these contracts is recognized as the services are provided. As such, these revenues are disaggregated in ‘Commercial’ and ‘Time and Material’ in the tables above.

9. DEBT

As of June 30, 2019 Notes payable consisted of the following:

|  | June 30, |  |  | December 31, |
|  | 2019 |  |  | 2018 |
Secured financing, net of deferred financing charges |  | $ | 804 |  |  | $ | 922 |
Notes payable- due to affiliates, unsecured, net of $0.8 million and $0.8 million discount and unamortized deferred financing charges, respectively |  |  | 4,984 |  |  |  | 4,903 |
Unsecured financing, net of deferred financing charges |  |  | 595 |  |  |  | 595 |
Total notes payable |  | $ | 6,383 |  |  | $ | 6,420 |

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As of June 30, 2019, net maturities and/or curtailment obligations of all borrowings are as follows:

2019 |  | $ | — |
2020 |  |  | 4,984 |
2021 |  |  | — |
2022 |  |  | 1,367 |
2023 and thereafter |  |  | 32 |
Total |  | $ | 6,383 |

As of June 30, 2019, the Company had no credit facilities or project related loans scheduled to mature during the remainder of 2019.

Secured financing

As of June 30, 2019 and December 31, 2018, the Company had two secured loans related to Comstock Environmental. One loan was used to finance the acquisition of Comstock Environmental, and carries a fixed interest rate of 6.5%, with a maturity date of October 17, 2022. At June 30, 2019 and December 31, 2018, this financing had an outstanding balance of $773 thousand and $874 thousand, respectively. Comstock Environmental has an additional secured loan with an outstanding balance of $32 thousand as of June 30, 2019 and an outstanding balance of $34 thousand as of December 31, 2018 to fund the purchase of an asset used in the business. This financing is secured by the assets of Comstock Environmental and is guaranteed by our Chief Executive Officer.

Unsecured financing

As of June 30, 2019 and December 31, 2018, the Company had one unsecured seller-financed promissory note with an outstanding balance of $595 thousand. This financing carries an annual interest rate of LIBOR plus 3% and has a maturity date of July 17, 2022. This loan as $50 thousand due on the 3rd and 4th loan anniversary dates with the remainder due at maturity. At June 30, 2019 and December 31, 2018, the interest rate was 5.2% and 6.0%, respectively.

Notes payable to affiliate – unsecured

Comstock Growth Fund

On October 17, 2014, Comstock Growth Fund, L.C. (“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. On December 18, 2014, the loan agreement was amended and restated to provide for a maximum capacity of $25 million. On May 23, 2018, Comstock Holding Companies, Inc. (“Comstock” , “CHCI” or the “Company”) entered into a Membership Interest Exchange and Subscription Agreement (the “Membership Exchange Agreement”), together with a 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 Company’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 to Comstock Development Services, LLC (“CDS”), a Company wholly owned by our Chief Executive Officer. The Company exchanged the preferred equity for 91.5% of CDS membership interest in the Comstock Growth Fund promissory note. Concurrently, the face amount of the CGF Note was reduced to $5.7 million as of the Effective Date. The loan bears interest at a fixed rate of 10% per annum. Interest payments made monthly in arrears. The Company is the administrative manager of CGF but does not own any membership interests. The Company had approximately $5.0 million and $4.9 million of outstanding borrowings and accrued interest under the CGF loan, net of discounts, as of June 30, 2019 and December 31, 2018. As of June 30, 2019, and December 31, 2018, the interest rate was 10.0% per annum. The maturity date for the CGF loan is April 16, 2020.

For the three and six months ended June 30, 2019, the Company made interest payments of $0.1 million and $0.2 million, respectively. For the three and six months ended June 30, 2018, the Company made interest payments of $0.3 million.

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During the three and six months ended June 30, 2019 and 2018, the Company did not make principal payments for the CGF loan.

10. COMMITMENTS AND CONTINGENCIES

Litigation

Currently, we are not subject to any material legal proceedings. From time to time, 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, we do not expect 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.

11. FAIR VALUE DISCLOSURES

The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, accounts receivable, and accounts payable 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 summarizes the carrying amount and the corresponding fair value of fixed and floating rate debt.

|  | June 30, |  |  | December 31, |
|  | 2019 |  |  | 2018 |
Carrying amount |  | $ | 6,383 |  |  | $ | 6,420 |
Fair value |  | $ | 5,978 |  |  | $ | 6,224 |

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.

In connection with the CGF I & II conversions discussed in Note 10 – Debt and Note 15 – Related Party Transactions, we issued 2,220,690 shares of Series C Non-Convertible Preferred Stock with a liquidation preference 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 Company recorded these shares based on the fair value calculation on the effective date of the agreement. The Company used various assumptions and inputs such as current market condition and financial position in calculating the fair value of the Series C Preferred Stock by back solving from the Company’s equity value using the option pricing and the probability-weighted expected return models, adjusted for marketability of the Series C Preferred Stock.

The Company may also value its non-financial assets and liabilities, including items such as real estate inventories and long-lived assets, at fair value on a non-recurring basis if it is determined that impairment has occurred. Such fair value measurements use significant unobservable inputs and are classified as Level 3.

As a result of our impairment analysis, for the three and six months ended June 30, 2019, the Company did not expense any feasibility, site securing, predevelopment, design, carry costs and related costs for its communities in the Washington, D.C. metropolitan area. There were $0.6 million of impairment charges recorded in ‘net loss from discontinued operations, net of tax’ during the six months ended June 30, 2018 due to unsuccessful negotiations and market conditions.

12. RESTRICTED STOCK, STOCK OPTIONS AND OTHER STOCK PLANS

During the three months ended June 30, 2019, the Company issued 20,000 stock options and 184,463 restricted stock awards to employees. During the six months ended June 30, 2019, the Company issued 114,431 stock options and 242,251 restricted stock awards to employees. During the three and six months ended June 30, 2018, the Company issued 60,000 stock options. No restricted stock awards to employees were issued during the three and six months ended June 30, 2018.

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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 statements of operations line items for sto ck-based compensation for the periods presented:

|  | Three Months Ended June 30, |  |  | Six Months Ended June 30, |
|  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Cost of sales - Real Estate Services |  | $ | 27 |  |  | $ | - |  |  | $ | 38 |  |  | $ | 86 |
Expense - General and administrative |  |  | 95 |  |  |  | 69 |  |  |  | 168 |  |  |  | 69 |
|  |  | 122 |  |  |  | 69 |  |  |  | 206 |  |  |  | 155 |

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 June 30, 2019, the weighted-average remaining contractual term of unexercised stock options was 8 years. As of June 30, 2019, and December 31, 2018, there was $0.8 million and $0.3 million, respectively, of unrecognized compensation cost related to stock options and restricted stock awards.

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

13. LOSS PER SHARE

The weighted average shares and share equivalents used to calculate basic and diluted (loss) income for continuing and discontinued operations per share for the three and six months ended June 30, 2019 and 2018 are presented in the accompanying consolidated statements of operations. Restricted stock awards, stock options and warrants for the three and six months ended June 30, 2019 and 2018 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 continued operations dilutive share computation for the three and six months ended June 30, 2019 and 2018 as their inclusion would be anti-dilutive.

|  | Three Months Ended June 30, |  |  | Six Months Ended June 30, |
|  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Restricted stock awards |  |  | 135 |  |  |  | - |  |  |  | - |  |  |  | - |
Stock options |  |  | 280 |  |  |  | 340 |  |  |  | 232 |  |  |  | 503 |
Warrants |  |  | 620 |  |  |  | 473 |  |  |  | 558 |  |  |  | 636 |
|  |  | 1,035 |  |  |  | 813 |  |  |  | 790 |  |  |  | 1,139 |

The following share equivalents have been excluded from the discontinued operations dilutive share computation for the three and six months ended June 30, 2019 and 2018 as their inclusion would be anti-dilutive.

|  | Three Months Ended June 30, |  |  | Six Months Ended June 30, |
|  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Restricted stock awards |  |  | 135 |  |  |  | 122 |  |  |  | 153 |  |  |  | 105 |
Stock options |  |  | 297 |  |  |  | 370 |  |  |  | 258 |  |  |  | 507 |
Warrants |  |  | 620 |  |  |  | 537 |  |  |  | 558 |  |  |  | 670 |
|  |  | 1,052 |  |  |  | 1,029 |  |  |  | 969 |  |  |  | 1,282 |

14. CONSOLIDATION OF VARIABLE INTEREST ENTITIES

GAAP requires a VIE to be consolidated by the company that is the primary beneficiary. The primary beneficiary of a VIE is the entity that has both of the following characteristics: (a) the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and (b) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. Entities determined to be VIEs, for which we are not the primary beneficiary, are accounted for under the equity method. Comstock’s variable interests in VIEs may be in the form of

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(1) equity ownership, (2) contracts to purchase assets and/or (3) loans provided to and or guaran teed for a VIE. We examine specific criteria and use judgment when determining if Comstock is the primary beneficiary of a VIE. Factors considered in determining whether we are the primary beneficiary include risk and reward sharing, experience and financi al condition of other partner(s), voting rights, involvement in day-to-day capital and operating decisions and contracts to purchase assets from VIEs.

Consolidated Real Estate Inventories in assets of discontinued operations

Included within the Company’s assets of discontinued operations are real estate inventories at June 30, 2019 and December 31, 2018 that are determined to be 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 the Company’s majority voting rights and complete operational control of these entities.

In August 2016, 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 150,000 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. In October 2017, the Operating Agreement for Comstock X was amended to increase the maximum capital raise to $19.5 million. Additionally, in October 2017, Comstock X received proceeds of $5.0 million under the amended Operating Agreement to be used for the planned construction of the Company’s Totten Mews, Townes at 1333, Richmond Station, and Marrwood East projects. As part of this additional contribution, 50,000 warrants for the purchase of the Company’s Class A common stock, having an aggregate fair value of $81 were issued.

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. As a result of the MTA, the Company determined that Comstock X is considered held for sale effective April 30, 2019 and therefore Comstock X activities have been reclassified to discontinued operations in the accompanying consolidated financial statements.

On July 23, 2019, the Comstock X operating agreement was amended to clarify certain definitions resulting in Comstock X no longer being considered a VIE of the Company. Therefore, the assets and liabilities of Comstock X will no longer be consolidated in the consolidated Balance Sheets of the Company commencing in the third quarter of 2019.

15. RELATED PARTY TRANSACTIONS

Master Transfer Agreement

On April 30, 2019, the Company entered into a Master Transfer Agreement (the “MTA”) with Comstock Development Services, LC (“CDS”), an entity wholly owned by Christopher Clemente, the Chief Executive Officer of CHCI, and FR54, LC (“FR54”), an entity also controlled by Mr. Clemente, that sets forth a series of transactions that completed CHCI’s previously announced exit from the homebuilding and land development business in favor of a migration to an asset management model. Refer to Note 1 – Organization and Basis of Presentation, Note 14 – Consolidation of Variable Interest Entities and Note 20- Subsequent Events for a discussion regarding the future accounting treatment related to these transactions

Asset Management Agreement

On April 30, 2019, CDS Asset Management, L.C. (“CAM”), an entity wholly owned by the Company, entered into an amended and restated master asset management agreement (the “2019 AMA”) with CDS, which amends and restates in its entirety the asset management agreement between the parties dated March 30, 2018 with an effective date as of January 1, 2018. Pursuant to the 2019 AMA, CDS will engage CAM to manage and administer CDS’ commercial real estate portfolio (“CRE Portfolio”) and the day to-day operations of CDS and each property-owning subsidiary of CDS (collectively, the “CDS Entities”).

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Business Management Agreement

On April 30, 2019, CAM entered into a Business Management Agreement (the “Management Agreement”) with Comstock Investors X, L.C. (“Investors X”), an entity owned and controlled by CDS subsequent to the ownership transfer transactions set forth in the MTA, 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 fifteen quarterly installments of $62,500 each.

Private Placements and Promissory Notes

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 B Non-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 earned dividends at a rate of 8.75% per annum accruing from the effective date of the Note Exchange and Subscription Agreement. During 2016 all of the Series B Non-Convertible Preferred Stock were exchanged for an identical number of shares of Series C Preferred Stock.

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”). Also 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. On May 23, 2018, the Company entered into a Note Exchange and Subscription Agreement (the “Note Exchange Agreement”) in which a note (“CGF2 Note”) with an outstanding principal and accrued interest balance of $3.7 million was exchanged for 738,390 shares of the Company’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 to Comstock Growth Fund II, L.C. (“CGF2”), a Company wholly owned by our Chief Executive Officer. The CGF2 Note was cancelled in its entirety effective as of the Effective Date.

See Note 9 for a summary of the Comstock X Private Placement which involved certain of our officers and directors and Note 14 to the consolidated financial statements for further description of the CGF Private Placement.

Lease for Corporate Headquarters

The Company has a lease for its corporate headquarters from an affiliate wholly-owned by our CEO. Future minimum lease payments under this lease, which expires on September 30, 2019, is $153 thousand.

For each of the three and six months ended June 30, 2019 total rental payments made were $153 thousand and $299 thousand, respectively. For the three and six months ended June 30, 2018 total rental payments made were $53 thousand and $107 thousand, respectively.

16. UNCONSOLIDATED JOINT VENTURE

The Company accounts for its 50% 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 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 ‘Revenue – real estate services’ in the accompanying consolidated statements of operations for the periods presented.

Our share of the earnings for the three months ended June 30, 2019 and 2018 are $10 thousand and $35 thousand, respectively. Earnings for the six months ended June 30, 2019 and June 30, 2018 are $68 thousand and $49 thousand, respectively. During the three months ended June 30, 2019 and 2018, the Company collected total distributions of $56 thousand and $13 thousand, respectively, as a return on investment. During the six months ended June 30, 2019 and June 30, 2018, the Company collected total distributions of $114 thousand and $23 thousand, respectively.

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

|  | Three Months Ended June 30, |  |  | Six Months Ended June 30, |
|  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Statement of Operations: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Total net revenue |  | $ | 48 |  |  | $ | 101 |  |  | $ | 196 |  |  | $ | 159 |
Total expenses |  |  | 28 |  |  |  | 31 |  |  |  | 61 |  |  |  | 61 |
Net income |  | $ | 20 |  |  | $ | 70 |  |  | $ | 135 |  |  | $ | 98 |
Comstock Holding Companies, Inc. share of net income |  | $ | 10 |  |  | $ | 35 |  |  | $ | 68 |  |  | $ | 49 |

17. INCOME TAXES

For the three and six months ended June 30, 2019, the Company recognized no income tax expense for continuing operations primarily attributable to the Company’s federal and state Net Operating Losses (“NOL”s).

The Company currently has approximately $147 million in federal and state NOLs. If unused, these NOLs will begin expiring in 2027. Under Code Section 382 (“Section 382”) rules, if a change in ownership is triggered, the Company’s NOL assets and possibly certain other deferred tax assets may be impaired.

The Company has not recorded any accruals related to uncertain tax positions as of June 30, 2019 and 2018. We file U.S. and state income tax returns in jurisdictions with varying statutes of limitations. The 2015 through 2018 tax years remain subject to examination by federal and most state tax authorities.

18. SEGMENT DISCLOSURES

During the three and six months ended June 30, 2019 and 2018 we operated our business through our two segments: Asset Management, and Real Estate Services.

In our Asset Management segment, we focus on providing management services to a wide range of real estate assets 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. We have significant experience with construction, development, property and asset management services. The properties and businesses we currently manage are located primarily along the Washington, D.C. Metro Silver Line in Fairfax and Loudoun Counties, but we also manage projects in other jurisdictions within the states of Maryland and Virginia.

In our Real Estate Services segment, our experienced real estate services-based management team provides a wide range of real estate services in the areas of strategic corporate planning, capital markets, brokerage services, and environmental and design based services. Our environmental services group provides consulting, environmental studies, remediation services and provide site specific solutions for any project that may have an environmental impact, from environmental due diligence to site-specific assessments and remediation. This business line not only allows us to generate positive fee income from our highly qualified personnel but also serves as a potential catalyst for joint venture and acquisition opportunities. The Real Estate Services segment operates in the Mid-Atlantic Region.

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The following table includes the Company’s t wo reportable segments of Asset Management and Real Estate Services for the three and six months ended June 30, 2019 and 2018. Certain revenues and ex penses, reported within the homebuilding segment historically were reclassified to reflect the two operating segments as of June 30, 2019.

|  | Asset |  |  | Real Estate |  |  |  |  |
|  | Management |  |  | Services |  |  | Total |
Three Months Ended June 30, 2019 |  |  |  |  |  |  |  |  |  |  |  |
Gross revenue |  | $ | 4,024 |  |  | $ | 898 |  |  | $ | 4,922 |
Gross profit (loss) |  |  | 510 |  |  |  | (11 | ) |  |  | 499 |
Net income (loss) |  |  | 259 |  |  |  | (353 | ) |  |  | (94 | )
Total assets |  |  | 3,923 |  |  |  | 3,396 |  |  |  | 7,319 |
Three Months Ended June 30, 2018 |  |  |  |  |  |  |  |  |  |  |  |
Gross revenue |  | $ | 2,960 |  |  | $ | 494 |  |  | $ | 3,454 |
Gross profit (loss) |  |  | 354 |  |  |  | (182 | ) |  |  | 172 |
Net income (loss) |  |  | 782 |  |  |  | (466 | ) |  |  | 316 |
Total assets |  |  | 3,730 |  |  |  | 3,645 |  |  |  | 7,375 |
Six Months Ended June 30, 2019 |  |  |  |  |  |  |  |  |  |  |  |
Gross revenue |  | $ | 7,885 |  |  | $ | 1,626 |  |  | $ | 9,511 |
Gross profit |  |  | 1,054 |  |  |  | 223 |  |  |  | 1,277 |
Net income (loss) |  |  | 685 |  |  |  | (339 | ) |  |  | 346 |
Total assets |  |  | 3,923 |  |  |  | 3,396 |  |  |  | 7,319 |
Six Months Ended June 30, 2018 |  |  |  |  |  |  |  |  |  |  |  |
Gross revenue |  | $ | 5,751 |  |  | $ | 941 |  |  | $ | 6,692 |
Gross profit |  |  | 604 |  |  |  | 88 |  |  |  | 692 |
Net income (loss) |  |  | 813 |  |  |  | (326 | ) |  |  | 487 |
Total assets |  |  | 3,730 |  |  |  | 3,645 |  |  |  | 7,375 |

The Company allocates sales, marketing and general and administrative expenses to the individual segments based upon specifically allocable costs. Gross profit is defined as revenue less cost of sales.

19. DISCONTINUED OPERATIONS

On April 30, 2019, The Company entered into a Master Transfer Agreement (the “MTA”) with Comstock Development Services, LC (“CDS”), an entity wholly owned by Christopher Clemente, the Chief Executive Officer of CHCI, and FR54, LC (“FR54”), an entity also controlled by Mr. Clemente, that sets forth certain transactions to complete CHCI’s previously announced exit from the homebuilding and land development business in favor of a migration to an asset management model. Refer to Note 14 – Consolidation of Variable Interest Entities and Note 20 – Subsequent Events for further discussion regarding the future accounting related to discontinued operations.

The carrying amount of the assets and liabilities from discontinued operations, which were included within the Homebuilding segment, have been reclassified from their historical balance sheet presentation to assets and liabilities from discontinued operations as follows:

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|  | June 30, 2019 |  |  | December 31, 2018 |
ASSETS |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 2,766 |  |  | $ | 4,926 |
Restricted cash |  |  | 1,090 |  |  |  | 1,231 |
Trade receivables |  |  | 1,290 |  |  |  | 527 |
Real estate inventories |  |  | 14,285 |  |  |  | 20,082 |
Other assets, net |  |  | 1,236 |  |  |  | 1,102 |
TOTAL ASSETS |  | $ | 20,667 |  |  | $ | 27,868 |
LIABILITIES AND STOCKHOLDERS’ EQUITY |  |  |  |  |  |  |  |
Accounts payable and accrued liabilities |  |  | 4,825 |  |  |  | 4,839 |
Notes payable - secured by real estate inventories, net of deferred financing charges |  |  | 7,027 |  |  |  | 12,510 |
Income taxes payable |  |  | 25 |  |  |  | 50 |
TOTAL LIABILITIES |  |  | 11,877 |  |  |  | 17,399 |

The operating results of the discontinued operations that are reflected on the consolidated statement of operations within the net loss from discontinued operations are as follows:

|  | Three Months Ended June 30, |  |  | Six Months Ended June 30, |
|  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Revenues |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Revenue—homebuilding |  | $ | 6,845 |  |  | $ | 10,709 |  |  | $ | 13,614 |  |  | $ | 16,270 |
Revenue—real estate services |  |  | — |  |  |  | 137 |  |  |  | — |  |  |  | 137 |
Total revenue |  |  | 6,845 |  |  |  | 10,846 |  |  |  | 13,614 |  |  |  | 16,407 |
Expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cost of sales—homebuilding |  |  | 6,898 |  |  |  | 11,554 |  |  |  | 13,620 |  |  |  | 17,069 |
Impairment charges |  |  | — |  |  |  | 216 |  |  |  | - |  |  |  | 774 |
Sales and marketing |  |  | 67 |  |  |  | 204 |  |  |  | 181 |  |  |  | 423 |
General and administrative |  |  | 19 |  |  |  | — |  |  |  | 20 |  |  |  | — |
Interest and real estate tax expense |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 61 |
Operating loss |  |  | (139 | ) |  |  | (1,128 | ) |  |  | (207 | ) |  |  | (1,920 | )
Other income, net |  |  | — |  |  |  | 6 |  |  |  | — |  |  |  | 5 |
Loss from discontinued operations before income taxes |  |  | (139 | ) |  |  | (1,122 | ) |  |  | (207 | ) |  |  | (1,915 | )
Income tax expense |  |  | 7 |  |  |  | 11 |  |  |  | 10 |  |  |  | 17 |
Net loss from discontinued operations |  |  | (146 | ) |  |  | (1,133 | ) |  |  | (217 | ) |  |  | (1,932 | )
Net income attributable to non-controlling interests |  |  | 13 |  |  |  | 185 |  |  |  | 313 |  |  |  | 280 |
Net loss attributable to Comstock Holding Companies, Inc. |  |  | (159 | ) |  |  | (1,318 | ) |  |  | (530 | ) |  |  | (2,212 | )

20. SUBSEQUENT EVENTS

On July 23, 2019, the Comstock X operating agreement was amended to clarify certain definitions resulting in Comstock X no longer being considered a VIE of the Company. Therefore, the assets and liabilities of Comstock X will no longer be consolidated in the consolidated Balance Sheets of the Company commencing in the third quarter of 2019.

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COMSTOCK HOLDING COMPANIES, INC.

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 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 could cause actual results to differ materially from those in the forward-looking statements including, without limitation: general economic and market conditions, including interest rate levels; our ability to service our debt; inherent risks in investment in real estate; 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 availability and cost of land in desirable areas; natural disasters; 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 Form 10-K for the fiscal year ended December 31, 2018. 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.

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

CHCI is a multi-faceted real estate development, asset management and real estate related services company that, since 1985, has designed, developed, constructed and managed several thousand residential units and millions of square feet of residential and mixed-use projects throughout the Washington, DC metropolitan market and in other key markets in the southeastern United States. In early 2018, CHCI transitioned its operating platform from being primarily focused on developing on-balance sheet, for-sale, homebuilding projects to being focused on commercial real estate development, asset management and real estate related services. In addition to providing real estate development, asset management, and property management services, CHCI provides development supply chain services, including capital markets, real estate brokerage, environmental consulting and design services in the Mid Atlantic Region. Anchoring the transition of CHCI is a long-term asset management agreement covering two of the largest transit-oriented, mixed-use developments in the Washington, DC area; Reston Station, a nearly 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. Comstock’s substantial experience in entitling, designing, developing, and managing a diverse range of properties including apartments, single-family homes, townhomes, mid-rise condominiums, high-rise condominiums and mixed-use (residential and commercial) properties, as well as large scale commercial parking garages and infrastructure projects, has positioned the Comstock organization as a premier developer and real estate related service provider in the Mid Atlantic Region.

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About Reston Station

Strategically located mid-way between Tysons Corner and Dulles International Airport, Reston Station is among the largest mixed use, transit-oriented developments in the Washington, DC area. Located at the terminus of Phase I of Metro’s Silver Line and encompassing nearly 40 acres spanning the Dulles Toll Road and surrounding Reston’s first Metro Station, Reston Station is already home to more than 1,000 residents, numerous businesses, multiple retail establishments, and several popular restaurants. With more than 1 million square feet of completed and stabilized buildings, approximately 4 million square feet of additional development in various stages of entitlement, development and construction, and a 3,500-space underground parking garage and bus transit facility adjacent to the Wiehle Reston-East Metro Station, the Reston Station neighborhood is quickly becoming Fairfax County’s urban focal point in the Dulles Corridor.

About Loudoun Station

Located at the terminus station on Metro’s Silver Line, minutes from Dulles International Airport, Loudoun Station represents Loudoun County’s first (and currently its only) Metro-connected development. Loudoun Station has approximately 700,000 square feet of mixed-use development completed, including hundreds of rental apartments, approximately 150,000 square feet of retail, restaurants, and entertainment venues, 50,000 square feet of Class-A office, and a 1,500+ space commuter parking garage. Approximately 2 million square feet of additional development is slated for Loudoun Station. Located adjacent to Metro’s Ashburn Station, the Loudoun Station neighborhood represents Loudoun County’s beginning transformation into a transit connected community with direct connectivity to Dulles International Airport, Reston, Tysons Corner and downtown Washington, DC. As Loudoun County’s only transit connected neighborhood, Loudoun Station has become the new downtown of Loudoun County in the Dulles Corridor.

Our Business Strategy

On April 30, 2019, we completed our previously announced exit from homebuilding and land development in favor of a migration to an asset management model. The Company operates through two real estate focused platforms, CDS Asset Management ("CAM") and Comstock Real Estate Services ("CRES"). CAM provides real estate development, asset management, and property management services, while CRES provides development supply chain services, including capital markets, real estate brokerage, title services, environmental consulting and design services in the Mid-Atlantic Region.

We believe that Comstock's substantial experience in entitling, designing, developing, and managing a diverse range of properties including apartments, single-family homes, townhomes, mid-rise condominiums, high-rise condominiums and mixed-use (residential and commercial) properties, as well as large scale commercial parking garages and transit related projects, positions the CAM subsidiary to capitalize on commercial development and asset management opportunities in the Washington, DC region. Our CRES subsidiary is well positioned to capitalize on market opportunities related to providing development supply chain services, including capital markets, brokerage, environmental consulting and other real estate related services in the Mid-Atlantic Region.

In connection with our new strategy, and anchoring the transition of our operations, the Company has entered into the 2019 AMA. The 2019 AMA covers two large-scale, transit-oriented, mixed-use developments in the Washington, DC area; Reston Station, a multi-million square foot development located in Reston, VA, and Loudoun Station, a multi-million square foot development in Ashburn, VA, as well as a mixed-use development asset located in Herndon, VA. Separately, the Company also entered into fee-based management agreements with unrelated third parties in the states of Maryland and Virginia.

Pursuant to the 2019 AMA, CDS has engaged CAM to manage and administer the CDS commercial real estate portfolio (“CRE Portfolio”) and the day to-day operations of CDS and each property-owning subsidiary of CDS. Pursuant to the terms of the 2019 AMA, CAM provides investment advisory, development and asset management services related to the build out, lease-up and stabilization, and management of the CRE Portfolio. CDS pays the Company fees for the services provided by the Company in connection with the CDS portfolio of assets under management (“AUM”) calculated on the greater of (i) a Cost-Plus Fee or (ii) a Market Rate Fee plus Supplemental Fees, thereby protecting the Company from incurring operating costs related to asset management services being provided to CDS in excess of fees collected during the transition, enabling the Company to expand its operating capabilities through the addition of qualified managers with experience in growing AUM and transitioning to market rate arrangement as the CRE Portfolio expands.

In addition to the asset management services provided by CAM to CDS, the Company’s CRES subsidiary is focused on generating growth organically and through potential acquisitions of operating businesses that would provide complementary development and supply chain services to assets under management pursuant to the AMA as well as to unrelated third parties in the areas of environmental consulting, mortgage brokerage, title services, and capital market and financial consulting services.

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We believe that we have several strengths that distinguish our new business focus and strategy:

| • | Revenue Base. Our revenues are primarily generated from recurring fees earned under the AMA and operations of our CRES subsidiary. The AMA provides a reliable cost-plus source of revenue and cashflow to cover the Company’s operating expenses related to the services being provided to CDS pursuant to the AMA, positioning the Company to enhance bottom line results and pursue additional revenue growth.

| • | Management Services. Our experienced asset management professionals provide management services to a wide range of real estate assets and businesses that include a variety of commercial real estate uses, including apartments, office buildings, hotels, commercial garages, leased lands, retail stores, mixed-use developments, and transit-oriented developments. Our management team has significant capabilities generated through decades of experience managing large-scale projects and portfolios of commercial real estate development, construction, and property and asset management services. The properties and businesses we currently manage are located primarily along the Dulles Corridor section of the Washington DC Metro Silver Line in Fairfax and Loudoun Counties.

| • | Real Estate Services. Our experienced real estate services-based management team provides a wide range of real estate services in the areas of strategic corporate planning, capital markets and financial consulting services, commercial mortgage brokerage services, and environmental and design-based services. Our environmental services group provides consulting, environmental studies, remediation services and site-specific solutions for properties that may benefit from environmental due diligence, site-specific assessments, and environmental remediation. The real estate services business platform allows us to generate positive fee income from our highly qualified personnel and serves as a potential catalyst for joint venture and acquisition opportunities.

| • | Quality and Depth of Management. We have a highly qualified and experienced management team providing a broad base of deep expertise and a proven track record to our clients. The combination of the new platforms leverages the diverse capabilities and relationships of the management teams of the Comstock organization developed over more than thirty years.

| • | Alignment of Interests. We believe our new business strategy fosters a strong economic alignment of interests with our shareholders due to our Chief Executive Officer’s large economic interest in the Company and in the CRE Portfolio being managed by the Company pursuant to the 2019 AMA.

| • | Operating Efficiencies. As previously reported, the transition of our business focus and new strategy required the combination of the operating platform of the Company and the operating platform of the privately held commercial development company controlled by the Company’s Chief Executive Officer. The integration of the two operating platforms has significantly enhanced the operating capabilities of the Company while providing opportunities for additional operational efficiencies and management alignment.

| • | Fee-Based Service Platform. Our asset-light business strategy, adopted in 2018, has contributed to our ability to materially reduce our liabilities during 2019 and we believe will contribute to our ability to produce positive results in future periods.

The Company’s various business units work in concert to leverage the collective skill sets of our organization. The talent and experience of our personnel allows workflow flexibility and a multitasking approach to managing various projects. We believe that our business network in the Mid-Atlantic Region provides us with a competitive advantage in sourcing and executing on investment opportunities.

While Comstock has previously developed numerous properties in multiple key markets throughout the southeastern United States, and our management team has experience managing large regional portfolios, we believe the Washington, DC MSA provides continued growth opportunity in our Asset Management segment in the near-term for several reasons, including the following:

| • | Long Track Record. Comstock has been active in the Washington, DC MSA since 1985 and has developed, acquired, and managed thousands of residential units and millions of square feet of mixed-use properties, throughout the region.

| • | Multiple Public-Private Partnerships. Comstock has been selected by multiple local governments (Fairfax County, Loudoun County, and Town of Herndon) to develop and manage large-scale mixed-use, and transit facility developments through public-private partnerships at a time when local jurisdictions are focused on public-private partnerships as a means of leveraging private sector capabilities to meet public infrastructure development needs.

| • | Economic Drivers. Significant growth trends in demand for cyber security and other technology services in the government sector, as well as in the private sector, has generated growth opportunities for tech companies, generating numerous start-ups, and is attracting big tech to the region. Further, Northern Virginia’s data center market, primarily

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|  | the Dulles Corridor, has seen record growth and has become the global leader in data center space while accounting for more than 40% of national data center space absorption in recent years.

| • | Diverse Employment Base. The diverse and well-educated employment base in the Washington, DC MSA, coupled with proximity to the federal government and the presence of well-established government contractors is contributing to the attractiveness of the region to tech companies.

| • | Metro’s Silver Line. Phase I of Metro’s Silver Line opened in 2014, connecting Tysons Corner and Reston to Arlington and downtown Washington, DC. Phase II is scheduled to open in 2020 and will extend service from the terminus of Phase I located in the center of Comstock’s Reston Station development to Herndon, Dulles International Airport, and Loudoun County, terminating at Comstock’s Loudoun Station development.

| • | Regional Land Use Plans. Recent changes to Comprehensive Land Use Plans of Fairfax County and Loudoun County encourage high density and mixed-use development proximate to the new Silver Line Metro Stations.

| • | Increased Demand for Transit-Oriented and Mixed-Use Developments. Recent trends indicate commercial tenants are increasingly seeking to locate (or relocate) office to Metro Accessible sites and have demonstrated a willingness to pay premium rents for commercial space because proximity to Metro in urban, mixed-use developments has become a key recruiting tool. Additionally, demand for housing in transit-oriented, mixed-use neighborhoods has increased steadily over the past decade while home ownership rates have decreased and demand for high quality rental housing has increased.

Comstock has been focused on these emerging trends for more than a decade and the Company, through the 2019 AMA, controls the development and asset management of a significant CRE Portfolio at the forefront of the urban transformation taking place in the Dulles Corridor. With a stabilized portfolio and development pipeline that includes millions of square feet of mixed-use and transit-oriented properties located at key Metro stations in the Dulles Corridor, Comstock is well positioned to capitalize on trends that we believe will shape the future commercial real estate landscape.

Results of Operations

Three and six months ended June 30, 2019 compared to three and six months ended June 30, 2018

Revenue – asset management

Revenue from asset management for the three and six months ended June 30, 2019 was $4.0 million and $7.9 million, respectively. Revenue from asset management for the three and six months ended June 30, 2018 was $3.0 million and $5.8 million, respectively. Revenue increased primarily due to increased headcount and other costs that are reimbursable from CDS under the 2019 AMA and recognized as revenue along with growth in our property management business and other asset management fee streams including the BMA.

On April 30, 2019, CDS Asset Management, L.C. (“CAM”), an entity wholly owned by the Company, entered into the 2019 AMA with CDS, which amends and restates in its entirety the asset management agreement between the parties dated March 30, 2018 with an effective date as of January 1, 2018. Pursuant to the 2019 AMA, CDS has engaged CAM to manage and administer CDS’s commercial portfolio (“CRE Portfolio”) and the day to-day operations of CDS and each property-owning subsidiary of CDS (collectively, the “CDS Entities”).

Pursuant to the terms of the 2019 AMA, CAM will provide investment advisory, development and asset management services necessary to build out, stabilize and manage the CRE Portfolio. The CRE Portfolio consists primarily of two of the larger transit-oriented, mixed-use developments located at metro stops on Washington D.C. Metro’s Silver Line (Reston Station and Loudoun Station), which are owned by entities of varying ownership interests but all of which are ultimately controlled by Mr. Clemente. Pursuant to the modified fee structure set forth in the 2019 AMA, CDS will pay CAM an annual fee 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 the CRE Portfolio revenues; (b) a construction management fee equal to 4% of all costs associated with CRE Portfolio projects in development; (c) a property management fee equal to 1% of the CRE Portfolio revenues, (d) an acquisition fee equal to up to 0.5% of the purchase price of an acquired asset; and (f) a disposition fee equal to 0.5% of the sales price of an asset on disposition (collectively the “Market Rate Fee”); or (ii) an aggregate amount equal to the sum of (x) the employment expenses of personnel dedicated to providing services to the CRE Portfolio pursuant to the 2019 AMA, (y) the costs and expenses of CHCI related to maintaining the listing of its shares on a securities exchange and complying with regulatory and reporting obligations of a public company, and (z) a fixed annual payment of $1,000,000 (collectively the “Cost Plus Fee”).

In addition to the annual payment of either the Market Rate Fee or the Cost Plus Fee; CAM is also entitled on an annual basis to the following supplemental AMA fees; (i) an incentive fee equal to 10% of the free cash flow of each of the real estate assets

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comprising the CRE Portfolio after calculating a compounding preferred return of 8% on CDS invested capital (the “Incentive Fee”); (ii) an investment origination fee equal to 1% of raised capital, (iii) a leasing fee equal to $1.00/sf for new leases and $.50/sf for renew als; and (iv) mutually agreeable loan origination fees related to the CRE Portfolio.

Revenue – real estate services

Revenue from real estate services for the three and six months ended June 30, 2019 was $0.9 million and $1.6 million, respectively. Revenue from real estate services for the three and six months ended June 30, 2018 was $0.5 million and $0.9 million respectively. The increase is primarily attributable to continued revenue growth within our Comstock Environmental business and closing on a financing transaction in during the three months ended June 30, 2019.

Cost of sales – asset management

Cost of sales – asset management for the three and six months ended June 30, 2019 was $3.5 million and $6.8 million, respectively. This increase of $0.9 million and $1.7 million, respectively, compared to the three and six months ended June 30, 2018 was primarily related to increased personnel expense from headcount increases as well as from the continued growth of our asset management operations.

Cost of sales – real estate services

Cost of sales – real estate services for the three and six months ended June 30, 2019 was $0.9 million and $1.4 million, respectively. This increase of $233 thousand to $550 thousand, respectively, compared to the three and six months ended June 30, 2018, primarily relates to our expanding footprint in the real estate consulting and environmental study fields.

General and administrative

General and administrative expenses for the three and six months ended June 30, 2019 increased by $109 thousand and $53 thousand, respectively, as compared to the three and six months ended June 30, 2018. General and administrative expenses were $477 thousand and $781 thousand for the three and six months ended June 30, 2019. The year-over-year increase is primarily attributable increased headcount and personnel costs, that are not reimbursable under the 2019 AMA, within our Asset Management and Real Estate Services segments.

Income taxes

For the three and six months ended June 30, 2019 the Company did not recognize income tax expense as a result of our unused NOL position.

Liquidity and Capital Resources

We finance our Asset Management and Real Estate Services operations, capital expenditures, and business acquisitions with internally generated funds, borrowings from our credit facilities and long-term debt. Pursuant to the MTA, the Company transferred to CDS management of its Class A membership interests in Investors X the entity owning CHCI’s residual homebuilding operations. The associated debt obligations were also transferred to CDS. See Note 9 in the accompanying consolidated financial statements for more details on our debt and credit facilities.

As of June 30, 2019, the Company had no notes that were set to mature through the end of 2019. As of August 14, 2019, the Company has successfully extended or repaid all obligations with Lenders through August 14, 2019, as more fully described in Note 9 - Debt.

Cash Flow

We finance our Asset Management and Real Estate Services operations, capital expenditures, and business acquisitions with internally generated funds, borrowings from our credit facilities and long-term debt. Pursuant to the MTA effective April 30, 2019, the Company transferred its Class A membership interests in Investors X and associated debt obligations to CDS in exchange for the priority distribution of the residual homebuilding operations. See Note 9 in the accompanying consolidated financial statements for more details on our debt and credit facilities.

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Net cash used in investing activities attributable to continuing operations was immaterial for the six months ended June 3 0, 2019 and 2018.

Net cash used in financing activities attributable to continuing operations was immaterial for the six months ended June 30, 2019 and 2018.

Critical Accounting Policies and Estimates

There have been no significant changes to our critical accounting policies and estimates during the three months ended June 30, 2019 from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018.

Recently Issued Accounting Standards

See Note 1 - Organization and Basis of Presentation to the accompanying 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 Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of June 30, 2019. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of June 30, 2019.

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 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

In the second quarter of 2019 we identified a material weakness in our internal controls over financial reporting involving the accounting for various complex divestment transactions entered into in the second quarter relating to the winding down of our for-sale homebuilding operations. While we performed a detailed accounting review of the transactions that included supplementing our internal resources by engaging an outside, third-party accounting firm for these significant transactions that were outside the normal course of business for the Company, we ultimately concluded that we did not arrive at the correct conclusion as to the accounting for such transactions.

To remediate the weakness described above, we are in process of expanding and improving our review processes for all new significant transactions that are outside the normal course of business for the Company, including implementing a more robust process

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surrounding the en gagement of outside resources as appropriate to assist in our analyses and determination of the accounting treatment over such future significant transactions.

No other changes have occurred in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the quarter ended June 30, 2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHE R INFORMATION

ITEM 1. | LEGAL PROCEEDINGS

Information regarding legal proceedings is incorporated by reference from Note 10 - Commitments and Contingencies to the accompanying consolidated financial statements included in Part I of this Quarterly Report on Form 10-Q.

ITEM 1A. | RISK FACTORS

There have been no material changes to the risk factors disclosed under “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018.

ITEM 6. | EXHIBITS

3.1 |  | Amended and Restated Certificate of Incorporation (incorporated by reference to an exhibit to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on November 16, 2015).
3.2 |  | Amended and Restated Bylaws (incorporated by reference to an Exhibit 3.2 to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 31, 2005).
3.3 |  | Certificate of Elimination of the Series A Junior Participating Preferred Stock of the Company filed with the Secretary of State of the State of Delaware on March 26, 2015 (incorporated by reference to an exhibit to the Registrant’s Current Report on Form 8-K filed with the Commission on March 27, 2015).
3.4 |  | Certificate of Designation of Series A Junior Participating Preferred Stock of the Company filed with the Secretary of State of the State of Delaware on March 26, 2015 (incorporated by reference to an exhibit to the Registrant’s Current Report on Form 8-K filed with the Commission on March 27, 2015).
3.5 |  | Certificate of Designation of Series B Non-Convertible Preferred Stock of the Company filed with the Secretary of State of the State of Delaware on December 29, 2015 (incorporated by reference to an exhibit to the Registrant’s Current Report on Form 8-K filed on January 4, 2016).
3.6 |  | Certificate of Designation of Series C Non-Convertible Preferred Stock of Comstock Holding Companies, Inc., filed with the Secretary of the State of Delaware on March 22, 2017 (incorporated by reference to an exhibit to the Registrant’s Current Report on Form 8-K filed with the Commission on March 28, 2017).
3.7 |  | Certificate of Amendment of Certificate of Designation of Series C Non-Convertible Preferred Stock of Comstock Holding Companies, Inc. filed with the Secretary of State of the State of Delaware on February 15, 2019 (incorporated by reference to an exhibit to the Registrant’s Current Report on Form 10-K filed with the Commission on March 29, 2019).
3.8 |  | Certificate of Amendment of Amended and Restated Certificate of Incorporation of Comstock Holding Companies, Inc. (incorporated by reference to an exhibit to the Registrant’s Current Report on Form 10-K filed with the Commission on March 29, 2019).
4.1 |  | Specimen Stock Certificate (incorporated by reference to Exhibit 4.1 to the Registrant’s Registration Statement on Form S-1, as amended, initially filed with the Commission on August 13, 2004 (File No. 333-118193)).
31.1* |  | Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002
31.2* |  | Certification of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002
32.1* |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002
101* |  | The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, 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.

*Filed herewith.

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SIGN ATURES

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: August 19, 2019 |  | By: | /s/ CHRISTOPHER CLEMENTE
|  |  | Christopher Clemente
|  |  | Chairman and Chief Executive Officer
|  |  | (Principal Executive Officer)
Date: August 19, 2019 |  | By: | /s/ CHRISTOPHER GUTHRIE
|  |  | Christopher Guthrie
|  |  | Chief Financial Officer
|  |  | (Principal Financial Officer and Principal Accounting Officer)

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