Company Quick10K Filing
Quick10K
Comstock Holding Companies
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$2.67 4 $10
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-06-19 Shareholder Vote, Exhibits
8-K 2019-04-30 Enter Agreement, M&A, Sale of Shares, Exhibits
8-K 2019-02-12 Officers, Amend Bylaw, Shareholder Vote, Exhibits
8-K 2018-06-12 Officers, Exhibits
8-K 2018-06-12 Shareholder Vote
8-K 2018-05-22 Enter Agreement, Leave Agreement, Off-BS Arrangement, Sale of Shares
8-K 2018-03-30 Enter Agreement, Exhibits
TSS Total System Services 17,720
VSM Versum Materials 5,690
CSII Cardiovascular Systems 1,380
CULP Culp 244
JILL J.Jill 231
COCP Cocrystal Pharma 81
LUB Lubys 42
GLG China Commercial Credit 8
WLMS Williams Industrial Services Group 0
GEN Genesis Healthcare 0
CHCI 2019-03-31
Part I - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 6. Exhibits
EX-31.1 chci-ex311_6.htm
EX-31.2 chci-ex312_7.htm
EX-32.1 chci-ex321_8.htm

Comstock Holding Companies Earnings 2019-03-31

CHCI 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 chci-10q_20190331.htm 10-Q chci-10q_20190331.htm

 

 

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 March 31, 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 May 15, 2019, 3,663,843 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

 

 

 


 

PART I – FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

COMSTOCK HOLDING COMPANIES, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

 

 

 

March 31,

2019

 

 

December 31,

2018

 

 

 

(unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

5,755

 

 

$

5,780

 

Restricted cash

 

 

1,138

 

 

 

1,231

 

Trade receivables

 

 

1,434

 

 

 

1,329

 

Trade receivables - related parties

 

 

1,290

 

 

 

2,950

 

Real estate inventories

 

 

17,598

 

 

 

20,253

 

Fixed assets, net

 

 

205

 

 

 

221

 

Goodwill

 

 

1,702

 

 

 

1,702

 

Intangible assets, net

 

 

153

 

 

 

170

 

Lease right-of-use assets

 

 

156

 

 

 

 

Other assets, net

 

 

1,490

 

 

 

1,464

 

TOTAL ASSETS

 

$

30,921

 

 

$

35,100

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

6,803

 

 

$

7,614

 

Deferred revenue

 

 

1,250

 

 

 

1,875

 

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

   charges

 

 

10,033

 

 

 

13,432

 

Notes payable - due to affiliates, unsecured, net of discount

 

 

4,935

 

 

 

4,903

 

Notes payable - unsecured, net of deferred financing charges

 

 

595

 

 

 

595

 

Lease liabilities

 

 

156

 

 

 

 

Income taxes payable

 

 

54

 

 

 

51

 

TOTAL LIABILITIES

 

 

23,826

 

 

 

28,470

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 13)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Series C preferred stock $0.01 par value, 20,000,000 and 3,000,000 shares authorized,

   2,799,848 issued and outstanding and liquidation preference of $13,999 at

   March 31, 2019 and December 31, 2018, respectively

 

$

7,193

 

 

$

7,193

 

Class A common stock, $0.01 par value, 59,779,750 and 11,038,071 shares

authorized, 3,749,413 and 3,703,513 issued, and 3,663,843 and 3,617,943

outstanding at March 31, 2019 and December 31, 2018, respectively

 

 

37

 

 

 

37

 

Class B common stock, $0.01 par value, 220,250 shares authorized,

   issued and outstanding at March 31, 2019 and December 31, 2018

 

 

2

 

 

 

2

 

Additional paid-in capital

 

 

180,769

 

 

 

180,673

 

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

 

 

(2,662

)

 

 

(2,662

)

Accumulated deficit

 

 

(194,250

)

 

 

(194,319

)

TOTAL COMSTOCK HOLDING COMPANIES, INC. DEFICIT

 

 

(8,911

)

 

 

(9,076

)

Non-controlling interests

 

 

16,006

 

 

 

15,706

 

TOTAL EQUITY

 

 

7,095

 

 

 

6,630

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

30,921

 

 

$

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 March 31,

 

 

 

2019

 

 

2018

 

Revenues

 

 

 

 

 

 

 

 

Revenue—homebuilding

 

$

6,978

 

 

$

5,561

 

Revenue—asset management

 

 

3,652

 

 

 

2,791

 

Revenue—real estate services

 

 

728

 

 

 

447

 

Total revenue

 

 

11,358

 

 

 

8,799

 

Expenses

 

 

 

 

 

 

 

 

Cost of sales—homebuilding, excluding impairment charges

 

 

6,722

 

 

 

5,495

 

Cost of sales—asset management

 

 

3,317

 

 

 

2,541

 

Cost of sales—real estate services

 

 

494

 

 

 

177

 

Impairment charges

 

 

 

 

 

558

 

Sales and marketing

 

 

114

 

 

 

219

 

General and administrative

 

 

305

 

 

 

360

 

Interest and real estate taxes

 

 

34

 

 

 

85

 

Operating income (loss)

 

 

372

 

 

 

(636

)

Other income, net

 

 

 

 

 

14

 

Income (loss) before income tax expense

 

 

372

 

 

 

(622

)

Income tax expense

 

 

3

 

 

 

6

 

Net Income (loss)

 

 

369

 

 

 

(628

)

Net income attributable to non-controlling interests

 

 

300

 

 

 

95

 

Net income (loss) attributable to common stockholders

 

 

69

 

 

 

(723

)

 

 

 

 

 

 

 

 

 

Basic net income (loss) per share

 

$

0.02

 

 

$

(0.21

)

Diluted net income (loss) per share

 

$

0.02

 

 

$

(0.21

)

 

 

 

 

 

 

 

 

 

Basic weighted average shares outstanding

 

 

3,850

 

 

 

3,448

 

Diluted weighted average shares outstanding

 

 

3,965

 

 

 

3,448

 

 

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

 

 

 

 

 

 

 

 

104

 

 

 

1

 

 

 

 

 

 

 

 

 

135

 

 

 

 

 

 

 

 

 

 

 

 

136

 

Net (loss) income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(723

)

 

 

95

 

 

 

(628

)

Balance at March 31, 2018

 

 

579

 

 

$

442

 

 

 

3,399

 

 

$

34

 

 

 

220

 

 

$

2

 

 

$

177,747

 

 

$

(2,662

)

 

$

(190,526

)

 

$

17,082

 

 

$

2,119

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

56

 

 

 

 

 

 

 

 

 

 

 

 

96

 

 

 

 

 

 

 

 

 

 

 

 

96

 

Shares withheld related to net share

   settlement  of restricted stock awards

 

 

 

 

 

 

 

 

(10

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

69

 

 

 

300

 

 

 

369

 

Balance at March 31, 2019

 

 

2,800

 

 

$

7,193

 

 

 

3,749

 

 

$

37

 

 

 

220

 

 

$

2

 

 

$

180,769

 

 

$

(2,662

)

 

$

(194,250

)

 

$

16,006

 

 

$

7,095

 

 

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)

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

369

 

 

$

(628

)

Adjustment to reconcile net income (loss) to net cash provided by (used in) operating activities

 

 

 

 

 

 

 

 

Amortization of loan discount, loan commitment and deferred financing fees

 

 

21

 

 

 

150

 

Depreciation expense

 

 

31

 

 

 

57

 

Earnings from unconsolidated joint venture, net of distributions

 

 

(1

)

 

 

4

 

Stock compensation

 

 

86

 

 

 

86

 

Impairment charges

 

 

 

 

 

558

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Trade receivables

 

 

1,555

 

 

 

(5,216

)

Real estate inventories

 

 

2,658

 

 

 

1,157

 

Other assets

 

 

(35

)

 

 

(655

)

Accrued interest

 

 

(404

)

 

 

592

 

Accounts payable and accrued liabilities

 

 

(1,401

)

 

 

3,840

 

Income taxes payable

 

 

3

 

 

 

6

 

Net cash provided by (used in) operating activities

 

 

2,882

 

 

 

(49

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of fixed assets

 

 

(15

)

 

 

(46

)

Principal received on note receivable

 

 

10

 

 

 

9

 

Net cash used in investing activities

 

 

(5

)

 

 

(37

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from notes payable

 

 

2,289

 

 

 

2,853

 

Payments on notes payable

 

 

(5,256

)

 

 

(3,458

)

Loan financing costs

 

 

 

 

 

(57

)

Taxes paid related to net share settlement of equity awards

 

 

(28

)

 

 

 

Net cash used in financing activities

 

 

(2,995

)

 

 

(662

)

Net decrease in cash, restricted cash and cash equivalents

 

 

(118

)

 

 

(748

)

Cash, restricted cash and cash equivalents, beginning of period

 

 

7,011

 

 

 

2,947

 

Cash, restricted cash and cash equivalents, end of period

 

$

6,893

 

 

$

2,199

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Interest paid, net of interest capitalized

 

$

437

 

 

$

605

 

 

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. 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”). On April 30, 2019 the Company announced the exit from the Homebuilding business. 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.

For the three months ended March 31, 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. Refer to Note 22 – Subsequent Events for further discussion regarding the transaction.

5


 

On April 30, 2019, CDS Asset Management, L.C. (“CAM”), an entity wholly owned by CHCI, 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. Refer to Note 22 – Subsequent Events for further discussion regarding the 2019 AMA.

On April 30, 2019, CAM entered into a Business Management Agreement (the “Management Agreement”) with Comstock Investors X, L.C. (“Investors X”) whereby CAM will provide Investors X with asset and professional services related to the wind down of Investors X’s homebuilding operations and the continuation of services related to Investors X’s existing 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.  Refer to Note 22 – Subsequent Events for further discussion regarding the Management Agreement.

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.

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.

6


 

We assessed other accounting pronouncements issued or effective during the three months ended March 31, 2019 and deemed they were not applicable to us and 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, commercial development, home sales transactions and amounts due from related parties with whom we have service arrangements. There is no allowance for doubtful accounts recorded.

 

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Trade

 

$

793

 

 

$

804

 

Due from settlement attorneys

 

 

606

 

 

 

441

 

Other

 

 

35

 

 

 

84

 

 

 

$

1,434

 

 

$

1,329

 

 

As of March 31, 2019 and December 31, 2018, the Company had $1.3 million and $3.0 million, respectively, of receivables from related parties, primarily related to the AMA.

 

3. REAL ESTATE INVENTORIES

After impairments and write-offs, real estate held for development and sale consists of the following:

 

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Land and land development costs

 

$

7,919

 

 

$

9,741

 

Cost of construction (including capitalized interest and real estate

   taxes)

 

 

9,679

 

 

 

10,512

 

 

 

$

17,598

 

 

$

20,253

 

 

As a result of our impairment analysis, for the three months ended March 31, 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 during the three months ended March 31, 2018 due to unsuccessful negotiations and market conditions.

4. 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. Comstock Environmental operates 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 March 31, 2019 and December 31, 2018, the balance of goodwill was $1.7 million.

7


 

Intangible assets include customer relationships which have an amortization period of four years. During the three months ended March 31, 2019 and 2018, $17 thousand of intangible asset amortization was recorded in General and administrative expense on the Consolidation Statements of Operations.

 

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Intangibles

 

 

268

 

 

 

268

 

Less: accumulated amortization

 

 

(115

)

 

 

(98

)

 

 

$

153

 

 

$

170

 

 

As of March 31, 2019, the future estimated amortization expense related to these intangible assets was:

 

 

 

Amortization

 

 

 

Expense

 

2019

 

$

50

 

2020

 

 

67

 

2021

 

 

36

 

Total

 

$

153

 

 

5. 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.

Maturities of lease liabilities as of March 31, 2019 are as follows:

 

 

 

Operating

Leases

 

2019 (9 months ended December 31)

 

$

49

 

2020

 

 

59

 

2021

 

 

54

 

2022

 

 

9

 

Total lease payments

 

 

171

 

Less: imputed interest

 

 

15

 

Present Value of lease liabilities

 

$

156

 

8


 

 

As of March 31, 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 March 31, 2019.

6. OTHER ASSETS, NET

Other assets, net consist of the following:

 

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Bonds and escrow deposits

 

$

1,108

 

 

$

1,100

 

Prepaid insurance

 

 

82

 

 

 

60

 

Other

 

 

300

 

 

 

304

 

 

 

 

1,490

 

 

 

1,464

 

 

7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities consist of the following:

 

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Trade and accrued payables

 

$

3,729

 

 

$

4,727

 

Accrued wages and commissions

 

 

477

 

 

 

1,396

 

Customer deposits

 

 

2,357

 

 

 

1,189

 

Warranty

 

 

186

 

 

 

195

 

Other

 

 

54

 

 

 

107

 

 

 

$

6,803

 

 

$

7,614

 

 

8. CONTRACT LIABILITIES

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

Contract liabilities consisted of the following:

 

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Contract Liabilities: Customer Deposits and Deferred Revenue

 

 

 

 

 

 

 

 

Homebuilding - Customer deposits

 

$

2,357

 

 

$

1,189

 

Asset Management - Deferred revenue

 

 

1,250

 

 

 

1,875

 

Total Contract Liabilities

 

$

3,607

 

 

$

3,064

 

 

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.

The Company’s other contract liabilities, that consist of deposits received from customers (“Customer deposits”) on homes not settled, were $2.4 million and $1.2 million as of March 31, 2019 and December 31, 2018, respectively. During the three months ended March 31, 2019, the Company recognized in revenue approximately $414 thousand of the customer deposits held as of December 31, 2018.

Customer deposits are also included in Note 7 – Accounts Payable and Accrued Liabilities.

9


 

9. REVENUE

The Company’s revenues consist primarily of 1) buildout of the remaining projects under the homebuilding platform, 2) recurring fees earned under the AMA, 3) property management, and 4) 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 March 31,

 

 

 

2019

 

 

2018

 

Revenue by customer

 

 

 

 

 

 

 

 

Individual customers

 

$

6,769

 

 

$

5,561

 

Related party

 

 

3,595

 

 

 

2,791

 

Commercial

 

 

994

 

 

 

447

 

Total Revenue by customer

 

$

11,358

 

 

$

8,799

 

 

 

 

 

 

 

 

 

 

Revenue by contract type

 

 

 

 

 

 

 

 

Fixed-price

 

$

7,202

 

 

$

5,561

 

Cost-plus

 

 

3,485

 

 

 

2,791

 

Time and Material

 

 

671

 

 

 

447

 

Total Revenue by contract type

 

$

11,358

 

 

$

8,799

 

 

Revenue and related profits or losses from homebuilding contracts: the sale of residential properties and units, finished lots and land sales is recognized on the settlement date at the contract sales price, when control is transferred to our customers. These contracts meet the criteria for recognizing revenue at a point in time. As such, these revenues are disaggregated in ‘Individual customers’ and ‘Fixed-price’ in the tables above.

Under the recently executed 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” cost-to-cost revenue recognition model, which includes cost-plus and fixed-prices contracts, 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.

10. WARRANTY RESERVE

Warranty reserves for units settled are established to cover potential costs for materials and labor with regard to warranty-type claims expected to arise during the typical one-year warranty period provided by the Company or within the two-year statutorily mandated structural warranty period for condominiums. Because the Company typically subcontracts its homebuilding work, subcontractors are required to provide the Company with an indemnity and a certificate of insurance prior to receiving payments for their work. Claims relating to workmanship and materials are generally the primary responsibility of the subcontractors and product manufacturers. The warranty reserve is established at the time of closing, and is calculated based upon historical warranty cost experience and current business factors. This reserve is an estimate and actual warranty costs could vary from these estimates. Variables used in the calculation of the reserve, as well as the adequacy of the reserve based on the number of homes still under warranty, are reviewed on a periodic basis. Warranty claims are directly charged to this reserve as they arise.

10


 

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

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Balance at beginning of period

 

$

195

 

 

$

258

 

Additions

 

 

18

 

 

 

16

 

Releases and/or charges incurred

 

 

(27

)

 

 

(47

)

Balance at end of period

 

$

186

 

 

$

227

 

 

11. CAPITALIZED INTEREST AND REAL ESTATE TAXES

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

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

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Interest incurred and capitalized

 

$

392

 

 

$

896

 

Real estate taxes incurred and capitalized

 

 

14

 

 

 

66

 

Total interest and real estate taxes incurred and capitalized

 

$

406

 

 

$

962

 

 

 

 

 

 

 

 

 

 

Interest expensed as a component of cost of sales

 

$

519

 

 

$

518

 

Real estate taxes expensed as a component of cost of sales

 

 

41

 

 

 

48

 

Interest and real estate taxes expensed as a component of

   cost of sales

 

$

560

 

 

$

566

 

 

The amount of interest from entity level borrowings that we are able to capitalize in accordance with Accounting Standards Codification (“ASC”) 835 is dependent upon the average accumulated expenditures that exceed project specific borrowings. Additionally, when a project becomes inactive, its interest, real estate taxes and indirect production overhead costs are no longer capitalized but rather expensed in the period they are incurred.

12. DEBT

Notes payable consisted of the following:

 

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Construction revolvers

 

$

1,883

 

 

$

2,220

 

Development and acquisition notes

 

 

7,293

 

 

 

10,290

 

Line of credit

 

 

-

 

 

 

13

 

Other

 

 

857

 

 

 

909

 

Total secured notes

 

 

10,033

 

 

 

13,432

 

Unsecured financing, net of unamortized deferred financing

   charges of $0 and $0, respectively

 

 

595

 

 

 

595

 

Notes payable- due to affiliates, unsecured, net of $0.8 million

   and $0.8 million discount and unamortized deferred

   financing charges, respectively

 

 

4,935

 

 

 

4,903

 

Total notes payable

 

$

15,563

 

 

$

18,930

 

11


 

 

As of March 31, 2019, net maturities and/or curtailment obligations of all borrowings are as follows:

 

2019

 

$

4,935

 

2020

 

 

4,802

 

2021

 

 

4,375

 

2022

 

 

1,419

 

2023 and thereafter

 

 

32

 

Total

 

$

15,563

 

 

As of March 31, 2019, the Company had no credit facilities or project related loans scheduled to mature during the remainder of 2019.

Construction and development debt – secured

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

The Company had $1.9 million and $2.2 million of outstanding secured construction borrowings as of March 31, 2019 and December 31, 2018, respectively. Interest rates charged under these facilities include the London Interbank Offered Rate (“LIBOR”) and prime rate pricing options, subject to minimum interest rate floors. At March 31, 2019 and December 31, 2018, the weighted average interest rate on the Company’s outstanding construction revolving facilities was 5.7% per annum. The construction credit facilities have maturity dates ranging from March 15, 2020 to July 31, 2020, including extensions subject to the Company meeting certain conditions.

As of March 31, 2019, and December 31, 2018, the Company had approximately $7.3 million and $10.3 million, respectively, of aggregate acquisition and development loans outstanding. These loans have maturity dates ranging from March 15, 2020 to July 25, 2021, including extensions subject to certain conditions, and bear interest at a rate based on LIBOR and prime rate pricing options, with interest rate floors ranging from 4.25% to 5.50% per annum. As of March 31, 2019 and December 31, 2018, the weighted average interest rate was 5.9% and 6.6% per annum, respectively.

Line of credit – secured

During 2018, the Company opened a secured line of credit with a maximum capacity of $0.2 million, which was paid in full during the three months ended March 31, 2019. Interest charged on this line of credit was based on the prime rate plus 2.50%. As of December 31, 2018, there was $13 thousand of principal and interest outstanding on this line of credit, and the interest rate was 6.75%.

Other – secured

As of March 31, 2019 and December 31, 2018, the Company had one secured loan related to Comstock Environmental. The 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 March 31, 2019 and December 31, 2018, this financing had an outstanding balance of $824 thousand and $874 thousand, respectively. This financing is secured by the assets of Comstock Environmental and is guaranteed by our Chief Executive Officer.

Unsecured financing

As of March 31, 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. At March 31, 2019 and December 31, 2018, the interest rate was 5.7% and 6.0%, respectively.

12


 

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 will be made monthly in arrears. The Company is the administrative manager of CGF but does not own any membership interests. The Company had approximately $4.9 million of outstanding borrowings and accrued interest under the CGF loan, net of discounts, as of March 31, 2019 and December 31, 2018. As of March 31, 2019, and December 31, 2018, the interest rate was 10.0% per annum. The maturity date for the CGF loan was April 16, 2019. Subsequent to March 31, 2019, the Company secured an extension on the CGF loan, providing for a new maturity date of April 16, 2020.  See Note 22 – Subsequent Events for further discussion on the extension.

For the three months ended March 31, 2019 and 2018, the Company made interest payments of $0.2 million and $0.1 million, respectively.  

During the three months ended March 31, 2019 and 2018, the Company did not make principal payments to CGF.

13. 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 in