Company Quick10K Filing
Ashford
Price22.19 EPS-1
Shares3 P/E-35
MCap62 P/FCF3
Net Debt-19 EBIT2
TEV42 TEV/EBIT25
TTM 2019-09-30, in MM, except price, ratios
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AINC 10Q Quarterly Report

Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Default Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 ainc2020q110-qxex311.htm
EX-31.2 ainc2020q110-qxex312.htm
EX-32.1 ainc2020q110-qxex321.htm
EX-32.2 ainc2020q110-qxex322.htm

Ashford Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
4253402551708502013201520172020
Assets, Equity
655035205-102013201520172020
Rev, G Profit, Net Income
754923-3-29-552013201520172020
Ops, Inv, Fin

10-Q 1 ainc2020q110-q.htm 10-Q Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
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: 001-36400

ASHFORD INC.
(Exact name of registrant as specified in its charter)
Nevada
 
84-2331507
(State or other jurisdiction of incorporation or organization)
 
(IRS employer identification number)
 
 
 
14185 Dallas Parkway, Suite 1100
 
 
Dallas, Texas
 
75254
(Address of principal executive offices)
 
(Zip code)
(972) 490-9600
(Registrant’s telephone number, including area code)

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. þ 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). þ 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 check mark 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 Exchange Act). ¨ Yes þ No

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol
 
Name of each exchange on which registered
Common Stock
 
AINC
 
NYSE American LLC
Preferred Stock Purchase Rights
 
 
 
NYSE American LLC
    
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common Stock, $0.001 par value per share
 
2,527,498
(Class)
 
Outstanding at June 23, 2020





EXPLANATORY NOTE
On May 8, 2020, Ashford Inc. (the “Company”, “we” and “our”) filed a Current Report on Form 8-K (the “Form 8-K”) with the U.S. Securities and Exchange Commission (the “SEC”) indicating its reliance on the 45-day extension provided by an order issued by the SEC under Section 36 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) Granting Exemptions from Specified Provisions of the Exchange Act and Certain Rules Thereunder, dated March 4, 2020 (Release No. 34-88318), as modified and superseded by a new SEC order under Section 36 of the Exchange Act Modifying Exemptions from the Reporting and Proxy Delivery Requirements for Public Companies, dated March 25, 2020 (Release No. 34-88465) (collectively, the “Order”). Specifically, the Company disclosed that it was unable to timely prepare and review the Quarterly Report due to circumstances related to COVID-19, including disruptions to the Company’s operations and business, the Company’s key accounting personnel responsible for assisting the Company in the preparation of its financial statements now being required to work remotely, and reductions in headcount and furloughs of accounting personnel. Therefore, due to COVID-19’s interference in the Company’s operations, the Company was unable to file the Original Form 10-Q on or prior to the May 11, 2020 due date. Consistent with the Company’s statements made in the Form 8-K, this Quarterly Report for the three months ended March 31, 2020, has been filed on June 25, 2020 (which was within the permitted timeframe of the Order).



ASHFORD INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2020

TABLE OF CONTENTS

 
 
 




PART I. FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS (unaudited)
ASHFORD INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except share and per share amounts)
 
March 31, 2020
 
December 31, 2019
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
54,906

 
$
35,349

Restricted cash
20,671

 
17,900

Restricted investment
340

 
1,195

Accounts receivable, net
14,949

 
7,241

Due from affiliates
121

 
357

Due from Ashford Trust
1,280

 
4,805

Due from Braemar
891

 
1,591

Inventories
1,577

 
1,642

Prepaid expenses and other
6,963

 
7,212

Total current assets
101,698

 
77,292

Investments in unconsolidated entities
3,712

 
3,476

Property and equipment, net
110,438

 
116,190

Operating lease right-of-use assets
32,254

 
31,699

Goodwill
66,834

 
205,606

Intangible assets, net
292,715

 
347,961

Other assets
3,023

 
276

Total assets
$
610,674

 
$
782,500

LIABILITIES


 
 
Current liabilities:
 
 
 
Accounts payable and accrued expenses
$
29,550

 
$
39,160

Dividends payable
7,875

 
4,725

Due to affiliates
1,828

 
1,011

Deferred income
6,772

 
233

Deferred compensation plan
11

 
35

Notes payable, net
57,944

 
3,550

Finance lease liabilities
527

 
572

Operating lease liabilities
3,463

 
3,207

Other liabilities
22,713

 
19,066

Total current liabilities
130,683

 
71,559

Deferred income
11,478

 
13,047

Deferred tax liability, net
55,905

 
69,521

Deferred compensation plan
1,139

 
4,694

Notes payable, net
4,507

 
33,033

Finance lease liabilities
41,266

 
41,482

Operating lease liabilities
28,820

 
28,519

Other liabilities
430

 
430

Total liabilities
274,228

 
262,285

Commitments and contingencies (note 9)


 


MEZZANINE EQUITY
 
 
 
Series D Convertible Preferred Stock, $0.001 par value, 19,120,000 shares issued and outstanding, net of discount, as of March 31, 2020 and December 31, 2019
474,870

 
474,060

Redeemable noncontrolling interests
4,120

 
4,131

EQUITY (DEFICIT)
 
 
 
Common stock, 100,000,000 shares authorized, $0.001 par value, 2,459,887 and 2,202,580 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively
2

 
2

Additional paid-in capital
288,114

 
285,825

Accumulated deficit
(430,731
)
 
(244,084
)
Accumulated other comprehensive income (loss)
(309
)
 
(216
)
Treasury stock, at cost, 3,873 and 1,638 shares at March 31, 2020 and December 31, 2019, respectively
(149
)
 
(131
)
Total equity (deficit) of the Company
(143,073
)
 
41,396

Noncontrolling interests in consolidated entities
529

 
628

Total equity (deficit)
(142,544
)
 
42,024

Total liabilities and equity (deficit)
$
610,674

 
$
782,500

See Notes to Condensed Consolidated Financial Statements.

2


ASHFORD INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share amounts)
 
Three Months Ended March 31,
 
2020
 
2019
REVENUE
 
 
 
Advisory services
$
11,836

 
$
10,920

Hotel management
6,124

 

Project management fees
3,938

 
6,442

Audio visual
29,674

 
30,975

Other
6,691

 
5,010

Cost reimbursement revenue
75,579

 
9,973

Total revenues
133,842

 
63,320

EXPENSES
 
 
 
Salaries and benefits
16,310

 
16,214

Cost of revenues for project management
1,451

 
1,473

Cost of revenues for audio visual
20,430

 
21,439

Depreciation and amortization
9,969

 
4,108

General and administrative
6,183

 
6,454

Impairment
178,213

 

Other
4,226

 
1,339

Reimbursed expenses
75,511

 
9,751

Total expenses
312,293

 
60,778

OPERATING INCOME (LOSS)
(178,451
)
 
2,542

Equity in earnings (loss) of unconsolidated entities
236

 
(275
)
Interest expense
(1,176
)
 
(297
)
Amortization of loan costs
(66
)
 
(69
)
Interest income
28

 
20

Realized gain (loss) on investments
(375
)
 

Other income (expense)
(521
)
 
(53
)
INCOME (LOSS) BEFORE INCOME TAXES
(180,325
)
 
1,868

Income tax (expense) benefit
2,085

 
(1,300
)
NET INCOME (LOSS)
(178,240
)
 
568

(Income) loss from consolidated entities attributable to noncontrolling interests
160

 
163

Net (income) loss attributable to redeemable noncontrolling interests
440

 
(21
)
NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY
(177,640
)
 
710

Preferred dividends, declared and undeclared
(7,875
)
 
(2,791
)
Amortization of preferred stock discount
(810
)
 
(491
)
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS
$
(186,325
)
 
$
(2,572
)
 
 
 
 
INCOME (LOSS) PER SHARE - BASIC AND DILUTED
 
 
 
Basic:
 
 
 
Net income (loss) attributable to common stockholders
$
(84.73
)
 
$
(1.06
)
Weighted average common shares outstanding - basic
2,199

 
2,419

Diluted:
 
 
 
Net income (loss) attributable to common stockholders
$
(84.73
)
 
$
(1.13
)
Weighted average common shares outstanding - diluted
2,199

 
2,449

See Notes to Condensed Consolidated Financial Statements.

3


ASHFORD INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited, in thousands)
 
Three Months Ended March 31,
 
2020
 
2019
 
 
 
 
NET INCOME (LOSS)
$
(178,240
)
 
$
568

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
 
 
 
Foreign currency translation adjustment
439

 
30

Unrealized gain (loss) on restricted investment
(856
)
 

Less reclassification for realized (gain) loss on restricted investment included in net income
375

 

COMPREHENSIVE INCOME (LOSS)
(178,282
)
 
598

Comprehensive (income) loss attributable to noncontrolling interests
160

 
163

Comprehensive (income) loss attributable to redeemable noncontrolling interests
389

 
(34
)
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY
$
(177,733
)
 
$
727

See Notes to Condensed Consolidated Financial Statements.


4


ASHFORD INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT)
(unaudited, in thousands)

 
Common Stock
 
Additional Paid-in Capital
 
Accumulated
 Deficit
 
Accumulated Other Comprehensive Income (Loss)
 
Treasury Stock
 
Noncontrolling Interests in Consolidated Entities
 
Total
 
Convertible Preferred Stock
 
Redeemable Noncontrolling Interests
 
Shares
 
Amount
Shares
 
Amount
 
Shares
 
Amount
Balance at December 31, 2019
2,203

 
$
2

 
$
285,825

 
$
(244,084
)
 
$
(216
)
 
(2
)
 
$
(131
)
 
$
628

 
$
42,024

 
19,120

 
$
474,060

 
$
4,131

Equity-based compensation
257

 

 
2,187

 

 

 

 

 
3

 
2,190

 

 

 

Forfeiture of restricted common shares

 

 
13

 

 

 
(1
)
 
(13
)
 

 

 

 

 

Purchase of treasury stock

 

 

 

 

 
(1
)
 
(5
)
 

 
(5
)
 

 

 

Amortization of preferred stock discount

 

 

 
(810
)
 

 

 

 

 
(810
)
 

 
810

 

Dividends declared - preferred stock

 

 

 
(3,938
)
 

 

 

 

 
(3,938
)
 

 

 

Dividends undeclared - preferred stock

 

 

 
(3,937
)
 

 

 

 
 
 
(3,937
)
 

 

 

Deferred compensation plan distribution

 

 
2

 

 

 

 

 

 
2

 

 

 

Employee advances

 

 
124

 

 

 

 

 

 
124

 

 

 

Contributions from noncontrolling interests

 

 

 

 

 

 

 
77

 
77

 

 

 

Reallocation of carrying value

 

 
(37
)
 

 

 

 

 
(19
)
 
(56
)
 

 

 
56

Redemption value adjustment

 

 

 
(322
)
 

 

 

 

 
(322
)
 

 

 
322

Foreign currency translation adjustment

 

 

 

 
388

 

 

 

 
388

 

 

 
51

Unrealized gain (loss) on available for sale securities

 

 

 

 
(856
)
 

 

 

 
(856
)
 

 

 

Reclassification for realized loss (gain) on available for sale securities

 

 

 

 
375

 

 

 

 
375

 

 

 

Net income (loss)

 

 

 
(177,640
)
 

 

 

 
(160
)
 
(177,800
)
 

 

 
(440
)
Balance at March 31, 2020
2,460

 
$
2

 
$
288,114

 
$
(430,731
)
 
$
(309
)
 
(4
)
 
$
(149
)
 
$
529

 
$
(142,544
)
 
19,120

 
$
474,870

 
$
4,120



5


 
Common Stock
 
Additional Paid-in Capital
 
Accumulated
 Deficit
 
Accumulated Other Comprehensive Income (Loss)
 
Noncontrolling Interests in Consolidated Entities
 
Total
 
Convertible Preferred Stock
 
Redeemable Noncontrolling Interests
 
Shares
 
Amount
 
Shares
 
Amount
Balance at December 31, 2018
2,392

 
$
24

 
$
280,159

 
$
(214,242
)
 
$
(498
)
 
$
458

 
$
65,901

 
8,120

 
$
200,847

 
$
3,531

Equity-based compensation

 

 
2,155

 

 

 
3

 
2,158

 

 

 

Acquisition of BAV Services
60

 
1

 
3,754

 

 

 

 
3,755

 

 

 

Investment in Real Estate Advisory Holdings LLC
17

 

 
1,000

 

 

 

 
1,000

 

 

 

Amortization of preferred stock discount

 

 

 
(491
)
 

 

 
(491
)
 

 
491

 

Dividends declared - preferred stock

 

 

 
(2,791
)
 

 

 
(2,791
)
 

 

 

Deferred compensation plan distribution
1

 

 
46

 

 

 

 
46

 

 

 

Employee advances

 

 
249

 

 

 

 
249

 

 

 

Contributions from noncontrolling interests

 

 

 

 

 
455

 
455

 

 

 

Reallocation of carrying value

 

 
(234
)
 

 

 
(122
)
 
(356
)
 

 

 
356

Redemption value adjustment

 

 

 
111

 

 

 
111

 

 

 
(111
)
Distributions to consolidated noncontrolling interests

 

 

 

 

 
(4
)
 
(4
)
 

 

 

Foreign currency translation adjustment

 

 

 

 
15

 

 
15

 

 

 
13

Net income (loss)

 

 

 
710

 

 
(163
)
 
547

 

 

 
21

Balance at March 31, 2019
2,470

 
$
25

 
$
287,129

 
$
(216,703
)
 
$
(483
)
 
$
627

 
$
70,595

 
8,120

 
$
201,338

 
$
3,810

See Notes to Condensed Consolidated Financial Statements.

6


ASHFORD INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 
Three Months Ended March 31,
 
2020
 
2019
Cash Flows from Operating Activities
 
 
 
Net income (loss)
$
(178,240
)
 
$
568

Adjustments to reconcile net income (loss) to net cash flows provided by (used in) operating activities:
 
 
 
Depreciation and amortization
11,364

 
5,563

Change in fair value of deferred compensation plan
(3,577
)
 
740

Equity-based compensation
2,049

 
2,158

Equity in (earnings) loss in unconsolidated entities
(236
)
 
275

Deferred tax expense (benefit)
(3,322
)
 
300

Change in fair value of contingent consideration
463

 
18

Impairment
178,213

 

Amortization of other assets
326

 

Amortization of loan costs
66

 
69

Realized loss on restricted investments
375

 

Write off of deferred loan costs
62

 

Changes in operating assets and liabilities, exclusive of the effect of acquisitions:
 
 
 
Accounts receivable
(7,751
)
 
(6,851
)
Due from affiliates
236

 
(30
)
Due from Ashford Trust
3,525

 
522

Due from Braemar
700

 
(35
)
Inventories
59

 
(335
)
Prepaid expenses and other
166

 
338

Operating lease right-of-use assets
1,055

 
412

Other assets
(52
)
 

Accounts payable and accrued expenses
(9,097
)
 
(4,448
)
Due to affiliates
786

 
(734
)
Other liabilities
3,184

 
4,512

Operating lease liabilities
(1,053
)
 
(400
)
Deferred income
4,999

 
(373
)
Net cash provided by (used in) operating activities
4,300

 
2,269

Cash Flows from Investing Activities
 
 
 
Purchases of furniture, fixtures and equipment under the Ashford Trust ERFP Agreement

 
(5,000
)
Additions to property and equipment
(1,990
)
 
(1,736
)
Proceeds from disposal of property and equipment, net
57

 

Additional purchase price paid for Remington working capital adjustment
(1,293
)
 

Acquisition of BAV

 
(4,332
)
Investment in REA Holdings

 
(2,176
)
Acquisition of assets related to RED
(147
)
 
(499
)
Net cash provided by (used in) investing activities
(3,373
)
 
(13,743
)
 
 
 
(Continued)


7


 
Three Months Ended March 31,
 
2020
 
2019
Cash Flows from Financing Activities
 
 
 
Payments for dividends on preferred stock
(4,725
)
 
(2,791
)
Payments on revolving credit facilities
(11,213
)
 
(6,890
)
Borrowings on revolving credit facilities
8,884

 
7,617

Proceeds from notes payable
29,462

 
6,577

Payments on notes payable
(819
)
 
(413
)
Payments on finance lease liabilities
(282
)
 
(168
)
Payments of loan costs
(290
)
 
(41
)
Forfeitures of restricted shares
(5
)
 

Employee advances
124

 
249

Contributions from noncontrolling interest
77

 
455

Distributions to noncontrolling interests in consolidated entities

 
(4
)
Net cash provided by (used in) financing activities
21,213

 
4,591

Effect of foreign exchange rate changes on cash and cash equivalents
188

 
(3
)
Net change in cash, cash equivalents and restricted cash
22,328

 
(6,886
)
Cash, cash equivalents and restricted cash at beginning of period
53,249

 
59,443

Cash, cash equivalents and restricted cash at end of period
$
75,577

 
$
52,557

 
 
 
 
Supplemental Cash Flow Information
 
 
 
Interest paid
$
1,037

 
$
211

Income taxes paid (refunded), net
(129
)
 
91

Supplemental Disclosure of Non-Cash Investing and Financing Activities
 
 
 
Ashford Inc. common stock consideration for BAV acquisition
$

 
$
3,755

Ashford Inc. common stock consideration for investment in REA Holdings

 
890

Distribution from deferred compensation plan
2

 
46

Capital expenditures accrued but not paid
876

 
852

Finance lease additions
21

 
137

 
 
 
 
Supplemental Disclosure of Cash, Cash Equivalents and Restricted Cash
 
 
 
Cash and cash equivalents at beginning of period
$
35,349

 
$
51,529

Restricted cash at beginning of period
17,900

 
7,914

Cash, cash equivalents and restricted cash at beginning of period
$
53,249

 
$
59,443

 
 
 
 
Cash and cash equivalents at end of period
$
54,906

 
$
39,953

Restricted cash at end of period
20,671

 
12,604

Cash, cash equivalents and restricted cash at end of period
$
75,577

 
$
52,557

See Notes to Condensed Consolidated Financial Statements.

8

ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)



1. Organization and Description of Business
Ashford Inc. (the “Company”) is a Nevada corporation that provides products and services primarily to clients in the hospitality industry, including Ashford Hospitality Trust, Inc. (“Ashford Trust”) and Braemar Hotels & Resorts Inc. (“Braemar”). We became a public company in November 2014, and our common stock is listed on the NYSE American LLC (“NYSE American”). Unless the context otherwise requires, references to the “Company”, “we”, “us” or “Ashford Inc.” for the period before August 8, 2018 refer to Old Ashford (as defined below), for the period from and including August 8, 2018 through November 6, 2019 refer to Maryland Ashford (as defined below), and for the period beginning on and including November 6, 2019, and thereafter refer to Ashford Inc., a Nevada Corporation.
We provide: (i) advisory services; (ii) asset management services; (iii) hotel management services; (iv) project management services; (v) event technology and creative communications solutions; (vi) mobile room keys and keyless entry solutions; (vii) watersports activities and other travel, concierge and transportation services; (viii) hypoallergenic premium room products and services; (ix) debt placement services; (x) real estate advisory and brokerage services; and (xi) wholesaler, dealer manager and other broker-dealer services. We conduct these activities and own substantially all of our assets primarily through Ashford Hospitality Advisors, LLC (“Ashford LLC”), Ashford Hospitality Services, LLC (“Ashford Services”) and their respective subsidiaries.
We are currently the advisor to Ashford Trust and Braemar. In our capacity as the advisor to Ashford Trust and Braemar, we are responsible for implementing the investment strategies and managing the day-to-day operations of Ashford Trust and Braemar from an ownership perspective, in each case subject to the supervision and oversight of the respective board of directors of Ashford Trust and Braemar. Ashford Trust is focused on investing in full-service hotels in the upscale and upper upscale segments in the U.S. that have revenue per available room (“RevPAR”) generally less than twice the national average. Braemar invests primarily in luxury hotels and resorts with RevPAR of at least twice the U.S. national average. Each of Ashford Trust and Braemar is a real estate investment trust (“REIT”) as defined in the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), and the common stock of each of Ashford Trust and Braemar is traded on the New York Stock Exchange (the “NYSE”).
We provide the personnel and services that we believe are necessary for each of Ashford Trust and Braemar to conduct their respective businesses. We may also perform similar functions for new or additional platforms. In our capacity as an advisor, we are not responsible for managing the day-to-day operations of the individual hotel properties owned by either Ashford Trust or Braemar, which duties are, and will continue to be, the responsibility of the hotel management companies that operate the hotel properties owned by Ashford Trust and Braemar. As described further below, Remington, which we acquired on November 6, 2019, operates certain of the hotel properties owned by Ashford Trust and Braemar.
Shareholder Rights Plan
On March 13, 2020, we adopted a shareholder rights plan by entering into a Rights Agreement, dated March 13, 2020, with ComputerShare Trust Company, N.A., as rights agent (the “Rights Agreement”). We intend for the shareholder rights plan to improve the bargaining position of our board of directors in the event of an unsolicited offer to acquire our outstanding shares of common stock. Our board of directors implemented the rights plan by declaring a dividend of one preferred share purchase right (a “Right”) that was paid on March 23, 2020, for each outstanding share of our common stock on March 23, 2020 (the “Record Date”), to our stockholders of record on that date. Each of those Rights becomes exercisable on the Distribution Date (defined below) and entitles the registered holder to purchase from the Company one one-thousandth of a share of our Series E Preferred Stock, par value $0.001 per share, at a price of $275 per one one-thousandth of a share of our Series E Preferred Stock represented by such a right, subject to adjustment. The Rights will expire on February 13, 2021 unless the expiration date is extended or unless the Rights are earlier redeemed by the Company.
Initially, the Rights will be attached to all certificates representing our common stock, and no separate certificates evidencing the Rights (the “Rights Certificates”) will be issued. The Rights Agreement provides that, until the date on which the Rights separate and begin trading separately from our common stock (which we refer to as the “Distribution Date”) or earlier expiration or redemption of the Rights: (i) the Rights will be transferred with and only with the shares of our common stock; (ii) new certificates representing shares of our common stock issued after the Record Date or upon transfer or new issuance of shares of our common stock will contain a notation incorporating the Rights Agreement by reference; and (iii) the surrender for transfer of any certificates for shares of our common stock outstanding as of the Record Date, even without such notation or a copy of the Summary of Rights (as defined in the Rights Agreement) being attached thereto, will also constitute the transfer of the Rights associated with the shares of our common stock represented by such certificate. The Distribution Date will occur, and the Rights would separate and begin

9

ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)


trading separately from the shares of our common stock, and Rights Certificates will be caused to evidence the Rights on the earlier to occur of:
i.
10 business days following a public announcement, or the public disclosure of facts indicating, that a person or group of affiliated or associated persons has acquired Beneficial Ownership (as defined in the Rights Agreement) of 10% or more of the outstanding shares of our common stock (referred to, subject to certain exceptions, as “Acquiring Persons”) (or, in the event an exchange of the Rights for shares of our common stock is effected in accordance with certain provisions of the Rights Agreement and our board of directors determines that a later date is advisable, then such later date that is not more than 20 days after such public announcement); or
ii.
10 business days (or such later date as may be determined by action of our board of directors prior to such time as any person becomes an Acquiring Person) following the commencement of, or announcement of an intention to make, a tender offer or exchange offer, the consummation of which would result in the Beneficial Ownership by a person or group of 10% or more of the outstanding shares of our common stock.
The Rights also become exercisable if a person or group that already beneficially owns 10% or more of our common stock acquires any additional shares of our common stock without the approval of our board of directors, except that the Distribution Date will not occur as a result of our company, one of our subsidiaries, one of our employee benefit plans or a trustee for one of those plans, or Mr. Monty J. Bennett and certain of his affiliates and associates acquiring additional shares of our common stock, and those persons will not be Acquiring Persons.
If a person or group becomes an Acquiring Person at any time after the date of the Rights Agreement, with certain limited exceptions, the Rights will become exercisable for shares of our common stock (or, in certain circumstances, shares of our Series E Preferred Stock or other of our securities that are similar) having a value equal to two times the exercise price of the right. From and after the announcement that any person has become an Acquiring Person, if the Rights evidenced by a Rights Certificate are or were at any time on or after the earlier of: (i) the date of such announcement; or (ii) the Distribution Date acquired or beneficially owned by an Acquiring Person or an associate or affiliate of an Acquiring Person, such Rights shall become void, and any holder of such Rights shall thereafter have no right to exercise such Rights. In addition, if, at any time after a person becomes an Acquiring Person: (i) we consolidate with, or merge with and into, any other person; (ii) any person consolidates with us, or merges with and into us and we are the continuing or surviving corporation of such merger and, in connection with such merger, all or part of the shares of our common stock are or will be changed into or exchanged for stock or other securities of any other person (or of ours) or cash or any other property; or (iii) 50% or more of our consolidated assets or Earning Power (as defined in the Rights Agreement) are sold, then proper provision will be made so that each holder of a right will thereafter have the right to receive, upon the exercise of a right at the then current exercise price of the right, that number of shares of common stock of the acquiring company which at the time of such transaction will have a market value of two times the exercise price of the Right. Upon the occurrence of an event of the type described in this paragraph, if our board of directors so elects, we will deliver upon payment of the exercise price of a right an amount of cash or securities equivalent in value to the shares of common stock issuable upon exercise of a right. If we fail to meet that obligation within 30 days following of the announcement that a person has become an Acquiring Person, we must deliver, upon exercise of a right but without requiring payment of the exercise price then in effect, shares of our common stock (to the extent available) and cash equal in value to the difference between the value of the shares of our common stock otherwise issuable upon the exercise of a right and the exercise price then in effect. Our board of directors may extend the 30-day period described above for up to an additional 60 days to permit the taking of action that may be necessary to authorize sufficient additional shares of our Common Stock to permit the issuance of such shares of our Common Stock upon the exercise in full of the Rights.
COVID-19, Management’s Plans and Liquidity
In December 2019, a novel strain of coronavirus (COVID-19) was identified in Wuhan, China, which subsequently spread to other regions of the world, and has resulted in significant travel restrictions and extended shutdown of numerous businesses in every state in the United States. In March 2020, the World Health Organization declared COVID-19 to be a global pandemic. Our clients Ashford Trust and Braemar have reported that the negative impact on room demand within their respective portfolios stemming from the novel coronavirus (COVID-19) is significant, which has resulted and is expected to result in significantly reduced occupancy and RevPAR. Furthermore, the prolonged presence of the virus has resulted in health or other government authorities imposing widespread restrictions on travel and other businesses. The hotel industry has experienced postponement or cancellation of a significant number of business conferences and similar events. Following the government mandates and health official orders, the Company dramatically reduced staffing and expenses at its products and services businesses and at our corporate office. COVID-19 has had a significant negative impact on the Company’s operations and financial results to date. The Company expects that the COVID-19 pandemic will have a significant negative impact on the Company’s results of operations, financial

10

ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)


position and cash flow in 2020. As a result, in March 2020, the Company declared 50% of the cumulative preferred dividend which was due with respect to its Series D Convertible Preferred Stock for the first quarter of 2020, reduced the compensation of its board of directors, executive officers and other employees, amended payment terms pursuant to certain hotel management agreements to better manage corporate working capital, reduced planned capital expenditures, and significantly reduced operating expenses. The Company adopted a remote-work policy at its corporate office in an effort to protect the health and safety of its employees and does not anticipate these policies to have any adverse impact on its ability to continue to operate its business.
As of March 31, 2020, the Company’s consolidated net worth was less than $23.2 million, which resulted in a breach of a financial covenant related to our credit agreement with Ashford Hospitality Holdings LLC, a subsidiary of the Company, Bank of America, N.A., as administrative agent and letters of credit issuer, and the lenders from time to time party thereto (the “Term Loan Agreement”). Effective June 23, 2020, the Company and Bank of America N.A. executed the Fifth Amendment to the Term Loan Agreement (the “Fifth Amendment”). The Fifth Amendment (a) establishes a 0.50% LIBOR floor, (b) eliminates the consolidated net worth financial covenant, and (c) waives the violation of the consolidated net worth financial covenant that occurred on March 31, 2020. As of March 31, 2020, our subsidiaries were in compliance in all material respects with all covenants or other requirements set forth in our debt and related agreements as amended. However, there can be no guarantee that our subsidiaries’ will remain in compliance for the remainder of the fiscal year. Due to the significant negative impact of COVID-19 on the operations of our subsidiaries, we expect that within the next twelve months, our JSAV and RED subsidiaries will violate debt covenants pursuant to certain existing debt agreements which have no recourse to Ashford Inc. As a result, JSAV and RED may be required to immediately repay debt balances of $20.2 million and $2.6 million, respectively, which have therefore been classified as current liabilities within our condensed consolidated balance sheet as of March 31, 2020. The JSAV and RED subsidiary loans, which are expected to violate debt covenants, are secured by the respective subsidiary’s tangible assets. All of our subsidiaries’ debt has no recourse to Ashford Inc. with the exception of $3.8 million of debt held by the entity that conducts RED’s legacy U.S. Virgin Islands operations which is currently not expected to violate debt covenants. See note 6.
Based on these factors, as well as, our negative $29.0 million working capital position as of March 31, 2020, the Company has determined that there is substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements are issued. U.S. generally accepted accounting principles require that in making this determination, the Company cannot consider any remedies that are outside of the Company’s control and have not been fully implemented. As a result, the Company could not consider future potential fundraising activities, whether through equity or debt offerings, disposition of assets or the likelihood of obtaining waivers as we could not conclude they were probable of being effectively implemented. Further, the Company could not consider continued cash payment of advisory fees and other revenues from Ashford Trust and Braemar, two of the Company's key customers, because each of Ashford Trust and Braemar currently exhibits conditions that create substantial doubt about the ability for each to continue as a going concern. Also, the continued cash payment of such advisory fees and other revenues remains subject to the discretion of the independent board members of each of Ashford Trust and Braemar, which is not within the Company's control. As such, the Company’s ability to remain in compliance with the financial covenants related to our Term Loan Agreement, as amended, for the next twelve months is outside of management’s control. Accordingly, the Company has classified the entire $35.0 million outstanding under our Term Loan Agreement, as amended, as a current liability on our condensed consolidated balance sheet as of March 31, 2020.
The condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty.
Other Developments
On March 13, 2020, the Company entered into the Extension Agreement (the “Extension Agreement”), related to the Ashford Trust Enhanced Return Funding Program (the “Ashford Trust ERFP Agreement”). Under the terms of the Extension Agreement, the remaining ERFP commitment funding deadline under the Ashford Trust ERFP Agreement of $11.4 million as of March 31, 2020 and December 31, 2019, has been extended from January 22, 2021 to December 31, 2022. See note 9.
On March 16, 2020, the Company announced that in light of the uncertainty created by the effects of the COVID-19, effective March 21, 2020, the base salary for its Chief Executive Officer, Mr. Monty J. Bennett, will be temporarily reduced by 20% and the base salary for certain other Company officers, including its Chief Financial Officer and its other named executive officers, will be temporarily reduced by 15% until the effects of COVID-19 have subsided and it has been determined that the Company is in a healthy financial position. Any amounts relinquished pursuant to the reduction may be paid by the Company in the future.
On March 16, 2020, in light of the uncertainty created by the effects of COVID-19, each non-employee serving on the Board agreed to a 25% reduction in their annual cash retainers. In addition, effective as of May 14, 2020, the Board agreed further that this reduced amount would be payable 75% in cash and 25% in equity (common stock of Ashford Inc.). This arrangement will be

11

ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)


effective until such time as the Board determines in its discretion that the effects of COVID-19 have subsided. Any amounts relinquished pursuant to the reduction in fees may be paid by the Company in the future, as determined by the Board in its discretion.
On March 16, 2020, the Company announced that the Board had declared and the Company would pay 50% of the cumulative preferred dividend which was due with respect to its Series D Convertible Preferred Stock for the first quarter of 2020. See note 11.
On March 20, 2020, Lismore Capital LLC (“Lismore”), a wholly owned subsidiary of the Company, entered into an agreement to seek modifications, forbearances or refinancings of Ashford Trust’s loans (the “Ashford Trust Agreement”). Pursuant to the Ashford Trust Agreement, Lismore shall, during the term of the agreement (which commenced on March 20, 2020 and shall end on the date that is twelve months following the commencement date, or upon it being terminated by Ashford Trust on not less than thirty days written notice) negotiate the refinancing, modification or forbearance of the existing mortgage and mezzanine debt on Ashford Trust’s hotels. For the purposes of the Ashford Trust Agreement, financing shall include, without limitation, senior or subordinate loan financing, provided in any single transaction or a combination of transactions, including, mortgage loan financing, mezzanine loan financing, or subordinate loan financing encumbering the applicable hotel or unsecured loan financing.
In connection with the services provided by Lismore, Lismore shall be paid an advisory fee of up to 50 basis points (0.50%) of the aggregate amount of the modifications, forbearances or refinancings, of Ashford Trust’s mortgage and mezzanine debt (the “Ashford Trust Financings”) calculated and payable as follows: (i) 0.125% of the aggregate amount of potential Ashford Trust Financings upon execution of the Ashford Trust Agreement; (ii) 0.125% payable in six equal installments beginning April 20, 2020 and ending on September 20, 2020; provided, however, in the event Ashford Trust does not complete, for any reason, Ashford Trust Financings during the term of the Ashford Trust Agreement equal to or greater than $4,114,740,601, then Ashford Trust shall offset, against any fees owed by Ashford Trust or its affiliates pursuant to the advisory agreement, a portion of the fee paid by Ashford Trust to Lismore pursuant to this section equal to the product of (x) the amount of Ashford Trust Financings completed during the term of the Ashford Trust Agreement minus $4,114,740,601 multiplied by (y) 0.125%; and (iii) 25 basis points (0.25%) payable upon the acceptance by the applicable lender of any Ashford Trust Financing. As of March 31, 2020, the $5.0 million initial amount is recognized as deferred revenue, which will be recognized over the twelve month term, and a receivable in our condensed consolidated financial statements. See note14.
On March 20, 2020, Lismore entered into an agreement to seek modifications, forbearances or refinancings of Braemar’s loans (the “Braemar Agreement”). Pursuant to the Braemar Agreement, Lismore shall, during the term of the agreement (which commenced on March 20, 2020 and shall end on the date that is twelve months following the commencement date, or upon it being terminated by Braemar on not less than thirty days written notice) negotiate the refinancing, modification or forbearance of the existing mortgage and mezzanine debt on Braemar’s hotels. For the purposes of the Braemar Agreement, financing shall include, without limitation, senior or subordinate loan financing, provided in any single transaction or a combination of transactions, including, mortgage loan financing, mezzanine loan financing, or subordinate loan financing encumbering the applicable hotel or unsecured loan financing.
In connection with the services provided by Lismore, Lismore shall be paid an advisory fee of up to 50 basis points (0.50%) of the aggregate amount of the modifications, forbearances or refinancings, of Braemar’s mortgage and mezzanine debt (the “Braemar Financings”) calculated and payable as follows: (i) 0.125% of the aggregate amount of potential Braemar Financings upon execution of the Braemar Agreement; (ii) 0.125% payable in six equal installments beginning April 20, 2020 and ending on September 20, 2020; provided, however, in the event Braemar does not complete, for any reason, Braemar Financings during the term of the Braemar Agreement equal to or greater than $1,091,250,000, then Braemar shall offset, against any fees owed by Braemar or its affiliates pursuant to the advisory agreement, a portion of the fee paid by Braemar to Lismore pursuant to this section equal to the product of (x) the amount of Braemar Financings completed during the term of the Braemar Agreement minus $1,091,250,000 multiplied by (y) 0.125%; and (iii) 25 basis points (0.25%) payable upon the acceptance by the applicable lender of any Braemar Financing. As of March 31, 2020, the $1.4 million initial amount is recognized as deferred revenue, which will be recognized over the twelve month term, and a receivable in our condensed consolidated financial statements. See note 14.
The accompanying condensed consolidated financial statements reflect the operations of our advisory and asset management business, hospitality products and services business, and entities that we consolidate. In this report, the terms the “Company,” “we,” “us” or “our” refers to Ashford Inc. and all entities included in its condensed consolidated financial statements.
2. Significant Accounting Policies
Basis of Presentation and Principles of Consolidation—The accompanying historical unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial

12

ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)


information and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These condensed consolidated financial statements include the accounts of Ashford Inc., its majority-owned subsidiaries and entities which it controls. All significant intercompany accounts and transactions between these entities have been eliminated in these historical condensed consolidated financial statements. We have condensed or omitted certain information and footnote disclosures normally included in financial statements presented in accordance with GAAP in the accompanying unaudited condensed consolidated financial statements. We believe the disclosures made herein are adequate to prevent the information presented from being misleading. However, the condensed consolidated financial statements and related notes should be read in conjunction with the financial statements and notes thereto included in our 2019 Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 12, 2020.
In the fourth quarter of 2019, cost reimbursement revenue and reimbursed expenses were reclassified from their previous presentation into aggregated financial statement line items titled “cost reimbursement revenue” and “reimbursed expenses” in our consolidated statements of operations. Our presentation of the three months ended March 31, 2019, revenue and operating expense line item amounts have been reclassified to conform to the presentation adopted in the fourth quarter of 2019. These reclassifications have no effect on total revenue, total operating expense or net income previously reported.
A variable interest entity (“VIE”) must be consolidated by a reporting entity if the reporting entity is the primary beneficiary because it has (i) the power to direct the VIE’s activities that most significantly impact the VIE’s economic performance, and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE. We determine whether we are the primary beneficiary of a VIE upon our initial involvement with the VIE and we reassess whether we are the primary beneficiary of a VIE on an ongoing basis. Our determination of whether we are the primary beneficiary of a VIE is based upon the facts and circumstances for each VIE and requires significant judgment.

13

ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)


Noncontrolling Interests—The following tables present information about noncontrolling interests in our consolidated subsidiaries, including those related to consolidated VIEs, as of March 31, 2020 and December 31, 2019 (in thousands):

 
March 31, 2020
 
Ashford
Holdings
 
JSAV (3)
 
OpenKey(4)
 
Pure
Wellness
(5)
 
RED (6)
 
Other
Ashford Inc. ownership interest
99.81
%
 
88.20
%
 
47.75
%
 
70.00
%
 
84.21
%
 
55.00
%
Redeemable noncontrolling interests(1) (2)
0.19
%
 
11.80
%
 
26.38
%
 
%
 
%
 
%
Noncontrolling interests in consolidated entities
%
 
%
 
25.87
%
 
30.00
%
 
15.79
%
 
45.00
%
 
100.00
%
 
100.00
%
 
100.00
%
 
100.00
%
 
100.00
%
 
100.00
%
 
 
 
 
 
 
 
 
 
 
 
 
Carrying value of redeemable noncontrolling interests
$
24

 
$
2,522

 
$
1,574

 
n/a

 
n/a

 
n/a

Redemption value adjustment, year-to-date
262

 
4

 
56

 
n/a

 
n/a

 
n/a

Redemption value adjustment, cumulative
377

 
788

 
2,153

 
n/a

 
n/a

 
n/a

Carrying value of noncontrolling interests

 

 
337

 
130

 
47

 
15

Assets, available only to settle subsidiary’s obligations (7) (8)
n/a

 
57,819

 
1,593

 
1,712

 
20,806

 
216

Liabilities (9)
n/a

 
45,350

 
461

 
1,646

 
11,938

 
72

Notes payable (9)
n/a

 
20,017

 

 

 
7,686

 

Revolving credit facility (9)
n/a

 
135

 

 
40

 
246

 

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2019
 
Ashford
Holdings
 
JSAV (3)
 
OpenKey(4)
 
Pure
Wellness
(5)
 
RED (6)
 
Other
Ashford Inc. ownership interest
99.81
%
 
88.20
%
 
47.61
%
 
70.00
%
 
84.21
%
 
55.00
%
Redeemable noncontrolling interests(1) (2)
0.19
%
 
11.80
%
 
26.59
%
 
%
 
%
 
%
Noncontrolling interests in consolidated entities
%
 
%
 
25.80
%
 
30.00
%
 
15.79
%
 
45.00
%
 
100.00
%
 
100.00
%
 
100.00
%
 
100.00
%
 
100.00
%
 
100.00
%
 
 
 
 
 
 
 
 
 
 
 
 
Carrying value of redeemable noncontrolling interests
$
98

 
$
2,449

 
$
1,584

 
n/a

 
n/a

 
n/a

Redemption value adjustment, year-to-date
(63
)
 
784

 
64

 
n/a

 
n/a

 
n/a

Redemption value adjustment, cumulative
115

 
784

 
2,097

 
n/a

 
n/a

 
n/a

Carrying value of noncontrolling interests

 

 
395

 
164

 
37

 
32

Assets, available only to settle subsidiary’s obligations (7)
n/a

 
56,824

 
1,881

 
1,852

 
19,277

 
250

Liabilities (9)
n/a

 
44,542

 
510

 
1,671

 
10,652

 
59

Notes payable (9)
n/a

 
17,785

 

 

 
6,275

 

Revolving credit facility (9)
n/a

 
2,599

 

 
45

 
106

 

________
(1) 
Redeemable noncontrolling interests are included in the “mezzanine” section of our condensed consolidated balance sheets as they may be redeemed by the holder for cash or registered shares in certain circumstances outside of the Company’s control. The carrying value of the noncontrolling interests is based on the greater of the accumulated historical cost or the redemption value, which is generally fair value.
(2) 
Redeemable noncontrolling interests in Ashford Holdings represent the members’ proportionate share of equity in earnings/losses of Ashford Holdings. Net income/loss attributable to the common unit holders is allocated based on the weighted average ownership percentage of the members’ interest.
(3) 
Represents ownership interests in JSAV, which we consolidate under the voting interest model. JSAV provides event technology and creative communications solutions in the hospitality industry. See also notes 1, 10 and 11.

14

ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)


(4) 
Represents ownership interests in OpenKey, a VIE for which we are considered the primary beneficiary and therefore we consolidate it. OpenKey is a hospitality focused mobile key platform that provides a universal smartphone app for keyless entry into hotel guest rooms. See also notes 1, 10 and 11.
(5) 
Represents ownership interests in Pure Wellness, a VIE for which we are considered the primary beneficiary and therefore we consolidate it. Pure Wellness provides hypoallergenic premium rooms in the hospitality industry. See also notes 1 and 10.
(6) 
Represents ownership interests in RED, a VIE for which we are considered the primary beneficiary and therefore we consolidate it. RED is a provider of watersports activities and other travel and transportation services and includes the entity that conducts RED’s legacy U.S. Virgin Islands operations and Sebago, a leading provider of watersports activities and excursion services based in Key West, Florida which was acquired by RED in 2019. We are provided a preferred return on our investment in RED’s legacy U.S. Virgin Islands operations and Sebago which is accounted for in our income allocation based on the applicable partnership agreement. See also notes 1 and 10.
(7) 
Total assets consist primarily of cash and cash equivalents, property and equipment and other assets that can only be used to settle the subsidiaries’ obligations.
(8) 
The assets of Sebago are not available to settle the obligations of the entity that conducts RED’s legacy U.S. Virgin Islands operations.
(9) 
Liabilities consist primarily of accounts payable, accrued expenses and notes payable for which creditors do not have recourse to Ashford Inc. except in the case of the term loans and line of credit held by RED’s legacy U.S. Virgin Islands operations, for which the creditor has recourse to Ashford Inc.
Investments in Unconsolidated Entities—We hold “investments in unconsolidated entities” in our condensed consolidated balance sheets, which are considered to be variable interests and voting interests in the underlying entities. Certain of our investments in variable interests are not consolidated because we have determined that we are not the primary beneficiary. Certain other investments are not consolidated as the underlying entity does not meet the definition of a VIE and we do not control more than 50% of the voting interests. We review our “investments in unconsolidated entities” for impairment in each reporting period pursuant to the applicable authoritative accounting guidance. An investment is impaired when its estimated fair value is less than the carrying amount of our investment. No such impairment was recorded during the three months ended March 31, 2020 and 2019.
We held an investment in an unconsolidated variable interest entity with a carrying value of $500,000 at March 31, 2020 and December 31, 2019. We account for the investment at estimated fair value based on recent observable transactions as we do not exercise significant influence over the entity. No equity in earnings (loss) of unconsolidated entities due to a change in fair value of the investment was recognized during the three months ended March 31, 2020 and 2019. In the event that the assumptions used to estimate fair value change in the future, we may be required to record an impairment charge related to this investment.
Effective January 1, 2019, we acquired a 30% noncontrolling ownership interest in Real Estate Advisory Holdings LLC (“REA Holdings”), a real estate advisory firm that provides financing, advisory and property sales services primarily to clients in the hospitality and leisure industry, for a purchase price of approximately $3.0 million which was paid in the form of $2.1 million cash and the issuance of 16,529 shares of our common stock (approximately $890,000) to the seller pursuant to the exemption from the registration requirements under the Securities Act provided under Section 4(a)(2) thereunder. We have an option to acquire an additional 50% of the ownership interests in REA Holdings for $12.5 million beginning on January 1, 2022. Our investment in REA Holdings is accounted for under the equity method as we have significant influence over the voting interest entity.

15

ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)


The following table summarizes our carrying value and ownership interest in REA Holdings (in thousands):
 
March 31, 2020
 
December 31, 2019
Carrying value of the investment in REA Holdings
$
2,898

 
2,662

Ownership interest in REA Holdings
30
%
 
30
%
The following table summarizes our equity in earnings (loss) in REA Holdings (in thousands):
 
Three Months Ended March 31, 2020
 
Three Months Ended March 31, 2019
Equity in earnings (loss) in unconsolidated entities
$
236

 
$
(275
)
Use of Estimates—The preparation of these condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Property and Equipment, net—Property and equipment, including assets acquired under finance leases, is depreciated using the straight-line method over estimated useful lives or lease terms if shorter. We record property and equipment at cost. As of March 31, 2020 and December 31, 2019, property and equipment, net of accumulated depreciation, included assets related to our consolidated subsidiary Marietta Leasehold, L.P.’s (“Marietta”) finance lease of $43.8 million and $44.1 million, ERFP assets of $31.2 million and $33.5 million, audio visual equipment at JSAV of $15.4 million and $15.1 million and marine vessels at RED of $10.1 million and $10.1 million, respectively.
Other Liabilities—As of March 31, 2020 and December 31, 2019, other liabilities included reserves in the amount of $15.7 million and $10.8 million, respectively, related primarily to Ashford Trust and Braemar properties’ casualty insurance claims and related fees. The liability for casualty insurance claims and related fees is established based upon an analysis of historical data and actuarial estimates. We record the related funds received from Ashford Trust and Braemar in “restricted cash” in our condensed consolidated balance sheets. As of March 31, 2020 and December 31, 2019, other liabilities also included $1.4 million and $2.2 million, respectively, of reserves for Remington health insurance claims, $500,000 and $500,000, respectively, of the remaining purchase price due to the sellers of BAV Services (“BAV”) 18 months after the acquisition date, subject to certain conditions, and reserves of $5.1 million and $4.6 million, respectively, for the fair value of contingent consideration due to the sellers of BAV. Other liabilities as of December 31, 2019 also included a $1.0 million accrual for contingent consideration due to the sellers of Sebago. See notes 4.
Revenue Recognition—See note 3.
Income Taxes—We are a taxable corporation for federal and state income tax purposes. Income tax expense includes U.S. federal and state income taxes, Mexico and Dominican Republic income taxes and U.S. Virgin Islands taxes. In accordance with authoritative accounting guidance, we account for income taxes using the asset and liability method under which deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between our condensed consolidated financial statement carrying amounts of existing assets and liabilities and their respective income tax bases. Valuation allowances are recorded to reduce deferred tax assets to the amount that will more likely than not be realized.
The “Income Taxes” topic of the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification addresses the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The guidance requires us to determine whether tax positions we have taken or expect to take in a tax return are more likely than not to be sustained upon examination by the appropriate taxing authority based on the technical merits of the positions. Tax positions that do not meet the more likely than not threshold would be recorded as additional tax expense in the current period. We analyze all open tax years, as defined by the statute of limitations for each jurisdiction, which includes the federal jurisdiction and various states. We classify interest and penalties related to underpayment of income taxes as income tax expense. We and our subsidiaries file income tax returns in the U.S. federal jurisdiction and various states and cities, beginning in 2017, in Mexico and the Dominican Republic and, beginning in 2018, in the U.S. Virgin Islands. Tax years 2015 through 2019 remain subject to potential examination by certain federal and state taxing authorities.

16

ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)


On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law and includes certain income tax provisions relevant to the business. The Company is required to recognize the effect on the consolidated financial statements in the period the law was enacted, which is the period ended March 31, 2020. For the period ended March 31, 2020, the CARES Act did not have a material impact on the Company’s consolidated financial statements. At this time, the Company does not expect the impact of the CARES Act to have a material impact on the Company’s consolidated financial statements for the year ended December 31, 2020.
Recently Adopted Accounting Standards—In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), which removes the requirement to compare the implied fair value of goodwill with its carrying amount as part of step 2 of the goodwill impairment test. As a result, under ASU 2017-04, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. However, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, ASU 2017-04 clarifies that an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. ASU 2017-04 is effective for fiscal years beginning after December 15, 2019. We adopted ASU 2017-04 effective January 1, 2020. See our Goodwill and Indefinite-Lived Intangible Assets accounting policy disclosed in note 5.
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”). ASU 2018-13 modifies certain disclosure requirements related to fair value measurements including requiring disclosures on changes in unrealized gains and losses in other comprehensive income for recurring Level 3 fair value measurements and a requirement to disclose the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We adopted this standard effective January, 1, 2020, and the adoption of this standard did not have a material impact on our condensed consolidated financial statements and related disclosures.
In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (“ASU 2018-15”). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software and hosting arrangements that include an internal-use software license. The ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We elected to prospectively adopt ASU 2018-15 effective January 1, 2020, in our condensed consolidated financial statements. The adoption of ASU 2018-15 resulted in reclassifying capitalized implementation costs of service contracts incurred in a hosting arrangement from “property and equipment, net” to “other assets” in our condensed consolidated balance sheets. Amortization of the service contracts will continue to be recorded in “reimbursed expenses” in our condensed consolidated statements of operations.
Recently Issued Accounting Standards—In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 sets forth an “expected credit loss” impairment model to replace the current “incurred loss” method of recognizing credit losses. The standard requires measurement and recognition of expected credit losses for most financial assets held. In November 2019, the FASB issued ASU 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) (“ASU 2019-10”). ASU 2019-10 revised the mandatory adoption date for public business entities that meet the definition of a smaller reporting company to be effective for fiscal years beginning after December 15, 2022. Early adoption is permitted. We are currently evaluating the impact ASU 2016-13 and ASU 2019-10 may have on our condensed consolidated financial statements and related disclosures.

17

ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)


3. Revenues
Revenue Recognition—Revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
We determine revenue recognition through the following steps:
Identification of the contract, or contracts, with a customer
Identification of the performance obligations in the contract
Determination of the transaction price
Allocation of the transaction price to the performance obligations in the contract
Recognition of revenue when, or as, we satisfy a performance obligation
In determining the transaction price, we include variable consideration only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized would not occur when the uncertainty associated with the variable consideration is resolved.
The following provides detailed information on the recognition of our revenues from contracts with customers:
Advisory Services Revenue
Advisory services revenue is reported within our REIT Advisory segment and primarily consists of advisory fees that are recognized when services have been rendered. Advisory fees consist of base fees and incentive fees. For Ashford Trust, the base fee is paid monthly and ranges from 0.50% to 0.70% per annum of the total market capitalization ranging from less than $6.0 billion to greater than $10.0 billion plus the Net Asset Fee Adjustment, as defined in the amended and restated advisory agreement, as amended, subject to certain minimums. For Braemar, the base fee is paid monthly and is fixed at 0.70% of Braemar’s total market capitalization plus the Net Asset Fee Adjustment, as defined in the advisory agreement, as amended, subject to certain minimums.
Incentive advisory fees are measured annually in each year that Ashford Trust’s and/or Braemar’s annual total stockholder return exceeds the average annual total stockholder return for each company’s respective peer group, subject to the Fixed Charge Coverage Ratio Condition (the “FCCR Condition”), as defined in the respective advisory agreements. Incentive advisory fees are paid over a three-year period and each payment is subject to the FCCR Condition, which relates to the ratio of adjusted EBITDA to fixed charges for Ashford Trust or Braemar, as applicable. Incentive advisory fees are a form of variable consideration and therefore must be (i) deferred until such fees are probable of not being subject to significant reversal, and (ii) tied to a performance obligation in the contract with the customer so that revenue recognition depicts the transfer of the related advisory services to the customer. Accordingly, the Company does not record incentive advisory fee revenue in interim periods prior to the fourth quarter of the year in which the incentive fee is measured. The first year installment of incentive advisory fees will generally be recognized only upon measurement in the fourth quarter of the first year of the three year period. The second and third year installments of incentive advisory fees are recognized as revenue on a pro-rata basis each quarter as such amounts are not subject to significant reversal.
Hotel Management Revenue
Hotel management revenue is reported within our Remington segment and primarily consists of base management fees and incentive management fees. Base management fees and incentive management fees are recognized when services have been rendered. Remington receives base management fees of 3% of gross hotel revenues for managing the hotel employees and daily operations of the hotels, pursuant to the amended and restated hotel management agreements, subject to a specified floor (which is subject to increase annually based on increases in the consumer price index). Remington receives an incentive management fee equal to the lesser of 1% of each hotel’s annual gross revenues or the amount by which the respective hotel’s gross operating profit exceeds the hotel’s budgeted gross operating profit.
Project Management Revenue
Project management revenue primarily consists of revenue generated within our Premier segment by providing development and construction, capital improvements, refurbishment, project management, and other services such as purchasing, interior design, architectural services, freight management, and construction management services at properties. Premier receives fees for these services and recognizes revenue over time as services are provided to the customer.

18

ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)


Audio Visual Revenue
Audio visual revenue primarily consists of revenue generated within our JSAV segment by providing event technology services such as audio visual services, audio visual equipment rental, staging and meeting services and event-related communication systems as well as related technical support, to our customers in various venues including hotels and convention centers. Revenue is recognized in the period in which services are provided pursuant to the terms of the contractual arrangements with our customers. We also evaluate whether it is appropriate to present: (i) the gross amount that our customers pay for our services as revenue, and the related commissions paid to the venue as cost of revenue; or (ii) the net amount (gross revenue less the related commissions paid to the venue) as revenue. We are responsible for the delivery of the services, including providing the necessary labor and equipment to perform the services. We are generally subject to inventory risk, have latitude in establishing prices and selecting suppliers and, while in many cases the venue bills the end customer on our behalf, we bear the risk of collection from the customer. The venues’ commissions are not dependent on collections. As a result, our revenue is primarily reported on a gross basis. Cost of revenues for audio visual principally includes commissions paid to venues, direct labor costs, the cost of equipment sub-rentals, depreciation of equipment, amortization of signing bonuses, as well as other costs such as supplies, freight, travel and other overhead from our venue and customer facing operations and any losses on equipment disposal.
Other Revenue
Other revenue includes revenues provided by certain of our hospitality products and service businesses, including RED. RED’s revenue is primarily generated through the provision of watersports activities and ferry and excursion services. The revenue is recognized as services are provided based on contractual customer rates. Debt placement fees include revenues earned from providing placement, modifications, forbearances or refinancings of certain mortgage debt by Lismore. These fees are recognized based on a stated percentage of the loan amount when services have been rendered and the subject loan has closed. In connection with our ERFP Agreements and legacy key money transaction with Ashford Trust and legacy key money transaction with Braemar, we lease FF&E to Ashford Trust and Braemar rent-free. Our ERFP leases entered into in 2018 with Ashford Trust commenced on December 31, 2018. Consistent with our accounting treatment prior to adopting ASU 2016-02, Leases (“ASU 2016-02”), other revenue for the three months ended March 31, 2019, includes a portion of the base advisory fee for leases commencing prior to our adoption, which is equal to the estimated fair value of the lease payments that would have been made.
Cost Reimbursement Revenue
Cost reimbursement revenue is recognized in the period we incur the related reimbursable costs. Under our advisory agreements, we are entitled to be reimbursed for certain costs we incur on behalf of Ashford Trust and Braemar, with no added mark-up. These costs primarily consist of expenses related to Ashford Securities, overhead, internal audit, risk management advisory services and asset management services, including compensation, benefits and travel expense reimbursements. We record cost reimbursement revenue for equity grants of Ashford Trust and Braemar common stock and LTIP units awarded to our officers and employees in connection with providing advisory services equal to the fair value of the award in proportion to the requisite service period satisfied during the period. We additionally are reimbursed by Ashford Trust for expenses incurred by Ashford Investment Management, LLC (“AIM”) for managing Ashford Trust’s excess cash under the Investment Management Agreement. AIM is not compensated for its services but is reimbursed for all costs and expenses.
Under our project management agreements and hotel management agreements, we are entitled to be reimbursed for certain costs we incur on behalf of Ashford Trust, Braemar and other hotel owners, with no added mark-up. Project management costs primarily consist of costs for accounting, overhead and project manager services. Hotel management costs primarily consist of the properties’ payroll, payroll taxes and benefits related expenses at managed properties where we are the employer of the employees at the properties as provided for in our contracts with the Ashford Trust, Braemar and other hotel owners.
We recognize revenue within the “cost reimbursement revenue” in our condensed consolidated statements of operations when the amounts may be billed to Ashford Trust, Braemar and other hotel owners, and we recognize expenses within “reimbursed expenses” in our condensed consolidated statements of operations as they are incurred. This pattern of recognition results in temporary timing differences between the costs incurred for centralized software programs and the related reimbursements we receive from Ashford Trust and Braemar in our operating and net income. Over the long term, these programs and services are not designed to impact our economics, either positively or negatively.
Certain of our consolidated entities enter into contracts with customers that contain multiple performance obligations. For these contracts, we account for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. We determine the standalone selling prices

19

ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)


based on our consolidated entities’ overall pricing objectives taking into consideration market conditions and other factors, including the customer and the nature and value of the performance obligations within the applicable contracts.
Deferred Income and Contract Balances
Deferred income primarily consists of customer billings in advance of revenues being recognized from our advisory agreements and other hospitality products and services contracts. Generally, deferred income that will be recognized within the next twelve months is recorded as current deferred income and the remaining portion is recorded as noncurrent. The increase in the deferred income balance is primarily driven by cash payments received or due in advance of satisfying our performance obligations, offset by revenues recognized that were included in the deferred income balance at the beginning of the period. The following tables summarize our consolidated deferred income activity (in thousands):
 
Deferred Income
 
2020
 
2019
Balance as of January 1
$
13,280

 
$
13,544

Increases to deferred income
7,082

 
2,072

Recognition of revenue (1)
(2,112
)
 
(2,445
)
Balance as of March 31
$
18,250

 
$
13,171

________
(1) 
Deferred income recognized in the three months ended March 31, 2020, includes (a) $554,000 of advisory revenue primarily related to our advisory agreements with Ashford Trust and Braemar, (b) $931,000 of audio visual revenue and (c) $627,000 of “other services” revenue earned by our hospitality products and services companies. Deferred income recognized in the three months ended March 31, 2019, includes (a) $770,000 of advisory revenue primarily related to our advisory agreements with Ashford Trust and Braemar, (b) $1.0 million of audio visual revenue and (c) $636,000 of “other services” revenue earned by our hospitality products and services companies.
We do not disclose information about remaining performance obligations pertaining to contracts that have an original expected duration of one year or less. The transaction price allocated to remaining unsatisfied or partially unsatisfied performance obligations with an original expected duration exceeding one year was primarily related to (i) reimbursed software costs that will be recognized evenly over the period the software is used to provide advisory services to Ashford Trust and Braemar, and (ii) a $5.0 million cash payment received in June 2017 from Braemar in connection with our Fourth Amended and Restated Braemar Advisory Agreement, which is recognized evenly over the 10-year initial contract period that we are providing Braemar advisory services. Incentive advisory fees that are contingent upon future market performance are excluded as the fees are considered variable and not included in the transaction price at March 31, 2020.
The timing of revenue recognition may differ from the timing of payment by customers. We record a receivable when revenue is recognized prior to payment and we have an unconditional right to payment. Alternatively, when payment precedes the provision of the related services, we record deferred income until the performance obligations are satisfied. We had receivables related to revenues from contracts with customers of $14.9 million and $7.2 million included in “accounts receivable, net” primarily related to our hospitality products and services segment, $1.3 million and $4.8 million in “due from Ashford Trust”, and $891,000 and $1.6 million included in “due from Braemar” related to REIT advisory services at March 31, 2020 and December 31, 2019, respectively. We had no significant impairments related to these receivables during the three months ended March 31, 2020 and 2019.

20

ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)


Disaggregated Revenue
Our revenues were comprised of the following for the three months ended March 31, 2020 and 2019 (in thousands):
 
Three Months Ended March 31,
 
2020
 
2019
Advisory services revenue:
 
 
 
Base advisory fee 
$
11,537

 
$
10,622

Incentive advisory fee
170

 
170

Other advisory revenue
129

 
128

Total advisory services revenue
11,836

 
10,920

 
 
 
 
Hotel management:
 
 
 
Base fee
6,124

 

 
 
 
 
Project management revenue
3,938

 
6,442

 
 
 
 
Audio visual revenue
29,674

 
30,975

 
 
 
 
Other revenue:
 
 
 
Debt placement fees (2)
128

 
1,354

Claims management services
57

 
41

Lease revenue

 
1,030

Other services (3)
6,506

 
2,585

Total other revenue
6,691

 
5,010

 
 
 
 
Cost reimbursement revenue
75,579

 
9,973

 
 
 
 
Total revenue
$
133,842

 
$
63,320

 
 
 
 
REVENUE BY SEGMENT (1)
 
 
 
REIT advisory
$
20,957

 
$
20,616

Remington
70,456

 

Premier
5,152

 
7,790

JSAV
29,674

 
30,975

OpenKey
522

 
257

Corporate and other
7,081

 
3,682

Total revenue
$
133,842

 
$
63,320

________
(1) 
We have five reportable segments: REIT Advisory, Remington, Premier, JSAV and OpenKey. We combine the operating results of RED, Marietta, Pure Wellness, Lismore and REA Holdings into an “all other” category, which we refer to as “Corporate and Other.” See note 16 for discussion of segment reporting.
(2) 
Debt placement fees are earned by Lismore for providing placement, modification, forbearance or refinancing services to Ashford Trust and Braemar.
(3)  
Other services revenue relates primarily to other hotel services provided by our consolidated subsidiaries OpenKey, RED and Pure Wellness, to Ashford Trust, Braemar and third parties, and the revenues of Marietta, which holds the leasehold rights to a single hotel and convention center property in Marietta, Georgia.

21

ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)


Geographic Information
Our REIT Advisory, Remington, Premier, OpenKey, and Corporate and Other reporting segments conduct their business within the United States. Our JSAV reporting segment conducts business in the United States, Mexico, and the Dominican Republic. The following table presents revenue from our JSAV reporting segment geographically for the three months ended March 31, 2020 and 2019, respectively (in thousands):
 
Three Months Ended March 31,
 
2020
 
2019
United States
$
21,758

 
$
23,142

Mexico
6,471

 
5,728

Dominican Republic
1,445

 
2,105

 
$
29,674

 
$
30,975

4. Acquisitions
Remington
On November 6, 2019, we completed the acquisition of Remington Lodging’s hotel management business and Marietta for $275 million in consideration in the form of 11,000,000 shares of Series D Convertible Preferred Stock of Ashford Inc. Remington provides hotel management services primarily to hotels owned by Ashford Trust and Braemar. Hotel management services consist of hotel operations, sales and marketing, revenue management, budget oversight, guest service, asset maintenance (not involving capital expenditures) and related services. The results of operations of Remington are included in our condensed consolidated financial statements from the date of acquisition.
Marietta leases a single hotel and convention center property in Marietta, Georgia, from the City of Marietta and earns revenues from the operation of this hotel property. The hotel property is managed by Remington as part of the Hilton brand of hotels and offers hotel and conference center services. Marietta’s revenue and operating expenses are included in “other” revenue and “other” operating expenses, respectively, in the condensed consolidated statements of operations. The lease, which expires on December 31, 2054, was classified as a finance lease. The right-of-use asset was adjusted at the acquisition date by approximately $4.2 million for favorable lease terms compared to market terms. The results of operations of Marietta are included in our condensed consolidated financial statements from the date of acquisition.
The acquisition of Remington was recorded using the acquisition method of accounting in accordance with the authoritative guidance for business combinations, and the purchase price allocation is based on our valuation of the fair value of the tangible and intangible assets acquired and liabilities assumed at the date of acquisition. The fair values of the assets acquired were determined using various valuation techniques, including an income approach. The fair value measurements were primarily based on significant inputs that are not directly observable in the market and are considered Level 3 under the fair value measurements and disclosure framework. Key assumptions include cash flow projections of Remington and the discount rate applied to those cash flows. The excess of the purchase price over the estimated fair values of the identifiable net assets acquired was recorded as goodwill.
As of March 31, 2020, we have finalized the valuation of the acquired assets and liabilities associated with the acquisition. The final fair value analysis resulted in a $40.9 million adjustment to reduce the value of the acquired management contracts to their estimated fair value and a corresponding increase to goodwill on our consolidated balance sheet during the first quarter of 2020. We also recorded an adjustment of approximately $10.3 million to reduce the deferred tax liability and a corresponding decrease to goodwill. Additionally, the purchase price adjustment related to working capital was finalized and paid in the first quarter of 2020 resulting in a $1.3 million increase in the fair value of the purchase price.
The fair value of the purchase price and final allocation of the purchase price are as follows (in thousands):
Series D Convertible Preferred Stock
 
$
275,000

Preferred stock discount
 
(2,550
)
Working capital adjustments
 
1,341

Total fair value of purchase price
 
$
273,791



22

ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)


 
 
Fair Value
 
Estimated Useful Life
Current assets including cash
 
$
27,661

 
 
Assets acquired under finance leases (1)
 
44,294

 
35 years
Property and equipment, net
 
466

 
 
Operating lease right-of-use assets
 
24,649

 
 
Goodwill
 
175,653

 
 
Trademarks
 
10,400

 
 
Management contracts
 
107,600

 
22 years
Total assets acquired
 
390,723