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 ~~September~~June 30, ~~2018~~2019



¨	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)



Maryland		82-5237353
(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 ~~if any,~~ 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	þ

Non-accelerated filer	¨	Smaller reporting company	þ

		Emerging growth company	þ

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. þ

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.



Common Stock, $0.01 par value per share		~~2,390,705~~2,613,884
(Class)		Outstanding at ~~November~~August 6, ~~2018~~2019

ASHFORD INC.

FORM 10-Q

FOR THE QUARTER ENDED ~~SEPTEMBER~~JUNE 30, ~~2018~~2019

TABLE OF CONTENTS



PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (unaudited)
Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017~~2018	2
Condensed Consolidated Statements of Operations for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018	3
Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018	4
Condensed Consolidated ~~Statement~~Statements of Equity for the ~~Nine~~Three and Six Months Ended ~~September~~June 30, 2019 and 2018	5
Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018	67
Notes to Condensed Consolidated Financial Statements	89
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	4348
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	6066
ITEM 4. CONTROLS AND PROCEDURES	6067
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS	6168
ITEM 1A. RISK FACTORS	6168
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	6170
ITEM 3. DEFAULTS UPON SENIOR SECURITIES	6170
ITEM 4. MINE SAFETY DISCLOSURES	6170
ITEM 5. OTHER INFORMATION	6170
ITEM 6. EXHIBITS	6271
SIGNATURES	6472

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)


	September 30, 2018			December 31, 2017			June 30, 2019			December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	64,937		$	36,480		$	40,039		$	51,529
Restricted cash	10,722			9,076			13,276			7,914
Accounts receivable, net	4,595			5,127			9,232			4,928
Due from affiliates							93			45
Due from Ashford Trust OP	4,912			13,346			4,872			5,293
Due from Braemar OP	1,057			1,738			1,830			1,996
Inventories	1,221			1,066			1,504			1,202
Prepaid expenses and other	3,003			2,913			3,875			3,902
Total current assets	90,447			69,746			74,721			76,809
Investments in unconsolidated entities	500			500			2,990			500
Furniture, fixtures and equipment, net	31,856			21,154			62,546			47,947
Operating lease right-of-use assets							21,597			—
Goodwill	59,487			12,947			65,040			59,683
Intangible assets, net	196,171			9,713			189,742			193,194
Other assets	11,357			750			1,542			872
Total assets	$	389,818		$	114,810		$	418,178		$	379,005
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses	$	24,462		$	20,451		$	26,154		$	24,880
Dividends payable							2,791			—
Due to affiliates	493			4,272			726			2,032
Deferred income	122			459			138			148
Deferred compensation plan	253			311			77			173
Notes payable, net	1,726			1,751			2,933			2,595
Operating lease liabilities							2,066			—
Other liabilities	21,094			9,076			14,532			8,418
Total current liabilities	48,150			36,320			49,417			38,246
Accrued expenses	—			78
Deferred income	13,789			13,440			11,088			13,396
Deferred tax liability, net	27,988			—			31,750			31,506
Deferred compensation plan	15,268			18,948			6,347			10,401
Notes payable, net	16,568			9,956			21,925			15,177
Operating lease liabilities							19,546			—
Other liabilities							2,670			—
Total liabilities	121,763			78,742			142,743			108,726
Commitments and contingencies (note 9)
Commitments and contingencies (note 10)
MEZZANINE EQUITY
Series B cumulative convertible preferred stock, $25 par value, 8,120,000 shares issued and outstanding, net of discount at September 30, 2018	200,578			—
Series B convertible preferred stock, $25 par value, 8,120,000 shares issued and outstanding, net of discount at June 30, 2019 and December 31, 2018							201,822			200,847
Redeemable noncontrolling interests	3,778			5,111			3,615			3,531
EQUITY
Preferred stock, $0.01 par value, 50,000,000 shares authorized:
Series A cumulative preferred stock, no shares issued and outstanding at September 30, 2018 and December 31, 2017	—			—
Common stock, $0.01 par value, 100,000,000 shares authorized, 2,380,705 and 2,093,556 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively	24			21
Series A cumulative preferred stock, no shares issued and outstanding at June 30, 2019 and December 31, 2018							—			—
Common stock, $0.01 par value, 100,000,000 shares authorized, 2,475,848 and 2,391,541 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively							25			24
Additional paid-in capital	277,452			249,695			289,821			280,159
Accumulated deficit	(214,174		)	(219,396		)	(219,965		)	(214,242		)
Accumulated other comprehensive income (loss)	(252		)	(135		)	(293		)	(498		)
Total stockholders’ equity of the Company	63,050			30,185			69,588			65,443
Noncontrolling interests in consolidated entities	649			772			410			458
Total equity	63,699			30,957			69,998			65,901
Total liabilities and equity	$	389,818		$	114,810		$	418,178		$	379,005

See Notes to Condensed Consolidated Financial Statements.

ASHFORD INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, in thousands, except per share amounts)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017			2019			2018			2019			2018
REVENUE
Advisory services	$	21,016		$	17,357		$	68,118		$	47,960		$	21,220		$	24,570		$	40,407		$	47,102
Audio visual	14,526			—			61,212			—			30,127			23,376			61,102			46,686
Project management	3,616			—			3,616			—			7,700			—			15,490			—
Other	2,407			1,898			11,598			3,947			4,419			6,865			9,787			9,191
Total revenue	41,565			19,255			144,544			51,907			63,466			54,811			126,786			102,979
EXPENSES
Salaries and benefits	21,851			16,750			64,078			39,146			18,157			15,710			40,857			42,227
Cost of revenues for audio visual	14,392			—			48,000			—			22,229			17,021			43,668			33,608
Cost of revenues for project management	1,189			—			1,189			—			2,697			—			5,488			—
Depreciation and amortization	2,972			581			5,205			1,636			4,934			1,193			9,461			2,233
General and administrative	12,231			3,897			27,651			12,493			11,368			9,125			19,350			15,420
Impairment	—			—			1,919			1,072			—			—			—			1,919
Other	434			367			2,172			618			3,138			892			4,477			1,738
Total expenses	53,069			21,595			150,214			54,965			62,523			43,941			123,301			97,145
OPERATING INCOME (LOSS)	(11,504		)	(2,340		)	(5,670		)	(3,058		)	943			10,870			3,485			5,834
Equity in earnings (loss) of unconsolidated entities													(298		)	—			(573		)	—
Interest expense	(289		)	(5		)	(593		)	(10		)	(445		)	(161		)	(742		)	(304		)
Amortization of loan costs	(130		)	(15		)	(177		)	(25		)	(70		)	(24		)	(139		)	(47		)
Interest income	103			82			288			153			9			73			29			185
Dividend income	—			—			—			93
Unrealized gain (loss) on investments	—			—			—			203
Realized gain (loss) on investments	—			—			—			(294		)
Other income (expense)	(78		)	(5		)	(338		)	(26		)	(42		)	(221		)	(95		)	(260		)
INCOME (LOSS) BEFORE INCOME TAXES	(11,898		)	(2,283		)	(6,490		)	(2,964		)	97			10,537			1,965			5,408
Income tax (expense) benefit	13,904			25			11,593			(9,248		)	(426		)	(1,605		)	(1,726		)	(2,311		)
NET INCOME (LOSS)	2,006			(2,258		)	5,103			(12,212		)	(329		)	8,932			239			3,097
(Income) loss from consolidated entities attributable to noncontrolling interests	413			102			704			267			131			118			294			291
Net (income) loss attributable to redeemable noncontrolling interests	968			300			817			995			310			(90		)	289			(151		)
NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY	3,387			(1,856		)	6,624			(10,950		)	112			8,960			822			3,237
Preferred dividends	(1,675		)	—			(1,675		)	—			(2,791		)	—			(5,583		)	—
Amortization of preferred stock discount	(303		)	—			(303		)	—			(484		)	—			(975		)	—
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS	$	1,409		$	(1,856	)	$	4,646		$	(10,950	)	$	(3,163	)	$	8,960		$	(5,736	)	$	3,237

INCOME (LOSS) PER SHARE - BASIC AND DILUTED
Basic:
Net income (loss) attributable to common stockholders	$	0.67		$	(0.92	)	$	2.20		$	(5.42	)	$	(1.28	)	$	4.26		$	(2.35	)	$	1.54
Weighted average common shares outstanding - basic	2,109			2,022			2,100			2,019			2,462			2,095			2,441			2,094
Diluted:
Net income (loss) attributable to common stockholders	$	0.18		$	(1.05	)	$	0.11		$	(5.82	)	$	(3.00	)	$	0.93		$	(3.94	)	$	(1.40	)
Weighted average common shares outstanding - diluted	2,337			2,054			2,417			2,052			2,717			2,487			2,583			2,219

See Notes to Condensed Consolidated Financial Statements.

ASHFORD INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited, in thousands)

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017
NET INCOME (LOSS) $ 2,006
$ (2,258 ) $ 5,103
$ (12,212 )
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX

Foreign currency translation adjustment 112
—
(140 ) —
COMPREHENSIVE INCOME (LOSS) 2,118
(2,258 ) 4,963
(12,212 )
Comprehensive (income) loss attributable to noncontrolling interests 413
102
704
267
Comprehensive (income) loss attributable to redeemable noncontrolling interests 954
300
840
995
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY $ 3,485
$ (1,856 ) $ 6,507
$ (10,950 )

~~See Notes to Condensed Consolidated Financial Statements.~~

~~ASHFORD INC. AND SUBSIDIARIES~~

~~CONDENSED CONSOLIDATED STATEMENT OF EQUITY~~

~~(unaudited, in thousands)~~

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 January 1, 2018 2,094
$ 21
$ 249,695
$ (219,396 ) $ (135 ) $ 772
$ 30,957
—
$ —
$ 5,111
Equity-based compensation 5
—
8,051
—
—
7
8,058
—
—
—
Issuance of common stock 270
3
18,096
—
—
—
18,099
—
—
—
Acquisition of Premier —
—
—
—
—
—
—
8,120
203,000
—
Discount on preferred shares —
—
—
—
—
—
—
—
(2,725 ) —
Amortization of preferred stock discount —
—
—
(303 ) —
—
(303 ) —
303
—
Dividends declared - preferred stock —
—
—
(1,675 )

—
(1,675 ) —
—
—
Deferred compensation plan distribution 3
—
197
—
—
—
197
—
—
—
Employee advances —
—
45
—
—
—
45
—
—
—
Purchase of OpenKey shares from noncontrolling interest holder 9
—
838
—
—
—
838
—
—
(838 )
Acquisition of noncontrolling interest in consolidated entities —
—
—
—
—
(382 ) (382 ) —
55
Contributions from noncontrolling interests —
—
—
—
—
2,666
2,666
—
—
—
Reallocation of carrying value —
—
530
—
—
(1,696 ) (1,166 ) —
—
1,166
Redemption value adjustment —
—
—
576
—
—
576
—
—
(576 )
Distributions to consolidated noncontrolling interests —
—
—
—
—
(14 ) (14 ) —
—
(300 )
Foreign currency translation adjustment —
—
—
—
(117 ) —
(117 ) —
—
(23 )
Net income (loss) —
—
—
6,624
—
(704 ) 5,920
—
—
(817 )
Balance at September 30, 2018 2,381
$ 24
$ 277,452
$ (214,174 ) $ (252 ) $ 649
$ 63,699
8,120
$ 200,578
$ 3,778



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019		2018
NET INCOME (LOSS)	$	(329	)	$	8,932		$	239	$	3,097
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
Foreign currency translation adjustment	204			(137		)	234		(251		)
COMPREHENSIVE INCOME (LOSS)	(125		)	8,795			473		2,846
Comprehensive (income) loss attributable to noncontrolling interests	131			139			294		329
Comprehensive (income) loss attributable to redeemable noncontrolling interests	294			(90		)	259		(151		)
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY	$	300		$	8,844		$	1,026	$	3,024

See Notes to Condensed Consolidated Financial Statements.

ASHFORD INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(unaudited, in thousands)



	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		Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interests in Consolidated Entities			Total			Shares	Amount		Redeemable Noncontrolling Interests
Balance at March 31, 2019	2,470	$	25	$	287,129		$	(216,703	)	$	(483	)	$	627		$	70,595		8,120	$	201,338	$	3,810
Equity-based compensation	5	—		2,681			—			—			(27		)	2,654			—	—		—
Acquisition of BAV Services	—	—		(7		)	—			—			—			(7		)	—	—		—
Investment in Real Estate Advisory Holdings LLC	—	—		(113		)	—			—			—			(113		)	—	—		—
Amortization of preferred stock discount	—	—		—			(484		)	—			—			(484		)	—	484		—
Dividends declared - preferred stock	—	—		—			(2,791		)	—			—			(2,791		)	—	—		—
Deferred compensation plan distribution	1	—		27			—			—			—			27			—	—		—
Employee advances	—	—		104			—			—			—			104			—	—		—
Redemption value adjustment	—	—		—			(99		)	—			—			(99		)	—	—		99
Distributions to consolidated noncontrolling interests	—	—		—			—			—			(59		)	(59		)	—	—		—
Foreign currency translation adjustment	—	—		—			—			190			—			190			—	—		16
Net income (loss)	—	—		—			112			—			(131		)	(19		)	—	—		(310		)
Balance at June 30, 2019	2,476	$	25	$	289,821		$	(219,965	)	$	(293	)	$	410		$	69,998		8,120	$	201,822	$	3,615



	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		Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interests in Consolidated Entities			Total			Shares	Amount		Redeemable Noncontrolling Interests
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	5	—		4,836			—			—			(24		)	4,812			—	—		—
Acquisition of BAV Services	60	1		3,747			—			—			—			3,748			—	—		—
Investment in Real Estate Advisory Holdings LLC	17	—		887			—			—			—			887			—	—		—
Amortization of preferred stock discount	—	—		—			(975		)	—			—			(975		)	—	975		—
Dividends declared - preferred stock	—	—		—			(5,583		)	—			—			(5,583		)	—	—		—
Deferred compensation plan distribution	2	—		73			—			—			—			73			—	—		—
Employee advances	—	—		353			—			—			—			353			—	—		—
Contributions from noncontrolling interests	—	—		—			—			—			455			455			—	—		—
Reallocation of carrying value	—	—		(234		)	—			—			(122		)	(356		)	—	—		356
Redemption value adjustment	—	—		—			13			—			—			13			—	—		(13		)
Distributions to consolidated noncontrolling interests	—	—		—			—			—			(63		)	(63		)	—	—		—
Foreign currency translation adjustment	—	—		—			—			205			—			205			—	—		30
Net income (loss)	—	—		—			822			—			(294		)	528			—	—		(289		)
Balance at June 30, 2019	2,476	$	25	$	289,821		$	(219,965	)	$	(293	)	$	410		$	69,998		8,120	$	201,822	$	3,615



	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		Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interests in Consolidated Entities			Total			Shares	Amount		Redeemable Noncontrolling Interests
Balance at March 31, 2018	2,103	$	21	$	255,037		$	(224,281	)	$	(232	)	$	1,560		32,105			—	$	—	$	4,662
Equity-based compensation	4	—		2,272			—			—			—			2,272			—	—		—
Deferred compensation plan distribution	2	—		54			—			—			—			54			—	—		—
Employee advances	—	—		(60		)	—			—			—			(60		)	—	—		—
Redemption value adjustment	—	—		—			(100		)	—			—			(100		)	—	—		100
Distributions to consolidated noncontrolling interests	—	—		—			(14		)	—			—			(14		)	—	—		—
Foreign currency translation adjustment	—	—		—			—			(116		)	(21		)	(137		)	—	—		—
Net income (loss)	—	—		—			8,960			—			(118		)	8,842			—	—		90
Balance at June 30, 2018	2,109	$	21	$	257,303		$	(215,435	)	$	(348	)	$	1,421		$	42,962		—	$	—	$	4,852



	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		Additional Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interests in Consolidated Entities			Total			Shares	Amount		Redeemable Noncontrolling Interests
Balance at December 31, 2017	2,094	$	21	$	249,695	$	(219,396	)	$	(135	)	$	772		30,957			—	$	—	$	5,111
Equity-based compensation	4	—		6,061		—			—			8			6,069			—	—		—
Deferred compensation plan distribution	2	—		134		—			—			—			134			—	—		—
Employee advances	—	—		45		—			—			—			45			—	—		—
Purchase of OpenKey shares from noncontrolling interest holder	9	—		838		—			—			—			838			—	—		(838		)
Contributions from noncontrolling interests	—	—		—		—			—			2,666			2,666			—	—		—
Reallocation of carrying value	—	—		530		—			—			(1,696		)	(1,166		)	—	—		1,166
Redemption value adjustment	—	—		—		738			—			—			738			—	—		(738		)
Distributions to consolidated noncontrolling interests	—	—		—		(14		)	—			—			(14		)	—	—		—
Foreign currency translation adjustment	—	—		—		—			(213		)	(38		)	(251		)	—	—		—
Net income (loss)	—	—		—		3,237			—			(291		)	2,946			—	—		151
Balance at June 30, 2018	2,109	$	21	$	257,303	$	(215,435	)	$	(348	)	$	1,421		$	42,962		—	$	—	$	4,852

See Notes to Condensed Consolidated Financial Statements.

ASHFORD INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)


	Nine Months Ended September 30,						Six Months Ended June 30,
	2018			2017			2019			2018
Cash Flows from Operating Activities
Net income (loss)	$	5,103		$	(12,212	)	$	239		$	3,097
Adjustments to reconcile net income (loss) to net cash flows provided by (used in) operating activities:
Depreciation and amortization	8,264			1,650			11,835			3,614
Change in fair value of deferred compensation plan	(3,540		)	3,673			(4,077		)	(5,814		)
Equity-based compensation	8,058			6,370			4,862			6,069
Equity in (earnings) loss in unconsolidated entities							573			—
Deferred tax expense (benefit)	(15,148		)	5,372			244			—
Change in fair value of contingent consideration	338			—			1,639			559
Impairment	1,919			1,072
Impairment of furniture, fixtures and equipment							—			1,919
(Gain) loss on sale of furniture, fixtures and equipment	(74		)	8			48			(80		)
Amortization of loan costs	177			24			139			47
Realized and unrealized (gain) loss on investments, net	—			91
Changes in operating assets and liabilities, exclusive of the effect of acquisitions:
Accounts receivable	568			(211		)	(3,578		)	(782		)
Due from affiliates							(48		)	—
Due from Ashford Trust OP	9,166			339			421			(121		)
Due from Braemar OP	1,149			2,752			166			1,396
Inventories	(149		)	—			(301		)	(157		)
Prepaid expenses and other	(1		)	245			58			5
Operating lease right-of-use assets							874			—
Other assets	(772		)	(68		)	3			(658		)
Accounts payable and accrued expenses	1,670			374			799			351
Due to affiliates	(2,467		)	690			(1,236		)	319
Other liabilities	1,308			1,357			5,011			3,313
Operating lease liabilities							(859		)	—
Deferred income	(14		)	6,522			(2,319		)	(813		)
Net cash provided by (used in) operating activities	15,555			18,048			14,493			12,264
Cash Flows from Investing Activities
Purchases of furniture, fixtures and equipment under the Ashford Trust ERFP Agreement							(13,089		)	—
Purchases of furniture, fixtures and equipment under the Braemar ERFP Agreement							(1,420		)	—
Additions to furniture, fixtures and equipment	(7,531		)	(1,818		)	(3,665		)	(4,535		)
Proceeds from disposal of furniture, fixtures and equipment, net	—			15			58			—
Cash acquired in acquisition of Premier	2,277			—
Cash acquired in acquisition of Pure Rooms	—			129
Acquisition of BAV Services							(4,267		)	—
Investment in Real Estate Advisory Holdings LLC							(2,176		)	—
Acquisition of assets related to RED Hospitality and Leisure LLC	(4,046		)	—			(988		)	(3,670		)
Net cash provided by (used in) investing activities	(9,300		)	(1,674		)	(25,547		)	(8,205		)
Cash Flows from Financing Activities
Proceeds from issuance of common stock	18,099			—
Payments for dividends on preferred stock	(1,675		)	—			(2,791		)	—
Payments on revolving credit facilities	(14,550		)	—			(16,256		)	(10,064		)
Borrowings on revolving credit facilities	16,277			—			17,245			10,263
Proceeds from notes payable	6,047			—			7,336			1,765
Payments on notes payable and capital leases	(1,409		)	(96		)	(1,297		)	(939		)
Payments of loan costs	(72		)	(28		)	(41		)	(15		)
Purchases of common stock	—			(24		)
Employee advances	45			(71		)	353			45
Payment of contingent consideration	(1,196		)	—
Contributions from noncontrolling interest	2,666			983			455			2,666
Distributions to noncontrolling interests in consolidated entities	(314		)	(55,311		)	(63		)	(14		)
Net cash provided by (used in) financing activities	23,918			(54,547		)	4,941			3,707
Effect of foreign exchange rate changes on cash and cash equivalents	(70		)	—			(15		)	(65		)
Net change in cash, cash equivalents and restricted cash	30,103			(38,173		)	(6,128		)	7,701
Cash, cash equivalents and restricted cash at beginning of period	45,556			93,843			59,443			45,556
Cash, cash equivalents and restricted cash at end of period	$	75,659		$	55,670		$	53,315		$	53,257


	Nine Months Ended September 30,				Six Months Ended June 30,
	2018		2017		2019		2018
Supplemental Cash Flow Information
Interest paid	$	555	$	9	$	610	$	278
Income taxes paid	1,375		3,793		1,344		598
Supplemental Disclosure of Non-Cash Investing and Financing Activities
Acquisition of Premier through issuance of convertible preferred stock, less cash acquired	200,723		—
Distribution from deferred compensation plan	197		152		73		134
Capital expenditures accrued but not paid	1,037		1,068		632		2,497
Subsidiary equity consideration for Pure Rooms acquisition	—		425
Assumption of debt associated with Pure Rooms acquisition	—		475
Capital lease additions					69		—
Ashford Inc. common stock consideration for purchase of OpenKey shares	838		—		—		838
Accrued but unpaid ERFP liability	10,710		—
Amortization of discount on preferred stock	303		—		975		—
Ashford Inc. common stock consideration for BAV Services acquisition					3,748		—
Ashford Inc. common stock consideration for investment in Real Estate Advisory Holdings LLC					887		—

Supplemental Disclosure of Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents at beginning of period	$	36,480	$	84,091	$	51,529	$	36,480
Restricted cash at beginning of period	9,076		9,752		7,914		9,076
Cash, cash equivalents and restricted cash at beginning of period	$	45,556	$	93,843	$	59,443	$	45,556

Cash and cash equivalents at end of period	$	64,937	$	44,561	$	40,039	$	40,868
Restricted cash at end of period	10,722		11,109		13,276		12,389
Cash, cash equivalents and restricted cash at end of period	$	75,659	$	55,670	$	53,315	$	53,257

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

ASHFORD INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Organization and Description of Business

Ashford Inc. (the “Company”) is a Maryland corporation ~~formed on April 2, 2014,~~ that provides asset management services, advisory services and other products and services primarily to clients in the hospitality industry. We became a public company onin November ~~12,~~ 2014, when Ashford Hospitality Trust, Inc. (“Ashford Trust”) completed the spin-off of ~~the Company~~Ashford Inc. through the distribution of approximately 70% of our outstanding common stock to Ashford Trust stockholders and unitholders in Ashford Trust's operating partnership, collectively. Our common stock is listed on the NYSE American LLC (“NYSE American”). As of ~~September~~June 30, ~~2018,~~2019, Ashford Trust held approximately 598,000 shares of our common stock, which represented an approximate ~~25.1%~~24.2% ownership interest in ~~the Company,~~Ashford Inc., and Braemar Hotels & Resorts Inc. (“Braemar”) held approximately 195,000 shares, which represented an approximate ~~8.2%~~7.9% ownership interest in the Company.

We are currently the advisor for 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, in each case subject to the supervision and oversight of the respective board of directors of Ashford Trust and Braemar. Ashford Trust commenced operating in August 2003 and 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 U.S. national average. Braemar invests primarily in luxury hotels and resorts with RevPAR of at least twice the U.S. national average. Braemar became a publicly traded company in November 2013 upon the completion of its spin-off from Ashford Trust. Each of Ashford Trust and Braemar is a real estate investment trust (“REIT”) as defined in the Internal Revenue Code, and the common stock of each of Ashford Trust and Braemar is traded on the NYSE.

We provide the personnel and services that we believe are necessary ~~to assist~~for each of Ashford Trust and Braemar ~~in conducting~~to conduct their respective businesses. We may also perform similar functions for new or additional platforms. 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.

We conduct our advisory business primarily through an operating entity, Ashford Hospitality Advisors LLC (“Ashford LLC”), our hospitality products and services business primarily through an operating entity, Ashford Hospitality Services LLC ("(“Ashford ~~Services"~~Services”), and our project management business through an operating entity, Premier Project Management LLC (“Premier”). We own substantially all of our assets and conduct substantially all of our business through Ashford LLC, Ashford Services and Premier.

On April 6, 2017, Ashford Inc. entered into the Amended and Restated Limited Liability Company Agreement (the “Amended and Restated LLC Agreement”) of Ashford Hospitality Holdings LLC, a Delaware limited liability company and a subsidiary of the Company (“Ashford Holdings”), in connection with the merger (the “Merger”) of Ashford Merger Sub LLC, a Delaware limited liability company, with and into Ashford LLC, with Ashford LLC surviving the Merger as a wholly-owned subsidiary of Ashford Holdings. Ashford Holdings is owned 99.8% by Ashford Inc. and 0.2% by redeemable noncontrolling interest holders. The terms of the Amended and Restated LLC Agreement are consistent with the terms of the Amended and Restated Limited Liability Company Agreement of Ashford LLC. The Merger was effectuated in order to facilitate our investments in businesses that provide products and services to the hospitality industry.

On April 6, 2017, we acquired a 70% controlling interest in Pure Rooms by: (i) issuing equity in our subsidiary, PRE Op Co LLC (“Pure Rooms”), with a fair value of $425,000, to the sellers; and (ii) contributing $97,000 of cash to PRE Op Co LLC. Pure Rooms’ patented 7-step purification process treats a room’s surfaces, including the air, and removes up to 99% of pollutants. See notes 2, 4, 10 and 14 to our condensed consolidated financial statements.

On November 1, 2017, we acquired an 85% controlling interest in J&S Audio Visual Communications, Inc., J&S Audiovisual Mexico, S. de R.L. de C.V. and J&S Audio Visual Dominican Republic, L.P. (collectively referred to as “J&S”) for approximately $25.5 million. J&S provides an integrated suite of audio visual services including show and event services, hospitality services, creative services, and design and integration services to its customers in various venues including hotels and convention centers in the United States, Mexico and the Dominican Republic. See notes 2, 4, 10, 11 and 14.

On January 2, 2018, the Company granted 8,962 shares of restricted common stock to the OpenKey redeemable noncontrolling interest holder in connection with the purchase of 519,647 shares of the outstanding membership interests in OpenKey, Inc. The restricted common stock was granted pursuant to the exemption from the registration requirements under the Securities Act provided under Section 4(a)(2) thereunder and vests three years from the grant date.

On January 16, 2018, the Company closed on the acquisition of a passenger vessel and other assets related to RED Hospitality & Leisure LLC ~~("RED"~~(“RED”), a ~~premier~~ provider of watersports activities and other travel and transportation ~~services~~services. This transaction was accounted for as an asset acquisition recorded at cost and did not result in the ~~U.S. Virgin Islands. The Company paid $970,000 in cash, comprised~~recognition of a $750,000 deposit paid on December 11, 2017, which was reflected on our consolidated balance sheet as “other assets” as of December 31, 2017, and an additional $220,000 paid on January 16, 2018. On March 23,goodwill. During 2018, ~~the~~ RED ~~operating subsidiary~~ acquired an additional passenger ~~vessel for$1.0 million. On June 12, 2018, the RED operating subsidiary acquired an additional passenger vessel for $2.5 million in cash.~~vessels and a ferry. The Company owns an ~~80%~~80.0% interest in RED. See notes 2, 1011 and ~~14 to our condensed consolidated financial statements.~~

~~Table of Contents~~

~~ASHFORD INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(unaudited)~~

~~On April 6, 2018, Ashford Inc. signed a definitive agreement to acquire the project management business of Remington Holdings, L.P. (“Remington”).~~15.

On June 26, 2018, the Company entered into the Enhanced Return Funding Program Agreement and Amendment No. 1 to the Amended and Restated Advisory Agreement (the ‘‘“Ashford Trust ERFP ~~Agreement’’~~Agreement”) with Ashford Trust. The independent members of the board of directors of each of the Company and Ashford Trust, with the assistance of separate and independent legal counsel, engaged to negotiate the Ashford Trust ERFP Agreement on behalf of the Company and Ashford Trust, respectively. Under the Ashford Trust ERFP Agreement, the Company agreed to provide $50 million (the “ERFP Commitment”) to Ashford Trust in connection with Ashford Trust’s acquisition of ~~additional~~ hotels recommended by us, with the option to increase the ~~funding commitment~~ERFP Commitment to up to $100 million upon mutual agreement by the parties. Under the Ashford Trust ERFP Agreement, the Company’s ERFP Commitment will be fulfilled as the Company ~~is obligated to provide~~pays Ashford Trust 10% of ~~the~~each acquired hotel’s purchase price in exchange for furniture fixtures and equipment ~~(‘‘~~(“FF~~&E’’~~&E”), which is subsequently leased to Ashford Trust rent-free. ~~In connection~~Ashford Trust must provide reasonable advance notice to the Company to request ERFP funds in accordance with the Ashford ~~Trust’s acquisition~~Trust ERFP Agreement. The Ashford Trust ERFP Agreement requires that the Company acquire the related FF&E either at the time of the ~~Hilton Old Town Alexandria on June 29, 2018, and subject to the terms~~property acquisition or at any time generally within two years of ~~the ERFP Agreement, the Company is obligated to provide~~ Ashford Trust ~~with approximately $11.1 million of FF&E at Ashford Trust properties. As of September 30, 2018,~~acquiring the Company has provided $390,000 of FF&E under the ERFP Agreement. As a result, the Company’s ERFP obligation of $10.7 million is reflected in our condensed consolidated balance sheet as “other assets” and “other liabilities” as of September 30, 2018. Under the ERFP agreement, Ashford Trust has two years from the acquisition date of a hotel ~~property to identify the FF&E to be purchased by Ashford Inc.~~property. The Company recognizes the related depreciation tax deduction at the time such FF&E is purchased by the Company and placed into service at Ashford ~~Trust~~Trust’s hotel properties. However, the timing of the FF&E being purchased and placed into service is subject to uncertainties outside of the Company’s control that could delay the realization of any tax benefit associated with the purchase of FF&E. See ~~note 9~~notes 2, 10 and ~~14.~~15.

~~On August 7, 2018, at a Special Meeting~~

Table of Stockholders, Ashford Inc. shareholders voted to approve certain matters related to Ashford Inc.’s acquisition of the project management business of Remington, including the issuance of 8,120,000 shares of newly created convertible preferred stock (“Series B Preferred Stock”). Contents

ASHFORD INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

On August 8, 2018, we completed the acquisition of Premier, the project management business formerly conducted by certain affiliates of Remington including construction management, interior design, architectural oversight, and the purchasing, expediting, warehousing coordination, freight management, and supervision of installation of FF&E, and related services,Holdings, LP (“Remington”), for a total transaction value of $203 million. As a result, the project management services that were previously provided by Remington Lodging ~~will~~& Hospitality, LLC (“Remington Lodging”) are now be provided by a subsidiary of Ashford Inc. under the respective project management agreement with each customer, including Ashford Trust and Braemar. The purchase price was paid by issuing 8,120,000 shares of the ~~newly created~~ Series B Convertible Preferred Stock to the sellers of Premier (the “Remington Sellers”), primarily MJB Investments, LP (which is wholly-owned by Monty J. Bennett, our Chief Executive Officer and Chairman of our board of directors), and his father Archie Bennett, Jr., the Chairman Emeritus of Ashford Trust (together, the “Bennetts”). The Series B Convertible Preferred Stock has a conversion price of $140 per share and would convert into 1,450,000 shares of our common stock. ~~Dividends~~Cumulative dividends on the Series B Convertible Preferred Stock are payable at an annual rate of 5.5% in the first year, 6.0% in the second year, and 6.5% in the third year and each year thereafter. In addition to certain separate class voting rights, the holders of the Series B Convertible Preferred Stock vote on an as-converted basis with the holders of the common stock ~~and the holders of any outstanding Series A Cumulative Preferred Stock (“Series A Preferred Stock”) or Series C Preferred Stock~~ on all matters submitted for approval by the holders of our capital stock possessing general voting rights. However, for five years following the closing of the acquisition of Premier, the Remington Sellers and their transferees are subject to certain voting restrictions with respect to shares in excess of 25% of the combined voting power of the Company’s outstanding capital stock. The holders of the Series B Convertible Preferred Stock have certain conversion rights upon certain events constituting a change of control of the Company. See notes 4 and 12.

In connection with the acquisition of Premier, we effected a holding company reorganization. The change in holding company organizational structure was effected by a merger, pursuant to which each issued and outstanding share of common stock, par value $0.01 per share, of our predecessor publicly-traded parent Ashford OAINC Inc. (formerly named Ashford Inc.) ~~(‘‘~~(“Old ~~Ashford’’~~Ashford”) was converted into one share of common stock, par value $0.01 per share, of the Company having the same rights, powers and preferences and the same qualifications, limitations and restrictions as a share of common stock of Old Ashford. As a result of the foregoing, we became the successor issuer of Old Ashford under Rule 12g-3 of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”). Our common stock continues to be listed on the NYSE American under the symbol ~~‘‘AINC.’’~~“AINC.”

~~Table of Contents~~

~~ASHFORD INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(unaudited)~~

On September 28, 2018, we completed a public offering of 270,000 shares of common stock at a price to the public of $74.50 per share, resulting in gross proceeds of $20.1 million. The net proceeds from the sale of the shares, after discounts and commissions to the underwriters and offering expenses, were approximately ~~$18.1~~$18.2 million. We also sold an additional 10,000 shares of common stock to the underwriters on October 10, 2018, in connection with the underwriters’ partial exercise of their over-allotment option that had been granted to them in connection with the transaction. The net proceeds from the sale of the over-allotment shares, after discounts and commissions to the underwriters, were approximately $700,000.

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.

On January 15, 2019, the Company entered into the Enhanced Return Funding Program Agreement and Amendment No. 1 to the Fifth Amended and Restated Advisory Agreement (the “Braemar ERFP Agreement”) with Braemar. The independent members of the board of directors of each of the Company and Braemar, with the assistance of separate and independent legal counsel, engaged to negotiate the Braemar ERFP Agreement on behalf of the Company and Braemar, respectively. Under the Braemar ERFP Agreement, the Company agreed to provide $50 million (the “ERFP Commitment”) to Braemar in connection with Braemar’s acquisition of hotels recommended by us, with the option to increase the ERFP Commitment to up to $100 million upon mutual agreement by the parties. Under the Braemar ERFP Agreement, the Company’s ERFP Commitment will be fulfilled as the Company pays Braemar 10% of each acquired hotel’s purchase price in exchange for FF&E, which is subsequently leased to Braemar rent-free. Braemar must provide reasonable advance notice to the Company to request ERFP funds in accordance with the Braemar ERFP Agreement. The Braemar ERFP Agreement requires that the Company acquire the related FF&E either at the time of the property acquisition or at any time generally within two years of Braemar acquiring the hotel property. The Company recognizes the related depreciation tax deduction at the time such FF&E is purchased by the Company and placed into service at Braemar’s hotel properties. However, the timing of the FF&E being purchased and placed into service is subject to uncertainties outside of the Company’s control that could delay the realization of any tax benefit associated with the purchase of FF&E. See notes 2, 10 and 15.

Table of Contents

ASHFORD INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

On March 1, 2019, J&S Audio Visual (“JSAV”), our consolidated subsidiary, acquired a privately-held company, BAV Services in the United States (“BAV”). BAV is an audio visual rental, staging, and production company focused on meeting and special event services. As a result of the acquisition, our ownership interest in JSAV, which we consolidate under the voting interest model, increased from 85% to approximately 88%. The purchase price consisted of: (i) $5.0 million in cash (excluding working capital adjustments) funded by an existing JSAV term loan; (ii) $4.0 million in the form of Ashford Inc. common stock consisting of (a) 61,387 shares issued on March 1, 2019, which was determined based on an agreed upon value of $3.5 million using a thirty-day volume weighted average price per share (“30-Day VWAP”) of $57.01 and had an estimated fair value of approximately $3.8 million as of the acquisition date and (b) $500,000 of stock to be issued 18 months after the acquisition date, subject to certain conditions; and (iii) contingent consideration related to the achievement of certain performance targets with an estimated fair value of approximately $1.4 million, payable, if earned, 12 to 18 months after the acquisition date. Additionally, the transaction includes a stock consideration collar. See note 4.

On May 31, 2019, Ashford Inc. signed a Combination Agreement, dated May 31, 2019, between the Bennetts, Remington, Remington Holdings GP, LLC, MJB Investments, LP, the Company, James L. Cowen, Jeremy J. Welter, Ashford Nevada Holding Corp. and Ashford Merger Sub Inc. (which was subsequently amended on July 17, 2019) (the “Combination Agreement”) to acquire the Hotel Management business of Remington, a privately held company. The transaction, which is expected to close sometime in the fourth quarter of 2019, is subject to approval by Ashford Inc.’s stockholders, the receipt of an acceptable Private Letter Ruling (“PLR”) from the Internal Revenue Service and customary closing conditions. Under the terms of the agreement, Ashford Inc. will acquire Remington’s Hotel Management business for a purchase price of $275 million, payable by the issuance of $275 million of a new Series D Convertible Preferred Stock. In the previous transaction for Remington’s Project Management business, the sellers received $203 million of Series B Convertible Preferred Stock. For this transaction involving Remington’s Hotel Management business, that $203 million of Series B Convertible Preferred Stock will be exchanged for $203 million of Series D Convertible Preferred Stock (such that, after the transactions, $478 million of Series D Convertible Preferred Stock, and no Series B Convertible Preferred Stock, will be outstanding). The new Series D Convertible Preferred Stock will be convertible into shares of common stock at a price of $117.50 per share (a 164% premium to the closing price of Ashford’s common stock on the agreement date of May 31, 2019). Dividends on the Series D Convertible Preferred Stock will be payable at an annual rate of 6.59% in the first year, 6.99% in the second year, and 7.28% in the third year and each year thereafter. Voting rights of the Series D Convertible Preferred Stock will be on an as-converted basis, and the holders of the Series D Convertible Preferred Stock will have a voting limit of 40% of the total voting power of Ashford Inc. until August 8, 2023. The holders of the Series D Convertible Preferred Stock have certain conversion rights upon certain events constituting a change of control of the Company. Remington is currently owned by Monty J. Bennett, Ashford Inc.’s Chairman and Chief Executive Officer, and his father, Archie Bennett, Jr., the Chairman Emeritus of Ashford Trust. Ashford Inc.’s Board of Directors formed a special committee of independent and disinterested directors to analyze, negotiate, and recommend the transaction to Ashford Inc.’s Independent Directors. Ashford Inc.’s Independent Directors have unanimously recommended approval of the acquisition by Ashford Inc.’s stockholders.

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 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 ~~2017~~2018 Annual Report on Form 10-K filed with the SEC on March ~~12, 2018.~~8, 2019.

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

Table of Contents

ASHFORD INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

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.

Noncontrolling Interests—The following tables present information about noncontrolling interests in our consolidated subsidiaries, including those related to consolidated VIEs, as of June 30, 2019 and December 31, 2018 (in thousands):



	June 30, 2019
	Ashford Holdings			JSAV⁽³⁾			OpenKey⁽⁴⁾			Pure Wellness ⁽⁵⁾		RED ⁽⁶⁾
Ashford Inc. ownership interest	99.83		%	88.20		%	46.59		%	70.00	%	80.00	%
Redeemable noncontrolling interests^{(1) (2)}	0.17		%	11.80		%	28.15		%	—	%	—	%
Noncontrolling interests in consolidated entities	—		%	—		%	25.26		%	30.00	%	20.00	%
	100.00		%	100.00		%	100.00		%	100.00	%	100.00	%

Carrying value of redeemable noncontrolling interests	$	131		$	1,980		$	1,504		n/a		n/a
Redemption value adjustment, year-to-date	(73		)	—			60			n/a		n/a
Redemption value adjustment, cumulative	105			—			2,093			n/a		n/a
Carrying value of noncontrolling interests	—			—			288			130		(8	)
Assets, available only to settle subsidiary's obligations ⁽⁷⁾	n/a			59,802			1,505			1,913		8,796
Liabilities ⁽⁸⁾	n/a			43,078			471			1,846		4,225
Notes payable ⁽⁸⁾	n/a			18,903			—			—		3,300
Revolving credit facility ⁽⁸⁾	n/a			2,899			—			—		—

	December 31, 2018
	Ashford Holdings			JSAV⁽³⁾			OpenKey⁽⁴⁾			Pure Wellness ⁽⁵⁾		RED ⁽⁶⁾
Ashford Inc. ownership interest	99.83		%	85.00		%	45.61		%	70.00	%	80.00	%
Redeemable noncontrolling interests^{(1) (2)}	0.17		%	15.00		%	29.65		%	—	%	—	%
Noncontrolling interests in consolidated entities	—		%	—		%	24.74		%	30.00	%	20.00	%
	100.00		%	100.00		%	100.00		%	100.00	%	100.00	%

Carrying value of redeemable noncontrolling interests	$	215		$	1,858		$	1,458		n/a		n/a
Redemption value adjustment, year-to-date	(180		)	—			12			n/a		n/a
Redemption value adjustment, cumulative	178			—			2,033			n/a		n/a
Carrying value of noncontrolling interests	—			—			308			218		(68	)
Assets, available only to settle subsidiary's obligations ⁽⁷⁾	n/a			37,141			1,410			2,267		6,807
Liabilities ⁽⁸⁾	n/a			24,836			421			1,977		2,839
Notes payable ⁽⁸⁾	n/a			13,614			—			—		2,480
Revolving credit facility ⁽⁸⁾	n/a			1,733			—			60		118

________

⁽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.

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ASHFORD INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)


⁽²⁾	Redeemable noncontrolling interests in Ashford Hospitality Holdings LLC (“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 audio visual products and services in the hospitality industry. See also notes 1, 11 and 12.


⁽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, 11 and 12.


⁽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 11.

⁽⁶⁾

Represents ownership interests in RED, a VIE for which we are considered the primary beneficiary and therefore we consolidated it. We are provided a preferred return on our investment in RED which is accounted for in our income allocation based on the applicable partnership agreement. RED is a provider of watersports activities and other travel and transportation services. See also notes 1, 11 and 18.


⁽⁷⁾	Total assets consist primarily of cash and cash equivalents, FF&E and other assets that can only be used to settle the subsidiaries’ obligations.


⁽⁸⁾	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, for which the creditor has recourse to Ashford Inc.

~~Noncontrolling Interests~~Investments in Unconsolidated Entities—~~The following tables present information about our noncontrolling interests, including those related to consolidated VIEs, as of September 30, 2018 and December 31, 2017 (in thousands):~~

September 30, 2018
Ashford
Holdings
J&S⁽³⁾

OpenKey⁽⁴⁾

Pure
Rooms ⁽⁵⁾

RED ⁽⁶⁾
Ashford Inc. ownership interest 99.83 % 85.00 % 45.61 % 70.00 % 80.00 %
Redeemable noncontrolling interests^{(1) (2)}
0.17 % 15.00 % 29.65 % — % — %
Noncontrolling interests in consolidated entities — % — % 24.74 % 30.00 % 20.00 %
100.00 % 100.00 % 100.00 % 100.00 % 100.00 %

Carrying value of redeemable noncontrolling interests $ 313
$ 2,227
$ 1,238
n/a
n/a
Redemption value adjustment, year-to-date (79 ) —
(497 ) n/a
n/a
Redemption value adjustment, cumulative 279
—
1,524
n/a
n/a
Carrying value of noncontrolling interests —
—
519
166
(36 )
Assets, available only to settle subsidiary's obligations ⁽⁷⁾
n/a
38,974
2,411
2,267
6,182
Liabilities ⁽⁸⁾
n/a
24,170
500
2,151
2,605
Notes payable ⁽⁸⁾
n/a
13,354
—
39
2,501
Revolving credit facility ⁽⁸⁾
n/a
2,526
—
100
16

December 31, 2017
Ashford
Holdings
J&S⁽³⁾

OpenKey⁽⁴⁾

Pure
Rooms ⁽⁵⁾

RED ⁽⁶⁾
Ashford Inc. ownership interest 99.80 % 85.00 % 43.90 % 70.00 % — %
Redeemable noncontrolling interests^{(1) (2)}
0.20 % 15.00 % 39.59 % — % — %
Noncontrolling interests in consolidated entities — % — % 16.51 % 30.00 % — %
100.00 % 100.00 % 100.00 % 100.00 % — %

Carrying value of redeemable noncontrolling interests $ 385
$ 2,522
$ 2,204
n/a
n/a
Redemption value adjustment, year-to-date 224
—
1,046
n/a
n/a
Redemption value adjustment, cumulative 358
—
2,021
n/a
n/a
Carrying value of noncontrolling interests —
439
128
205
—
Assets, available only to settle subsidiary's obligations ⁽⁷⁾
n/a
36,951
1,403
1,865
—
Liabilities ⁽⁸⁾
n/a
21,821
889
1,652
—
Notes payable ⁽⁸⁾
n/a
9,917
—
220
—
Revolving credit facility ⁽⁸⁾
n/a
814
—
100
—

~~________~~

⁽¹⁾ ~~Redeemable noncontrolling interests are included~~We hold “investments in ~~the “mezzanine” section of~~unconsolidated entities” in 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.

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(unaudited)~~

⁽³⁾ ~~Represents ownership interests in J&S, which we consolidate under the voting interest model. J&S provides audio visual products and services in the hospitality industry. See also notes 1, 10 and 11.~~

⁽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 Rooms, a VIE for which we are considered the primary beneficiary and therefore we consolidate it. Pure Rooms 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. We are provided a preferred return on our investment in RED which is accounted for in our income allocation based on the applicable partnership agreement. RED is a premier provider of watersports activities and other travel and transportation services in the U.S. Virgin Islands. See also notes 1 and 10.

⁽⁷⁾ ~~Total assets primarily consist of cash and cash equivalents and other assets that can only be used to settle the subsidiaries’ obligations.~~

⁽⁸⁾ 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, for which the creditor has recourse to Ashford Inc.

~~Unconsolidated VIEs—Our investments in certain unconsolidated entities~~ are considered to be variable interests and voting interests in the underlying entities. ~~Because~~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 ~~have~~control more than 50% of the power and financial responsibility to direct the unconsolidated entities’ activities and operations, we are not considered to be the primary beneficiary of these entities on an ongoing basis and therefore such entities should not be consolidated. In evaluating VIEs, our analysis involves considerable management judgment and assumptions.voting interests. We review ~~the investments~~our “investments in unconsolidated ~~entities~~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. Any impairment is recorded in ~~equity~~“equity in ~~earnings/loss in~~earnings (loss) of unconsolidated entities.” No such impairment was recorded during the three and six months ended June 30, 2019 and 2018.

We held an investment in an unconsolidated variable interest entity with a carrying value of $500,000 at ~~both September~~June 30, ~~2018~~2019 and December 31, ~~2017.~~2018. 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 ~~impairment~~equity in earnings (loss) of unconsolidated entities due to a change in fair value of the investment was ~~recorded~~recognized during the three and ~~nine~~six months ended ~~September~~June 30, ~~2018 or 2017.~~2019 and 2018.

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ASHFORD INC. AND SUBSIDIARIES

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(unaudited)

The following table summarizes our carrying value and ownership interest in REA Holdings (in thousands):



	June 30, 2019
Carrying value of the investment in REA Holdings	$	2,490
Ownership interest in REA Holdings	30		%

The following table summarizes our equity in earnings (loss) in REA Holdings (in thousands):



	Three Months Ended June 30, 2019			Six Months Ended June 30, 2019
Equity in earnings (loss) in unconsolidated entities	$	(298	)	$	(573	)

Acquisitions—We account for acquisitions and investments in businesses as business combinations if the target meets the definition of a business and (a) the target is a VIE and we are the target's primary beneficiary, and therefore we must consolidate its financial statements, or (b) we acquire more than 50% of the voting interest of the target and it was not previously consolidated. We record business combinations using the acquisition method of accounting, which requires all of the assets acquired and liabilities assumed to be recorded at fair value as of the acquisition date. The excess of the purchase price over the estimated fair values of the net tangible and intangible assets acquired is recorded as goodwill. The application of the acquisition method of accounting for business combinations requires management to make significant estimates and assumptions in the determination of the fair value of assets acquired and liabilities assumed in order to properly allocate purchase price consideration between assets that are depreciated and amortized from goodwill. The fair value assigned to tangible and intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. Significant assumptions and estimates include, but are not limited to, the cash flows that an asset is expected to generate in the future, the appropriate weighted-average cost of capital, and the cost savings expected to be derived from acquiring an asset, if applicable. If the actual results differ from the estimates and judgments used in these estimates, the amounts recorded in the condensed consolidated financial statements may be exposed to potential impairment of the intangible assets and goodwill.

Certain of our business combinations include contingent consideration arrangements that require additional consideration to be paid based on the achievement of established objectives, most commonly related to post-combination period performance targets and stock consideration collars. We assess contingent consideration to determine if it is part of the business combination or if it should be accounted for separately from the business combination in the post-combination period. Contingent consideration is recognized at its fair value on the acquisition date. A liability resulting from contingent consideration is remeasured to fair value at each reporting date until the contingency is resolved, with changes in fair value recognized in earnings. See note 4 for additional information regarding contingent consideration arising from business acquisitions.

If our investment involves the acquisition of an asset or group of assets that does not meet the definition of a business, the transaction is accounted for as an asset acquisition. An asset acquisition is recorded at cost, which includes capitalizing transaction costs, and does not result in the recognition of goodwill.

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.

~~Table~~Furniture, Fixtures and Equipment, net—We record FF&E at cost. We also capitalize certain costs incurred related to the development of ~~Contents~~

~~ASHFORD INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(unaudited)~~

internal use software. We capitalize costs incurred during the application development stage related to the development of internal use software. We expense costs incurred related to the planning and post-implementation phases of development as incurred. Assets are depreciated using the straight-line method over the estimated useful lives of the assets. As of June 30, 2019 and December 31, 2018, FF&E, net of accumulated depreciation, included ERFP assets of $29.0 million and $16.1 million, audio visual equipment at JSAV of $16.7 million and $13.4 million and marine vessels at RED of $5.7 million and $5.7 million, respectively.

Impairment of Furniture, Fixtures and Equipment—FF&E are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Recoverability of the asset is measured by comparison of the carrying amount of the asset to the estimated future undiscounted cash flows, which take into account current market conditions and our intent with respect to holding or disposing of the asset. If our analysis indicates that the carrying value of the

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ASHFORD INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

asset is not recoverable on an undiscounted cash flow basis, we recognize an impairment charge for the amount by which the asset net book value exceeds its estimated fair value, or fair value, less cost to sell. In evaluating impairment of assets, we make many assumptions and estimates, including projected cash flows, expected holding period, and expected useful life. Fair value is determined through various valuation techniques, including internally developed discounted cash flow models, comparable market transactions and third-party appraisals, where considered necessary. Assets not yet placed into service are also reviewed for impairment whenever events or changes in circumstances indicate that all or a portion of the assets will not be placed into service. No impairment charges were recorded for the three and six months ended June 30, 2019. We recorded impairment charges of $0 and $1.9 million for the three and ~~nine~~six months ended ~~September~~June 30, 2018, respectively. The impairment in 2018 was recognized upon determination that a portion of capitalized software that was not eligible for reimbursement would not be placed into service. Impairment charges of $0 and $1.1 million were recorded for the three and nine months ended September 30, 2017, respectively, partially offset by recognition of deferred income from reimbursable expenses related to capitalized software implementation costs. The impairment was recognized upon determination that a portion of the implemented software cost will not be placed into service. See note 14.

Goodwill and Indefinite-Lived Intangible Assets—Goodwill is assigned to reporting units that are expected to benefit from the synergies of the business combination as of the acquisition date. Indefinite-lived intangible assets primarily include trademark rights resulting from our acquisition of ~~J&S.~~JSAV. We assess goodwill and indefinite-lived intangible assets, neither of which is amortized, for impairment annually as of October 1, or more frequently, if events and circumstances indicate impairment may have occurred. In the evaluation of goodwill for impairment, we typically perform a qualitative assessment to determine whether the fair value of the goodwill is more likely than not impaired. In considering the qualitative approach, we evaluated factors including, but not limited to, the operational stability and the overall financial performance of the reporting units. We may choose to bypass the qualitative assessment and perform a quantitative assessment and compare the fair value of the reporting unit to the carrying value and, if applicable, record an impairment charge based on the excess of the reporting unit's carrying amount over its fair value. IfWe determine the ~~carrying~~fair value of a reporting unit exceeds its fair value, the goodwill of that reporting unit is potentially impaired and we proceed to step two of the impairment analysis. In step two of the analysis, we will record an impairment loss equal to the excess of the carrying value of the reporting unit’s goodwill over its implied fair value should such a circumstance arise. We determine fair value based on either a market valuation approach or an analysis of discounted projected future operating cash flows using a discount rate that is commensurate with the risk inherent in our current business model. We base our measurement of fair value of trademarks using the relief-from-royalty method. This method assumes that the trademarks have value to the extent that their owner is relieved of the obligation to pay royalties for the benefits received from them. ~~No indicators~~Based on the results of ~~impairment were identified during~~ our annual ~~test~~impairment assessments, no impairment of goodwill or trademark rights was indicated. In the second quarter of 2019, the Company identified a potential indicator of goodwill impairment in our reporting units due to a decline in the price of our common stock. We performed an interim qualitative assessment to determine whether it was more likely than not that the carrying value of goodwill in our reporting units was impaired as of ~~October 1, 2017, or~~June 30, 2019. Based on our assessment, goodwill was not impaired as of ~~September~~June 30, ~~2018.~~2019.

Definite-Lived Intangible Assets—Definite-lived intangible assets primarily include customer relationships and management contracts resulting from our ~~acquisition~~acquisitions of Premier, ~~J&S~~JSAV, BAV and Pure ~~Rooms. The Premier~~Wellness. Definite-lived intangible assets are ~~not~~ amortized ~~on a straight-line basis, rather the assets are amortized~~over their respective estimated useful lives in a manner that approximates the pattern of the assets’ economic benefit to the Company, ~~over an estimated useful life of 30 years. The J&S and Pure assets are amortized~~or using the straight-line method ~~over the estimated useful lives of the assets.~~if not materially different. We review the carrying amount of the assets whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the carrying amount is not recoverable, we record an impairment charge for the excess of the carrying amount over the fair value. No indicators of impairment were identified as of ~~September~~June 30, ~~2018.~~2019.

Other Liabilities—As of June 30, 2019 and December 31, 2018, other current liabilities included reserves in the amount of $13.4 million and $7.8 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. See note 15. Other non-current liabilities were $2.7 million and $0 as of June 30, 2019 and December 31, 2018, respectively. As of June 30, 2019, other non-current liabilities included our remaining consideration of $500,000 and the fair value of contingent consideration of $2.2 million due to the sellers of BAV resulting from JSAV’s acquisition of BAV in March of 2019. See note 4.

Revenue Recognition—See note 3.

Salaries and Benefits—Salaries and benefits are expensed as incurred. Salaries and benefits includes expense for equity grants of Ashford Trust and Braemar common stock and performance-based Long-Term Incentive Plan (“LTIP”) units awarded to our officers and employees in connection with providing advisory services equal to the grant date fair value of the award in proportion to the requisite service period satisfied during the period. There is an offsetting amount, included in “advisory services” revenue. Salaries and benefits also includes changes in fair value in the deferred compensation plan liability. See ~~further discussion in notes 2 and 13 to our condensed consolidated financial statements.~~note 14.

Depreciation and Amortization—Our FF&E is depreciated on a straight-line basis over the estimated useful lives of the assets. Leasehold improvements are depreciated over the shorter of the lease term or the estimated useful life of the related assets. Furniture and equipment, excluding our RED vessels, are depreciated using the straight-line method over lives ranging from 3 to 7.5 years and computer software placed into service is amortized on a straight-line basis over estimated useful lives ranging from 3 to 5

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

years. Our RED vessels are depreciated using the straight-line method over a useful life of 20 years. While we believe our estimates are reasonable, a change in estimated useful lives could affect depreciation expense and net income/loss as well as resulting gains or losses on potential sales. See also the “Definite-Lived Intangible Assets” above.

Equity-Based Compensation—Our equity incentive plan provides for the grant of restricted or unrestricted shares of our common stock, ~~equity-based awards and other share awards,~~ share appreciation rights, performance shares, performance units and other equity-based awards or any combination of the foregoing. Equity-based compensation included in “salaries and benefits” is accounted for at fair value based on the market price of the shares/options on the date of grant in accordance with applicable

~~Table of Contents~~

~~ASHFORD INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(unaudited)~~

authoritative accounting guidance. The fair value is charged to compensation expense on a straight-line basis over the vesting period of the shares/options. Grants of restricted stock to independent directors are recorded at fair value based on the market price of our shares at grant date, and this amount is fully expensed in “general and administrative” expense as the grants of stock are fully vested on the date of grant. Our officers and employees can be granted common stock and LTIP units from Ashford Trust and Braemar in connection with providing advisory services that result in expense, included in “salaries and benefits,” equal to the grant date fair value of the award in proportion to the requisite service period satisfied during the period, as well as offsetting revenue in an equal amount included in “advisory services” revenue.

Prior to the adoption of ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”) in the third quarter of 2018, equity-based awards granted to ~~other~~ non-employees were accounted for at fair value based on the market price of the ~~options~~awards at period end, which resulted in recording expense ~~included in “general and administrative,”~~ equal to the fair value of the award in proportion to the requisite service period satisfied during the period. After the adoption of ASU 2018-07 in the third quarter of 2018, equity-based awards granted to ~~other~~ non-employees are measured at the grant date and expensed ratably over the vesting period based on the original measurement date as the grant date. This results in the recording of expense ~~included in “general and administrative”~~ equal to the ratable amount of the grant date fair value based on the requisite service period satisfied during the period.

Other Comprehensive Income (Loss)—Comprehensive income consists of net income (loss) and foreign currency translation adjustments. The foreign currency translation adjustment represents the unrealized impact of translating the financial statements of the ~~J&S~~JSAV operations in Mexico and the Dominican Republic from their respective functional currencies to U.S. dollars. This amount is not included in net income and would only be realized upon the sale or upon complete or substantially complete liquidation of the foreign businesses. The accumulated other comprehensive income (loss) is presented on the condensed consolidated balance sheets as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017. There were no sources of other comprehensive income (loss) for the three and nine months ended September 30, 2017.~~2018.

Due to Affiliates—Due to affiliates represents current payables resulting primarily from general and administrative expense, and FF&E ~~reimbursements, and contingent consideration associated with the acquisition of J&S.~~reimbursements. Due to affiliates is generally settled within a period not exceeding one year.

Leases—We determine if an arrangement is a lease at the inception of the contract. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Short-term leases are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. See note 7.

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 and, beginning November 1, 2017, Mexico and Dominican Republic income 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 the 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.

During the third quarter of 2018, we determined that it was more likely than not that we would realize our deferred tax assets because we recorded a $43 million deferred tax liability in the third quarter of 2018, and the future reversal of deferred tax liabilities is a source of future taxable income that allows us to utilize our deferred tax assets. Accordingly, in the third quarter of 2018, we reversed the valuation allowance on our deferred tax assets by recording a $15.1 million deferred income tax benefit in the consolidated statement of operations. The deferred tax liability related to our Premier acquisition, and it is the result of recording our book basis in Premier's acquired intangible assets at fair value while the tax basis of these assets was recorded using the seller's carryover basis, which is lower than fair value.

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, and, beginning November 1, 2017, in Mexico and the Dominican Republic. Tax years ~~2013~~2014 through ~~2017~~2018 remain subject to potential examination by certain federal and state taxing authorities.

~~Recently Adopted Accounting Standards~~—~~In May 2014, the FASB issued ASU~~ ~~2014-09, also referred to as “ASC 606”~~ ~~Revenue from Contracts with Customers~~. The core principle of the guidance is that an entity shall recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity is required to (a) identify the contract(s) with a customer, (b) identify

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(unaudited)

the performance obligations in the contract, (c) determine the transaction price, (d) allocate the transaction price to the performance obligations in the contract, and (e) recognize revenue when (or as) the entity satisfies a performance obligation. In determining the transaction price, an entity may 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. ~~ASC 606~~ also specifies the accounting for certain costs to obtain or fulfill a contract with a customer. In addition, the new guidance requires improved disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue that is recognized.

Effective January 1, 2018, we adopted the new standard using the modified retrospective approach. Based on our assessment, adoption of the new guidance did not require a cumulative-effect adjustment to the opening retained earnings on January 1, 2018. We expect the new standard’s impact on net income will be immaterial on an ongoing annual basis; however, the Company does anticipate that the new standard will have an impact on its revenues in interim periods due to timing. The primary impact of adopting the new standard relates to the timing of recognition of incentive advisory fees, which 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 will no longer record incentive advisory fee revenue in interim periods prior to the fourth quarter of the year in which the incentive fee is measured. The Company expects that this could impact its revenues in future interim periods, but we are unable to estimate the impact because future incentive advisory fees are calculated based on future changes in total stockholder return of our REIT clients compared to the total stockholder return of their respective peer group. There are no material changes in revenue recognition for audio visual, investment management reimbursements, debt placement fees, claims management services revenue, lease revenue or other services revenue. See note 3 for additional information regarding our adoption of ASC 606.

~~In January 2016, the FASB issued ASU 2016-01,~~ ~~Recognition and Measurement of Financial Assets and Financial Liabilities~~ (“ASU 2016-01”), which requires an entity to: (i) measure equity investments at fair value through net income, with certain exceptions; (ii) present in OCI the changes in instrument-specific credit risk for financial liabilities measured using the fair value option; (iii) present financial assets and financial liabilities by measurement category and form of financial asset; (iv) calculate the fair value of financial instruments for disclosure purposes based on an exit price; and (v) assess a valuation allowance on deferred tax assets related to unrealized losses of AFS debt securities in combination with other deferred tax assets. ASU 2016-01 provides an election to subsequently measure certain nonmarketable equity investments at cost less any impairment and adjusted for certain observable price changes. It also requires a qualitative impairment assessment of such equity investments and amends certain fair value disclosure requirements. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Certain provisions of ASU 2016-01 are eligible for early adoption. In February 2018, the FASB issued ASU 2018-03, as technical corrections and improvements to amend and clarify certain aspects of the guidance issued in ASU 2016-01. We have adopted this standard effective January 1, 2018, and the adoption of this standard did not have a material impact on our condensed consolidated financial statements and related disclosures. See “Unconsolidated VIEs” above in note 2.

~~In August 2016, the FASB issued ASU 2016-15,~~ ~~Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments - a consensus of the Emerging Issues Task Force~~ (“ASU 2016-15”). The new guidance is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. Certain issues addressed in this guidance include debt payments or debt extinguishment costs, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, distributions received from equity method investments and beneficial interests in securitization transactions. We adopted this standard retrospectively effective January 1, 2018, and the adoption of this standard did not have a material impact on our condensed consolidated statements of cash flows and related disclosures for the nine months ended September 30, 2017. For the nine months ended September 30, 2018, the adoption of ASU 2016-15 resulted in the bifurcation of the $2.6 million contingent consideration payment associated with the acquisition of J&S between financing and operating cash flows (included in payments “due to affiliates”) in the amounts of $1.2 million and $1.4 million, respectively, within our condensed consolidated statements of cash flows. See notes 4 and 7.

~~In January 2017, the FASB issued ASU 2017-01,~~ ~~Business Combinations (Topic 805) - Clarifying the Definition of a Business~~ (“ASU 2017-01”), which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether a transaction should be accounted for as an acquisition (or disposal) of an asset or a business. We have adopted this standard effective January 1, 2018.

~~In June 2018, the FASB issued ASU 2018-07,~~ ~~Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. ASU 2018-07 expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from non-employees and aligns the guidance for share-based payments to non-~~

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~~(unaudited)~~

employees with the requirements for share-based payments granted to employees. The ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We elected to early adopt the standard effective July 1, 2018, and the adoption of this standard did not have a material impact on our condensed consolidated financial statements and related disclosures.

Recently ~~Issued~~Adopted Accounting Standards—In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”). The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record an ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases (“ASU 2018-10”) and ASU 2018-11, Leases (Topic 842), Targeted Improvements (“ASU 2018-11”). The amendments in ASU 2018-10 affect only narrow aspects of the guidance issued in the amendments in ASU 2016-02, including but not limited to lease residual value guarantee, rate implicit in the lease and lease term and purchase option. The amendments in ASU 2018-11 provide an optional transition method for adoption of the new standard, which will allow entities to continue to apply the legacy guidance in ASC 840, including its disclosure requirements, in the comparative periods presented in the year of adoption. ~~ASU 2016-02 is effective for annual~~

Effective January 1, 2019, we have adopted the new standard using the modified retrospective approach and ~~interim periods for fiscal years beginning after December 15, 2018, which will require us~~implemented internal controls to enable the preparation of financial information upon adoption. We elected to adopt ~~these provisions in the first quarter of 2019 on a modified retrospective basis with an option to use~~both the transition relief provided in ASU ~~2018-11.~~2018-11 and the package of practical expedients which allowed us, among other things, to retain historical lease classifications and accounting for any leases that existed prior to adoption of the standard. Additionally, we elected the practical expedients allowing us not to separate lease and non-lease components and not record leases with an initial term of twelve months or less (“short-term leases”) on the balance sheet across all existing asset classes.

Adoption of the new standard resulted in the recording of operating lease assets and operating lease liabilities of $26.2 million as of January 1, 2019, which primarily relates to certain office space, warehouse facilities, vehicles and equipment. The standard did not materially impact our condensed consolidated statements of operations or cash flows. Adopting the new standard did not have a material impact on the accounting for leases under which we are the lessor, ~~remains largely unchanged. We are currently evaluating our contracts~~except as well as other existing arrangements to determine if they qualify for lease accounting under the new standard. While we continue evaluating our lease portfolio to assess the impact of ASU 2016-02, we expect the primary impactit pertains to our ~~condensed consolidated financial statements upon adoption will~~rent-free leases of FF&E with Ashford Trust and Braemar. The new standard requires leases with related parties entered into on or after January 1, 2019, to be accounted for in accordance with the ~~recognition, on a discounted basis,~~legally enforceable terms and conditions of our future minimum rentals due under noncancelable leases on our condensed consolidated balance sheets resulting in the recording of ROU assets and lease obligations. We disclosed $5.5 million in undiscounted operating lease obligations in our lease commitments footnote in our most recent 10-K. We expect to elect the practical expedients upon transition that will retain the lease ~~classification~~(i.e. zero rent payments). Therefore, we will no longer allocate a portion of base advisory fee revenue to lease revenue in an amount equal to the estimated fair value of the lease payments that would have been made because ERFP leases are rent-free. For historical leases related to our key money and ~~initial direct costs for any leases~~ERFP programs that ~~exist prior to~~were in place upon adoption of the standard. We do not expect to reassess whether any contracts entered into prior to adoption are leases. We expect to use the transition method that includes the practical expedient that allows us to adopt effectivenew standard on January 1, 2019, ~~and not reevaluate or recast prior periods, however~~ we ~~are still evaluating~~will continue allocating a portion of base advisory fee revenue to lease revenue consistent with our historical accounting for the ~~available transition methods. We are implementing repeatable processes to manage ongoing~~remainder of the applicable lease ~~data collection and analysis, and evaluating accounting policies and internal controls that will be impacted by the new standards.~~terms. See note 7.

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. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for periods beginning after December 15, 2018. We are currently evaluating the impact that ASU 2016-13 will have on the condensed consolidated financial statements and related disclosures.

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. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We are evaluating the impact that ASU 2017-04 will have on our condensed consolidated financial statements and related disclosures.

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. Early adoption is permitted. We are currently evaluating the impact that ASU 2018-13 will have on our condensed consolidated financial statements.

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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. Early adoption is permitted. We are currently evaluating the impact that ASU 2018-15 will have on our condensed consolidated financial statements.

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 and expense reimbursements that are recognized when services have been rendered. Advisory fees consist of base fees and incentive fees. For Ashford Trust, prior to June 26, 2018, the base fee was paid quarterly and ~~ranges~~ranged 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 ~~prior to June 26, 2018,~~ the Key Money Asset Management Fee, as defined in the amended and restated advisory agreement, subject to certain minimums. Upon effectiveness of the Enhanced Return Funding Program Agreement and Amendment No. 1 to the Amended and Restated Advisory Agreement on June 29, 2018, 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. ~~The~~For Braemar, prior to January 15, 2019, the base fee iswas paid monthly and iswas fixed at 0.70% of Braemar’s total market capitalization plus the Key Money Asset Management Fee, as defined in the ~~respective~~ advisory agreement, subject to certain minimums. Upon effectiveness of the Enhanced Return Funding Program Agreement and Amendment No. 1 to the Fifth Amended and Restated Advisory Agreement on January 15, 2019, 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. Reimbursements for overhead, internal audit, risk management advisory services and asset management services, including compensation, benefits and travel expense reimbursements, are recognized when services have been rendered. We record advisory 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 grant date fair value of the award in proportion to the requisite service period satisfied during the period, as well as an offsetting expense in an equal amount included in “salaries and benefits.”

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 ~~(“FCCR”~~Condition (the “FCCR Condition”) ~~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. ~~Historically, during the incentive advisory fee measurement period (i.e. the first year of each three year period), incentive~~Incentive advisory fees ~~have been accrued (or reversed) quarterly based on~~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 ~~amount~~contract with the customer so that ~~would be due pursuant~~revenue recognition depicts the transfer of the related advisory services to the ~~applicable advisory agreements as of~~customer. Accordingly, the interim balance sheet date. The second and third year installments of incentive advisory fees have been recognized as revenue on a pro-rata basis each quarter for the amounts determined in the first year measurement period, subject to the December 31 FCCR Condition each year. Effective with our January 1, 2018 adoption of ASC 606, we will no longerCompany does not record ~~the first year's installment of~~ incentive advisory fee revenue in interim periods prior to the fourth ~~quarter. Prior to measurement~~quarter

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of the year in which the ~~fourth quarter of each year, our~~incentive fee is measured. The first year installment of incentive advisory fees are subject to significant fluctuation (i.e. based on annual total stockholder returns) and are contingent on a future event during the measurement period (e.g. meeting the FCCR Condition). Accordingly, 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.

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(unaudited)~~

The tables below present the impact of applying the new revenue recognition standard to the components of total revenue within the condensed consolidated statement of operations for the three and nine months ended September 30, 2018, as a result of the change in the timing of revenue recognition of incentive advisory fees during interim periods prior to the fourth quarter of the year in which the incentive fee is measured (in thousands):

Three Months Ended September 30, 2018
As Reported Financial Results Prior to Adoption of Revenue Recognition Standard Impact of Adoption of Revenue Recognition Standard
Advisory services revenue:
Base advisory fee $ 11,655
$ 11,655
$ —
Incentive advisory fee 452
(241 ) 693
Reimbursable expenses 2,607
2,607
—
Non-cash stock/unit-based compensation 6,170
6,170
—
Other advisory revenue 132
132
—
Total advisory services revenue 21,016
20,323
693

Audio visual 14,526
14,526
—
Project management 3,616
3,616
—
Other 2,407
2,407
—
Total revenue $ 41,565
$ 40,872
$ 693

Nine Months Ended September 30, 2018
As Reported Financial Results Prior to Adoption of Revenue Recognition Standard Impact of Adoption of Revenue Recognition Standard
Advisory services revenue:
Base advisory fee $ 33,540
$ 33,540
$ —
Incentive advisory fee 1,356
2,103
(747 )
Reimbursable expenses 7,052
7,052
—
Non-cash stock/unit-based compensation 25,780
25,780
—
Other advisory revenue 390
390
—
Total advisory services revenue 68,118
68,865
(747 )

Audio visual 61,212
61,212
—
Project management 3,616
3,616
—
Other 11,598
11,598
—
Total revenue $ 144,544
$ 145,291
$ (747 )

Audio Visual Revenue

Audio visual revenue primarily consists of revenue generated within our ~~J&S~~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.

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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.

Project Management Revenue

Project management revenue primarily consists of revenue generated within our Premier segment by providing ~~design,~~ development ~~procurement, engineering~~ and construction, capital improvements, refurbishment, project management, and other services ~~for renovation~~such as purchasing, interior design, architectural services, freight management, and ~~ground-up development projects~~construction management services at properties. Premier receives fees for these services and recognizes revenue over time as services are provided to the customer. Project management revenue also includes revenue from reimbursable costs for accounting, overhead and project manager services provided to projects owned by affiliates of Ashford Trust, Braemar and other owners.

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 provision of ferry services. The revenue is recognized as services are provided based on contractual customer rates. Debt placement fees ~~are reported within our REIT Advisory segment and~~ include revenues earned from providing debt placement services by Lismore Capital (“Lismore”), our wholly-owned subsidiary. 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 Braemar, we lease FF&E to Ashford Trust and Braemar rent-free. Consistent with our accounting treatment prior to adopting ASC 842, a portion of the base advisory fee for leases, which commenced prior to our adoption, is allocated to lease revenue each period equal to the estimated fair value of the lease payments that would have been made.

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 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.

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Deferred Revenue and Contract Balances

As of September 30, 2018, we recorded a $10.7 million contract asset that will be realized in the form of leased FF&E pursuant to our Enhanced Return Funding Program Agreement and Amendment No. 1 to the Amended and Restated Advisory Agreement with Ashford Trust. See notes 1 and 14.

Deferred revenue primarily consists of customer billings in advance of revenues being recognized from our advisory agreements and other hospitality products and services contracts. Generally, deferred revenue that could result in a cash payment within the next twelve-month period is recorded as current deferred revenue and the remaining portion is recorded as noncurrent. The increase in the deferred revenue 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 revenue balance at the beginning of the period.

~~For the three months ended September 30, 2018, we recognized $1.3 million of revenues that were included in~~ The following tables summarize our consolidated deferred revenue at the beginning of the period, including (a) $666,000 of advisory revenue primarily related to our advisory agreements with Ashford Trust and Braemar, (b) $173,000 of audio visual revenue, and (c) 505,000 of “other services” revenue earned by our hospitality products and services companies.activity (in thousands):

For the nine months ended September 30, 2018, we recognized $5.8 million of revenues that were included in deferred revenue at the beginning of the period, including (a) $1.6 million of advisory revenue primarily related to our advisory agreements with Ashford Trust and Braemar, (b) 2.9 million of audio visual revenue, and (c) $1.3 million of “other services” revenue earned by our hospitality products and services companies.



	Deferred Revenue
	2019			2018
Balance as of March 31	$	13,171		$	13,194
Increases to deferred revenue	703			1,553
Recognition of revenue ⁽¹⁾	(2,648		)	(1,636		)
Balance as of June 30	$	11,226		$	13,111

________

⁽¹⁾

Deferred revenue recognized in the three months ended June 30, 2019, includes (a) $656,000 of advisory revenue primarily related to our advisory agreements with Ashford Trust and Braemar, (b) $1.4 million of audio visual revenue and (c) $592,000 of “other services” revenue earned by our hospitality products and services companies. Deferred revenue recognized in the three months ended June 30, 2018, includes (a) $542,000 of advisory revenue primarily related to our advisory agreements with Ashford Trust and Braemar, (b) $833,000 of audio visual revenue and (c) $261,000 of “other services” revenue earned by our hospitality products and services companies.



	Deferred Revenue
	2019			2018
Balance as of January 1	$	13,544		$	13,899
Increases to deferred revenue	2,749			3,588
Recognition of revenue ⁽¹⁾	(5,067		)	(4,376		)
Balance as of June 30	$	11,226		$	13,111

________

⁽¹⁾

Deferred revenue recognized in the six months ended June 30, 2019, includes (a) $1.4 million of advisory revenue primarily related to our advisory agreements with Ashford Trust and Braemar, (b) $2.4 million of audio visual revenue and (c) $1.2 million of “other services” revenue earned by our hospitality products and services companies. Deferred revenue recognized in the six months ended June 30, 2018, includes (a) $890,000 of advisory revenue primarily related to our advisory agreements with Ashford Trust and Braemar, (b) $2.7 million of audio visual revenue and (c) $772,000 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 ~~September~~June 30, ~~2018.~~2019.

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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

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of the related services, we record deferred revenue until the performance obligations are satisfied. We had receivables related to revenues from contracts with customers of ~~$4.6~~$9.2 million and ~~$5.1~~$4.9 million included in “accounts receivable, net” primarily related to our hospitality products and services segment, $4.9 million and ~~$13.3~~$5.3 million in “due from Ashford Trust OP”, and ~~$1.1~~$1.8 million and ~~$1.7~~$2.0 million included in “due from Braemar OP” related to REIT advisory services at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. We had no significant impairments related to these receivables during the ~~nine~~three and six months ended ~~September~~June 30, 2019 and 2018.

~~We have four reportable segments: REIT Advisory, Premier, J&S~~

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Disaggregated Revenue

Our revenues were comprised of the following for the three and six months ended June 30, 2019 and 2018 (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Advisory services revenue:
Base advisory fee	$	11,190	$	11,174	$	21,812	$	21,885
Incentive advisory fee	169		452		339		904
Reimbursable expenses	3,220		2,496		5,729		4,445
Equity-based compensation	6,511		10,318		12,269		19,610
Other advisory revenue	130		130		258		258
Total advisory services revenue ⁽²⁾	21,220		24,570		40,407		47,102

Audio visual revenue	30,127		23,376		61,102		46,686

Project management revenue	7,700		—		15,490		—

Other revenue:
Investment management reimbursements ⁽²⁾	337		329		695		511
Debt placement fees ⁽³⁾	79		4,959		1,433		5,591
Claims management services ⁽²⁾	55		50		96		105
Lease revenue ⁽²⁾	1,029		251		2,059		503
Other services ⁽⁴⁾	2,919		1,276		5,504		2,481
Total other revenue	4,419		6,865		9,787		9,191

Total revenue	$	63,466	$	54,811	$	126,786	$	102,979

REVENUE BY SEGMENT ⁽¹⁾
REIT advisory	$	22,641	$	25,198	$	43,257	$	48,219
Premier	7,700		—		15,490		—
JSAV	30,127		23,376		61,102		46,686
OpenKey	194		153		451		472
Corporate and other	2,804		6,084		6,486		7,602
Total revenue	$	63,466	$	54,811	$	126,786	$	102,979

________


⁽¹⁾	We have four reportable segments: REIT Advisory, Premier, JSAV and OpenKey. We combine the operating results of RED, Pure Wellness and Lismore into an “all other” category, which we refer to as “Corporate and Other.” See note 17 for discussion of segment reporting.


⁽²⁾	Indicates REIT advisory revenue.


⁽³⁾	Debt placement fees are earned by Lismore for providing debt placement services to Ashford Trust and Braemar.


⁽⁴⁾	Other services revenue relates to other hotel services provided by our consolidated subsidiaries, OpenKey, RED and Pure Wellness, to Ashford Trust, Braemar and third parties.

Table of ~~Pure Rooms and RED into an “all other” category, which we refer to as “Corporate and Other.” See note 16 for more information about our segment reporting.~~ Contents

ASHFORD INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Geographic Information

Our REIT Advisory, Premier, OpenKey, and Corporate and Other reporting segments conduct their business within the United States. Our ~~J&S~~JSAV reporting segment conducts business in the United States, Mexico, and the Dominican Republic. The following table presents revenue from our ~~J&S~~JSAV reporting segment geographically for the three and ~~nine~~six months ended ~~September~~June 30, 2019 and 2018, ~~and 2017~~respectively (in thousands).:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017		2019		2018		2019		2018
United States	$	12,385	$	—	$	44,547	$	—	$	24,548	$	16,210	$	47,690	$	32,162
Mexico	1,293		—		12,010		—		3,757		5,257		9,485		10,717
Dominican Republic	848		—		4,655		—		1,822		1,909		3,927		3,807
	$	14,526	$	—	$	61,212	$	—	$	30,127	$	23,376	$	61,102	$	46,686

4. Acquisitions

BAV

On March 1, 2019, JSAV acquired a privately-held company, BAV Services in the United States (“BAV”). BAV is an audio visual rental, staging, and production company focused on meeting and special event services. As a result of the acquisition, our ownership interest in JSAV, which we consolidate under the voting interest model, increased from 85% to approximately 88%.

The purchase price consisted of: (i) $5.0 million in cash (excluding working capital adjustments) funded by an existing JSAV term loan; (ii) $4.0 million in the form of Ashford Inc. common stock consisting of (a) 61,387 shares issued on March 1, 2019, which was determined based on an agreed upon value of $3.5 million using a thirty-day volume weighted average price per share (“30-Day VWAP”) of $57.01 and had an estimated fair value of approximately $3.8 million as of the acquisition date and (b) $500,000 of stock to be issued 18 months after the acquisition date, subject to certain conditions; and (iii) contingent consideration related to the achievement of certain performance targets with an estimated fair value of approximately $1.4 million, payable, if earned, 12 to 18 months after the acquisition date. Additionally, the transaction includes a stock consideration collar. In the event that the price of the Company’s common stock on the six month anniversary of the closing date of the acquisition is less than 90% of the price of the Company’s common stock at the acquisition date, the Company will pay to the sellers a cash payment, if greater than zero, equal to the amount by which the value of the Company’s common stock is less than $3.2 million. In the event that the price of the Company’s common stock on the six month anniversary of the closing date of the acquisition is greater than 110% of the price of the Company’s common stock on the acquisition date, the sellers will transfer back to the Company the number of shares equal to the amount by which the value of the Company’s common stock is greater than $3.9 million. The price of the Company’s common stock on the six month anniversary shall be determined using the 30-Day VWAP as of the date which is six months after the closing date of the acquisition. A liability resulting from contingent consideration is remeasured to fair value at each reporting date until the contingency is resolved, with changes in fair value recognized in earnings within “other” operating expenses in the condensed consolidated statements of operations. See note 8 for further discussion of the Company’s liabilities related to acquisition-related contingent consideration.

The acquisition of BAV 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 BAV 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.

We have allocated the purchase price to the assets acquired and liabilities assumed on a preliminary basis using estimated fair value information currently available. We are in the process of evaluating the values assigned to furniture, fixtures and equipment, and intangible assets. Thus, the balances reflected below are subject to change, and any such changes could result in adjustments to the allocation.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

The fair value of the purchase price and preliminary allocation of the purchase price is as follows (in thousands):



Term loan	$	5,000
Less working capital adjustments	(733		)
Fair value of Ashford Inc. common stock issued	3,748
Stock consideration payable	500
Fair value of contingent consideration	1,384
Purchase price consideration	$	9,899



	Fair Value		Estimated Useful Life
Current assets	$	754
Furniture, fixtures and equipment	2,055		5 years
Goodwill	5,357
Trademarks	350
Customer relationships	2,200		15 years
Total assets acquired	10,716
Current liabilities	567
Noncurrent liabilities	250
Total assumed liabilities	817
Net assets acquired	$	9,899

We expect approximately $5.4 million of the goodwill balance to be deductible for tax purposes. The qualitative factors that make up the recorded goodwill include value associated with an assembled workforce and value attributable to expanding BAV’s operations through our relationship with JSAV.

Results of BAV

The results of operations of BAV have been included in our results of operations since the acquisition date. Our condensed consolidated statements of operations for the three and six months ended June 30, 2019, include total revenues from BAV of $3.9 million and $5.7 million, respectively. In addition, our condensed consolidated statements of operations for the three and six months ended June 30, 2019, include net income from BAV of $619,000 and $947,000, respectively. The unaudited pro forma results of operations, as if the acquisition had occurred on January 1, 2018, are included below under “Pro Forma Financial Results.”

Premier

On August 8, 2018, we completed the acquisition of Premier for a total transaction value of ~~$203~~$203.0 million. Premier provides construction management, interior design, architectural oversight, and the purchasing, expediting, warehousing coordination, freight management, and supervision of installation of FF&E, and related services. The purchase price was paid by issuing 8,120,000 shares of the newly created Series B Convertible Preferred Stock to the sellers. See note 1112 for further discussion of the Series B Convertible Preferred Stock. The results of operations of Premier are included in our condensed consolidated financial statements from the date of acquisition.

The acquisition of Premier has been recorded using the acquisition method of accounting in accordance with the authoritative guidance for business combinations. The holding company reorganization that we effected in connection with the Premier acquisition was accounted for as a common control transaction. The purchase price allocation for the acquisition of Premier is based on our valuation of the fair value of the tangible and intangible assets acquired and liabilities assumed at the date of acquisition. We have completed our preliminary valuation to determine the fair value of the identifiable assets acquired and liabilities assumed. 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 Premier 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.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

We have allocated the purchase price to the assets acquired and liabilities assumed on a preliminary basis using estimated fair value information currently available. We are in the process of evaluating the values assigned to ~~working capital balances and~~ intangible assets. Thus, the balances reflected below are subject to change, and any such changes could result in adjustments to the allocation.

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~~ASHFORD INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(unaudited)~~

The fair value of the purchase price and the preliminary allocation of the purchase price is as follows (in thousands):


Series B preferred stock	$	203,000
Series B convertible preferred stock				$	203,000
Preferred stock discount	(2,725		)	(2,883		)
Total fair value of purchase price	$	200,275		$	200,117


	Fair Value		Estimated Useful Life	Fair Value		Estimated Useful Life
Current assets including cash	$	3,914		$	3,878
Furniture, fixtures and equipment				47
Goodwill	53,111			53,517
Management contracts	188,800		30 years	188,800		30 years
Total assets acquired	245,825			246,242
Current liabilities	2,414			2,378
Deferred tax liability	43,136			43,747
Total assumed liabilities	45,550			46,125
Net assets acquired	$	200,275		$	200,117

We do not expect any of the goodwill balance to be deductible for tax purposes.

Results of Premier

The results of operations of Premier have been included in our results of operations since the acquisition date. Our condensed consolidated statement of operations for ~~both~~ the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, include total revenue of ~~$3.6 million.~~$7.7 million and $15.5 million, respectively. In addition, our condensed consolidated statements of operations for ~~both~~ the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, include net income of ~~$68,000~~$302,000 and $878,000, respectively, from Premier. The unaudited pro forma results of operations, as if the acquisition had occurred on January 1, ~~2017,~~2018, are included below under “Pro Forma Financial Results.”

~~J&S~~Pro Forma Financial Results

~~On November~~The following table reflects the unaudited pro forma results of operations as if the Premier and BAV acquisitions had occurred and the indebtedness associated with those acquisitions was incurred on January 1, ~~2017, we completed~~2018, and the removal of $6,000 and $376,000 of transaction costs directly attributable to the acquisitions for the three and six months ended June 30, 2019 (in thousands):



	Three Months Ended June 30,					Six Months Ended June 30,
	2019			2018		2019		2018
Total revenue	$	63,466		$	65,117	$	128,705	$	124,386
Net income (loss)	(335		)	11,518		596		8,251
Net income (loss) attributable to the Company	106			11,559		1,122		8,391

The acquisition of certain assets related to RED on January 16, 2018, was treated as an ~~85% controlling interest in J&S. J&S provides an integrated suite~~acquisition of ~~audio visual services including show~~property and ~~event services, hospitality services, creative services and design & integration services to its customers in various venues including hotels and convention centers in~~equipment so the ~~United States, Mexico and the Dominican Republic.~~

The purchase price of approximately $25.5 million consisted of (i) $19.2 million in cash of which $10.0 million was funded with a term loan; (ii) 70,318 shares of Ashford Inc. common stock, which was determined based on an agreed upon value of approximately $4.3 million using a thirty-day volume weighted average price per share of $60.44 and had an estimated fair value of approximately $5.1 million as of the acquisition date; and (iii) contingent consideration with an estimated fair value of approximately $1.2 million. Thepro forma results of operations of ~~J&S were included in our consolidated financial statements from the date of acquisition.~~

The acquisition of J&S has been 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. We have completed our preliminary valuation to determine the fair value of the identifiable assets acquired and liabilities assumed. 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 thatRED 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 J&S 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.

We have allocated the purchase price to the assets acquired and liabilities assumed on a preliminary basis using estimated fair value information currently available. During the third quarter of 2018, we recorded a $6.4 million adjustment to increase the value of the acquired FF&E to their estimated fair value and a corresponding decrease to goodwill on the consolidated balance sheet. We also recorded approximately $1.0 million of incremental depreciation expense, which was primarily included ~~in “cost of revenues for audio visual” in our condensed consolidated statements of operations, during the third quarter of 2018. We will finalize~~above.

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~~the valuation in the fourth quarter and record any change to the amounts recorded within FF&E. Any change to the amounts recorded could also impact depreciation expense.~~

Additionally, the J&S operating subsidiary acquired an affiliate that it controls for a nominal amount. We recorded a $327,000 adjustment to reverse the fair value allocated to the noncontrolling interest and a corresponding decrease to goodwill on the consolidated balance sheet.

~~The fair value of the purchase price and preliminary allocation of the purchase price is as follows (in thousands):~~

Cash $ 9,176
Term loan 10,000
Fair value of Ashford Inc. common stock 5,063
Fair value of contingent consideration 1,196
Purchase price consideration 25,435
Fair value of redeemable noncontrolling interest 2,724
Total fair value of purchase price $ 28,159

Fair Value Estimated Useful Life
Current assets including cash $ 6,564

FF&E 15,423
5 years
Goodwill 5,594

Trademarks 3,201

Customer relationships 6,519
7 years
Other assets 129

Total assets acquired 37,430

Current liabilities 7,080

Notes payable, current 445

Deferred income 1,213

Note payable, non-current 533

Total assumed liabilities 9,271

Net assets acquired $ 28,159

We expect approximately $9.9 million of the goodwill balance to be deductible for tax purposes. The qualitative factors that make up the recorded goodwill include value associated with an assembled workforce and value attributable to expanding J&S’ operations through our relationships with Ashford Trust and Braemar.

~~Results of J&S~~

The results of operations of J&S have been included in our results of operations since the acquisition date. Our consolidated statement of operations for the three and nine months ended September 30, 2018, include total revenue of $14.5 million and $61.2 million, respectively. In addition, our condensed consolidated statements of operations for the three and nine months ended September 30, 2018, include net losses of $3.5 million and $107,000, respectively, from J&S. The unaudited pro forma results of operations, as if the acquisition had occurred on January 1, 2017, are included below under “Pro Forma Financial Results.”

~~Table of Contents~~

~~ASHFORD INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(unaudited)~~

~~Pro Forma Financial Results~~

The following table reflects the unaudited pro forma results of operations as if the J&S, Pure Rooms (as disclosed in our Form 10-K for the year ended December 31, 2017) and Premier acquisition had occurred and the indebtedness associated with those acquisitions was incurred on January 1, 2017, and the removal of $6.2 million and $10.3 million of transaction costs directly attributable to the acquisitions for three and nine months ended September 30, 2018 (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017
Total revenue $ 44,781
$ 39,135
$ 162,765
$ 125,250
Net income (loss) 5,254
(2,892 ) 12,009
(8,863 )
Net income (loss) attributable to the Company 6,635
(2,067 ) 13,530
(7,651 )

~~The acquisition of certain assets related to RED was treated as an acquisition of property and equipment so the pro forma results of operations of RED are not included above.~~

5. Goodwill and Intangible Assets, net

The changes in the carrying amount of goodwill for the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, are as follows (in thousands):


	Premier		J&S			Corporate and Other		Consolidated			Premier		JSAV		Corporate and Other		Consolidated
Balance at January 1, 2018	$	—	$	12,165		$	782	$	12,947
Balance at December 31, 2018											$	53,517	$	5,384	$	782	$	59,683
Changes in goodwill:
Additions(1)	53,111		—			—		53,111			—		5,357		—		5,357
Adjustments ⁽¹⁾	—		(6,571		)	—		(6,571		)	—		—		—		—
Balance at September 30, 2018	$	53,111	$	5,594		$	782	$	59,487
Balance at June 30, 2019											$	53,517	$	10,741	$	782	$	65,040

________

⁽¹⁾The ~~adjustment~~addition of approximately ~~$6.6~~$5.4 million relates ~~primarily~~ to the preliminary valuation of assets and liabilities related to ~~the J&S acquisition.~~JSAV’s acquisition of BAV.

Intangible assets, net as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, are as follows (in thousands):


	September 30, 2018							December 31, 2017							June 30, 2019							December 31, 2018
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Definite-lived intangible assets:
Pure Rooms customer relationships	$	175	$	(52	)	$	123	$	175	$	(26	)	$	149
J&S customer relationships	6,519		(854		)	5,665		6,519		(156		)	6,363
Pure Wellness customer relationships															$	175	$	(79	)	$	96	$	175	$	(61	)	$	114
JSAV customer relationships															8,719		(1,601		)	7,118		6,519		(1,087		)	5,432
Premier management contracts	188,800		(1,618		)	187,182		—		—			—		188,800		(9,823		)	178,977		188,800		(4,353		)	184,447
	$	195,494	$	(2,524	)	$	192,970	$	6,694	$	(182	)	$	6,512	$	197,694	$	(11,503	)	$	186,191	$	195,494	$	(5,501	)	$	189,993

Indefinite-lived intangible assets:
J&S trademarks	$	3,201						$	3,201
JSAV trademarks															$	3,551						$	3,201
	$	3,201						$	3,201						$	3,551						$	3,201

Amortization expense for definite-lived intangible assets was ~~$1.9~~$3.0 million and ~~$2.3~~$6.0 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, respectively. Amortization expense for definite-lived intangible assets was ~~$9,000~~$243,000 and ~~$17,000~~$485,000 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, respectively. Customer relationships and management contracts for Pure ~~Rooms, J&S~~Wellness and Premier were assigned a useful life of 5 years ~~7 years~~ and 30 years, respectively. Customer relationships for JSAV, which includes those related to BAV, were assigned useful lives between 7 and 15 years.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

6. Notes Payable, net

Notes payable—Notes payable, net consisted of the following (in thousands):

Indebtedness Borrower Maturity Interest Rate September 30, 2018 December 31, 2017
Senior revolving credit facility Ashford Inc. March 1, 2021
Base Rate⁽¹⁾ + 2.00% to 2.50% or LIBOR⁽²⁾ + 3.00% to 3.50%
$ —
$ —
Term loan J&S November 1, 2022
One-Month LIBOR⁽³⁾ + 3.25%
9,167
9,917
Revolving credit facility J&S November 1, 2022
One-Month LIBOR⁽³⁾ + 3.25%
2,526
814
Capital lease obligations J&S Various Various - fixed 564
896
Equipment note J&S November 1, 2022
One-Month LIBOR⁽³⁾ + 3.25%
1,623
—
Draw Term Loan J&S November 1, 2022
One-Month LIBOR⁽³⁾ + 3.25%
2,000
—
Revolving credit facility OpenKey October 31, 2018
Prime Rate⁽⁴⁾+ 2.75%
—
—
Term loan Pure Rooms October 1, 2018 5.00% 39
220
Revolving credit facility Pure Rooms On demand
Prime Rate⁽⁴⁾ + 1.00%
100
100
Term loan RED April 5, 2025
Prime Rate⁽⁴⁾ + 1.75%
716
—
Revolving credit facility RED March 5, 2019
Prime Rate⁽⁴⁾ + 1.75%
16
—
Term loan RED February 1, 2029
Prime Rate⁽⁴⁾ + 2.00%
1,785
—
Notes payable 18,536
11,947
Less deferred loan costs, net (242 ) (240 )
Notes payable less net deferred loan costs 18,294
11,707
Less current portion (1,726 ) (1,751 )
Notes payable, net - non-current $ 16,568
$ 9,956



Indebtedness	Borrower	Maturity	Interest Rate	June 30, 2019			December 31, 2018
Senior revolving credit facility⁽⁷⁾	Ashford Inc.	March 1, 2021	Base Rate ⁽¹⁾ + 2.00% to 2.50% or LIBOR ⁽²⁾ + 3.00% to 3.50%	$	—		$	—
Term loan ^{(5) (8)}	JSAV	November 1, 2022	One-Month LIBOR ⁽³⁾ + 3.25%	13,325			8,917
Revolving credit facility^{(5) (8)}	JSAV	November 1, 2022	One-Month LIBOR ⁽³⁾ + 3.25%	2,899			1,733
Capital lease obligations ⁽⁵⁾	JSAV	Various	Various - fixed	467			661
Equipment note ^{(5) (9)}	JSAV	November 1, 2022	One-Month LIBOR ⁽³⁾ + 3.25%	3,261			2,087
Draw term loan ^{(5) (9)}	JSAV	November 1, 2022	One-Month LIBOR ⁽³⁾ + 3.25%	1,850			1,950
Revolving credit facility ^{(5) (10)}	OpenKey	April 30, 2020	Prime Rate ⁽⁴⁾+ 2.75%	—			—
Revolving credit facility ^{(5) (11)}	Pure Wellness	On demand	Prime Rate ⁽⁴⁾ + 1.00%	—			60
Term loan^{(6) (12)}	RED	April 5, 2025	Prime Rate ⁽⁴⁾ + 1.75%	651			695
Revolving credit facility^{(6) (13)}	RED	February 5, 2020	Prime Rate ⁽⁴⁾ + 1.75%	—			118
Draw term loan ^{(6) (14)}	RED	December 5, 2026	Prime Rate ⁽⁴⁾ + 1.75%	923			—
Term loan ^{(6) (15)}	RED	February 1, 2029	Prime Rate ⁽⁴⁾ + 2.00%	1,726			1,785
Notes payable				25,102			18,006
Less deferred loan costs, net				(244		)	(234		)
Notes payable less net deferred loan costs				24,858			17,772
Less current portion				(2,933		)	(2,595		)
Notes payable, net - non-current				$	21,925		$	15,177

__________________

⁽¹⁾


⁽¹⁾	Base Rate, as defined in the senior revolving credit facility agreement, is the greater of (i) the prime rate set by Bank of America, or (ii) federal funds rate plus 0.50%, or (iii) LIBOR plus 1.00%.


⁽²⁾	Ashford Inc. may elect a 1, 2, 3 or 6 month LIBOR period for each borrowing.


⁽³⁾	The one-month LIBOR rate was 2.40% and 2.50% at June 30, 2019 and December 31, 2018, respectively.


⁽⁴⁾	Prime Rate was 5.50% and 5.50% at June 30, 2019 and December 31, 2018, respectively.


⁽⁵⁾	Creditors do not have recourse to Ashford Inc.


⁽⁶⁾	Creditors have recourse to Ashford Inc.


⁽⁷⁾	The Company has a $35.0 million senior revolving credit facility with Bank of America, N.A. There is a one-year extension option subject to the satisfaction of certain conditions. The credit facility includes the opportunity to expand the borrowing capacity by up to $40.0 million to an aggregate amount of $75.0 million, subject to certain conditions.

⁽⁸⁾

On March 1, 2019, in connection with the acquisition of BAV, JSAV amended the existing term loan and borrowed an additional $5.0 million. The revolving credit facility was also amended to increase the borrowing capacity from $3.0 million to $3.5 million. In connection with the term loan, JSAV entered into an interest rate cap with an initial notional amount totaling $5.0 million and a strike rate of 4.0%. The fair value of the interest rate cap at June 30, 2019 and December 31, 2018, was not material. As of June 30, 2019, $601,000 of credit was available under the revolving credit facility.


⁽⁹⁾	On March 1, 2019, in connection with the acquisition of BAV, JSAV amended the existing equipment note and draw term note to increase the borrowing capacity to $8.0 million and $2.4 million, respectively. All the loans are partially secured by a security interest on all of the assets and equity interests of JSAV.


⁽¹⁰⁾	On November 8, 2018, OpenKey renewed the Loan and Security Agreement that expired in October 2018 for a revolving credit facility in the amount of $1.5 million. The credit facility is secured by all of OpenKey's assets. As of June 30, 2019, OpenKey had no borrowings outstanding and the $1.5 million revolving credit facility funds were no longer available.


⁽¹¹⁾	On April 6, 2017, Pure Wellness entered into a $100,000 line of credit. In February 2019, the remaining $60,000 balance on the line of credit was paid off.


⁽¹²⁾	On March 23, 2018, RED entered into a term loan of $750,000.


⁽¹³⁾	On February 28, 2019, RED renewed its $250,000 revolving credit facility. The revolving credit facility provides RED with available borrowings up to a total of $250,000. As of June 30, 2019, $250,000 was available under the revolving credit facility.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)


⁽¹⁴⁾	On February 27, 2019, RED entered into a draw term loan in the amount of $1.4 million. As of June 30, 2019, $477,000 was available under the draw term loan.


⁽¹⁵⁾	On August 31, 2018, RED entered into a term loan of $1.8 million.

7. Leases

We lease certain office space, warehouse facilities, vehicles and equipment. Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to 10 years. The exercise of lease renewal options is at our sole discretion. Operating lease obligations expire at various dates with the latest maturity in 2028. Certain of our lease agreements include rental payments adjusted periodically for inflation. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. For the three and six months ended June 30, 2018, we recorded rental expense of $348,000 and $690,000, respectively.

We lease certain equipment under finance leases. The net book value of these assets was approximately $775,000 and $807,000 as ~~defined in the senior revolving credit facility agreement, is the greater~~ of ~~(i) the prime rate set by Bank of America, or (ii) federal funds rate plus 0.50%, or (iii) LIBOR plus 1.00%.~~

⁽²⁾~~Ashford Inc. may elect a 1, 2, 3 or 6 month LIBOR period for each borrowing.~~

⁽³⁾~~The one-month LIBOR rate was 2.26% and 1.56% at September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.

⁽⁴⁾~~Prime Rate was 5.25% and 4.50% at September 30, 2018 and December 31, 2017, respectively.~~

~~On August 31, 2018, our RED operating subsidiary entered into a term loan~~ The net book value of ~~$1.8 million for which the creditor has recourse to Ashford Inc. The term loan bears interest at the Prime Rate plus 2.00% and matures on February 1, 2029.~~

~~On March 23, 2018, our RED operating subsidiary entered into a term loan of $750,000 and a revolving credit facility of $250,000 for which the creditor has recourse to Ashford Inc.~~ ~~Approximately $225,000 of the proceeds from the term loan is held in an escrow account, which~~these assets is included in “furniture, fixtures and equipment, net” in our condensed consolidated balance ~~sheet within “other assets” as~~sheets. Amortization of ~~September 30, 2018.~~ assets under finance leases is included in “depreciation and amortization” expense in our condensed consolidated statement of operations.

During the ~~nine months ended September 30, 2018, $16,000 was drawn on~~second quarter of 2019, we exercised our option to modify our corporate office lease agreement for the ~~revolving credit facility.~~ remainder of the lease term to reduce the amount of office space and the annual lease payment. This modification resulted in a reduction of the operating lease right-of-use asset and operating lease liability by approximately $4.1 million.

As of ~~September~~June 30, ~~2018, $234,000 was available under the revolving credit facility.~~

~~On March 1, 2018, the Company~~2019, our leased assets and its subsidiary Ashford Hospitality Holdings LLC entered into a $35 million senior revolving credit facility with Bank of America, N.A. The credit facility provides for a three-year revolving line of credit and bears interest at the Base Rate plus 2.00% to 2.50% or LIBOR plus 3.00% to 3.50%, depending on the leverage levelliabilities consisted of the Company. There is a one-year extension option subject to the satisfaction of certain conditions. The new credit facility includes the opportunity to expand the borrowing capacity by up to $40 million to an aggregate amount of $75 million, subject to certain conditions. At September 30, 2018, there were no outstanding borrowings under the facility.following (in thousands):



Leases	Classification	June 30, 2019
Assets
Operating lease assets	Operating lease right-of-use assets	$	21,597
Finance lease assets	Furniture, fixtures and equipment, net	775
Total leased assets		$	22,372

Liabilities
Current
Operating	Operating lease liabilities	$	2,066
Finance	Notes payable, net	318
Noncurrent
Operating	Operating lease liabilities	19,546
Finance	Notes payable, net	149
Total leased liabilities		$	22,079

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ASHFORD INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

~~On November 1, 2017,~~We incurred the following lease costs related to our ~~J&S~~ operating ~~subsidiary entered into a series~~and finance leases (in thousands):



Lease Cost	Classification	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019
Operating lease cost ⁽¹⁾
Rent expense	General and administrative	$	747	$	1,536
Rent expense	Cost of revenues for project management	35		73
Finance lease cost
Amortization of leased assets	Depreciation and amortization	58		126
Interest on lease liabilities	Interest expense	8		15
Total lease cost		$	848	$	1,750

__________________


⁽¹⁾	Includes short-term and variable lease expense which were immaterial for the three and six months ended June 30, 2019.

For the six months ended June 30, 2019, cash paid amounts included in the measurement of lease liabilities included (in thousands):



Lease Payments	Six Months Ended June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	1,609
Financing cash flows from finance leases	323

As of June 30, 2019, future minimum lease payments on operating and financing ~~transactions for which the creditors do not have recourse to Ashford Inc., including a $10.0 million term loan to finance the acquisition~~leases were as follows (in thousands):



	Operating Leases			Financing Leases
2019	$	1,609		$	248
2020	3,144			132
2021	2,963			60
2022	2,756			42
2023	2,574			10
Thereafter	17,501			—
Total minimum lease payments	$	30,547		$	492
Imputed interest	(8,935		)	(25		)
Present value of minimum lease payments	$	21,612		$	467

Table of ~~J&S. The term loan bears interest at LIBOR plus 3.25% and matures on November 1, 2022. Net deferred loan costs associated with this financing~~Contents

ASHFORD INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

As of ~~$195,000 and $226,000, respectively, are included as a reduction to “notes payable, net” on the condensed consolidated balance sheets as of September 30, 2018 and~~ December 31, ~~2017. As of September 30,~~ 2018, future minimum lease payments on operating and ~~December 31, 2017, $1.0 million~~capital leases under ASC 840 were as follows (in thousands):



	Operating Leases		Capital Leases
2019	$	3,529	$	541
2020	3,532		105
2021	3,329		33
2022	3,172		7
2023	3,059		—
Thereafter	13,999		—
Total minimum lease payments	$	30,620	$	686
Imputed interest	—		(25		)
Present value of minimum lease payments	$	30,620	$	661

Our weighted-average remaining lease terms (in years) and discount rates consisted of the term loan was recorded in current portion of notes payable, net. In connection with the term loan, the subsidiary entered into an interest rate cap with an initial notional amount totaling $5.0 million and a strike rate of 4.0%. The fair value of the interest rate cap at September 30, 2018 and December 31, 2017, was not material. The subsidiary also entered into a $3.0 million revolving credit facility which bears interest at LIBOR plus 3.25% and matures on November 1, 2022. During the nine months ended September 30, 2018, $16.3 million was drawn and approximately $14.5 million of payments were made on the revolving credit facility. As of September 30, 2018, approximately $0.5 million of credit was available under the revolving credit facility. These debt agreements contain various financial covenants that, among other things, require the maintenance of certain fixed charge coverage ratios. As of September 30, 2018, our J&S operating subsidiary was in compliance with all financial covenants.following:

Also on November 1, 2017, in connection with the acquisition of J&S, our J&S operating subsidiary entered into a $3.0 million equipment note and a $2.0 million draw term loan agreement. These loans each bear interest at LIBOR plus 3.25% and mature on November 1, 2022. During the nine months ended September 30, 2018, $1.7 million was drawn and approximately $113,000 of payments were made on the equipment note. As of September 30, 2018, $2.0 million was outstanding on the draw term loan. All the loans in connection with the acquisition of J&S are partially secured by a security interest on all of the assets and equity interests of our J&S operating subsidiary.



	June 30, 2019
Lease term and discount rate
Weighted-average remaining lease term
Operating leases ⁽¹⁾	12.6
Finance leases	1.6
Weighted-average discount rate
Operating leases	5.6	%
Finance leases	5.5	%

On April 13, 2017, OpenKey entered into a Loan and Security Agreement for a line of credit in the amount of $1.5 million. The line of credit is secured by all of OpenKey's assets and matures on October 31, 2018, with an interest rate of Prime Rate plus 2.75%. Creditors do not have recourse to Ashford Inc. At September 30, 2018 and December 31, 2017, there were no borrowings outstanding under the Loan Agreement. In connection with the line of credit, OpenKey granted the creditors a 10-year warrant to purchase approximately 28,000 shares of OpenKey's preferred stock at $1.61 per share. The fair value of the warrants, estimated to be $28,000, was recorded in noncontrolling interests in consolidated entities and debt issuance costs, which is amortized over the term of the line of credit.__________________

On April 6, 2017, Pure Rooms entered into a term loan of $375,000 and a line of credit of $100,000 for which the creditor does not have recourse to Ashford Inc. The term loan has a fixed interest rate of 5.00% per annum. Subsequent to the end of the quarter on October 1, 2018, we paid off the $39,000 balance on the term loan. The line of credit has a variable interest rate of Prime Rate plus 1.00%. There is no stated maturity date related to the line of credit as it is payable on demand; accordingly, the balance has been classified as a current liability on our condensed consolidated balance sheets.


⁽¹⁾	The weighted-average remaining lease term for our operating leases includes two optional 10 year extension periods for our JSAV headquarters in Irving, Texas, as failure to renew the lease would result in JSAV incurring significant relocation costs.

7.8. Fair Value Measurements

Fair Value Hierarchy—Our financial instruments measured at fair value, either on a recurring or a non-recurring basis, are classified in a hierarchy for disclosure purposes consisting of three levels based on the observability of inputs in the market place as discussed below:

•Level 1: Fair value measurements that are quoted prices (unadjusted) in active markets that we have the ability to access for identical assets or liabilities. Market price data generally is obtained from exchange or dealer markets.

•Level 2: Fair value measurements based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.

•Level 3: Fair value measurements based on valuation techniques that use significant inputs that are unobservable. The circumstances for using these measurements include those in which there is little, if any, market activity for the asset or liability.

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ASHFORD INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables present our assets and liabilities measured at fair value on a recurring basis aggregated by the level within which measurements fall in the fair value hierarchy (in thousands):


	Quoted Market Prices (Level 1)			Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total			Quoted Market Prices (Level 1)				Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)				Total
September 30, 2018
June 30, 2019
Liabilities
Contingent consideration											$	(853	)	⁽¹⁾	$	—	$	(2,170	)	⁽²⁾	$	(3,023	)
Deferred compensation plan	$	(15,521	)	$	—	$	—	$	(15,521	)	(6,424		)		—		—				(6,424		)
Total	$	(15,521	)	$	—	$	—	$	(15,521	)	$	(7,277	)		$	—	$	(2,170	)		$	(9,447	)

Quoted Market Prices (Level 1)
Significant Other
Observable Inputs (Level 2)

Significant Unobservable Inputs
(Level 3)
Total
December 31, 2017
Liabilities
Contingent consideration $ —
$ —
$ (2,262 ) $ (2,262 )
⁽¹⁾
Deferred compensation plan (19,259 ) —
—
(19,259 )
Total $ (19,259 ) $ —
$ (2,262 ) $ (21,521 )

__________________

⁽¹⁾Represents the fair value of the contingent consideration liability related to the stock consideration collar associated with the acquisition of BAV. Reported as ~~“due to affiliates”~~other current liabilities in the condensed consolidated balance sheets. See note 4.

⁽²⁾Represents the fair value of the contingent consideration liability related to the achievement of certain performance targets associated with the acquisition of BAV. Reported as other noncurrent liabilities in the condensed consolidated balance sheets. See note 4.



	Quoted Market Prices (Level 1)			Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
December 31, 2018
Liabilities
Deferred compensation plan	(10,574		)	—		—		(10,574		)
Total	$	(10,574	)	$	—	$	—	$	(10,574	)

The following ~~table~~tables presents the rollforward of our Level 3 contingent consideration liability (in thousands):


	Contingent Consideration Liability ⁽¹⁾			Contingent Consideration Liability ⁽¹⁾
Balance at December 31, 2017	$	(2,262	)
Balance at December 31, 2018				$	—
Acquisitions	—			(1,384		)
Gains (losses) included in earnings⁽²⁾	(338		)	(786		)
Dispositions and settlements	2,600			—
Transfers into/out of Level 3	—			—
Balance at September 30, 2018	$	—
Balance at June 30, 2019				$	(2,170	)

__________________

⁽¹⁾Includes Ashford Inc.’s contingent consideration associated with the acquisition of J&S, which is carried at fair value in the condensed consolidated balance sheets within “due to affiliates.” The liability was settled in the third quarter of 2018. The fair value was estimated using significant inputs that are not observable in the market and thus represent Level 3 fair value measurements. The significant input in the Level 3 measurement of the contingent consideration is the risk adjusted discount rate used to discount the future payment.

⁽²⁾~~Reported as “other” operating expense in the condensed consolidated statements of operations.~~

⁽¹⁾

Includes JSAV’s contingent consideration associated with the acquisition of BAV in March of 2019, which is carried at fair value in the condensed consolidated balance sheets within “other liabilities, noncurrent.” The fair value was estimated using significant inputs that are not observable in the market and thus represent Level 3 fair value measurements. The significant inputs in the Level 3 measurement of the contingent consideration include the timing and amount of the ultimate payout based on our estimate of BAV operating performance during the earn-out period, calculated in accordance with the applicable agreement, and the risk adjusted discount rate used to discount the future payment.


⁽²⁾	Reported as “other” operating expense in the condensed consolidated statements of operations.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Effect of Fair Value Measured Assets and Liabilities on Condensed Consolidated Statements of Operations

The following table summarizes the effect of fair value measured assets and liabilities on the condensed consolidated statements of operations (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017
Assets
Options on futures contracts $ —
$ —
$ —
$ (91 )
Total —
—
—
(91 )
Liabilities
Contingent consideration 221
—
(338 ) —
Deferred compensation plan (2,274 ) (2,006 ) 3,540
(3,673 )
Total (2,053 ) (2,006 ) 3,202
(3,673 )
Net $ (2,053 ) $ (2,006 ) $ 3,202
$ (3,764 )
Total combined
Unrealized gain (loss) on investments⁽¹⁾
$ —
$ —
$ —
$ 203
Realized gain (loss) on investments —
—
—
(294 )
Contingent consideration ⁽²⁾
221
—
(338 ) —
Deferred compensation plan ⁽³⁾
(2,274 ) (2,006 ) 3,540
(3,673 )
Net $ (2,053 ) $ (2,006 ) $ 3,202
$ (3,764 )

~~________~~



	Three Months Ended June 30,								Six Months Ended June 30,
	2019				2018				2019				2018
Liabilities
Contingent consideration	(1,621		)	⁽¹⁾	(346		)	⁽²⁾	(1,639		)	⁽¹⁾	(559		)	⁽²⁾
Deferred compensation plan ⁽³⁾	4,817				6,375				4,077				5,814
Total	$	3,196			$	6,029			$	2,438			$	5,255

__________________

⁽¹⁾

~~Includes unrealized gain (loss)~~Represents the changes in fair value of the contingent consideration liabilities related to the achievement of certain performance targets and stock consideration collar associated with ~~investments in unconsolidated entities and~~the acquisition of BAV reported as ~~“unrealized gain (loss) on investments”~~a component of “other operating expense” in the condensed consolidated statements of operations. See note 4.


⁽²⁾	Represents the accretion of contingent consideration associated with the acquisition JSAV in November of ~~J&S~~2017, which was settled in the third quarter of 2018. Reported as ~~a component of~~ “other operating expense” in the condensed consolidated statements of operations.


⁽³⁾	Reported as a component of “salaries and benefits” in the condensed consolidated statements of operations.

~~Table of Contents~~

~~ASHFORD INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(unaudited)~~

8.9. Summary of Fair Value of Financial Instruments

Certain of our financial instruments are not measured at fair value on a recurring basis. The estimates presented are not necessarily indicative of the amounts at which these instruments could be purchased, sold or settled. The carrying amounts and estimated fair values of financial instruments were as follows (in thousands):


	September 30, 2018				December 31, 2017				June 30, 2019				December 31, 2018
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Financial liabilities measured at fair value:
Deferred compensation plan	$	15,521	$	15,521	$	19,259	$	19,259	$	6,424	$	6,424	$	10,574	$	10,574
Contingent consideration	—		—		2,262		2,262		3,023		3,023		—		—
Financial assets not measured at fair value:
Cash and cash equivalents	$	64,937	$	64,937	$	36,480	$	36,480	$	40,039	$	40,039	$	51,529	$	51,529
Restricted cash	10,722		10,722		9,076		9,076		13,276		13,276		7,914		7,914
Accounts receivable, net	4,595		4,595		5,127		5,127		9,232		9,232		4,928		4,928
Due from affiliates									93		93		45		45
Due from Ashford Trust OP	4,912		4,912		13,346		13,346		4,872		4,872		5,293		5,293
Due from Braemar OP	1,057		1,057		1,738		1,738		1,830		1,830		1,996		1,996
Investments in unconsolidated entities	500		500		500		500		2,990		2,990		500		500
Financial liabilities not measured at fair value:
Accounts payable and accrued expenses	$	24,462	$	24,462	$	20,529	$	20,529	$	26,154	$	26,154	$	24,880	$	24,880
Dividends payable									2,791		2,791		—		—
Due to affiliates	493		493		4,272		4,272		726		726		2,032		2,032
Other liabilities	21,094		21,094		9,076		9,076		14,179		14,179		8,418		8,418
Notes payable	18,536		17,764 to 19,633		11,947		12,040		25,102		23,591 to 26,075		18,006		16,681 to 18,437

Deferred compensation plan. The liability resulting from the deferred compensation plan is carried at fair value based on the closing prices of the underlying investments. This is considered a Level 1 valuation technique.

Table of Contents

ASHFORD INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Contingent consideration. The liability associated with ~~the~~JSAV’s acquisition of ~~J&S~~BAV is carried at fair value based on the terms of the acquisition agreement and any changes to fair value are recorded in “other” operating expenses in the condensed consolidated statements of operations. See note 8.

Cash, cash equivalents and restricted cash. These financial assets bear interest at market rates and have maturities of less than 90 days. The carrying values approximate fair value due to the short-term nature of these financial instruments. This is considered a Level 1 valuation technique.

Accounts receivable, net, due from affiliates, due from Ashford Trust OP, due from Braemar OP, accounts payable and accrued expenses, dividends payable, due to affiliates and other liabilities. The carrying values of these financial instruments approximate their fair values due primarily to the short-term nature of these financial instruments. This is considered a Level 1 valuation technique.

Investments in unconsolidated entities. The carrying value of the asset resulting from investment in unconsolidated entities approximates fair value based on recent observable transactions. This is considered a level 2 valuation technique.

Notes payable. The fair value of notes payable is based on credit spreads on observable transactions of a similar nature and is considered a Level 2 valuation technique.

~~Table of Contents~~

~~ASHFORD INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(unaudited)~~

9.10. Commitments and Contingencies

Purchase Commitment—As of ~~September~~June 30, ~~2018,~~2019, we had approximately ~~$38.9~~$20.8 million of remaining purchase commitments related to our ~~Enhanced Return Funding Program with~~ Ashford Trust ~~which are~~ERFP Agreement and $48.6 million of remaining purchase commitments related to our Braemar ERFP Agreement. See “ERFP Commitments” within note 15.

Contingent Consideration—We had total acquisition-related contingent ~~upon Ashford Trust acquiring additional hotels.~~consideration liabilities outstanding of approximately $3.0 million and $0 primarily related to achievement of certain performance targets and stock consideration collars, as of June 30, 2019 and December 31, 2018, respectively. See note ~~14.~~4.

Litigation—The Company is engaged in various legal proceedings which have arisen but have not been fully adjudicated. The likelihood of loss for these legal proceedings, based on definitions within contingency accounting literature, ranges from remote to reasonably possible and to probable. Based on estimates of the range of potential losses associated with these matters, management does not believe the ultimate resolution of these proceedings, either individually or in the aggregate, will have a material adverse effect upon the financial position or results of operations of the Company. However, the adjudication of legal proceedings is difficult to predict, and if the Company failed to prevail in one or more of these legal matters, and the associated realized losses were to exceed the Company’s current estimates of the range of potential losses, the Company’s financial position or results of operations could be materially adversely affected in future periods.

~~10.~~11. Equity

Noncontrolling Interests in Consolidated Entities—See note 2 for details regarding ownership interests, carrying values and allocations related to noncontrolling interests in our consolidated subsidiaries.

The following table summarizes the (income) loss allocated to noncontrolling interests for each of our consolidated entities (in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,					Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018		2017			2019			2018			2019			2018
(Income) loss allocated to noncontrolling interests:
J&S	$	151		$	—		$	58	$	—
JSAV												$	—		$	(82	)	$	—		$	(93	)
OpenKey	242			113			585		373			152			187			329			343
Pure Rooms	(18		)	(11		)	25		40
RED	38			—			36		—			(26		)	5			(60		)	(2		)
Other⁽¹⁾	—			—			—		(146		)
Pure Wellness												5			8			25			43
Total net (income) loss allocated to noncontrolling interests	$	413		$	102		$	704	$	267		$	131		$	118		$	294		$	291

~~________~~


⁽¹⁾	~~Represents noncontrolling interests primarily in the AQUA Fund, which was fully dissolved as of December 31, 2017.~~

~~11.~~

Table of Contents

ASHFORD INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

12. Mezzanine Equity

Redeemable Noncontrolling Interests—Redeemable noncontrolling interests are included in the mezzanine section of our condensed consolidated balance sheets as the ownership interests are redeemable for cash or registered shares outside of the Company’s control. See note 2 for tables summarizing the redeemable noncontrolling ownership interests and carrying values.

~~Table of Contents~~

~~ASHFORD INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(unaudited)~~

The following table summarizes the net (income) loss allocated to our redeemable noncontrolling interests (in thousands):


	Three Months Ended September 30,					Nine Months Ended September 30,					Three Months Ended June 30,					Six Months Ended June 30,
	2018			2017		2018			2017		2019		2018			2019			2018
Net (income) loss allocated to redeemable noncontrolling interests:
Ashford Holdings ⁽¹⁾	$	(3	)	$	4	$	(9	)	$	4	$	6	$	(18	)	$	10		$	(6	)
J&S	679			—		29			—
JSAV											133		(295		)	(94		)	(650		)
OpenKey	292			296		797			991		171		223			373			505
Total net (income) loss allocated to redeemable noncontrolling interests	$	968		$	300	$	817		$	995	$	310	$	(90	)	$	289		$	(151	)

~~________~~


⁽¹⁾	~~Represents the 0.2% interest in Ashford LLC prior to our legal entity restructuring on April 6, 2017 and 0.2% interest in Ashford Holdings thereafter.~~

Preferred Stock—On August 8, 2018, we completed the acquisition of Premier for a total transaction value of $203 million. The purchase price was paid by issuing 8,120,000 shares of ~~the newly created~~ Series B Convertible Preferred Stock to the Remington Sellers. The Series B Convertible Preferred Stock has a conversion price of $140 per share and, if converted, would convert into 1,450,000 shares of our common stock. ~~Dividends~~Cumulative dividends on the Series B Convertible Preferred Stock are payable at an annual rate of 5.5% in the first year, 6.0% in the second year, and 6.5% in the third year and each year thereafter. The preferred stock has an increasing dividend rate in the first three years where the stated dividend rate is 5.5% in the first year, 6.0% in the second year, and becomes fixed at 6.5% in the third year and thereafter. Under the applicable authoritative accounting guidance, this increasing dividend rate feature results in a discount that must be reflected in the fair value of the preferred stock, which is reflected in “Series B ~~cumulative~~ convertible preferred stock, net of discount” on our condensed consolidated balance sheets. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, we recorded ~~$303,000~~$484,000 and $975,000, respectively, of amortization related to the preferred stock discount.

The Series B Convertible Preferred Stock is included in the mezzanine section of our condensed consolidated balance sheets as the ownership interests are redeemable outside of the Company’s control. The Series B Convertible Preferred Stock is redeemable at the option of the holder for cash in the event of a change of control. Each share of our Series B Convertible Preferred Stock is convertible at any time, at the option of the holder, into a number of whole or partial shares of common stock, pursuant to the agreements. The Series B Convertible Preferred Stock is also subject to conversion upon certain events constituting a change of control.

In addition to certain separate class voting rights, the holders of the Series B Convertible Preferred Stock vote on an as-converted basis with the holders of the common stock ~~and the holders of any outstanding Series A Preferred Stock or Series C Preferred Stock~~ on all matters submitted for approval by the holders of our capital stock possessing general voting rights. However, for five years following the closing of the acquisition of Premier, the selling stockholders and their transferees will generally be subject to certain voting restrictions with respect to shares in excess of 25% of the combined voting power of our outstanding capital stock.

The holder of the Series B Convertible Preferred Stock is also ~~subject~~participate in any dividend or distribution paid on the Company’s common stock. If the Company declares or pays a dividend or distribution to ~~conversion upon certain events constituting~~the common stockholders, the Company will simultaneously declare and pay a ~~change~~dividend on the Series B Convertible Preferred Stock on a pro rata basis with the common stock as determined on an as-converted basis assuming all shares have been converted immediately prior to the date of ~~control.~~ record.

After the seventh anniversary of the closing of the acquisition of Premier, we have the option to redeem all or any portion of the Series B Convertible Preferred Stock in a minimum amount of $25.0 million ~~increments~~ on a pro rata basis among all covered investors unless, no less than 15 days before the closing of the purchase transaction, the participating covered investors specify an alternative allocation of the Series B Convertible Preferred Stock subject to the redemption (the “Call Option”), at a price per share equal to the sum of (i) $25.125 (as adjusted for any applicable stock splits or similar transactions) plus (ii) all accrued but unpaid dividends. The purchase price is payable only in cash. The notice of exercise of the Call Option does not limit or restrict any covered investor’s right to convert the Series B Convertible Preferred Stock into shares of our common stock prior to the closing of the Call Option. The Series B Preferred Stock is included in the mezzanine section of our condensed consolidated balance sheets as the preferred shares are redeemable for shares of our common stock outside of the Company’s control.

The Series B Preferred Stock quarterly dividend for all issued and outstanding shares was $0.2063 for the three months ended September 30, 2018. The Company declared and paid dividends as presented below:

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017
Preferred dividends $ 1,675
—
$ 1,675
—

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

~~12.~~Declared Series B Convertible Preferred Stock cumulative dividends for all issued and outstanding shares were as follows:



	Three Months Ended June 30,			Six Months Ended June 30,
	2019		2018	2019		2018
Preferred dividends	$	2,791	—	$	5,583	$	—
Preferred dividends per share	$	0.3438	—	$	0.6875	$	—

13. Equity-Based Compensation

Equity-based compensation expense is primarily recorded in “salaries and benefits expense” in our condensed consolidated statements of operations and comprehensive income (loss). The components of equity-based compensation expense for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018 are presented below by award type (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017		2019		2018		2019		2018
Equity-based compensation
Stock option amortization ⁽¹⁾	$	1,951	$	1,899	$	7,625	$	5,436	$	2,043	$	1,917	$	4,194	$	5,674
Director and other non-employee equity grants expense ⁽²⁾	38		—		433		250
Pre-spin equity grants expense ⁽³⁾	—		—		—		684
Employee equity grant expense ⁽²⁾									57		—		57		—
Director and other non-employee equity grants expense ⁽³⁾									604		355		611		395
Total equity-based compensation	$	1,989	$	1,899	$	8,058	$	6,370	$	2,704	$	2,272	$	4,862	$	6,069

Other equity-based compensation
REIT equity-based compensation ⁽⁴⁾	$	6,232	$	3,443	$	25,842	$	5,449	$	6,615	$	10,318	$	12,483	$	19,610
	$	8,221	$	5,342	$	33,900	$	11,819	$	9,319	$	12,590	$	17,345	$	25,679

________

⁽¹⁾

As of June 30, 2019, the Company had approximately $14.8 million of total unrecognized compensation expense related to stock options that will be recognized over a weighted average period of 1.8 years. During the six months ended June 30, 2018, we recorded approximately $2.5 million of equity-based compensation expense related to accelerated vesting of stock options, in accordance with the terms of the awards, as a result of the death of an executive in March 2018.


⁽²⁾	As of June 30, 2019, the Company had approximately $141,000 of total unrecognized compensation expense related to restricted shares that will be recognized over a weighted average period of 2.75 years.


⁽³⁾	Grants of restricted stock to independent directors are recorded at fair value based on the market price of our shares at grant date, and this amount is fully expensed in “general and administrative” expense as the grants of stock are fully vested on the date of grant. See “Equity-based Compensation” in note 2.

⁽⁴⁾

REIT equity-based compensation expense is associated with equity grants of Ashford Trust’s and Braemar’s common stock and LTIP units awarded to officers and employees of Ashford Inc. and Premier. During the three months ended June 30, 2019, $16,000 and $89,000 of equity based compensation expense related to REIT awards to the employees of Premier was included in “salaries and benefits” and “cost of revenues for project management”, respectively, on our condensed consolidated statements of operations. During the six months ended June 30, 2019, $46,000 and $168,000 of equity based compensation expense related to REIT awards to the employees of Premier was included in “salaries and benefits” and “cost of revenues for project management”, respectively, on our condensed consolidated statements of operations. During the six months ended June 30, 2018, REIT equity-based compensation included $6.7 million of expense related to accelerated vesting, in accordance with the terms of the awards, as a result of the death of an executive in March 2018. See notes 2 and 15.

⁽¹⁾ As of September 30, 2018, the Company had approximately $13.0 million of total unrecognized compensation expense related to stock options that will be recognized over a weighted average period of 1.5 years. During the nine months ended September 30, 2018, we recorded approximately $2.5 million of equity-based compensation expense related to accelerated vesting of stock options, in accordance with the terms of the awards, as a result of the death of an executive in March 2018.

⁽²⁾ Grants of restricted stock to independent directors are recorded at fair value based on the market price of our shares at grant date, and this amount is fully expensed in “general and administrative” expense as the grants of stock are fully vested on the date of grant. Options to purchase common stock granted to other non-employees are recorded at fair value based on the market price of the options. The recorded expense, included in “general and administrative,” is equal to the fair value of the award in proportion to the requisite service period satisfied during the period. See “Equity-based Compensation” in note 2.

⁽³⁾ As a result of the spin-off, we assumed all of the unrecognized equity-based compensation associated with prior Ashford Trust equity grants of common stock and LTIP units. We recognized the equity-based compensation expense related to these assumed Ashford Trust equity grants through the April 2017 final vesting date.

⁽⁴⁾ REIT equity-based compensation expense is associated with equity grants of Ashford Trust’s and Braemar’s common stock and LTIP units awarded to officers and employees of Ashford Inc. and Premier. During the nine months ended September 30, 2018, REIT equity-based compensation included $6.7 million of expense related to accelerated vesting, in accordance with the terms of the awards, as a result of the death of an executive in March 2018. See notes 2 and 14.

~~13.~~

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

14. Deferred Compensation Plan

We administer a non-qualified deferred compensation plan (“DCP”) for certain executive officers. The plan allowed participants to defer up to 100% of their base salary and bonus and select an investment fund for measurement of the deferred compensation obligation. For the periods the DCP was administered by Ashford Trust, the participants elected Ashford Trust common stock as their investment option. In accordance with the applicable authoritative accounting guidance, the deferred amounts and any dividends earned received equity treatment and were included in additional paid-in capital. In connection with our spin-off and the assumption of the DCP obligation by the Company, the DCP was modified to give the participants various investment options, including Ashford Inc. common stock, for measurement that can be changed by the participant at any time. These modifications resulted in the DCP obligation being recorded as a liability in accordance with the applicable authoritative accounting guidance. Distributions under the DCP are made in cash, unless the participant has elected Ashford Inc. common stock as the investment option, in which case any such distributions would be made in Ashford Inc. common stock. Additionally, the DCP obligation is carried at fair value with changes in fair value reflected in “salaries and benefits” in our condensed consolidated statements of operations and comprehensive income (loss).

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(unaudited)~~

The following table summarizes the DCP activity (in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
	2018			2017			2018		2017			2019		2018		2019		2018
Change in fair value
Unrealized gain (loss)	$	(2,274	)	$	(2,006	)	$	3,540	$	(3,673	)	$	4,817	$	6,375	$	4,077	$	5,814

Distributions
Fair value ⁽¹⁾	$	63		$	39		$	197	$	152		$	27	$	54	$	73	$	134
Shares ⁽¹⁾	1			1			3		2			1		1		2		2

________

⁽¹⁾ ~~Distributions made to one participant.~~


⁽¹⁾	Distributions made to one participant.

As of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017~~2018 the carrying value of the DCP liability was ~~$15.5~~$6.4 million and ~~$19.3~~$10.6 million, respectively.

~~14.~~15. Related Party Transactions

As an asset manager providing advisory services to Ashford Trust and Braemar, as well as holding an ownership interest in other businesses providing products and services to the hospitality industry, including Ashford Trust and Braemar, related party transactions are inherent in our business. Details of our related party transactions are presented below.

We are a party to an amended and restated advisory agreement, as amended, with Ashford Trust and Ashford Trust OP. ~~The~~Prior to June 26, 2018, the base fee was paid quarterly based on a declining sliding scale percentage of Ashford Trust’s total market capitalization plus ~~prior to June 26, 2018,~~ the Key Money Asset Management Fee (defined ~~in our amended and restated advisory agreement~~ as the aggregate gross asset value of all key money assets multiplied by 0.70%), subject to a minimum quarterly base fee, as payment for managing its day-to-day operations in accordance with its investment guidelines. Total market capitalization includes the aggregate principal amount of its consolidated indebtedness (including its proportionate share of debt of any entity that is not consolidated but excluding its joint venture partners’ proportionate share of consolidated debt). The range of base fees on the scale are between 0.50% and 0.70% per annum for total market capitalization that ranges from less than $6.0 billion to greater than $10.0 billion. Upon effectiveness of the ~~Enhanced Return Funding Program Agreement and Amendment No. 1 to the Amended and Restated Advisory~~Ashford Trust ERFP Agreement on June 29, 2018, the base fee is paid monthly as a percentage of Ashford Trust’s total market capitalization on a declining sliding scale plus the Net Asset Fee Adjustment, as defined in ~~the respective~~our advisory agreement, subject to a minimum monthly base fee. At ~~September~~June 30, ~~2018,~~2019, the quarterly base fee was 0.70% per annum. Reimbursement for overhead, internal audit, risk management advisory services and asset management services, including compensation, benefits and travel expense reimbursements, are billed monthly to Ashford Trust based on a pro rata allocation as determined by the ratio of Ashford Trust’s net investment in hotel properties in relation to the total net investment in hotel properties for both Ashford Trust and Braemar. We also record advisory revenue for equity grants of Ashford Trust common stock and LTIP units awarded to our officers and employees in connection with providing advisory services equal to the grant date fair value of the award in proportion to the requisite service period satisfied during the period, as well as an offsetting expense in an equal amount included in “salaries and benefits.” We are also entitled to an incentive advisory fee that is measured annually in each year that Ashford Trust’s annual total stockholder return exceeds the average annual total stockholder return for Ashford Trust’s peer group, subject to the FCCR Condition, as defined in the advisory agreement. In addition to our advisory agreement with Ashford Trust OP, Premier, our consolidated subsidiary, has a master project management agreement with Ashford Trust OP to provide comprehensive and cost-effective design, development, and project management services.

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Condition, as defined in our advisory agreement. In addition to our advisory agreement with Ashford Trust and Ashford Trust OP, Premier is party to a master project management agreement with Ashford Trust OP and Ashford Trust TRS to provide comprehensive and cost-effective design, development, architectural, and project management services and a related mutual exclusivity agreement with Ashford Trust and Ashford Trust OP.

The following table summarizes the revenues and expenses related to Ashford Trust OP (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017		2019		2018		2019		2018
REVENUE BY TYPE
Advisory services revenue
Base advisory fee	$	9,145	$	8,568	$	26,611	$	26,020	$	8,415	$	8,862	$	16,460	$	17,466
Reimbursable expenses ⁽¹⁾	2,119		1,673		5,645		5,902		2,658		1,997		4,698		3,526
Equity-based compensation ⁽²⁾	4,855		4,392		20,540		7,748		4,548		8,940		8,837		15,685
Incentive advisory fee ⁽³⁾	452		452		1,356		1,356		—		452		—		904
Total advisory services revenue	16,571		15,085		54,152		41,026		15,621		20,251		29,995		37,581

Audio visual revenue ⁽⁴⁾	—		—		88		—		—		88		—		88
Project management revenue ⁽⁵⁾	2,491		—		2,491		—		5,076		—		10,015		—

Other revenue
Investment management reimbursements ⁽⁶⁾	339		522		850		1,482		337		329		695		511
Debt placement fees ⁽⁷⁾	350		—		4,942		—		79		3,959		1,158		4,591
Claim management services ⁽⁸⁾	17		—		53		—		20		18		31		36
Lease revenue ⁽⁹⁾	168		168		503		391		945		167		1,891		335
Other services ⁽¹⁰⁾	454		479		1,141		705		409		387		876		687
Total other revenue	1,328		1,169		7,489		2,578		1,790		4,860		4,651		6,160

Total revenue	$	20,390	$	16,254	$	64,220	$	43,604	$	22,487	$	25,199	$	44,661	$	43,829

REVENUE BY SEGMENT ⁽¹¹⁾
REIT advisory	$	17,445	$	15,775	$	60,500	$	42,899	$	16,923	$	20,765	$	32,612	$	38,463
Premier	2,491		—		2,491		—		5,076		—		10,015		—
J&S	—		—		88		—
JSAV									—		88		—		88
OpenKey	16		33		63		53		27		23		55		47
Corporate and other	438		446		1,078		652		461		4,323		1,979		5,231
Total revenue	$	20,390	$	16,254	$	64,220	$	43,604	$	22,487	$	25,199	$	44,661	$	43,829

COST OF REVENUES
Cost of audio visual revenues⁽⁴⁾	$	1,021	$	—	$	2,211	$	—	$	1,862	$	836	$	3,546	$	1,190

________

⁽¹⁾

Reimbursable expenses include overhead, internal audit, risk management advisory and asset management services. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, we recognized ~~$784,000~~$491,000 and ~~$1.4~~$1.1 million, respectively, of deferred income from reimbursable expenses related to software implementation costs. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, we recognized ~~$202,000~~$384,000 and ~~$1.5 million,~~$586,000, respectively, of deferred income from reimbursable expenses related to software implementation ~~costs, which was partially offset by the impairment of the related capitalized software, as mentioned in note 2, in the amount of $0 and $1.1 million, respectively.~~costs.


⁽²⁾	Equity-based compensation revenue is associated with equity grants of Ashford Trust’s common stock and LTIP units awarded ~~to officers and employees of Ashford Inc.For the nine months ended September~~

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

to officers and employees of Ashford Inc.For the six months ended June 30, 2018, equity-based compensation revenue from Ashford Trust included $4.5 million of expense related to accelerated vesting, in accordance with the terms of the awards, as a result of the death of an executive in March 2018.

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~~ASHFORD INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(unaudited)~~

⁽³⁾

Incentive advisory fee for the three and ~~nine~~six months ended ~~September~~June 30, 2018, includes the pro-rata portion of the third year installment of the 2016 incentive advisory fee, which ~~is due in January 2019, and for the three and nine months ended September 30, 2017, includes the pro-rata portion of the second year installment of the 2016 incentive advisory fee, which~~ was paid in January ~~2018.~~2019. Incentive fee payments are subject to meeting the December 31 FCCR Condition each year, as defined in the Ashford Trust advisory agreement. Ashford Trust's annual total stockholder return did not meet the relevant incentive fee thresholds during the ~~2017~~2018 and ~~2015~~2017 measurement periods. See note 3.

⁽⁴⁾

~~J&S~~JSAV primarily contracts directly with customers to whom it provides audio visual services. ~~J&S~~JSAV recognizes the gross revenue collected from their customers by the hosting hotel or venue. Commissions retained by the hotel or venue, including Ashford Trust, are recognized in “cost of revenues for audio visual” in our condensed consolidated statements of operations.See note 23 for discussion of the audio visual revenue recognition policy.

⁽⁵⁾

Project management revenue primarily consists of revenue generated within our Premier segment by providing design, development, architectural, and project management services for which Premier receives fees. Project management revenue also includes revenue from reimbursable costs related to accounting, overhead and project manager services provided to projects owned by affiliates of Ashford Trust, Braemar and other owners. See note 3 for discussion of the project management revenue recognition policy.


⁽⁶⁾	Investment management reimbursements include ~~AIM’s~~Ashford Investment Management, LLC’s (“AIM”) management of 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.


⁽⁷⁾	Debt placement fees ~~include revenues~~are earned ~~from~~by Lismore for providing debt placement ~~services by Lismore Capital, our wholly-owned subsidiary.~~services.


⁽⁸⁾	Claims management services include revenues earned from providing insurance claim assessment and administration services.

⁽⁹⁾

In connection with our ERFP Agreements and legacy key money transaction with Ashford Trust and Braemar, we lease FF&E to Ashford Trust and Braemar rent-free. AConsistent with our accounting treatment prior to adopting ASC 842, a portion of the base advisory fee for leases, which commenced prior to our adoption, is allocated to lease revenue each period equal to the estimated fair value of the lease payments that would have been made.


⁽¹⁰⁾	Other services revenue is associated with other hotel products and services, such as mobile key applications and hypoallergenic premium rooms, provided to Ashford Trust by our consolidated subsidiaries, OpenKey and Pure ~~Rooms, respectively.~~Wellness.


⁽¹¹⁾	See note 1617 for discussion of segment reporting.

At September 30, 2018 and December 31, 2017, we had a net receivable of $4.9 million and $13.3 million, respectively, due from Ashford Trust OP associated primarily with the revenues discussed above.

The following table summarizes amounts due (to) from Ashford Trust OP, ~~related~~net at June 30, 2019 and December 31, 2018, associated primarily with the advisory services fee and other fees discussed above, as it relates to each of our consolidated entities (in thousands):

September 30, 2018 December 31, 2017
Ashford LLC $ 17
$ —
AIM 140
347
Premier 1,410
—
J&S 1,549
62
Pure Rooms 218
302
OpenKey 15
25

On June 26, 2018, the Company entered into the ERFP Agreement with Ashford Trust. The independent members of the board of directors of each of the Company and Ashford Trust, with the assistance of separate and independent legal counsel, engaged to negotiate the ERFP Agreement on behalf of the Company and Ashford Trust, respectively. Under the ERFP Agreement, the Company agreed to provide $50 million to Ashford Trust in connection with Ashford Trust’s acquisition of additional hotels with the option to increase the funding commitment to up to $100 million upon mutual agreement by the parties. Under the ERFP Agreement, the Company is obligated to provide Ashford Trust 10% of the acquired hotel’s purchase price in exchange for FF&E, which is subsequently leased to Ashford Trust rent-free. In connection with Ashford Trust’s acquisition of the Hilton Old Town Alexandria on June 29, 2018, and subject to the terms of the ERFP Agreement, the Company is obligated to provide Ashford Trust with approximately $11.1 million of FF&E at Ashford Trust properties. As of September 30, 2018, the Company has provided $390,000 of FF&E under the ERFP Agreement. As a result, the Company’s ERFP obligation of $10.7 million is reflected in our condensed consolidated balance sheet as “other assets” and “other liabilities” as of September 30, 2018. Under the ERFP agreement, Ashford Trust has two years from the acquisition date of a hotel property to identify the FF&E to be purchased by Ashford Inc. The Company

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(unaudited)~~

recognizes the related depreciation tax deduction at the time such FF&E is placed into service at Ashford Trust properties. However, the timing of the FF&E being placed into service is subject to uncertainties outside of the Company’s control that could delay the realization of any tax benefit associated with the purchase of FF&E. See note 9.



	June 30, 2019		December 31, 2018
Ashford LLC	$	1,062	$	2,337
AIM	123		99
Premier	1,937		1,611
JSAV	1,407		826
OpenKey	5		2
Pure Wellness	338		418
Due from Ashford Trust OP	$	4,872	$	5,293

We are also a party to an amended and restated advisory agreement with Braemar and Braemar OP. ~~Braemar is required~~Prior to ~~pay a monthly~~January 15, 2019, the base fee ~~that is~~was paid monthly calculated as 1/12th of 0.70% of Braemar’s total market capitalization plus the Key Money Asset Management Fee (defined in the advisory agreement as the aggregate gross asset value of all key money assets multiplied by 1/12th of 0.70%), subject to a minimum monthly base fee, as payment for managing its day-to-day operations in accordance with its investment guidelines. Total market capitalization includes the aggregate principal amount of Braemar’s consolidated indebtedness (including its proportionate share of debt of any entity that is not consolidated but excluding its joint venture partners’ proportionate share of consolidated debt). Upon effectiveness of the Braemar ERFP agreement on January 15, 2019, the base fee is paid monthly calculated as 1/12th of 0.70% of Braemar’s total market capitalization plus the Net Asset Fee Adjustment, as defined in our advisory agreement, subject to a minimum monthly base fee. Reimbursement for overhead, internal audit, risk

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

management advisory services and asset management services, including compensation, benefits and travel expense reimbursements, are billed monthly to Braemar based on a pro rata allocation as determined by the ratio of Braemar’s net investment in hotel properties in relation to the total net investment in hotel properties for both Ashford Trust and Braemar. We also record advisory revenue for equity grants of Braemar common stock and LTIP units awarded to our officers and employees in connection with providing advisory services equal to the grant date fair value of the award in proportion to the requisite service period satisfied during the period, as well as an offsetting expense in an equal amount included in “salaries and benefits.” We are also entitled to an incentive advisory fee that is measured annually in each year that Braemar’s annual total stockholder return exceeds the average annual total stockholder return for Braemar’s peer group, subject to the FCCR Condition, as defined in the advisory agreement. In addition to our advisory agreement with Braemar and Braemar OP, Premier ~~our consolidated subsidiary, has~~is party to a master project management agreement with Braemar OP and Braemar TRS to provide comprehensive and cost-effective design, development, architectural, and project management ~~services.~~services and a related mutual exclusivity agreement with Braemar and Braemar OP.

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The following table summarizes the revenues related to Braemar OP (in thousands):


	Three Months Ended September 30,					Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017			2018		2017			2019		2018		2019		2018
REVENUE BY TYPE
Advisory services revenue
Base advisory fee	$	2,510	$	2,300		$	6,929	$	6,579		$	2,775	$	2,312	$	5,352	$	4,419
Reimbursable expenses ⁽¹⁾	488		470			1,407		1,552			562		499		1,031		919
Equity-based compensation ⁽²⁾	1,315		(949		)	5,240		(2,299		)	1,963		1,378		3,432		3,925
Incentive advisory fee ⁽³⁾	—		319			—		956			169		—		339		—
Other advisory revenue ⁽⁴⁾	132		132			390		146			130		130		258		258
Total advisory services revenue	4,445		2,272			13,966		6,934			5,599		4,319		10,412		9,521

Project management revenue⁽⁵⁾	1,125		—			1,125		—
Audio visual revenue ⁽⁵⁾											—		—		—		—
Project management revenue⁽⁶⁾											2,493		—		5,240		—

Other revenue
Debt placement fees ⁽⁶⁾	—		225			999		225
Claims management services ⁽⁷⁾	31		—			100		—
Lease revenue ⁽⁸⁾	83		83			251		251
Other services ⁽⁹⁾	206		26			625		26
Debt placement fees ⁽⁷⁾											—		1,000		275		1,000
Claims management services ⁽⁸⁾											35		32		65		69
Lease revenue ⁽⁹⁾											84		84		168		168
Other services ⁽¹⁰⁾											279		208		548		419
Total other revenue	320		334			1,975		502			398		1,324		1,056		1,656

Total revenue	$	5,890	$	2,606		$	17,066	$	7,436		$	8,490	$	5,643	$	16,708	$	11,177

REVENUE BY SEGMENT ⁽¹⁰⁾
REVENUE BY SEGMENT ⁽¹¹⁾
REIT advisory	$	4,559	$	2,580		$	15,316	$	7,410		$	5,718	$	4,435	$	10,645	$	9,758
Premier	1,125		—			1,125		—			2,493		—		5,240		—
J&S⁽¹¹⁾	—		—			—		—
JSAV ⁽¹¹⁾											—		—		—		—
OpenKey	6		11			22		11			13		11		33		16
Corporate and other	200		15			603		15			266		1,197		790		1,403
Total revenue	$	5,890	$	2,606		$	17,066	$	7,436		$	8,490	$	5,643	$	16,708	$	11,177

COST OF REVENUES
Cost of audio visual revenues ⁽⁵⁾											$	119	$	—	$	205	$	—

________

⁽¹⁾

Reimbursable expenses include overhead, internal audit, risk management advisory and asset management services. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, we recognized ~~$58,000~~$36,000 and ~~$102,000,~~$80,000, respectively, of deferred income from reimbursable expenses related to software implementation costs. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, we recognized ~~$15,000~~$29,000 and ~~$110,000,~~$44,000, respectively, of deferred income from reimbursable expenses related to software implementation ~~costs, which was partially offset by the impairment of the related capitalized software, as mentioned in note 2, in the amount of $0 and $1.1 million, respectively.~~costs.

⁽²⁾

Equity-based compensation revenue is associated with equity grants of Braemar’s common stock and LTIP units awarded to officers and employees of Ashford Inc.For the ~~nine~~six months ended ~~September~~June 30, 2018, equity-based compensation revenue from Braemar included $2.2 million of expense related to accelerated vesting, in accordance with the terms of the awards, as a result of the death of an executive in March 2018.

⁽³⁾

~~No incentive~~Incentive advisory fee ~~was recorded~~ for the three and ~~nine~~six months ended ~~September~~June 30, 2018, because Braemar's annual total stockholder return did not meet the relevant incentive fee thresholds during the 2017 and 2016 measurement periods. For the three and nine months ended September 30, 2017, incentive advisory fee2019, includes the pro-rata portion of the ~~third~~second year installment of the ~~2015~~2018 incentive advisory fee, which ~~was~~will be paid in January ~~2018.~~2020. Incentive fee payments are subject to ~~meeting the December 31 FCCR Condition each year, as defined in the Braemar advisory agreement. See note 3.~~

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meeting the December 31 FCCR Condition each year, as defined in the Braemar advisory agreement. For the three and six months ended June 30, 2018, no incentive advisory fee was recognized as Braemar's annual total stockholder return did not meet the relevant incentive fee thresholds during the 2017 and 2016 measurement periods. See note 3.


⁽⁴⁾	In connection with our Fourth Amended and Restated Braemar Advisory Agreement, a $5.0 million cash payment was made by Braemar upon approval by Braemar’s stockholders, which is recognized over the 10-year initial term.

⁽⁵⁾

JSAV primarily contracts directly with customers to whom it provides audio visual services. JSAV recognizes the gross revenue collected from their customers by the hosting hotel or venue. Commissions retained by the hotel or venue, including Braemar, are recognized in “cost of revenues for audio visual” in our condensed consolidated statements of operations.See note 3 for discussion of the audio visual revenue recognition policy.

⁽⁶⁾


⁽⁶⁾	~~Debt placement fees include revenues earned from providing debt placement services by Lismore Capital, our wholly-owned subsidiary.~~


⁽⁷⁾	Debt placement fees are earned by Lismore for providing debt placement services.


⁽⁸⁾	Claims management services include revenues earned from providing insurance claim assessment and administration services.

⁽⁸⁾⁽⁹⁾


^(9)(10)	Other services revenue is associated with other hotel products and services, such as mobile key applications, marine vessel transportation and hypoallergenic premium rooms, ~~and watersports activities & travel/transportation services,~~ provided to Braemar by our consolidated subsidiaries, OpenKey, RED and Pure ~~Rooms and RED, respectively.~~


⁽¹⁰⁾	~~See note 16 for discussion of segment reporting.~~Wellness.

⁽¹¹⁾

J&S primarily contracts directly with customers to whom it provides audio visual services. J&S recognizes the gross revenue collected from their customers by the hosting hotel or venue. Commissions retained by the hotel or venue are recognized in “costSee note 17 for discussion of revenues for audio visual” in our condensed consolidated statements of operations. For the three and nine months ended September 30, 2018 and 2017, J&S had no cost of revenues for audio visual associated with Braemar.segment reporting.

At September 30, 2018 and December 31, 2017, we had receivables of $1.1 million and $1.7 million, respectively, from Braemar OP associated with the revenues discussed above. See note 2 for details regarding receivables held by our consolidated subsidiaries, due from our affiliates.

The following table summarizes amounts due (to) from Braemar OP, ~~related~~net at June 30, 2019 and December 31, 2018 associated primarily with the advisory services fee and other fees discussed above, as it relates to each of our consolidated entities (in thousands):

September 30, 2018 December 31, 2017
Ashford LLC $ 30
$ —
Premier 709
—
Pure Rooms —
50
OpenKey —
6
RED 4
—

Ashford Trust and Braemar have management agreements with Remington Holdings L.P. and its subsidiaries (“Remington”), which is beneficially owned by our Chairman and Chief Executive Officer and Ashford Trust’s Chairman Emeritus. Transactions related to these agreements are included in the accompanying consolidated financial statements. Under the agreements, we pay Remington Lodging general and administrative expense reimbursements, approved by the independent directors of Ashford Trust and Braemar, including rent, payroll, office supplies, travel and accounting. These charges are allocated based on various methodologies, including headcount and actual amounts incurred, which are then rebilled to Ashford Trust and Braemar. These reimbursements are included in general and administrative expenses on the condensed consolidated statements of operations. The charges totaled $2.7 million and $5.2 million, for the three and nine months ended September 30, 2018, respectively, and $1.2 million and $3.7 million, for the three and nine months ended September 30, 2017, respectively. The amounts due under these arrangements as of September 30, 2018 and December 31, 2017, are included in “due to affiliates” on our condensed consolidated balance sheets.

Ashford Trust held a 16.30% and 16.23% and Braemar held an 8.21% and 0% noncontrolling interest in OpenKey as of September 30, 2018 and December 31, 2017, respectively. During the three and nine months ended September 30, 2018, Ashford Trust invested $0 and $667,000, respectively, and Braemar invested $0 and $2.0 million, respectively in OpenKey. During the three and nine months ended September 30, 2017, Ashford Trust invested $333,000 and $983,000, respectively, in OpenKey. Braemar held no investments in OpenKey during the three and nine months ended September 30, 2017. See also notes 1, 2, 10, and 11.



	June 30, 2019		December 31, 2018
Ashford LLC	$	750	$	941
Premier	805		949
JSAV	109		4
OpenKey	1		12
RED	129		60
Pure Wellness	36		30
Due from Braemar OP	$	1,830	$	1,996

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ERFP Commitments—On June 26, 2018, the Company entered into the Enhanced Return Funding Program Agreement and Amendment No. 1 to the Amended and Restated Advisory Agreement (the “Ashford Trust ERFP Agreement”) with Ashford Trust. The independent members of the board of directors of each of the Company and Ashford Trust, with the assistance of separate and independent legal counsel, engaged to negotiate the Ashford Trust ERFP Agreement on behalf of the Company and Ashford Trust, respectively. On January 15, 2019, the Company entered into the Enhanced Return Funding Program Agreement and Amendment No. 1 to the Fifth Amended and Restated Advisory Agreement (the “Braemar ERFP Agreement” and collectively with the Ashford Trust ERFP Agreement, the “ERFP Agreements”) with Braemar. The independent members of the board of directors of each of the Company and Braemar, with the assistance of separate and independent legal counsel, engaged to negotiate the Braemar ERFP Agreement on behalf of the Company and Braemar, respectively. Under the ERFP Agreements, the Company agreed to provide $50 million (each, an “ERFP Commitment” and collectively, the “ERFP Commitments”) to each of Ashford Trust and Braemar (collectively, the “REITs”), respectively, in connection with each such REITs’ acquisition of hotels recommended by us, with the option to increase each ERFP Commitment to up to $100 million upon mutual agreement by the parties to the respective ERFP Agreement. Under each of the ERFP Agreements, the Company’s ERFP Commitment to such REIT will be fulfilled as the Company pays each such REIT 10% of each acquired hotel’s purchase price in exchange for FF&E at a property owned by such REIT, which will be subsequently leased by us to such REIT rent-free. Each of the REITs must provide reasonable advance notice to the Company to request ERFP funds in accordance with the respective ERFP Agreement. The ERFP Agreements require that the Company acquire the related FF&E either at the time of the property acquisition or at any time generally within two years of the REITs acquisition of the hotel property. The Company recognizes the related depreciation tax deduction at the time such FF&E is purchased by the Company and placed into service at the respective REITs’ hotel properties. However, the timing of the FF&E being purchased and placed into service is subject to uncertainties outside of the Company’s control that could delay the realization of any tax benefit associated with the purchase of FF&E. See notes 2 and 10.

The changes in our ERFP Commitments to Ashford Trust and Braemar from inception of the programs in 2018 and 2019, respectively, through June 30, 2019, as well as the unfunded ERFP Commitments as of June 30, 2019, for hotels acquired by the REITs are as follows (in thousands):



	Ashford Trust			Braemar			Total
ERFP Commitments:
ERFP Commitments at January 1, 2018	$	—		$	—		$	—
Initial ERFP Commitment	50,000			—			50,000
ERFP payment—Hilton Alexandria Old Town	(11,100		)	—			(11,100		)
ERFP payment—La Posada de Santa Fe	(5,000		)	—			(5,000		)
ERFP Commitments remaining at December 31, 2018	$	33,900		$	—		$	33,900
Initial ERFP Commitment	—			50,000			50,000
ERFP payment—Hilton Santa Cruz/Scotts Valley	(5,000		)	—			(5,000		)
ERFP payment—Embassy Suites New York Manhattan Times Square	(8,089		)	—			(8,089		)
ERFP payment—Ritz-Carlton, Lake Tahoe	—			(1,420		)	(1,420		)
ERFP Commitments remaining at June 30, 2019 ⁽¹⁾	$	20,811		$	48,580		$	69,391



	Ashford Trust		Braemar		Total
Unfunded ERFP Commitments for hotels acquired by REITs:
Embassy Suites New York Manhattan Times Square	$	11,411	$	—	$	11,411
Ritz-Carlton, Lake Tahoe	—		8,880		8,880
Unfunded ERFP Commitments at June 30, 2019	$	11,411	$	8,880	$	20,291

________

⁽¹⁾See note 10.

Other Related Party Transactions—We reimburse Remington and its subsidiaries, which are beneficially owned by our Chairman and Chief Executive Officer and Ashford Trust’s Chairman Emeritus, for various overhead expenses, including rent, payroll, office supplies, travel and accounting. These charges are allocated based on various methodologies, including headcount

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(unaudited)

and actual amounts incurred, and the allocations are approved quarterly by Ashford Inc. and Remington management. These reimbursements are included in “general and administrative” and “cost of revenues for project management” expenses on the condensed consolidated statements of operations. The charges totaled $2.5 million and $4.3 million, for the three and six months ended June 30, 2019, respectively, and $1.3 million and $2.5 million for the three and six months ended June 30, 2018, respectively. The amounts due under these arrangements as of June 30, 2019 and December 31, 2018, are included in “due to affiliates” on our condensed consolidated balance sheets.

Pursuant to our advisory agreements with each of Ashford Trust and Braemar, we secure certain casualty insurance policies to cover Ashford Trust, Braemar and their respective property managers, as needed. Ashford Trust and Braemar bear the economic burden for the casualty insurance coverage. Our risk management department manages the shared casualty insurance program. At the beginning of each year, funds are collected from Ashford Trust and Braemar, as needed, on an allocated basis based on their risk exposures. These funds are deposited into restricted cash and used to pay casualty claims and other insurance costs throughout the year as incurred. We record the funds received from Ashford Trust and Braemar and the related liability in our condensed consolidated balance sheets in “restricted cash” and “other liabilities,” respectively.

Ashford Trust held a 16.64% and 16.30% noncontrolling interest in OpenKey, and Braemar held an 8.40% and 8.21% noncontrolling interest in OpenKey as of June 30, 2019 and December 31, 2018, respectively. During the three and six months ended June 30, 2019, Ashford Trust invested $299,000 and $299,000, respectively, and Braemar invested $156,000 and $156,000, respectively in OpenKey. During the three and six months ended June 30, 2018, Ashford Trust invested $0 and $667,000, respectively, and Braemar invested $0 and $2.0 million, respectively, in OpenKey. See also notes 1, 2, 11, and 12.

An officer of ~~J&S~~JSAV owns the ~~J&S~~JSAV headquarters property including the adjoining warehouse space. ~~J&S~~JSAV leases this property for ~~$300,000~~approximately $307,000 per year, with escalating lease payments based on the Consumer Price Index. Rental expense for the three and ~~nine~~six months ended ~~September~~June 30, 2019, was $77,000, and $155,000, respectively. Rental expense for the three and six months ended June 30, 2018, was $84,000, and ~~$252,000,~~$168,000 respectively. ~~We did not incur rental expense related to this lease for the three and nine months ended September 30, 2017.~~

~~15.~~

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(unaudited)

16. Income (Loss) Per Share

The following table reconciles the amounts used in calculating basic and diluted income (loss) per share (in thousands, except per share amounts):


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Net income (loss) attributable to common stockholders – basic and diluted:
Net income (loss) attributable to the Company	$	3,387		$	(1,856	)	$	6,624		$	(10,950	)	$	112		$	8,960		$	822		$	3,237
Less: Dividends on preferred stock and amortization	(1,978		)	—			(1,978		)	—			(3,275		)	—			(6,558		)	—
Less: Net income (loss) allocated to unvested shares	(6		)	—			(20		)	—
Less: Undistributed net (income) allocated to unvested shares													—			(38		)	—			(14		)
Undistributed net income (loss) allocated to common stockholders	1,403			(1,856		)	4,626			(10,950		)	(3,163		)	8,922			(5,736		)	3,223
Distributed and undistributed net income (loss) - basic	$	1,403		$	(1,856	)	$	4,626		$	(10,950	)	$	(3,163	)	$	8,922		$	(5,736	)	$	3,223
Effect of deferred compensation plan	—			—			(3,540		)	—			(4,817		)	(6,375		)	(4,077		)	(5,814		)
Effect of contingently issuable shares	(971		)	(296		)	(826		)	(991		)
Effect of incremental subsidiary shares													(171		)	(223		)	(373		)	(505		)
Distributed and undistributed net income (loss) - diluted	$	432		$	(2,152	)	$	260		$	(11,941	)	$	(8,151	)	$	2,324		$	(10,186	)	$	(3,096	)

Weighted average common shares outstanding:
Weighted average common shares outstanding – basic	2,109			2,022			2,100			2,019			2,462			2,095			2,441			2,094
Effect of deferred compensation plan shares	—			—			69			—			203			206			101			103
Effect of contingently issuable shares	50			32			57			33
Effect of incremental subsidiary shares													52			26			41			22
Effect of assumed exercise of stock options	178			—			191			—			—			160			—			—
Weighted average common shares outstanding – diluted	2,337			2,054			2,417			2,052			2,717			2,487			2,583			2,219

Income (loss) per share – basic:
Net income (loss) allocated to common stockholders per share	$	0.67		$	(0.92	)	$	2.20		$	(5.42	)	$	(1.28	)	$	4.26		$	(2.35	)	$	1.54
Income (loss) per share – diluted:
Net income (loss) allocated to common stockholders per share	$	0.18		$	(1.05	)	$	0.11		$	(5.82	)	$	(3.00	)	$	0.93		$	(3.94	)	$	(1.40	)

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Due to their anti-dilutive effect, the computation of diluted income (loss) per share does not reflect the adjustments for the following items (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,					Six Months Ended June 30,
	2018		2017		2018		2017		2019			2018		2019			2018
Net income (loss) allocated to common stockholders is not adjusted for:
Net income (loss) attributable to unvested restricted shares	$	6	$	—	$	20	$	—	$	—		$	38	$	—		$	14
Net income (loss) attributable to redeemable noncontrolling interests in Ashford Holdings	3		4		9		4		(6		)	18		(10		)	6
Net income (loss) attributable to redeemable noncontrolling interests in subsidiary common stock									(133		)	295		94			650
Dividends on preferred stock and amortization	1,978		—		1,978		—		3,275			—		6,558			—
Total	$	1,987	$	4	$	2,007	$	4	$	3,136		$	351	$	6,642		$	670
Weighted average diluted shares are not adjusted for:
Effect of unvested restricted shares	9		—		9		—		11			9		10			9
Effect of assumed exercise of stock options									16			—		40			197
Effect of assumed conversion of Ashford Holdings units	4		4		4		4		4			4		4			4
Effect of incremental subsidiary shares									72			50		59			38
Effect of assumed conversion of preferred stock	851		—		284		—		1,450			—		1,450			—
Total	864		4		297		4		1,553			63		1,563			248

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~~ASHFORD INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(unaudited)~~

~~16.~~17. Segment Reporting

We have two business segments: (i) REIT Advisory, which provides asset management and advisory services to other entities, and (ii) Hospitality Products and Services (“HPS”), which provides products and services to clients primarily in the hospitality industry. HPS includes (a) Premier, which provides comprehensive and cost-effective design, development, architectural, and project management services, (b) ~~J&S,~~JSAV, which provides event technology and creative communications solutions services, (c) OpenKey, a hospitality focused mobile key platform that provides a universal smartphone app for keyless entry into hotel guest rooms, (d) RED, a provider of watersports activities and other travel and transportation services, (e) Pure ~~Rooms,~~Wellness, which provides hypoallergenic premium rooms in the hospitality industry, and ~~(e) RED,~~(f) Lismore, a ~~premier~~ provider of ~~watersports activities~~debt placement services. For 2019, OpenKey, RED, Pure Wellness and ~~other travel and transportation services in the U.S. Virgin Islands. Premier, OpenKey, Pure Rooms and RED~~Lismore operating segments do not meet aggregation criteria or the quantitative thresholds to individually ~~meet the accounting criteria for separate disclosure~~qualify as reportable segments. However, we have elected to disclose ~~Premier and~~ OpenKey as a reportable ~~segments.~~segment. Accordingly, we have four reportable segments: REIT Advisory, Premier, ~~J&S~~JSAV and OpenKey. We combine the operating results of RED, Pure ~~Rooms~~Wellness and ~~RED~~Lismore into an “all other” category, which we refer to as “Corporate and Other.”

See footnote 3 for details of our segments’ material revenue generating activities. As of ~~September~~June 30, 2019 and 2018, there were no material intercompany revenues or expenses between our operating segments.

Our chief operating decision maker (“CODM”) uses multiple measures of segment profitability for assessing performance of our business. Our reported measure of segment profitability is net income, although the CODM also focuses on adjusted EBITDA and adjusted net income, which exclude certain gains, losses and charges, to assess performance and allocate resources. Our CODM currently reviews assets at the corporate (consolidated) level and does not currently review segment assets to make key decisions on resource allocations.

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(unaudited)

Certain information concerning our segments for the three and six months ended ~~September~~June 30, 2019, and 2018 ~~and 2017 is~~are presented in the following tables (in thousands). Consolidated subsidiaries are reflected as of their respective acquisition dates or as of the date we were determined to be the primary beneficiary of variable interest entities.


	Three Months Ended September 30, 2018																		Three Months Ended September 30, 2017																Three Months Ended June 30, 2019																		Three Months Ended June 30, 2018
	REIT Advisory			Premier			J&S			OpenKey			Corporate and Other			Ashford Inc. Consolidated			REIT Advisory			Premier		J&S		OpenKey			Corporate and Other			Ashford Inc. Consolidated			REIT Advisory			Premier			JSAV			OpenKey			Corporate and Other			Ashford Inc. Consolidated			REIT Advisory			Premier		JSAV			OpenKey			Corporate and Other			Ashford Inc. Consolidated
REVENUE
Advisory services	$	21,016		$	—		$	—		$	—		$	—		$	21,016		$	17,357		$	—	$	—	$	—		$	—		$	17,357		$	21,220		$	—		$	—		$	—		$	—		$	21,220		$	24,570		$	—	$	—		$	—		$	—		$	24,570
Audio visual	—			—			14,526			—			—			14,526			—			—		—		—			—			—			—			—			30,127			—			—			30,127			—			—		23,376			—			—			23,376
Project Management	—			3,616			—			—			—			3,616			—			—		—		—			—			—			—			7,700			—			—			—			7,700			—			—		—			—			—			—
Other	990			—			—			301			1,116			2,407			998			—		—		72			828			1,898			1,421			—			—			194			2,804			4,419			628			—		—			153			6,084			6,865
Total revenue	22,006			3,616			14,526			301			1,116			41,565			18,355			—		—		72			828			19,255			22,641			7,700			30,127			194			2,804			63,466			25,198			—		23,376			153			6,084			54,811
EXPENSES
Depreciation and amortization	808			1,618			587			7			(48		)	2,972			185			—		—		6			390			581			1,570			2,738			503			7			116			4,934			369			—		489			7			328			1,193
Other operating expenses ⁽¹⁾	8,777			1,923			18,087			1,271			20,039			50,097			5,586			—		—		774			14,654			21,014			9,731			4,318			30,296			768			12,476			57,589			12,814			—		20,708			903			8,323			42,748
Total expenses	9,585			3,541			18,674			1,278			19,991			53,069			5,771			—		—		780			15,044			21,595			11,301			7,056			30,799			775			12,592			62,523			13,183			—		21,197			910			8,651			43,941
OPERATING INCOME (LOSS)	12,421			75			(4,148		)	(977		)	(18,875		)	(11,504		)	12,584			—		—		(708		)	(14,216		)	(2,340		)	11,340			644			(672		)	(581		)	(9,788		)	943			12,015			—		2,179			(757		)	(2,567		)	10,870
Equity in earnings (loss) of unconsolidated entities																																			—			—			—			—			(298		)	(298		)	—			—		—			—			—			—
Interest expense	(82		)	—			(181		)	—			(26		)	(289		)	—			—		—		—			(5		)	(5		)	—			—			(356		)	—			(89		)	(445		)	—			—		(144		)	—			(17		)	(161		)
Amortization of loan costs	(105		)	—			(12		)	(7		)	(6		)	(130		)	—			—		—		(11		)	(4		)	(15		)	—			—			(14		)	(6		)	(50		)	(70		)	—			—		(12		)	(7		)	(5		)	(24		)
Interest income	—			—			—			—			103			103			—			—		—		—			82			82			—			—			—			—			9			9			—			—		—			—			73			73
Other income (expense)	141			—			(38		)	3			(184		)	(78		)	—			—		—		(4		)	(1		)	(5		)	—			—			(50		)	6			2			(42		)	27			—		(256		)	—			8			(221		)
INCOME (LOSS) BEFORE INCOME TAXES	12,375			75			(4,379		)	(981		)	(18,988		)	(11,898		)	12,584			—		—		(723		)	(14,144		)	(2,283		)	11,340			644			(1,092		)	(581		)	(10,214		)	97			12,042			—		1,767			(764		)	(2,508		)	10,537
Income tax (expense) benefit	(2,775		)	(7		)	909			—			15,777			13,904			(4,543		)	—		—		—			4,568			25			(2,550		)	(342		)	319			—			2,147			(426		)	(1,848		)	—		(502		)	—			745			(1,605		)
NET INCOME (LOSS)	$	9,600		$	68		$	(3,470	)	$	(981	)	$	(3,211	)	$	2,006		$	8,041		$	—	$	—	$	(723	)	$	(9,576	)	$	(2,258	)	$	8,790		$	302		$	(773	)	$	(581	)	$	(8,067	)	$	(329	)	$	10,194		$	—	$	1,265		$	(764	)	$	(1,763	)	$	8,932

________


⁽¹⁾	Other operating expenses includes salaries and benefits, cost of revenues for audio visual, costs of revenues for project management and general and administrative expenses. Other operating expenses of REIT Advisory represent expenses for which there is generally a direct offsetting amount included in revenues, including REIT equity-based compensation expense and reimbursable expenses.

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(unaudited)


	Nine Months Ended September 30, 2018																		Nine Months Ended September 30, 2017																Six Months Ended June 30, 2019																		Six Months Ended June 30, 2018
	REIT Advisory			Premier			J&S			OpenKey			Corporate and Other			Ashford Inc. Consolidated			REIT Advisory			Premier		J&S		OpenKey			Corporate and Other			Ashford Inc. Consolidated			REIT Advisory			Premier			JSAV			OpenKey			Corporate and Other			Ashford Inc. Consolidated			REIT Advisory			Premier		JSAV			OpenKey			Corporate and Other			Ashford Inc. Consolidated
REVENUE
Advisory services	$	68,118		$	—		$	—		$	—		$	—		$	68,118		$	47,960		$	—	$	—	$	—		$	—		$	47,960		$	40,407		$	—		$	—		$	—		$	—		$	40,407		$	47,102		$	—	$	—		$	—		$	—		$	47,102
Audio visual	—			—			61,212			—			—			61,212			—			—		—		—			—			—			—			—			61,102			—			—			61,102			—			—		46,686			—			—			46,686
Project management	—			3,616			—			—			—			3,616			—			—		—		—			—			—			—			15,490			—			—			—			15,490			—			—		—			—			—			—
Other	7,698			—			—			773			3,127			11,598			2,349			—		—		140			1,458			3,947			2,850			—			—			451			6,486			9,787			1,117			—		—			472			7,602			9,191
Total revenue	75,816			3,616			61,212			773			3,127			144,544			50,309			—		—		140			1,458			51,907			43,257			15,490			61,102			451			6,486			126,786			48,219			—		46,686			472			7,602			102,979
EXPENSES
Depreciation and amortization	1,567			1,618			1,530			20			470			5,205			438			—		—		17			1,181			1,636			2,753			5,476			958			14			260			9,461			759			—		943			13			518			2,233
Impairment	1,863			—			—			—			56			1,919			1,041			—		—		—			31			1,072			—			—			—			—			—			—			1,863			—		—			—			56			1,919
Other operating expenses ⁽¹⁾	32,832			1,923			58,598			3,345			46,392			143,090			12,903			—		—		2,448			36,906			52,257			17,998			8,368			58,304			1,718			27,452			113,840			24,055			—		40,511			2,074			26,353			92,993
Total operating expenses	36,262			3,541			60,128			3,365			46,918			150,214			14,382			—		—		2,465			38,118			54,965			20,751			13,844			59,262			1,732			27,712			123,301			26,677			—		41,454			2,087			26,927			97,145
OPERATING INCOME (LOSS)	39,554			75			1,084			(2,592		)	(43,791		)	(5,670		)	35,927			—		—		(2,325		)	(36,660		)	(3,058		)	22,506			1,646			1,840			(1,281		)	(21,226		)	3,485			21,542			—		5,232			(1,615		)	(19,325		)	5,834
Equity in earnings (loss) of unconsolidated entities																																			—			—			—			—			(573		)	(573		)	—			—		—			—			—			—
Interest expense	(82		)	—			(464		)	—			(47		)	(593		)	—			—		—		—			(10		)	(10		)	—			—			(570		)	—			(172		)	(742		)	—			—		(283		)	—			(21		)	(304		)
Amortization of loan costs	(105		)	—			(35		)	(20		)	(17		)	(177		)	—			—		—		(15		)	(10		)	(25		)	—			—			(27		)	(12		)	(100		)	(139		)	—			—		(24		)	(13		)	(10		)	(47		)
Interest income	—			—			—			—			288			288			—			—		—		—			153			153			—			—			—			—			29			29			—			—		—			—			185			185
Other income (expense)	187			—			(353		)	2			(174		)	(338		)	(309		)	—		—		(12		)	297			(24		)	—			—			(156		)	11			50			(95		)	46			—		(314		)	(1		)	9			(260		)
INCOME (LOSS) BEFORE INCOME TAXES	39,554			75			232			(2,610		)	(43,741		)	(6,490		)	35,618			—		—		(2,352		)	(36,230		)	(2,964		)	22,506			1,646			1,087			(1,282		)	(21,992		)	1,965			21,588			—		4,611			(1,629		)	(19,162		)	5,408
Income tax (expense) benefit	(8,041		)	(7		)	(339		)	—			19,980			11,593			(12,895		)	—		—		—			3,647			(9,248		)	(5,039		)	(768		)	(568		)	—			4,649			(1,726		)	(3,964		)	—		(1,248		)	—			2,901			(2,311		)
NET INCOME (LOSS)	$	31,513		$	68		$	(107	)	$	(2,610	)	$	(23,761	)	$	5,103		$	22,723		$	—	$	—	$	(2,352	)	$	(32,583	)	$	(12,212	)	$	17,467		$	878		$	519		$	(1,282	)	$	(17,343	)	$	239		$	17,624		$	—	$	3,363		$	(1,629	)	$	(16,261	)	$	3,097

________


⁽¹⁾	Other operating expenses includes salaries and benefits, cost of revenues for audio visual, costs of revenues for project management and general and administrative expenses. Other operating expenses of REIT Advisory represent expenses for which there is generally a direct offsetting amount included in revenues, including REIT equity-based compensation expense and reimbursable expenses.

18. Subsequent Events

On July 1, 2019, the Company’s newly created subsidiary, AINC Bar Draught LLC (“Bar Draught”), acquired the assets of a provider of an innovative draft cocktail system technology for $250,000 cash and contingent consideration of up to $550,000 cash, if earned, 6 to 12 months after the acquisition date. After giving effect to the transaction, Ashford Inc. will own an approximately 55% interest in Bar Draught, a provider of premium, mobile cocktails on tap and other services in the hospitality industry.

On July 3, 2019, the Company funded the remaining $8.9 million of its ERFP Commitment under the Braemar ERFP Agreement, related to Braemar’s acquisition of The Ritz-Carlton Lake Tahoe on January 15, 2019.

On July 18, 2019, RED completed the acquisition of substantially all of the assets of Sebago, a leading provider of watersports activities and excursion services based in Key West, Florida. After giving effect to the transaction, Ashford Inc. will own an approximately 84% interest in the common equity of RED. Ashford Inc. will continue to own an 80% interest in the entity that conducts RED’s legacy U.S. Virgin Islands operations. The purchase price consisted of approximately $2.5 million in cash (excluding transaction costs and working capital adjustments) funded by new RED term loans and $4.5 million in the form of Ashford Inc. common stock consisting of 135,366 shares issued July 18, 2019, subject to a six month stock consideration collar. The issued Ashford Inc. shares were determined using a 30-Day VWAP of $33.24 and had an estimated fair value of approximately $4.5 million as of the acquisition date. Pursuant to the acquisition agreement, in the event that the 30-Day VWAP of the common stock on the six month anniversary of the closing date of the acquisition is lower than the price of the common stock on July 18, 2019, the Company may repurchase the stock at such lower stock price, such that the number of shares of common stock issued is reduced. In the event that the 30-Day VWAP of the common stock on the six month anniversary of the closing date of the

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Table of Contents

ASHFORD INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

~~17. Subsequent Events~~

~~On October 10, 2018, we sold an additional 10,000~~acquisition is higher than the price of the common stock on July 18, 2019, the Company may repurchase shares of common stock to underwriters in connection with the underwriters’ partial exercise of their over-allotment option that had been granted to them in connection with our public offering on September 28, 2018. The net proceeds from the sale of the over-allotment shares after discounts and commissions to the underwriters were approximately $700,000.

~~On October 31, 2018, Ashford Trust acquired the La Posada de Santa Fe (“La Posada”) in Santa Fe, New Mexico, for~~at a ~~purchase~~ price of ~~$50 million. Under~~$0.01 per share, such that the ~~ERFP Agreement,~~stock consideration for the Company is obligated to provide Ashford Trust 10% of the acquired hotel’s purchase price in the form of FF&E acquired by the Company, which is subsequently leased to Ashford Trust rent-free. In connection with Ashford Trust’s acquisition of La Posada, and subject to the terms of the ERFP Agreement, the Company is obligated to provide Ashford Trust with approximately $5.0transaction remains $4.5 million in ~~exchange for FF&E at Ashford Trust properties.~~common stock.


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

As used in this Quarterly Report on Form 10-Q, unless the context otherwise indicates, the references to “we,” “us,” “our,” and the “Company” refer to Ashford Inc., a Maryland corporation, and, as the context may require, its consolidated subsidiaries, including Ashford Hospitality Advisors LLC, a Delaware limited liability company, which we refer to as “Ashford LLC” or “our operating company” ~~and~~; Ashford Hospitality Holdings LLC, a Delaware limited liability company, which we refer to as “Ashford ~~Holdings.~~Holdings”; and Ashford Hospitality Services LLC, a Delaware limited liability company, which we refer to as “Ashford Services”; and Premier Project Management LLC, a Maryland limited liability company, which we refer to as “Premier Project Management,” or “Premier.” “Braemar” refers to Braemar Hotels & Resorts Inc., a Maryland corporation, and, as the context may require, its consolidated subsidiaries, including Braemar Hospitality Limited Partnership, a Delaware limited partnership, which we refer to as “Braemar OP.” “Ashford Trust” or “AHT” refers to Ashford Hospitality Trust, Inc., a Maryland corporation, and, as the context may require, its consolidated subsidiaries, including Ashford Hospitality Limited Partnership, a Delaware limited partnership and Ashford Trust’s operating partnership, which we refer to as “Ashford Trust OP.” “Remington Lodging” refers to Remington Lodging & Hospitality, LLC, a Delaware limited liability company, and, as the context may require, its consolidated subsidiaries, a property management company owned by Mr. Monty J. Bennett, our chief executive officer and chairman, and his father, Mr. Archie Bennett, Jr., chairman emeritus of Ashford Trust.

FORWARD-LOOKING STATEMENTS

This Form 10-Q contains certain forward-looking statements that are subject to risks and uncertainties. Forward-looking statements are generally identifiable by use of forward-looking terminology such as “may,” “will,” “should,” “potential,” “intend,” “expect,” “anticipate,” “estimate,” “approximately,” “believe,” “could,” “project,” “predict,” or other similar words or expressions. Additionally, statements regarding the following subjects are forward-looking by their nature:

our business and investment ~~strategy and dividend rates;~~strategy;

our projected operating results;

our ability to obtain future financing arrangements;

our understanding of our competition;

market trends;

the future success of recent acquisitions, including the project management business formerly conducted by certain affiliates of Remington, and new business initiatives, including the ~~ERFP~~Enhanced Return Funding Programs (“ERFPs”) with Ashford ~~Trust;~~Trust and Braemar;

the future success of the acquisition of the Hotel Management business from Remington, which we signed a definitive agreement to acquire on May 31, 2019 (as amended on July 17, 2019) and which is expected to close in the fourth quarter of 2019;

projected capital expenditures; and

the impact of technology on our operations and business.

Forward-looking statements are based on certain assumptions, discuss future expectations, describe future plans and strategies, contain financial and operating projections or state other forward-looking information. Our ability to predict results or the actual effect of future events, actions, plans or strategies is inherently uncertain. Although we believe that the expectations reflected in our forward-looking statements are based on reasonable assumptions, taking into account all information currently available to us, our actual results and performance could differ materially from those set forth in our forward-looking statements. Factors that could have a material adverse effect on our forward-looking statements include, but are not limited to:

the risk factors set forth ~~under “Risk Factors- Risks Related to the Transaction” in our definitive proxy statement dated and filed with the SEC on July 12, 2018, and the information~~ in our Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 (the “Annual Report”), as filed with the Securities and Exchange Commission (the “SEC”) on March ~~12, 2018,~~8, 2019, including under the sections captioned “Item 1. Business,” “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Conditions and Results of Operations;”

general volatility of the capital markets, the general economy or the hospitality industry, whether the result of market events or otherwise, and the market price of our common stock;

availability, terms and deployment of capital;

changes in our industry and the market in which we operate, interest rates or the general economy;

the degree and nature of our competition;

actual and potential conflicts of interest with or between Remington Lodging, ~~Braemar~~Ashford Trust and ~~Ashford Trust,~~Braemar, our executive officers and our non-independent directors;

availability of qualified personnel;

changes in governmental regulations, accounting rules, tax rates and similar matters;

legislative and regulatory changes;

the possibility that we may not realize any or all of the anticipated benefits from transactions to acquire businesses ~~including the acquisition of Premier,~~ and from new business initiatives, including the ERFP Agreements with Ashford ~~Trust;~~Trust and Braemar;

sales of our common stock, including as a result of the possible divestiture of our common stock by Ashford Trust and Braemar in connection with the Hotel Management Business acquisition that was signed on May 31, 2019 (as amended on July 19, 2019) and which is expected to close in the fourth quarter of 2019;

disruptions relating to the acquisition or integration of Premier or any other business we invest in or acquire, which may harm relationships with customers, employees and regulators; and

unexpected costs relating to the acquisition or integration of Premier or any other business we invest in or acquire.

When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements under “Item 1A. Risk Factors” of our Annual Report ~~the risk factors set forth under “Risk Factors- Risks related to the Transactions” in our Definitive Proxy Statement dated~~ and ~~filed with the SEC on July 12, 2018, the risk factors set forth under “Risk Factors” in our S-3 dated and filed with the SEC on October 5, 2018 and~~this Quarterly Report, the discussion in this Management’s Discussion and Analysis of Financial Conditions and Results of Operations, and elsewhere which could cause our actual results and performance to differ significantly from those contained in our forward-looking statements. Accordingly, we cannot guarantee future results or performance. Readers are cautioned not to place undue reliance on any of these forward-looking statements, which reflect our views as of the date of this Form 10-Q. Furthermore, we do not intend to update any of our forward-looking statements after the date of this Form 10-Q to conform these statements to actual results and performance, except as may be required by applicable law.

Overview

Ashford Inc. is a Maryland corporation ~~formed on April 2, 2014,~~ that provides asset management services, advisory services and other products and services primarily to clients in the hospitality industry. We became a public company onin November ~~12,~~ 2014, when Ashford Trust completed the spin-off of ~~the Company~~Ashford Inc. through the distribution of approximately 70% of our outstanding common stock to Ashford Trust stockholders and unitholders in Ashford Trust’s operating partnership, collectively. Our common stock is listed on the NYSE American. As of ~~November~~August 6, ~~2018,~~2019, Ashford Trust ~~beneficially owned~~held approximately 598,000 shares of our common stock ~~representing approximately 25.0% of our company.~~which represented an approximate 22.9% ownership interest in Ashford Inc. and Braemar ~~holds~~held approximately 195,000 shares, which ~~represents~~represented an approximate ~~8.2%~~7.5% ownership interest in Ashford Inc. As of August 6, 2019, Mr. Monty J. Bennett, our chief executive officer and chairman and the chairman of Ashford Trust and Braemar, and his father, Mr. Archie Bennett, Jr., chairman emeritus of Ashford Trust, owned approximately 314,685 shares of our common stock, which represented an approximate 12.0% ownership interest in Ashford Inc., and owned 7,520,000 shares of our Series B Convertible Preferred Stock (the “Series B Convertible Preferred Stock”), which is exercisable (at an exercise price of $140 per share) into an additional approximate 1,342,857 shares of Ashford Inc. common stock, which if exercised as of June 30, 2019 would have increased Mr. Bennett and Mr. Bennett, Jr.’s ownership interest in Ashford Inc. to 41.9%.

Our principal business objective is to provide asset management, ~~services,~~ advisory ~~services~~ and other products and services to other ~~entities. We seek~~entities primarily in the hospitality industry. The Company seeks to grow in three primary areas: (i) expanding ~~our~~its existing REIT platforms accretively and accelerating performance to earn incentive fees; (ii) ~~creating~~starting new REIT platforms for additional base and incentive fees; and (iii) acquiring, investing in or incubating strategic businesses that ~~may~~can achieve accelerated growth ~~by providing their products and services to~~through doing business with our ~~existing~~REIT platforms ~~and third parties~~ and by leveraging our deep knowledge and extensive relationships within the hospitality sector.

We are currently the advisor for 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, in each case subject to the supervision and oversight of the respective board of directors of ~~such entity.~~ Ashford Trust and Braemar. Ashford Trust commenced operating in August 2003 and is focused on investing in full service hotels in the upscale and upper-upscale segments in the U.S. that have RevPAR generally less than twice the U.S. national average. Braemar invests primarily in luxury hotels and resorts with RevPAR of at least twice the U.S. national average. Braemar became a publicly traded company in November

2013 upon the completion of its spin-off from Ashford Trust. Each of Ashford Trust and Braemar is a REIT as defined in the Internal Revenue Code, and the common stock of each of Ashford Trust and Braemar is traded on the NYSE.

We provide the personnel and services that we believe are necessary to assist each of Ashford Trust and Braemar in conducting ~~its~~their respective ~~business.~~businesses. We may also perform similar functions for new or additional platforms. 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.

~~For~~We conduct our advisory business primarily through an operating entity, Ashford LLC, our project management business through an operating entity, Premier, and our hospitality products and services business primarily through an operating entity, Ashford Services. We own substantially all of our assets and conduct substantially all of our business through Ashford LLC, Premier, and Ashford Services.

As required for disclosure under the Enhanced Return Funding Program Agreement and Amendment No. 1 to the Fifth Amended and Restated Advisory Agreement, for the trailing twelve months ended ~~September~~June 30, ~~2018,~~2019, the total incremental expenses incurred (including all reimbursable expenses), as reasonably determined, in connection with providing services to Braemar under the ~~Fifth Amended and Restated Advisory Agreement~~agreement was ~~$9.5~~$9.7 million.

Recent Developments

OnEffective January ~~2, 2018,~~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 ~~Company granted 8,962~~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 ~~restricted~~our common stock (approximately $890,000) to the ~~OpenKey redeemable noncontrolling interest holder in connection with the purchase of 519,647 shares of the outstanding membership interests in OpenKey, Inc. The restricted common stock was granted~~seller pursuant to the exemption from the registration requirements under ~~Section 4(a)(2) of~~ the Securities Act, ~~and are subject~~provided under Section 4(a)(2) thereunder. We have an option to ~~a three year vesting cliff from~~acquire an additional 50% of the ~~grant date.~~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.

On March 12, 2018, the Board of Directors of Ashford Inc. appointed Mr. J. Robison Hays, III, as Co-President and Chief Strategy Officer of the Company, appointed Mr. Jeremy J. Welter as Co-President and Chief Operating Officer of the Company, and appointed David A. Brooks as Chief Transactions Officer, General Counsel and Secretary of the Company, effective March 12, 2018. Also on March 12, 2018, Mr. Douglas A. Kessler ceased to serve as the Company’s President and was appointed to serve as Senior Managing Director of the Company, and Mr. David A. Brooks ceased to serve as the Company’s Chief Operating Officer. On April 2, 2018, Ashford Inc. announced the death of long-time executive David A. Brooks, who served in multiple leadership roles with the Company since 2003.

On March 21, 2018, Ashford Inc. entered into the First Amendment (the “Amendment”) to the Credit Agreement dated March 1, 2018 (the “Credit Facility”), with Ashford Hospitality Holdings LLC, a subsidiary of Ashford Inc., Bank of America,

N.A., as administrative agent and letters of credit issuer, and the lenders from time to time party thereto. The Amendment is effective as of March 1, 2018, which is the date the Credit Facility became effective. Pursuant to the Amendment, the financial covenant of consolidated tangible net worth was replaced with the consolidated net worth, and Ashford Inc. is required to maintain consolidated net worth not less than 75% of the consolidated net worth as of December 31, 2017, plus 75% of the net equity proceeds of any future equity issuances by Ashford Inc.

On April 4, 2018, the Board of Directors of Ashford Inc. approved the updated form of Amended and Restated Indemnification Agreement to be entered into by the Company and each of its directors and officers.

~~On April 6, 2018, Ashford Inc. signed a definitive agreement to acquire the project management business of Remington.~~

~~On April 23, 2018, in connection with the name change by Braemar,~~January 15, 2019, the Company entered into the Enhanced Return Funding Program Agreement and Amendment No. 1 to the Fifth Amended and Restated Advisory Agreement (the “Braemar ERFP Agreement”) with Braemar (the “Fifth Amended and Restated Advisory Agreement”). The Fifth Amended and Restated Advisory Agreement amends the prior amended and restated advisory agreement only to reflect the name change and does not amend or otherwise alter the rights of any of the parties thereto.

~~On June 1, 2018, the board of directors of the Company appointed Mr. Robert G. Haiman as Executive Vice President, General Counsel and Secretary of the Company, effective June 1, 2018.~~

On June 25, 2018, Ashford Inc. announced that it was added as a member of the U.S. small-cap Russell 2000® Index and the U.S. broad-market Russell 3000® Index at the conclusion of the Russell indexes annual reconstitution, effective after the market closed on June 22, 2018.

~~On June 26, 2018, the Company entered into the ERFP Agreement with Ashford Trust.~~Braemar. The independent members of the board of directors of each of the Company and ~~Ashford Trust,~~Braemar, with the assistance of separate and independent legal counsel, engaged to negotiate the Braemar ERFP Agreement on behalf of the Company and ~~Ashford Trust,~~Braemar, respectively. Under the Braemar ERFP Agreement, the Company agreed to provide $50 million (the “ERFP Commitment”) to ~~Ashford Trust~~Braemar in connection with ~~Ashford Trust’s~~Braemar’s acquisition of ~~additional~~ hotels recommended by us, with the option to increase the ~~funding commitment~~ERFP Commitment to up to $100 million upon mutual agreement by the parties. Under the Braemar ERFP Agreement, the Company’s ERFP Commitment will be fulfilled as the Company ~~is obligated to provide Ashford Trust~~pays Braemar 10% of ~~the~~each acquired hotel’s purchase price in exchange for FF&E, which is subsequently leased to ~~Ashford Trust~~Braemar rent-free. ~~In connection~~Braemar must provide reasonable advance notice to the Company to request ERFP funds in accordance with ~~Ashford Trust’s acquisition~~the Braemar ERFP Agreement. The Braemar ERFP Agreement requires that the Company acquire the related FF&E either at the time of the ~~Hilton Old Town Alexandria on June 29, 2018, and subject to the terms of the ERFP Agreement, the Company is obligated to provide Ashford Trust with approximately $11.1 million of FF&E~~property acquisition or at Ashford Trust properties. As of September 30, 2018, the Company has provided $390,000 of FF&E under the ERFP Agreement. As a result, the Company’s ERFP obligation of $10.7 million is reflected in our condensed consolidated balance sheet as “other assets” and “other liabilities” as of September 30, 2018. Under the ERFP agreement, Ashford Trust hasany time generally within two years ~~from~~of Braemar acquiring the ~~acquisition date of a~~ hotel ~~property to identify the FF&E to be purchased by Ashford Inc.~~property. The Company recognizes the related depreciation tax deduction at the time such FF&E is purchased by the Company and placed into service at ~~Ashford Trust~~Braemar’s hotel properties. However, the timing of the FF&E being purchased and placed into service is subject to uncertainties outside of the Company’s control that could delay the realization of any tax benefit associated with the purchase of FF&E. ~~See note 9 and 14~~

On January 15, 2019, Braemar acquired The Ritz-Carlton Lake Tahoe for an allocated purchase price of $103.0 million which therefore requires the Company to ~~our condensed consolidated financial statements.~~provide Braemar with approximately $10.3 million in exchange for FF&E at Braemar’s hotel properties that will subsequently be leased back to Braemar rent-free. As of June 30, 2019, the Company’s remaining unfunded ERFP Commitment under the Braemar ERFP Agreement includes $8.9 million related to The Ritz-Carlton Lake Tahoe, which was funded subsequent to the end of the quarter on July 3, 2019.

On ~~August 7, 2018,~~January 22, 2019, Ashford Trust acquired the Embassy Suites New York Manhattan Times Square for a purchase price of $195.0 million which therefore requires the Company to provide Ashford Trust with approximately $19.5 million in exchange for FF&E at ~~a Special Meeting~~Ashford Trust’s hotel properties that will subsequently be leased back to Ashford Trust rent-free. As of ~~Stockholders,~~June 30, 2019, the Company’s remaining unfunded ERFP Commitment under the Ashford ~~Inc. shareholders voted to approve certain matters~~Trust ERFP Agreement includes $11.4 million related to ~~Ashford Inc.’s acquisition of~~ the ~~project management business of Remington, including the issuance of 8,120,000 shares of newly created convertible preferred stock (“Series B Preferred Stock”).~~ Embassy Suites New York Manhattan Times Square.

On ~~August 8, 2018, we completed~~February 26, 2019, Ashford Trust acquired the acquisition of Premier, the project management business formerly conducted by certain affiliates of Remington, including construction management, interior design, architectural oversight, and the purchasing, expediting, warehousing coordination, freight management, and supervision of installation of FF&E, and related services,Hilton Santa Cruz/Scotts Valley, in Santa Cruz, California, for a ~~total transaction value~~purchase price of ~~$203 million.~~$50.0 million which therefore requires the Company to provide Ashford Trust with approximately $5.0 million in exchange for FF&E at Ashford Trust’s hotel properties that will subsequently be leased back to Ashford Trust rent-free. As ~~a result,~~of June 30, 2019, the ~~project management services that were previously provided by Remington Lodging will now be provided by a subsidiary of Ashford Inc.~~Company had reduced its remaining commitment under the ~~respective project management agreement with each customer, including~~ Ashford Trust ~~and Braemar. The purchase price was paid~~ERFP Agreement by ~~issuing 8,120,000 shares of the newly created Series B Preferred Stock~~providing $5.0 million to the Remington Sellers, primarily the Bennetts. The Series B Preferred Stock has a conversion price of $140 per share and would convert into 1,450,000 shares of our common stock. Dividends on the Series B Preferred Stock are payable at an annual rate of 5.5% in the first year, 6.0% in the second year, and 6.5% in the third year and each year thereafter. In addition to certain separate class voting rights, the holders of the Series B Preferred Stock vote on an as-converted basis with the holders of the common stock and the holders of any outstanding Series A Preferred Stock or Series C Preferred Stock on all matters submitted for approval by the holders of our capital stock possessing general voting rights. However, for five years following the closing of the acquisition of Premier, the Remington Sellers and their transferees are subject to certain voting restrictions with respect to shares in excess of 25% of the combined voting power of the Company’s outstanding capital stock. The holders of the Series B Preferred Stock have certain conversion rights upon certain events constituting a change of control of the Company.

InAshford Trust in exchange for FF&E at Ashford Trust’s hotel properties that was subsequently leased back to Ashford Trust rent-free, in connection with Ashford Trust’s acquisition of the ~~acquisition, on August 8, 2018, Ashford Inc. and Computershare Trust Company, N.A., as Rights Agent~~hotel.

On February 27, 2019, RED entered into a new Rights Agreement. Pursuant to the Rights Agreement, each Right initially entitles the registered holder to purchase from the Company one one-thousandth of a share of Series C Preferred Stock of the Company at a price of $275 per one one-thousandth of a Preferred Share represented by a Right, subject to adjustment (each as defined under the Rights Agreement). The Amended and Restated Rights Agreement of Ashford Inc. in effect prior to the acquisition of Premier is no longer in effect.

In connection with the acquisition of Premier, we effected a holding company reorganization. The change in holding company organizational structure was effected by a merger, pursuant to which each issued and outstanding share of common stock, par value $0.01 per share, of our predecessor publicly-traded parent Old Ashford was converted into one share of common stock, par value $0.01 per share, of the Company having the same rights, powers and preferences and the same qualifications, limitations and restrictions as a share of common stock of Old Ashford. As a result of the foregoing, we became the successor issuer of Old Ashford under Rule 12g-3 of the Exchange Act. Our common stock continues to be listed on the NYSE American under the symbol ‘‘AINC.’’

~~On August 31, 2018, our RED operating subsidiary entered into a~~draw term loan in the amount of ~~$1.8~~$1.4 million for which the creditor has recourse to Ashford Inc. The term loan bears interest at the Prime Rate plus ~~2.00%~~1.75% and matures on December 5, 2026.

On February 28, 2019, RED renewed its revolving credit facility for which the creditor has recourse to Ashford Inc. The revolving credit facility provides RED with available borrowings up to a total of $250,000, bears interest at the Prime Rate plus 1.75% and matures on February ~~1, 2029.~~5, 2020.

On ~~September 28, 2018,~~March 1, 2019, JSAV acquired a privately-held company, BAV Services in the United States (“BAV”). BAV is an audio visual rental, staging, and production company focused on meeting and special event services. As a result of the acquisition, our ownership interest in JSAV, which we ~~completed~~consolidate under the voting interest model, increased from 85% to approximately 88%. The purchase price consisted of: (i) $5.0 million in cash (excluding working capital adjustments) funded by an existing JSAV term loan; (ii) $4.0 million in the form of Ashford Inc. common stock consisting of (a) 61,387 shares issued on March 1, 2019, which was determined based on an agreed upon value of $3.5 million using a ~~public offering~~thirty-day volume weighted average price per share (“30-Day VWAP”) of ~~270,000~~$57.01 and had an estimated fair value of approximately $3.8 million as of the acquisition date and (b) $500,000 of stock to be issued 18 months after the acquisition date, subject to certain conditions; and (iii) contingent consideration related to the achievement of certain performance targets with an estimated fair value of approximately $1.4 million, payable, if earned, 12 to 18 months after the acquisition date. Additionally, the transaction includes a stock consideration collar. See note 4 to our condensed consolidated financial statements.

On May 31, 2019, Ashford Inc. signed the Combination Agreement (which was subsequently amended on July 17, 2019) to acquire the Hotel Management business of Remington, a privately held company. The transaction, which is expected to close sometime in the fourth quarter of 2019, is subject to approval by Ashford Inc.’s stockholders, the receipt of an acceptable Private Letter Ruling (“PLR”) from the Internal Revenue Service and customary closing conditions. Under the terms of the agreement, Ashford Inc. will acquire Remington’s Hotel Management business for a purchase price of $275 million, payable by the issuance of $275 million of a new Series D Convertible Preferred Stock. In the previous transaction for Remington’s Project Management business, the sellers received $203 million of Series B Convertible Preferred Stock. For this transaction involving Remington’s Hotel Management business, that $203 million of Series B Convertible Preferred Stock will be exchanged for $203 million of Series D Convertible Preferred Stock (such that, after the transactions, $478 million of Series D Convertible Preferred Stock, and no Series B Convertible Preferred Stock, will be outstanding). The new Series D Convertible Preferred Stock will be convertible into shares of common stock at a price of $117.50 per share (a 164% premium to the ~~public~~closing price of ~~$74.50 per share, resulting~~Ashford’s common stock on the agreement date of May 31, 2019). Dividends on the Series D Convertible Preferred Stock will be payable at an annual rate of 6.59% in ~~gross proceeds of $20.1 million. The net proceeds from~~ the ~~sale~~first year, 6.99% in the second year, and 7.28% in the third year and each year thereafter. Voting rights of the ~~shares~~Series D Convertible Preferred Stock will be on an as-converted basis, and the holders of the Series D Convertible Preferred Stock will have a voting limit of 40% of the total voting power of Ashford Inc. until August 8, 2023. The holders of the Series D Convertible Preferred Stock have certain conversion rights upon certain events constituting a change of control of the Company. Remington is currently owned by Monty J. Bennett, Ashford Inc.’s Chairman and Chief Executive Officer, and his father, Archie Bennett, Jr., the Chairman Emeritus of Ashford Trust. Ashford Inc.’s Board of Directors formed a special committee of independent and disinterested directors to analyze, negotiate, and recommend the transaction to Ashford Inc.’s Independent Directors. Ashford Inc.’s Independent Directors have unanimously recommended approval of the acquisition by Ashford Inc.’s stockholders.

On July 1, 2019, the Company’s newly created subsidiary, AINC Bar Draught LLC (“Bar Draught”), acquired the assets of a provider of an innovative draft cocktail system technology for $250,000 cash and contingent consideration of up to $550,000 cash, if earned, 6 to 12 months after ~~discounts and commissions~~the acquisition date. After giving effect to the ~~underwriters~~transaction, Ashford Inc. will own an approximately 55% interest in Bar Draught, a provider of premium, mobile cocktails on tap and ~~offering expenses~~other services in the hospitality industry.

On July 18, 2019, RED completed the acquisition of substantially all of the assets of Sebago, a leading provider of watersports activities and excursion services based in Key West, Florida. After giving effect to the transaction, Ashford Inc. will own an approximately 84% interest in the common equity of RED. Ashford Inc. will continue to own an 80% interest in the entity that conducts RED’s legacy U.S. Virgin Islands operations. The purchase price consisted of approximately $2.5 million in cash (excluding transaction costs and working capital adjustments) funded by new RED term loans and $4.5 million in the form of Ashford Inc. common stock consisting of 135,366 shares issued July 18, 2019, subject to a six month stock consideration collar. The issued Ashford Inc. shares were determined using a 30-Day VWAP of $33.24 and had an estimated fair value of approximately ~~$18.1 million. We also sold an additional 10,000~~$4.5 million as of the acquisition date. Pursuant to the acquisition agreement, in the event that the 30-Day VWAP of the common stock on the six month anniversary of the closing date of the acquisition is lower than the price of the common stock on July 18, 2019, the Company may repurchase the stock at such lower stock price, such that the number of shares of common stock issued is reduced. In the event that the 30-Day VWAP of the common stock on the six month anniversary of the closing date of the acquisition is higher than the price of the common stock on July 18, 2019, the Company may repurchase shares of common stock at a price of $0.01 per share, such that the stock consideration for the transaction remains $4.5 million in common stock.

On July 19, 2019, each of Ashford Trust and Braemar filed an amendment to their Schedule 13Ds with the SEC. As disclosed in such filings, each party’s obligation to consummate the transactions contemplated by the Combination Agreement is subject to certain conditions, including, among other things: (i) the receipt of a PLR from the Internal Revenue Service that Ashford Hospitality Services LLC, a subsidiary of Ashford Inc., will not fail to qualify as an “eligible independent contractor” within the meaning of Section 856(d)(9)(A) of the Code with respect to specified clients solely as a result of (a) Ashford Hospitality Services LLC being a brother-sister affiliate of Ashford Hospitality Advisors LLC, or (b) the taxable REIT subsidiaries (within the meaning of Code Section 856(l) of such clients receiving specified incentives from Ashford Hospitality Advisors LLC; and (ii) the completion of the divestiture by Ashford Trust and Braemar of their securities of the Company in a manner that complies with the private letter ruling.

Each of Ashford Trust and Braemar, acting at the direction of a committee of independent directors of Ashford Trust and Braemar, respectively, who are independent within the meaning of applicable rules of the NYSE and do not have a material financial interest within the meaning of Section 2-419 of the Maryland General Corporation Law in the transactions contemplated by the Combination Agreement, intends, as of July 19, 2019, to vote or cause to be voted all of the shares beneficially owned by it in favor of each proposal presented to the ~~underwriters~~stockholders at the special meeting of stockholders to consider and vote upon on ~~October 10, 2018, in connection with~~ the ~~underwriters’ partial exercise~~transactions contemplated by the Combination Agreement; and, as of ~~their over-allotment option that had been granted~~July 19, 2019, intends to ~~them in connection with~~divest (or cause the ~~transaction. The net proceeds from the sale~~divestiture) of all of the ~~over-allotment shares after discounts and commissions to the underwriters were approximately $700,000.~~

~~On October 31, 2018,~~securities of Ashford Inc. beneficially owned by each of Ashford Trust ~~acquired~~and Braemar as required by the La Posada de Santa Fe (“La Posada”) in Santa Fe, New Mexico, for a purchase price of $50 million. Under the ERFP Agreement, the Company is obligated to provide Ashford Trust 10% of the acquired hotel’s purchase priceclosing conditions set forth in the form of FF&E acquired by the Company, which is subsequently leased to Ashford Trust rent-free. In connection with Ashford Trust’s acquisition of La Posada, and subject to the terms of the ERFP Agreement, the Company is obligated to provide Ashford Trust with approximately $5.0 million in exchange for FF&E at Ashford Trust properties.Combination Agreement.

Discussion of Presentation

The discussion below relates to the financial condition and results of operations of Ashford Inc. and entities which it controls. The historical financial information is not necessarily indicative of our future results of operations, financial position and cash flows.

RESULTS OF OPERATIONS

Three Months Ended ~~September~~June 30, ~~2018~~2019 Compared to Three Months Ended ~~September~~June 30, ~~2017~~2018

The following table summarizes the changes in key line items from our condensed consolidated statements of operations for the three months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018 (in thousands):


	Three Months Ended September 30,						Favorable (Unfavorable)					Three Months Ended June 30,						Favorable (Unfavorable)
	2018			2017			$ Change			% Change		2019			2018			$ Change			% Change
REVENUE
Advisory services	$	21,016		$	17,357		$	3,659		21.1	%	$	21,220		$	24,570		$	(3,350	)	(13.6	)%
Audio visual	14,526			—			14,526					30,127			23,376			6,751			28.9	%
Project management	3,616			—			3,616					7,700			—			7,700
Other	2,407			1,898			509			26.8	%	4,419			6,865			(2,446		)	(35.6	)%
Total revenue	41,565			19,255			22,310			115.9	%	63,466			54,811			8,655			15.8	%
EXPENSES
Salaries and benefits	21,851			16,750			(5,101		)	(30.5	)%	18,157			15,710			(2,447		)	(15.6	)%
Cost of revenues for audio visual	14,392			—			(14,392		)			22,229			17,021			(5,208		)	(30.6	)%
Cost of revenues for project management	1,189			—			(1,189		)			2,697			—			(2,697		)
Depreciation and amortization	2,972			581			(2,391		)	(411.5	)%	4,934			1,193			(3,741		)	(313.6	)%
General and administrative	12,231			3,897			(8,334		)	(213.9	)%	11,368			9,125			(2,243		)	(24.6	)%
Impairment	—			—			—					—			—			—
Other	434			367			(67		)	(18.3	)%	3,138			892			(2,246		)	(251.8	)%
Total expenses	53,069			21,595			(31,474		)	(145.7	)%	62,523			43,941			(18,582		)	(42.3	)%
OPERATING INCOME (LOSS)	(11,504		)	(2,340		)	(9,164		)	(391.6	)%	943			10,870			(9,927		)	(91.3	)%
Equity in earnings (loss) of unconsolidated entities												(298		)	—			(298		)
Interest expense	(289		)	(5		)	(284		)	(5,680.0	)%	(445		)	(161		)	(284		)	(176.4	)%
Amortization of loan costs	(130		)	(15		)	(115		)	(766.7	)%	(70		)	(24		)	(46		)	(191.7	)%
Interest income	103			82			21			25.6	%	9			73			(64		)	(87.7	)%
Other income (expense)	(78		)	(5		)	(73		)	(1,460.0	)%	(42		)	(221		)	179			81.0	%
INCOME (LOSS) BEFORE INCOME TAXES	(11,898		)	(2,283		)	(9,615		)	(421.2	)%	97			10,537			(10,440		)	(99.1	)%
Income tax (expense) benefit	13,904			25			13,879			55,516.0	%	(426		)	(1,605		)	1,179			73.5	%
NET INCOME (LOSS)	2,006			(2,258		)	4,264			188.8	%	(329		)	8,932			(9,261		)	(103.7	)%
(Income) loss from consolidated entities attributable to noncontrolling interests	413			102			311			304.9	%	131			118			13			11.0	%
Net (income) loss attributable to redeemable noncontrolling interests	968			300			668			222.7	%	310			(90		)	400			444.4	%
NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY	$	3,387		$	(1,856	)	$	5,243		282.5	%	$	112		$	8,960		$	(8,848	)	(98.8	)%
Preferred dividends	(1,675		)	—			(1,675		)			(2,791		)	—			(2,791		)
Amortization of preferred stock discount	(303		)	—			(303		)			(484		)	—			(484		)
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS	$	1,409		$	(1,856	)	$	3,265		175.9	%	$	(3,163	)	$	8,960		$	(12,123	)	(135.3	)%

Net Income (Loss) Attributable to Common Stockholders. Net income (loss) attributable to common stockholders ~~increased $3.3~~changed $12.1 million, or ~~175.9%~~135.3%, to ~~$1.4~~$3.2 million loss for the three months ended ~~September~~June 30, ~~2018~~2019 (“the ~~2018~~2019 quarter”) compared to the three months ended ~~September~~June 30, ~~2017~~2018 (“the ~~2017~~2018 quarter”) as a result of the factors discussed below.

Total Revenue. Total revenue increased ~~$22.3~~$8.7 million, or ~~115.9%~~15.8%, to ~~$41.6~~$63.5 million for the ~~2018~~2019 quarter compared to the ~~2017~~2018 quarter due to the following (in thousands):


	Three Months Ended September 30,				Favorable (Unfavorable)					Three Months Ended June 30,				Favorable (Unfavorable)
	2018		2017		$ Change			% Change		2019		2018		$ Change			% Change
Advisory services revenue:
Base advisory fee ⁽¹⁾	$	11,655	$	10,868	$	787		7.2	%	$	11,190	$	11,174	$	16		0.1	%
Incentive advisory fee ⁽²⁾	452		771		(319		)	(41.4	)%	169		452		(283		)	(62.6	)%
Reimbursable expenses ⁽³⁾	2,607		2,143		464			21.7	%	3,220		2,496		724			29.0	%
Non-cash stock/unit-based compensation ⁽⁴⁾	6,170		3,443		2,727			79.2	%	6,511		10,318		(3,807		)	(36.9	)%
Other advisory revenue ⁽⁵⁾	132		132		—			—	%	130		130		—			—	%
Total advisory services revenue ⁽¹¹⁾	21,016		17,357		3,659			21.1	%
Total advisory services revenue ⁽¹³⁾										21,220		24,570		(3,350		)	(13.6	)%

Audio visual revenue ⁽⁶⁾	14,526		—		14,526					30,127		23,376		6,751			28.9	%

Project management revenue ⁽¹⁴⁾	3,616		—		3,616
Project management revenue ⁽⁷⁾										7,700		—		7,700

Other revenue:
Investment management reimbursements ^{(7) (11)}	339		522		(183		)	(35.1	)%
Debt placement fees ^{(8) (11)}	350		225		125			55.6	%
Claims management services ^{(11) (12)}	48		—		48
Lease revenue ^{(9) (11)}	251		251		—			—	%
Other services ⁽¹⁰⁾	1,419		900		519			57.7	%
Investment management reimbursements ^{(8) (13)}										337		329		8			2.4	%
Debt placement fees ⁽⁹⁾										79		4,959		(4,880		)	(98.4	)%
Claims management services ^{(10) (13)}										55		50		5			10.0	%
Lease revenue ^{(11) (13)}										1,029		251		778			310.0	%
Other services ⁽¹²⁾										2,919		1,276		1,643			128.8	%
Total other revenue	2,407		1,898		509			26.8	%	4,419		6,865		(2,446		)	(35.6	)%

Total revenue	$	41,565	$	19,255	$	22,310		115.9	%	$	63,466	$	54,811	$	8,655		15.8	%

REVENUE BY SEGMENT ⁽¹³⁾
REVENUE BY SEGMENT ⁽¹⁴⁾
REIT advisory	$	22,006	$	18,355	$	3,651		19.9	%	$	22,641	$	25,198	$	(2,557	)	(10.1	)%
Premier	3,616		—		3,616					7,700		—		7,700
J&S	14,526		—		14,526
JSAV										30,127		23,376		6,751			28.9	%
OpenKey	301		72		229			318.1	%	194		153		41			26.8	%
Corporate and other	1,116		828		288			34.8	%	2,804		6,084		(3,280		)	(53.9	)%
Total revenue	$	41,565	$	19,255	$	22,310		115.9	%	$	63,466	$	54,811	$	8,655		15.8	%

________


⁽¹⁾	The increase in base advisory fee is primarily due to ~~higher~~lower revenue of ~~$577,000~~$447,000 from Ashford Trust and higher revenue of ~~$210,000~~$463,000 from Braemar.

⁽²⁾

The decrease in incentive advisory fee is due to lower revenue of ~~$319,000~~$452,000 from Ashford Trust, partially offset by higher revenue of $169,000 from Braemar. The $169,000 of incentive advisory fee recognized in the 2019 quarter includes the pro-rata portion of the second year installment of the Braemar 2018 incentive advisory fee which will be paid in January 2020. The incentive advisory fee for the 2018 quarter includes the pro-rata portion of the third year installment of the Ashford Trust 2016 incentive advisory fee in the amount of $452,000, for which payment is due January 2019. The incentive advisory fee for the 2017 quarter includes the pro-rata portion of the second year installment of the Ashford Trust 2016 incentive advisory fee in the amount of $452,000, which was paid in January ~~2018, as well as the pro-rata portion of the third year installment of the Braemar 2015 incentive advisory fee in the amount of $318,000, which was also paid in January 2018.~~2019. Incentive fee payments are subject to meeting the December 31 FCCR Condition each year, as defined in our advisory agreements. Ashford Trust's annual total stockholder return did not meet the relevant incentive fee thresholds during the ~~2017~~2018 and ~~2015~~2017 measurement periods. Braemar's annual total stockholder return did not meet the relevant incentive fee thresholds during the 2017 and 2016 measurement periods.

⁽³⁾

The increase in reimbursable expenses revenue is due to higher revenue of ~~$446,000~~$661,000 from Ashford Trust and higher revenue of ~~$18,000~~$63,000 from Braemar. Reimbursable expenses include overhead, internal audit, risk management advisory and asset management services. During the three months ended ~~September~~June 30, ~~2017,~~2019, we recognized ~~deferred~~ income from reimbursable expenses related to software implementation costs from Ashford Trust and Braemar of $491,000 and $36,000, respectively. During

the three months ended June 30, 2018, we recognized income from reimbursable expenses related to software implementation costs from Ashford Trust and Braemar of ~~$202,000~~$384,000 and ~~$15,000,~~$29,000, respectively. See note 1415 to our condensed consolidated financial statements.

⁽⁴⁾

The ~~increase~~decrease in non-cash stock/unit-based compensation revenue is due to ~~higher~~lower revenue of ~~$463,000~~$4.4 million from Ashford Trust and higher revenue of ~~$2.3 million~~$585,000 from Braemar. Non-cash stock/unit-based compensation revenue is associated with equity grants of Ashford Trust’s and Braemar’s common stock and LTIP units awarded to officers and employees of Ashford Inc. for which we recorded an offsetting expense in an equal amount included in “salaries and benefits.”

⁽⁵⁾

Other advisory revenue ~~relates to $132,000~~remained steady. Other advisory revenue from Braemar asis a result of the $5.0 million cash payment received upon stockholder approval of the Fourth Amended and Restated Braemar Advisory Agreement in June 2017. The payment is included in “deferred income” on our condensed consolidated balance sheet and is being recognized on a quarterly basis over the initial ten-year term of the agreement.


⁽⁶⁾	The $6.8 million increase in audio visual revenue is due to ~~our~~the growth of JSAV and JSAV’s acquisition of ~~J&S~~BAV in ~~November 2017.~~March 2019.


⁽⁷⁾	The ~~decrease~~increase in project management revenue is due to our acquisition of Premier in August 2018.


⁽⁸⁾	The increase in investment management reimbursements is due to ~~lower~~higher revenue of ~~$183,000~~$8,000 from Ashford Trust. Investment management reimbursements include AIM’s management of Ashford Trust’s excess cash under the Investment Management Agreement executed in 2017. AIM is not compensated for its services but is reimbursed for all costs and expenses.


⁽⁸⁾⁽⁹⁾	The ~~increase~~decrease in debt placement fee revenue is due to ~~higher~~lower revenue of ~~$350,000~~$3.9 million from Ashford Trust and lower revenue of ~~$225,000~~$1.0 million from Braemar. Debt placement fees ~~include revenues~~are earned ~~from~~by Lismore for providing debt placement ~~services by Lismore Capital, our wholly-owned subsidiary.~~services.


^(9)(10)	Claims management services include revenues earned from providing insurance claim assessment and administration services.

⁽¹¹⁾

In connection with our ERFP Agreements and legacy key money ~~transactions~~transaction with ~~our managed REITs,~~Ashford Trust and Braemar, we lease FF&E to Ashford Trust and Braemar rent-free. AConsistent with our accounting treatment prior to adopting ASC 842, a portion of the base advisory fee for leases, which commenced prior to our adoption, is allocated to lease revenue each period equal to the estimated fair value of the lease payments that would have been made.

^(10)(12)

The increase in other services revenue is due to ~~lower~~higher revenue of ~~$25,000~~$22,000 from Ashford Trust, higher revenue of ~~$180,000~~$71,000 from Braemar and higher revenue of ~~$364,000~~$1.6 million from third parties. Other services revenue relates to other hotel services provided by our consolidated subsidiaries, OpenKey, RED and Pure ~~Rooms, OpenKey and RED,~~Wellness, to Ashford Trust, Braemar and other third parties.


^(11)(13)	Indicates REIT advisory revenue.


⁽¹²⁾	~~Claims management services include revenues earned from providing insurance claim assessment and administration services.~~


^(13)(14)	See note 1617 for discussion of segment reporting.


⁽¹⁴⁾	~~The increase in project management revenue is due to our acquisition of Premier in August 2018.~~

Salaries and Benefits Expense. Salaries and benefits expense increased ~~$5.1~~$2.4 million, or ~~30.5%~~15.6%, to ~~$21.9~~$18.2 million for the ~~2018~~2019 quarter compared to the ~~2017~~2018 quarter. The change in salaries and benefits expense consisted of the following (in thousands):


	Three Months Ended September 30,							Three Months Ended June 30,
	2018		2017		$ Change			2019			2018			$ Change
Cash salaries and benefits:
Salary expense	$	6,960	$	5,286	$	1,674		$	9,242		$	5,764		$	3,478
Bonus expense	2,959		3,467		(508		)	3,235			3,074			161
Benefits related expenses	1,474		649		825			1,877			1,012			865
Total cash salaries and benefits ⁽¹⁾	11,393		9,402		1,991			14,354			9,850			4,504
Non-cash equity-based compensation:
Stock option grants	1,951		1,899		52			2,037			1,917			120
Ashford Trust & Braemar equity grants ⁽²⁾	6,233		3,443		2,790			6,583			10,318			(3,735		)
Total non-cash equity-based compensation	8,184		5,342		2,842			8,620			12,235			(3,615		)
Non-cash (gain) loss in deferred compensation plan ⁽³⁾	2,274		2,006		268			(4,817		)	(6,375		)	1,558
Total salaries and benefits	$	21,851	$	16,750	$	5,101		$	18,157		$	15,710		$	2,447

________


⁽¹⁾	The change in cash salaries and benefits expense is primarily due to fluctuations in the number of employees, salary and bonus awards, group insurance costs, payroll taxes and employee participation in the benefits offered. ~~The acquisition of J&S in November 2017 contributed $1.6 million to the increase over the 2017 quarter.~~

⁽²⁾


⁽³⁾	The DCP obligation is recorded as a liability at fair value with changes in fair value reflected in earnings. ~~Losses~~Gains in the ~~third~~second quarter of ~~2018~~2019 and ~~2017~~2018 are primarily attributable to ~~an increase~~a decrease in the fair value of the DCP obligation. See note 1314 to our condensed consolidated financial statements.

Cost of Revenues for Audio Visual. Cost of revenues for audio visual was ~~$14.4~~$22.2 million during the ~~2018~~2019 quarter compared to $0$17.0 million for the ~~2017~~2018 quarter, due to ~~costs associated with audio visual revenues from~~ the growth of JSAV and JSAV’s acquisition of ~~J&S which occurred~~BAV in ~~November 2017.~~March of 2019.

Cost of Revenues for Project Management. Cost of revenues for project management was ~~$1.2~~$2.7 million during the ~~2018~~2019 quarter compared to $0 for the ~~2017~~2018 quarter, due to costs associated with project management revenues from the acquisition of Premier ~~which occurred~~ in August 2018.

Depreciation and Amortization Expense. Depreciation and amortization expense increased ~~$2.4~~$3.7 million, or ~~411.5%~~313.6%, to ~~$3.0~~$4.9 million for the ~~2018~~2019 quarter compared to the ~~2017~~2018 quarter, primarily as a result of ~~the~~$2.7 million in amortization ~~of the Premier and J&S definite-lived intangible assets. The increase was also due to additions related to software implementation and FF&E~~ related to the ~~November 2017 J&S acquisition.~~acquisition Premier’s definite-lived intangible assets in August of 2018 and $975,000 of depreciation related to ERFP assets. See note 4 to our condensed consolidated financial statements. Depreciation and amortization expense for the 2019 quarter and the 2018 quarter excludes depreciation expense related to audio visual ~~rental pool~~ equipment of ~~$1.6~~$1.2 million and $689,000, respectively, which is included in ~~cost~~“cost of revenues for audio ~~visual.~~visual” and also excludes depreciation expense for the 2019 quarter related to marine vessels and other vehicles in the amount of $85,000 and $7,000, respectively, which is included in “other” operating expense.

General and Administrative Expense. General and administrative expenses increased ~~$8.3~~$2.2 million, or ~~213.9%~~24.6%, to ~~$12.2~~$11.4 million for the ~~2018~~2019 quarter compared to the ~~2017~~2018 quarter. The change in general and administrative expense consisted of the following (in thousands):


	Three Months Ended September 30,							Three Months Ended June 30,
	2018		2017		$ Change			2019		2018		$ Change
Professional fees ⁽¹⁾	$	7,464	$	2,023	$	5,441		$	4,980	$	4,495	$	485
Office expense⁽²⁾	2,590		863		1,727			2,647		2,211		436
Public company costs	252		254		(2		)	290		301		(11		)
Director costs	284		192		92			860		610		250
Travel and other expense⁽²⁾⁽³⁾	1,641		511		1,130			2,271		1,490		781
Non-capitalizable costs - software implementation	—		54		(54		)
Non-capitalizable - software costs								320		18		302
Total general and administrative	$	12,231	$	3,897	$	8,334		$	11,368	$	9,125	$	2,243

________


⁽¹⁾	The increase in expense is primarily due to increases in legal fees and transaction costs related to the acquisition of the Hotel Management business of Remington offset by a decrease in similar expenses related to the acquisition of Premier ~~and our investments~~ in ~~J&S and RED.~~August of 2018.


⁽²⁾²⁾	The increase in expense is primarily due to increased rent expense from our acquisition of Premier in August of 2018.


³⁾	The increase in expense is due to our acquisition of Premier in August of 2018 and increased investments in ~~Premier, J&S~~JSAV and RED. See notes 4 and 18 to our condensed consolidated financial statements.

Other. Other operating expense was ~~$434,000~~$3.1 million and ~~$367,000~~$892,000 for the ~~2018~~2019 quarter and the ~~2017~~2018 quarter, respectively. Other operating expense includes cost of goods sold and royalties associated with OpenKey, RED and Pure ~~Rooms and RED~~Wellness as well as $1.6 million in expense from changes in the fair value of contingent consideration related to JSAV’s acquisition of BAV in March 2019. See notes 4 and 8to our condensed consolidated financial statements.

Equity in Earnings (Loss) of Unconsolidated Entities. Equity in loss of unconsolidated entities changed $298,000 for the ~~J&S acquisition.~~2019 quarter due to our investment in REA Holdings in January of 2019. See ~~note 7~~notes 1 and 2 to our condensed consolidated financial statements.

Interest Expense. Interest expense was ~~$289,000~~$445,000 and ~~$5,000~~$161,000 for the ~~2018~~2019 quarter and the ~~2017~~2018 quarter, respectively, related to the notes payable, lines of credit and capital leases held by our consolidated subsidiaries. See notes 2 and 6 to our condensed consolidated financial statements.

Amortization of Loan Costs. Amortization of loan costs was ~~$130,000~~$70,000 and ~~$15,000~~$24,000 for the ~~2018~~2019 quarter and the ~~2017~~2018 quarter, respectively, related to the notes payable and lines of credit held by our consolidated subsidiaries. See notes 2 and 6 to our condensed consolidated financial statements.

Interest Income. Interest income was ~~$103,000~~$9,000 and ~~$82,000~~$73,000 for the ~~2018~~2019 quarter and the ~~2017~~2018 quarter, respectively.

Other Income (Expense). Other expense was ~~$78,000~~$42,000 and ~~$5,000~~$221,000 in the ~~2018~~2019 quarter and the ~~2017~~2018 quarter, respectively.

Income Tax (Expense) Benefit. Income tax ~~benefit increased $13.9~~expense decreased $1.2 million, from ~~$25,000 in the 2017 quarter to $13.9~~$1.6 million in the 2018 quarter to $426,000 in the 2019 quarter. Current tax expense ~~increased $595,000,~~decreased $1.1 million, from ~~$605,000 in the 2017 quarter to $1.2~~$1.6 million ~~expense~~ in the 2018 quarter to $481,000 expense in the 2019 quarter, primarily due to ~~foreign~~a decrease in pretax income ~~taxes related to J&S.~~and an increase in tax bonus depreciation taken on purchases of furniture, fixtures and equipment under the Ashford Trust and Braemar ERFP Agreements. Deferred tax benefit increased ~~$14.5 million~~$56,000 from ~~$630,000 benefit in the 2017 quarter to $15.1 million benefit~~$0 in the 2018 quarter ~~primarily~~to $56,000 benefit in the 2019 quarter. The 2018 period did not record any deferred expense due to the April 2017 legal entity restructuring of the Company, as a result of which, a full valuation allowance was established. In the third quarter of 2018, the valuation allowance was released due to the acquisition of ~~Premier in the 2018 quarter, which resulted in the reversal of the valuation allowance on our deferred tax assets in the 2018 quarter. See note 2 to our condensed consolidated financial statements.~~Premier.

(Income) Loss from Consolidated Entities Attributable to Noncontrolling Interests. The noncontrolling interests in consolidated entities were allocated a loss of ~~$413,000~~$131,000 in the ~~2018~~2019 quarter and ~~$102,000~~a loss of $118,000 in the ~~2017~~2018 quarter. See notes 2, 1011 and 1415 to our condensed consolidated financial statements for more details regarding ownership interests, carrying values and allocations.

Net (Income) Loss Attributable to Redeemable Noncontrolling Interests. The redeemable noncontrolling interests were allocated a loss of ~~$968,000~~$310,000 in the ~~2018~~2019 quarter and ~~a loss~~income of ~~$300,000~~$90,000 in the ~~2017~~2018 quarter. Redeemable noncontrolling interests represented ownership interests in Ashford Holdings and certain of our consolidated subsidiaries. See note 1 to our condensed

consolidated financial statements. For a summary of ownership interests, carrying values and allocations, see notes 2, ~~11,~~12, and 1415 to our condensed consolidated financial statements.

Preferred Dividends. The preferred dividends increased $2.8 million from the 2018 quarter due to the issuance of the Series B Convertible Preferred Stock in the acquisition of Premier in August 2018.

Amortization of Preferred Stock Discount. The amortization of preferred stock discount dividends increased $484,000 from the 2018 quarter due to the discount on the Series B Convertible Preferred Stock issued to acquire Premier in August 2018.

~~Nine~~Six Months Ended ~~September~~June 30, ~~2018~~2019 Compared to ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2018

The following table summarizes the changes in key line items from our condensed consolidated statements of operations for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018 (in thousands):


	Nine Months Ended September 30,						Favorable (Unfavorable)					Six Months Ended June 30,						Favorable (Unfavorable)
	2018			2017			$ Change			% Change		2019			2018			$ Change			% Change
REVENUE
Advisory services	$	68,118		$	47,960		$	20,158		42.0	%	$	40,407		$	47,102		$	(6,695	)	(14.2	)%
Audio visual	61,212			—			61,212					61,102			46,686			14,416			30.9	%
Project management	3,616			—			3,616					15,490			—			15,490
Other	11,598			3,947			7,651			193.8	%	9,787			9,191			596			6.5	%
Total revenue	144,544			51,907			92,637			178.5	%	126,786			102,979			23,807			23.1	%
EXPENSES
Salaries and benefits	64,078			39,146			(24,932		)	(63.7	)%	40,857			42,227			1,370			3.2	%
Cost of revenues for audio visual	48,000			—			(48,000		)			43,668			33,608			(10,060		)	(29.9	)%
Cost of revenues for project management	1,189			—			(1,189		)			5,488			—			(5,488		)
Depreciation and amortization	5,205			1,636			(3,569		)	(218.2	)%	9,461			2,233			(7,228		)	(323.7	)%
General and administrative	27,651			12,493			(15,158		)	(121.3	)%	19,350			15,420			(3,930		)	(25.5	)%
Impairment	1,919			1,072			(847		)	(79.0	)%	—			1,919			1,919			100.0	%
Other	2,172			618			(1,554		)	(251.5	)%	4,477			1,738			(2,739		)	(157.6	)%
Total expenses	150,214			54,965			(95,249		)	(173.3	)%	123,301			97,145			(26,156		)	(26.9	)%
OPERATING INCOME (LOSS)	(5,670		)	(3,058		)	(2,612		)	(85.4	)%	3,485			5,834			(2,349		)	(40.3	)%
Equity in earnings (loss) of unconsolidated entities												(573		)	—			(573		)
Interest expense	(593		)	(10		)	(583		)	(5,830.0	)%	(742		)	(304		)	(438		)	(144.1	)%
Amortization of loan costs	(177		)	(25		)	(152		)	(608.0	)%	(139		)	(47		)	(92		)	(195.7	)%
Interest income	288			153			135			88.2	%	29			185			(156		)	(84.3	)%
Dividend income	—			93			(93		)	(100.0	)%
Unrealized gain (loss) on investments	—			203			(203		)	(100.0	)%
Realized gain (loss) on investments	—			(294		)	294			100.0	%
Other income (expense)	(338		)	(26		)	(312		)	(1,200.0	)%	(95		)	(260		)	165			63.5	%
INCOME (LOSS) BEFORE INCOME TAXES	(6,490		)	(2,964		)	(3,526		)	(119.0	)%	1,965			5,408			(3,443		)	(63.7	)%
Income tax (expense) benefit	11,593			(9,248		)	20,841			225.4	%	(1,726		)	(2,311		)	585			25.3	%
NET INCOME (LOSS)	5,103			(12,212		)	17,315			141.8	%	239			3,097			(2,858		)	(92.3	)%
(Income) loss from consolidated entities attributable to noncontrolling interests	704			267			437			163.7	%	294			291			3			1.0	%
Net (income) loss attributable to redeemable noncontrolling interests	817			995			(178		)	(17.9	)%	289			(151		)	440			291.4	%
NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY	6,624			(10,950		)	17,574			160.5	%	822			3,237			(2,415		)	(74.6	)%
Preferred dividends	(1,675		)	—			(1,675		)			(5,583		)	—			(5,583		)
Amortization of preferred stock discount	(303		)	—			(303		)			(975		)	—			(975		)
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS	$	4,646		$	(10,950	)	$	15,596		142.4	%	$	(5,736	)	$	3,237		$	(8,973	)	(277.2	)%

Net Income (Loss) Attributable to Common Stockholders. Net income (loss) attributable to common stockholders ~~increased by $15.6~~changed $9.0 million, or ~~142.4%~~277.2%, to ~~$4.6~~$5.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 (“the ~~2018~~2019 period”) compared to the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 (“the ~~2017~~2018 period”) as a result of the factors discussed below.

Total Revenue. Total revenue increased by ~~$92.6~~$23.8 million, or ~~178.5%~~23.1%, to ~~$144.5~~$126.8 million for the ~~2018~~2019 period compared to the ~~2017~~2018 period due to the following (in thousands):


	Nine Months Ended September 30,				Favorable (Unfavorable)					Six Months Ended June 30,				Favorable (Unfavorable)
	2018		2017		$ Change			% Change		2019		2018		$ Change			% Change
Advisory services revenue:
Base advisory fee ⁽¹⁾	$	33,540	$	32,599	$	941		2.9	%	$	21,812	$	21,885	$	(73	)	(0.3	)%
Incentive advisory fee ⁽²⁾	1,356		2,312		(956		)	(41.3	)%	339		904		(565		)	(62.5	)%
Reimbursable expenses ⁽³⁾	7,052		7,454		(402		)	(5.4	)%	5,729		4,445		1,284			28.9	%
Non-cash stock/unit-based compensation ⁽⁴⁾	25,780		5,449		20,331			373.1	%	12,269		19,610		(7,341		)	(37.4	)%
Other advisory revenue ⁽⁵⁾	390		146		244			167.1	%	258		258		—			—	%
Total advisory services revenue ⁽¹¹⁾	68,118		47,960		20,158			42.0	%
Total advisory services revenue ⁽¹³⁾										40,407		47,102		(6,695		)	(14.2	)%

Audio visual revenue ⁽⁶⁾	61,212		—		61,212					61,102		46,686		14,416			30.9	%

Project management revenue ⁽¹⁴⁾	3,616		—		3,616
Project management revenue ⁽⁷⁾										15,490		—		15,490

Other revenue:
Investment management reimbursements ^{(7) (11)}	850		1,482		(632		)	(42.6	)%
Debt placement fees ^{(8) (11)}	5,941		225		5,716			2,540.4	%
Claims management services ^{(11) (12)}	153		—		153
Lease revenue ^{(9) (11)}	754		642		112			17.4	%
Other services ⁽¹⁰⁾	3,900		1,598		2,302			144.1	%

Investment management reimbursements ^{(8) (13)}										695		511		184			36.0	%
Debt placement fees ⁽⁹⁾										1,433		5,591		(4,158		)	(74.4	)%
Claims management services ^{(10) (13)}										96		105		(9		)	(8.6	)%
Lease revenue ^{(11) (13)}										2,059		503		1,556			309.3	%
Other services ⁽¹²⁾										5,504		2,481		3,023			121.8	%
Total other revenue	11,598		3,947		7,651			193.8	%	9,787		9,191		596			6.5	%

Total revenue	$	144,544	$	51,907	$	92,637		178.5	%	$	126,786	$	102,979	$	23,807		23.1	%

REVENUE BY SEGMENT ⁽¹³⁾
REVENUE BY SEGMENT ⁽¹⁴⁾
REIT advisory	$	75,816	$	50,309	$	25,507		50.7	%	$	43,257	$	48,221	$	(4,964	)	(10.3	)%
Premier	3,616		—		3,616					15,490		—		15,490
J&S	61,212		—		61,212
JSAV										61,102		46,686		14,416			30.9	%
OpenKey	773		140		633			452.1	%	451		472		(21		)	(4.4	)%
Corporate and other	3,127		1,458		1,669			114.5	%	6,486		7,600		(1,114		)	(14.7	)%
Total revenue	$	144,544	$	51,907	$	92,637		178.5	%	$	126,786	$	102,979	$	23,807		23.1	%

________


⁽¹⁾	The ~~increase~~decrease in base advisory fee is due to ~~higher~~lower revenue of ~~$591,000~~$1.0 million from Ashford Trust and higher revenue of ~~$350,000~~$933,000 from Braemar.

⁽²⁾

The decrease in incentive advisory fee is due to lower revenue of ~~$956,000~~$904,000 from Ashford Trust, partially offset by higher revenue of $339,000 from Braemar. The $339,000 of incentive advisory fee recognized in the 2019 period includes the pro-rata portion of the second year installment of the Braemar 2018 incentive advisory fee which will be paid in January 2020. The incentive advisory fee for the 2018 period includes the pro-rata portion of the third year installment of the Ashford Trust 2016 incentive advisory fee in the amount of $1.4 million for which payment is due January 2019. The incentive advisory fee for the 2017 period includes the pro-rata portion of the second year installment of the Ashford Trust 2016 incentive advisory fee in the amount of $1.4 million,$904,000, which was paid in January ~~2018, as well as the pro-rata portion of the third year installment of the Braemar 2015 incentive advisory fee in the amount of $956,000, which was also paid in January 2018.~~2019. Incentive fee payments are subject to meeting the December 31 FCCR Condition each year, as defined in our advisory agreements. Ashford Trust's annual total stockholder return did not meet the relevant incentive fee thresholds during the ~~2017~~2018 and ~~2015~~2017 measurement periods. Braemar's annual total stockholder return did not meet the relevant incentive fee thresholds during the 2017 and 2016 measurement periods.

⁽³⁾

The ~~decrease~~increase in reimbursable expenses revenue is due to ~~lower~~higher revenue of ~~$257,000~~$1.2 million from Ashford Trust and ~~lower~~higher revenue of ~~$145,000~~$111,000 from Braemar. Reimbursable expenses include overhead, internal audit, risk management advisory and asset ~~management services. During the nine months ended September 30, 2017, we recognized income from reimbursable expenses~~

management services. During the six months ended June 30, 2019, we recognized income from reimbursable expenses related to software implementation costs from Ashford Trust and Braemar of ~~$1.5~~$1.1 million and ~~$110,000, respectively, which was partially offset by~~$80,000, respectively. During the ~~impairment~~six months ended June 30, 2018, we recognized income from reimbursable expenses related to software implementation costs from Ashford Trust and Braemar of ~~the related capitalized software, as discussed in note 2 to our condensed consolidated financial statements, in the amount of $1.1 million.~~$586,000 and $44,000, respectively. See note 1415 to our condensed consolidated financial statements.

⁽⁴⁾

The ~~increase~~decrease in non-cash stock/unit-based compensation revenue is due to ~~higher~~lower revenue of ~~$12.8~~$6.8 million from Ashford Trust and ~~higher~~lower revenue of ~~$7.5 million~~$493,000 from Braemar. Non-cash stock/unit-based compensation revenue is associated with equity grants of Ashford Trust’s and Braemar’s common stock and LTIP units awarded to officers and employees of Ashford Inc. for which we recorded an offsetting expense in an equal amount included in “salaries and benefits.” During the 2018 period, $6.7 million of non-cash stock/unit-based compensation revenue, including $4.5 million and $2.2 million from Ashford Trust and Braemar, respectively, related to accelerated vesting, in accordance with the terms of the awards, as a result of the death of an executive in March 2018.

⁽⁵⁾

~~The increase in other~~Other advisory revenue ~~is due to higher~~remained steady. Other advisory revenue ~~of $244,000~~ from Braemar asis a result of the $5.0 million cash payment received upon stockholder approval of the Fourth Amended and Restated Braemar Advisory Agreement in June 2017. The payment is included in “deferred income” on our condensed consolidated balance sheet and is being recognized on a quarterly basis over the initial ten-year term of the agreement.


⁽⁶⁾	The ~~$61.2~~$14.4 million increase in audio visual revenue is due to ~~our~~the growth of JSAV and JSAV’s acquisition of ~~J&S~~BAV in ~~November 2017.~~March 2019.


⁽⁷⁾	The ~~decrease~~increase in project management revenue is due to our acquisition of Premier in August 2018.


⁽⁸⁾	The increase in investment management reimbursements is due to ~~lower~~higher revenue of ~~$632,000~~$184,000 from Ashford Trust. Investment management reimbursements include AIM’s management of Ashford Trust’s excess cash under the Investment Management Agreement executed in 2017. AIM is not compensated for its services but is reimbursed for all costs and expenses.

⁽⁸⁾⁽⁹⁾

The ~~increase~~decrease in debt placement fee revenue is due to ~~an unusually high volume of debt financings during the second quarter of 2018, primarily from Ashford Trust. We recorded higher~~lower revenue of ~~$4.9~~$3.4 million from Ashford Trust and ~~higher~~lower revenue of ~~$774,000~~$725,000 from Braemar. Debt placement fees ~~include revenues~~are earned ~~from~~by Lismore for providing debt placement ~~services by Lismore Capital, our wholly-owned subsidiary.~~


services.⁽⁹⁾	In connection with our key money transactions with our managed REITs, we lease FF&E to Ashford Trust and Braemar rent-free. A portion of the base advisory fee is allocated to lease revenue each period equal to the estimated fair value of the lease payments that would have been made.


⁽¹⁰⁾	The increase in other services revenue is due to higher revenue of $436,000 from Ashford Trust, higher revenue of $599,000 from Braemar and higher revenue of $1.3 million from third parties. Other services revenue relates to other hotel services provided by our consolidated subsidiaries, OpenKey, Pure Rooms and RED, to Ashford Trust, Braemar and other third parties.


⁽¹¹⁾	~~Indicates REIT advisory revenue.~~


⁽¹²⁾	Claims management services include revenues earned from providing insurance claim assessment and administration services.

⁽¹¹⁾

In connection with our ERFP Agreements and legacy key money transaction with Ashford Trust and Braemar, we lease FF&E to Ashford Trust and Braemar rent-free. Consistent with our accounting treatment prior to adopting ASC 842, a portion of the base advisory fee for leases, which commenced prior to our adoption, is allocated to lease revenue each period equal to the estimated fair value of the lease payments that would have been made.


⁽¹²⁾	The increase in other services revenue is due to higher revenue of $189,000 from Ashford Trust, higher revenue of $129,000 from Braemar and higher revenue of $2.7 million from third parties. Other services revenue relates to other hotel services provided by our consolidated subsidiaries, OpenKey, RED and Pure Wellness, to Ashford Trust, Braemar and other third parties.


⁽¹³⁾	~~See note 16 for discussion of segment reporting.~~Indicates REIT advisory revenue.


⁽¹⁴⁾	~~The increase in project management revenue is due to increased revenue~~See note 17 for discussion of ~~$3.6 million, as a result of our acquisition of Premier.~~segment reporting.

Salaries and Benefits Expense. Salaries and benefits expense ~~increased~~decreased by ~~$24.9~~$1.4 million, or ~~63.7%~~3.2%, to ~~$64.1~~$40.9 million for the ~~2018~~2019 period compared to the ~~2017~~2018 period. The change in salaries and benefits expense consisted of the following (in thousands):


	Nine Months Ended September 30,								Six Months Ended June 30,
	2018			2017		$ Change			2019			2018			$ Change
Cash salaries and benefits:
Salary expense	$	18,982		$	14,848	$	4,134		$	17,696		$	12,022		$	5,674
Bonus expense	10,508			6,718		3,790			6,755			7,549			(794		)
Benefits related expenses	4,660			2,338		2,322			3,923			3,186			737
Total cash salaries and benefits ⁽¹⁾	34,150			23,904		10,246			28,374			22,757			5,617
Non-cash equity-based compensation:
Stock option grants ⁽²⁾	7,625			5,436		2,189			4,188			5,674			(1,486		)
Pre spin-off Ashford Trust equity grants ⁽³⁾	—			684		(684		)
Ashford Trust & Braemar equity grants ⁽⁴⁾	25,843			5,449		20,394
Ashford Trust & Braemar equity grants ⁽³⁾									12,372			19,610			(7,238		)
Total non-cash equity-based compensation	33,468			11,569		21,899			16,560			25,284			(8,724		)
Non-cash (gain) loss in deferred compensation plan ⁽⁵⁾	(3,540		)	3,673		(7,213		)
Non-cash (gain) loss in deferred compensation plan ⁽⁴⁾									(4,077		)	(5,814		)	1,737
Total salaries and benefits	$	64,078		$	39,146	$	24,932		$	40,857		$	42,227		$	(1,370	)

________

⁽¹⁾

The change in cash salaries and benefits expense is primarily due to fluctuations in the number of employees, salary and bonus awards, group insurance costs, payroll taxes and employee participation in the benefits offered. Cash salaries and benefits recorded in the 2018 period included $1.3 million of severance costs and $716,000 of additional bonus expense recorded upon receiving approval from the board of directors in the first quarter of 2018. ~~The acquisition of J&S in November 2017 contributed $4.6 million to the increase over the 2017 period.~~


⁽²⁾	The ~~increase~~decrease is primarily due to $2.5 million of expense related to the accelerated vesting of stock option awards upon the death of one of our executive officers in March of 2018, in accordance with the terms of the awards, partially offset by forfeitures. See notes 2, 1213 and 1415 to our condensed consolidated financial statements.


⁽³⁾	As a result of our spin-off in 2014 from Ashford Trust, we assumed all of the unrecognized equity-based compensation associated with prior Ashford Trust equity grants. As a result, we continued to recognize equity-based compensation expense related to these grants through the final vesting date in April 2017. See notes 2 and 12 to our condensed consolidated financial statements.

⁽⁴⁾

Equity grants of Ashford Trust’s and Braemar’s common stock and LTIP units are awarded to our officers and employees as part of our advisory agreements with each company, for which we record offsetting revenue in an equal amount. The ~~increase~~decrease is primarily attributable to $6.7 million of compensation expense related to the accelerated vesting of equity awards upon the death of one of our executive officers in March of 2018, in accordance with the terms of the ~~awards.~~awards, partially offset by an increase in the fair value of equity grants. See notes 2 and 1213 to our condensed consolidated financial statements.


⁽⁵⁾⁽⁴⁾	The DCP obligation is recorded as a liability at fair value with changes in fair value reflected in earnings. The ~~gain~~gains in the ~~2018~~2019 period and the ~~loss in the 2017~~2018 period are primarily attributable to decreases ~~and increases, respectively,~~ in the fair value of the DCP obligation. See note 1314 to our condensed consolidated financial statements.

Cost of Revenues for Audio Visual. Cost of revenues for audio visual was ~~$48.0~~$43.7 million during the ~~2018~~2019 period compared to $0$33.6 million for the ~~2017~~2018 period, due to ~~new costs associated with new audio visual revenues from~~ the growth of JSAV and JSAV’s acquisition of ~~J&S which occurred~~BAV in ~~November 2017.~~March 2019.

Cost of Revenues for Project Management. Cost of revenues for project management was ~~$1.2~~$5.5 million during the ~~2018~~2019 period compared to $0 for the ~~2017~~2018 period, due to costs associated with project management revenues from the acquisition of Premier ~~which occurred~~ in August 2018.

Depreciation and Amortization Expense. Depreciation and amortization expense increased by ~~$3.6~~$7.2 million, or ~~218.2%~~323.7%, to ~~$5.2~~$9.5 million for the ~~2018~~2019 period compared to the ~~2017~~2018 period, primarily as a result of $5.5 million in amortization related to the ~~amortization~~acquisition of ~~the Premier and J&S~~Premier’s definite-lived intangible assets ~~as well as FF&E additions~~in August of 2018 and $1.6 million depreciation related to ~~software implementation, key money assets and the November 2017 J&S acquisition.~~ERFP assets. See note 4 to our condensed consolidated financial statements. Depreciation and amortization expense for the 2019 period and the 2018 period excludes depreciation expense related to audio visual equipment of ~~$2.9~~$2.2 million and $1.3 million, respectively, which is included in ~~cost~~“cost of revenues for audio ~~visual.~~visual” and also excludes depreciation expense for the 2019 period related to marine vessels and other vehicles in the amount of $149,000 and $14,000, respectively, which is included in “other” operating expense.

General and Administrative Expense. General and administrative expenses increased by ~~$15.2~~$3.9 million, or ~~121.3%~~25.5%, to ~~$27.7~~$19.4 million for the ~~2018~~2019 period compared to the ~~2017~~2018 period. The change in general and administrative expense consisted of the following (in thousands):


	Nine Months Ended September 30,							Six Months Ended June 30,
	2018		2017		$ Change			2019		2018		$ Change
Professional fees ⁽¹⁾	$	14,446	$	6,546	$	7,900		$	7,484	$	6,981	$	503
Office expense⁽²⁾	6,751		2,388		4,363			5,338		4,160		1,178
Public company costs	782		829		(47		)	558		531		27
Director costs	1,149		735		414			1,122		885		237
Travel and other expense⁽²⁾⁽³⁾	4,461		1,847		2,614			4,240		2,818		1,422
Non-capitalizable costs - software implementation	62		148		(86		)
Non-capitalizable - software costs								608		45		563
Total general and administrative	$	27,651	$	12,493	$	15,158		$	19,350	$	15,420	$	3,930

________


⁽¹⁾	The increase in expense is primarily due to increases in legal fees and transaction costs related to the acquisition of the Hotel Management business of Remington offset by a decrease in similar expenses related to the acquisition of Premier ~~development and execution~~in August of ~~our ERFP program and our investments in J&S and RED.~~2018.


⁽²⁾²⁾	The increase in expense is primarily due to increased rent expense from our acquisition of Premier in August of 2018.


³⁾	The increase in expense is due to our acquisition of Premier in August of 2018 and increased investments in ~~Premier, J&S~~JSAV and RED. See notes 4 and 18 to our condensed consolidated financial statements.

Impairment. Impairment of capitalized software implementation costs was ~~$1.9 million~~$0 during the ~~2018~~2019 period compared to ~~$1.1~~$1.9 million for the ~~2017~~2018 period. The impairment in 2018 was recognized upon determination that a portion of capitalized software that was not eligible for reimbursement would not be placed into service. See notes 2 and 1415 to our condensed consolidated financial statements.

Other. Other operating expense was ~~$2.2~~$4.5 million and ~~$618,000~~$1.7 million for the ~~2018~~2019 period and the ~~2017~~2018 period, respectively. Other operating expense includes cost of goods sold and royalties associated with OpenKey, RED, and Pure ~~Rooms and RED~~Wellness as well as $1.6 million in expense from the ~~increase~~changes in the fair value of contingent consideration related to JSAV’s acquisition of BAV in March 2019. See notes 4 and 8to our condensed consolidated financial statements.

Equity in Earnings (Loss) of Unconsolidated Entities. Equity in loss of unconsolidated entities changed $573,000 for the ~~J&S acquisition.~~2019 period due to our investment in REA Holdings in January of 2019. See ~~note 7~~notes 1 and 2 to our condensed consolidated financial statements.

Interest Expense. Interest expense was ~~$593,000~~$742,000 and ~~$10,000~~$304,000 for the ~~2018~~2019 period and the ~~2017~~2018 period, respectively, related to the notes payable, lines of credit and capital leases held by our consolidated subsidiaries. See notes 2 and 6 to our condensed consolidated financial statements.

Amortization of Loan Costs. Amortization of loan costs was ~~$177,000~~$139,000 and ~~$25,000~~$47,000 for the ~~2018~~2019 period and the ~~2017~~2018 period, respectively, related to the notes payable and lines of credit held by our consolidated subsidiaries. See notes 2 and 6 to our condensed consolidated financial statements.

Interest Income. Interest income was ~~$288,000~~$29,000 and ~~$153,000~~$185,000 for the 2019 period and the 2018 period, ~~and the 2017 period,~~ respectively.

~~Dividend Income.~~ Dividend income was $0 and $93,000 for the 2018 period and the 2017 period, respectively, related to investments held by the AQUA U.S. Fund which was fully dissolved during the year ended December 31, 2017.

~~Unrealized Gain (Loss) on Investments.~~ Unrealized gain on investments was $0 for the 2018 period and $203,000 for the 2017 period, primarily related to investments held by the AQUA U.S. Fund which was fully dissolved during the year ended December 31, 2017. The unrealized gain (loss) on investments is based on changes in closing market prices during the period.

~~Realized Gain (Loss) on Investments.~~ Realized loss on investments was $0 for the 2018 period and $294,000 in the 2017 period. The realized loss on investments is related to options on futures contracts and investments held by the AQUA U.S. Fund which was fully dissolved during the year ended December 31, 2017.

Other Income (Expense). Other expense was ~~$338,000~~$95,000 and ~~$26,000~~$260,000 in the ~~2018~~2019 period and the ~~2017~~2018 period, respectively.

Income Tax (Expense) Benefit. Income tax expense decreased by ~~$20.8 million,~~$585,000, from ~~$9.2~~$2.3 million expense in the ~~2017~~2018 period to ~~$11.6~~$1.7 million ~~benefit~~expense in the ~~2018~~2019 period. Current tax expense decreased by ~~$428,000,~~$829,000, from ~~$3.8 million in the 2017 period to $3.4~~$2.3 million in the 2018 period to $1.5 million in the 2019 period, mainly due to ~~lower taxable income which was~~an increase in tax depreciation taken on purchases of furniture, fixtures and equipment under the ~~result of higher pretax loss~~Ashford Trust and ~~deductions for bonus depreciation.~~Braemar ERFP Agreements. Deferred tax ~~benefit~~expense increased by ~~$20.5 million~~$244,000 from ~~$5.4 million expense in the 2017 period to $15.1 million benefit~~$0 in the 2018 period to $244,000 in the 2019 period. The ~~2017~~2018 period did not record any deferred expense ~~was related primarily~~due to the April 2017 legal entity restructuring of the Company, ~~and~~as a result of which, a full valuation allowance was established. In the third quarter of 2018, ~~period benefit~~the valuation allowance was ~~related primarily~~released due to the acquisition of ~~Premier, which resulted in the reversal of the valuation allowance on our deferred tax assets in the third quarter of 2018.~~Premier.

(Income) Loss from Consolidated Entities Attributable to Noncontrolling Interests. The noncontrolling interests in consolidated entities were allocated a loss of ~~$704,000~~$294,000 in the ~~2018~~2019 period and a loss of ~~$267,000~~$291,000 in the ~~2017~~2018 period. See notes 2, 10

11 and 1415 to our condensed consolidated financial statements for more details regarding ownership interests, carrying values and allocations.

Net (Income) Loss Attributable to Redeemable Noncontrolling Interests. The redeemable noncontrolling interests were allocated a loss of ~~$817,000~~$289,000 in the ~~2018~~2019 period and ~~a loss~~income of ~~$995,000~~$151,000 in the ~~2017~~2018 period. Redeemable noncontrolling interests represented ownership interests in Ashford Holdings and certain of our consolidated subsidiaries. ~~Prior to April 6, 2017, the noncontrolling interests represented ownership interests in Ashford LLC.~~ See note 1 to our condensed consolidated financial statements. For a summary of ownership interests, carrying values and allocations, see notes 2, ~~11,~~12, and 1415 to our condensed consolidated financial statements.

Preferred Dividends. The preferred dividends increased $5.6 million from the 2018 period due to issuance of Series B Convertible Preferred Stock in the acquisition of Premier in August 2018.

Amortization of Preferred Stock Discount. The amortization of preferred stock discount dividends increased $975,000 from the 2018 period due to the discount on the Series B Convertible Preferred Stock issued to acquire Premier in August 2018.

LIQUIDITY AND CAPITAL RESOURCES

Our short-term liquidity requirements consist primarily of funds necessary to pay for operating expenses primarily attributable to paying our ~~employees.~~employees as well as funding our ERFP Commitments and dividends on preferred stock. We expect to meet our short-term liquidity requirements generally through net cash provided by operations, existing cash balances and, if necessary, short-term borrowings under our revolving credit facility, which we believe will provide sufficient liquidity to meet our existing non-discretionary obligations and anticipated ordinary course operating expenses for at least the next twelve months.

Our long-term liquidity requirements consist primarily of funds necessary to pay for operating expenses attributable to paying our employees, investments to grow our business, ~~and~~funding our ERFP Commitments, paying dividends on preferred stock and certain ~~recent~~ subsidiary financing ~~transactions noted below.~~transactions. We expect to meet our long-term liquidity requirements through various sources of capital, including net cash provided by operations, future equity issuances and availability under our revolving credit facilities.

On September 28, 2018, we completed a public offering of 270,000 shares of common stock at a price to the public of $74.50 per share for gross proceeds of $20.1 million. The net proceeds from the sale of the shares after discounts and commissions to the underwriters and offering expenses were approximately $18.1 million. We also sold an additional 10,000 shares of common stock to the underwriters on October 10, 2018, in connection with the underwriters’ partial exercise of their over-allotment option that had been granted to them in connection with the transaction. The net proceeds from the sale of the over-allotment shares after discounts and commissions to the underwriters were approximately $700,000.

On August 31, 2018, our RED operating subsidiary entered into a term loan of $1.8 million for which the creditor has recourse to Ashford Inc. The term loan bears interest at the Prime Rate plus 2.00% and matures on February 1, 2029.ERFP Commitments

On August 8, 2018, we completed the acquisition of Premier, the project management business formerly conducted by certain affiliates of Remington, including construction management, interior design, architectural oversight, and the purchasing, expediting, warehousing coordination, freight management, and supervision of installation of FF&E, and related services, for a total transaction value of $203 million. As a result, the project management services that were previously provided by Remington Lodging will now be provided by a subsidiary of Ashford Inc. under the respective project management agreement with each customer, including Ashford Trust and Braemar. The purchase price was paid by issuing 8,120,000 shares of the newly created Series B Preferred Stock to the Remington Sellers, primarily the Bennetts. The Series B Preferred Stock has a conversion price of $140 per share and would convert into 1,450,000 shares of our common stock. Dividends on the Series B Preferred Stock are payable at an annual rate of 5.5% in the first year, 6.0% in the second year, and 6.5% in the third year and each year thereafter. In addition to certain separate class voting rights, the holders of the Series B Preferred Stock vote on an as-converted basis with the holders of the common stock and the holders of any outstanding Series A Preferred Stock or Series C Preferred Stock on all matters submitted for approval by the holders of our capital stock possessing general voting rights. However, for five years following the closing of the acquisition of Premier, the Remington Sellers and their transferees are subject to certain voting restrictions with respect to shares in excess of 25% of the combined voting power of the Company’s outstanding capital stock.—

On June 26, 2018, the Company entered into the Enhanced Return Funding Program Agreement and Amendment No. 1 to the Amended and Restated Advisory Agreement (the “Ashford Trust ERFP ~~Agreement~~Agreement”) with Ashford Trust. The independent members of the board of directors of each of the Company and Ashford Trust, with the assistance of separate and independent legal counsel, engaged to negotiate the Ashford Trust ERFP Agreement on behalf of the Company and Ashford Trust, respectively. On January 15, 2019, the Company entered into the Enhanced Return Funding Program Agreement and Amendment No. 1 to the Fifth Amended and Restated Advisory Agreement (the “Braemar ERFP Agreement” and collectively with the Ashford Trust ERFP Agreement, the “ERFP Agreements”) with Braemar. The independent members of the board of directors of each of the Company and Braemar, with the assistance of separate and independent legal counsel, engaged to negotiate the Braemar ERFP Agreement on behalf of the Company and Braemar, respectively. Under the ERFP ~~Agreement,~~Agreements, the Company agreed to ~~provide$50~~provide $50 million (each, an “ERFP Commitment” and collectively, the “ERFP Commitments”) to each of Ashford Trust and Braemar (collectively, the “REITs”), respectively, in connection with ~~Ashford Trust’s~~each such REITs’ acquisition of ~~additional~~ hotels recommended by us, with the option to increase ~~the funding commitment~~each ERFP Commitment to up to $100 million upon mutual agreement by the ~~parties.~~parties to the respective ERFP Agreement. Under each of the ERFP ~~Agreement,~~Agreements, the Company’s ERFP Commitment to such REIT will be fulfilled as the Company ~~is obligated to provide Ashford Trust~~pays each such REIT 10% of ~~the~~each acquired hotel’s purchase price in exchange for FF&E at a property owned by such REIT, which iswill be subsequently leased by us to ~~Ashford Trust~~such REIT rent-free. ~~In connection~~Each of the REITs must provide reasonable advance notice to the Company to request ERFP funds in accordance with ~~Ashford Trust’s~~the respective ERFP Agreement. The ERFP Agreements require that the Company acquire the related FF&E either at the time of the property acquisition or at any time generally within two years of the REITs acquisition of the Hilton Old Town Alexandria on June 29, 2018, and subject to the terms of the ERFP Agreement, the Company is obligated to provide Ashford Trust with approximately $11.1 million of FF&E at Ashford Trust properties. As of September 30, 2018, the Company has provided $390,000 of FF&E under the ERFP Agreement. As a result, the Company’s ERFP obligation of $10.7 million is reflected in our condensed consolidated balance sheet as “other assets” and “other liabilities” as of September 30, 2018. Under the ERFP agreement,

~~Ashford Trust has two years from the acquisition date of a~~ hotel ~~property to identify the FF&E to be purchased by Ashford Inc.~~property. The Company recognizes the related depreciation tax deduction at the time such FF&E is purchased by the Company and placed into service at ~~Ashford Trust~~the respective REITs’ hotel properties. However, the timing of the FF&E being purchased and placed into service is subject to uncertainties outside of the Company’s control that could delay the realization of any tax benefit associated with the purchase of FF&E.



	Ashford Trust			Braemar			Total
ERFP Commitments:
ERFP Commitments at January 1, 2018	$	—		$	—		$	—
Initial ERFP Commitment	50,000			—			50,000
ERFP payment—Hilton Alexandria Old Town	(11,100		)	—			(11,100		)
ERFP payment—La Posada de Santa Fe	$	(5,000	)	$	—		$	(5,000	)
ERFP Commitments remaining at December 31, 2018	$	33,900		$	—		$	33,900
Initial ERFP Commitment	—			50,000			50,000
ERFP payment—Hilton Santa Cruz/Scotts Valley	(5,000		)	—			(5,000		)
ERFP payment—Embassy Suites New York Manhattan Times Square	(8,089		)	—			(8,089		)
ERFP payment—Ritz-Carlton, Lake Tahoe	—			(1,420		)	(1,420		)
ERFP Commitments remaining at June 30, 2019 ⁽¹⁾	$	20,811		$	48,580		$	69,391



	Ashford Trust		Braemar		Total
Unfunded ERFP Commitments for hotels acquired by REITs:
Embassy Suites New York Manhattan Times Square	$	11,411	$	—	$	11,411
Ritz-Carlton, Lake Tahoe⁽²⁾	—		8,880		8,880
Unfunded ERFP Commitments at June 30, 2019	$	11,411	$	8,880	$	20,291

________

⁽¹⁾See note ~~9 and 14 to our condensed consolidated financial statements.~~10.

~~On March 23, 2018, our RED operating subsidiary entered into a term loan~~⁽²⁾The $8.9 million unfunded ERFP Commitment related to Ritz-Carlton, Lake Tahoe as of ~~$750,000 and a revolving credit facility of $250,000 for which~~June 30, 2019 was funded subsequent to the ~~creditor has recourse to Ashford Inc. Approximately $225,000~~end of the proceeds from the term loan are held in an escrow account, which is included in our consolidated balance sheet within “other assets” as of September 30, 2018. The term loan bears interest at the Prime Rate plus 1.75% and maturesquarter on ~~April 5, 2025. The revolving credit facility bears interest at the Prime Rate plus 1.75% and matures on March 5,~~July 3, 2019. ~~During the nine months ended September 30, 2018, $16,000 was drawn on the revolving credit facility. As of September 30, 2018, $234,000 was available under the revolving credit facility.~~

On March 1, 2018, the Company and its subsidiary Ashford Hospitality Holdings LLC entered into a $35 million senior revolving credit facility with Bank of America, N.A. The credit facility provides for a three-year revolving line of credit and bears interest at the Base Rate plus 2.00% to 2.50% or LIBOR plus 3.00% to 3.50%, depending on the leverage level of the Company. There is a one-year extension option subject to the satisfaction of certain conditions. The new credit facility includes the opportunity to expand the borrowing capacity by up to $40 million to an aggregate amount of $75 million, subject to certain conditions. At September 30, 2018, there were no outstanding borrowings under the facility.

Other liquidity considerations—On December 5, 2017, the Board of Directors of Ashford Inc. approved a stock repurchase program (the “Repurchase Program”) pursuant to which the Board granted a repurchase authorization to acquire shares of the Company’s common stock, par value $0.01 per share having an aggregate value of up to $20 million. No shares were repurchased during the ~~nine~~six months ended ~~September~~June 30, 2019 or 2018.

The Company has a $35.0 million senior revolving credit facility with Bank of America, N.A. There is a one-year extension option subject to the satisfaction of certain conditions. The credit facility includes the opportunity to expand the borrowing capacity by up to $40.0 million to an aggregate amount of $75.0 million, subject to certain conditions. Under the senior revolving credit facility, Ashford Inc. is required to maintain consolidated net worth not less than 75% of the consolidated net worth as of December 31, 2017, plus 75% of the net equity proceeds of any future equity issuances by Ashford Inc.

On ~~November~~March 1, ~~2017,~~2019, JSAV acquired a privately-held company, BAV Services in the United States (“BAV”). BAV is an audio visual rental, staging, and production company focused on meeting and special event services. As a result of the acquisition, our ~~J&S operating subsidiary entered~~ownership interest in JSAV, which we consolidate under the voting interest model, increased from 85% to approximately 88%. The purchase price consisted of: (i) $5.0 million in cash (excluding working capital adjustments) funded by an existing JSAV term loan; (ii) $4.0 million in the form of Ashford Inc. common stock consisting of (a) 61,387 shares issued on March 1, 2019, which was determined based on an agreed upon value of $3.5 million using a thirty-day volume weighted average price per share (“30-Day VWAP”) of $57.01 and had an estimated fair value of approximately $3.8 million as of the acquisition date and (b) $500,000 of stock to be issued 18 months after the acquisition date, subject to certain conditions; and (iii) contingent consideration related to the achievement of certain performance targets with an estimated fair value of approximately $1.4 million, payable, if earned, 12 to 18 months after the acquisition date. Additionally, the transaction includes a stock consideration collar. See note 4 to our condensed consolidated financial statements.

On May 31, 2019, Ashford Inc. signed the Combination Agreement (which was subsequently amended on July 17, 2019) to acquire the Hotel Management business of Remington, a privately held company. The transaction, which is expected to close sometime in the fourth quarter of 2019, is subject to approval by Ashford Inc.’s stockholders, the receipt of an acceptable Private Letter Ruling (“PLR”) from the Internal Revenue Service and customary closing conditions. Under the terms of the agreement, Ashford Inc. will acquire Remington’s Hotel Management business for a purchase price of $275 million, payable by the issuance of $275 million of a new Series D Convertible Preferred Stock. In the previous transaction for Remington’s Project Management business, the sellers received $203 million of Series B Convertible Preferred Stock. For this transaction involving Remington’s Hotel Management business, that $203 million of Series B Convertible Preferred Stock will be exchanged for $203 million of Series D Convertible Preferred Stock (such that, after the transactions, $478 million of Series D Convertible Preferred Stock, and no Series B Convertible Preferred Stock, will be outstanding). The new Series D Convertible Preferred Stock will be convertible into shares of common stock at a ~~series~~price of ~~financing transactions for which~~$117.50 per share (a 164% premium to the ~~creditors do not~~closing price of Ashford’s common stock on the agreement date of May 31, 2019). Dividends on the Series D Convertible Preferred Stock will be payable at an annual rate of 6.59% in the first year, 6.99% in the second year, and 7.28% in the third year and each year thereafter. Voting rights of the Series D Convertible Preferred Stock will be on an as-converted basis, and the holders of the Series D Convertible Preferred Stock will have ~~recourse~~a voting limit of 40% of the total voting power of Ashford Inc. until August 8, 2023. The holders of the Series D Convertible Preferred Stock have certain conversion rights upon certain events constituting a change of control of the Company. Remington is currently owned by Monty J. Bennett, Ashford Inc.’s Chairman and Chief Executive Officer, and his father, Archie Bennett, Jr., the Chairman Emeritus of Ashford Trust. Ashford Inc.’s Board of Directors formed a special committee of independent and disinterested directors to analyze, negotiate, and recommend the transaction to Ashford Inc.’s Independent Directors. Ashford Inc.’s Independent Directors have unanimously recommended approval of the acquisition by Ashford Inc.’s stockholders.

On July 1, 2019, the Company’s newly created subsidiary, AINC Bar Draught LLC (“Bar Draught”), ~~including~~acquired the assets of a ~~$10.0 million term loan~~provider of an innovative draft cocktail system technology for $250,000 cash and contingent consideration of up to ~~finance~~$550,000 cash, if earned, 6 to 12 months after the acquisition date. After giving effect to the transaction, Ashford Inc. will own an approximately 55% interest in Bar Draught, a provider of premium, mobile cocktails on tap and other services in the hospitality industry.

On July 18, 2019, RED completed the acquisition of J&S. The term loan bears interest at LIBOR plus 3.25% and matures on November 1, 2022. Net deferred loan costs associated with this financing of $195,000 and $226,000, respectively, are included as a reduction to notes payable on the condensed consolidated balance sheets as of September 30, 2018 and December 31, 2017. In connection with the term loan, the subsidiary entered into an interest rate cap with an initial notional amount totaling $5.0 million and a strike rate of 4.0%. The fair value of the interest rate cap at September 30, 2018 and December 31, 2017, was not material. The subsidiary also entered into a $3.0 million revolving credit facility which bears interest at LIBOR plus 3.25% and matures on November 1, 2022. During the nine months ended September 30, 2018, $16.3 million was drawn and approximately $14.5 million of payments were made on the revolving credit facility. As of September 30, 2018, approximately $0.5 million of credit was available under the revolving credit facility. These debt agreements contain various financial covenants that, among other things, require the maintenance of certain fixed charge coverage ratios. As of September 30, 2018, our J&S operating subsidiary was in compliance with all financial covenants.

Also on November 1, 2017, in connection with the acquisition of J&S, our J&S operating subsidiary entered into a $3.0 million equipment note and a $2.0 million draw term loan agreement. These loans each bear interest at LIBOR plus 3.25% and mature on November 1, 2022. During the nine months ended September 30, 2018, $1.7 million was drawn on the equipment note and $2.0 million was outstanding on the draw term loan. All the loans in connection with the acquisition of J&S are partially secured by a security interest onsubstantially all of the assets of Sebago, a leading provider of watersports activities and ~~equity interests of our J&S operating subsidiary.~~

~~On April 13, 2017, OpenKey entered into a Loan and Security Agreement for a line of credit~~excursion services based in Key West, Florida. After giving effect to the transaction, Ashford Inc. will own an approximately 84% interest in the ~~amount~~common equity of ~~$1.5 million.~~

~~The line of credit is secured by all of OpenKey's assets and matures on October 31, 2018, with an interest rate of Prime Rate plus 2.75%. Creditors do not have recourse to~~RED. Ashford Inc. ~~At September 30, 2018~~will continue to own an 80% interest in the entity that conducts RED’s legacy U.S. Virgin Islands operations. The purchase price consisted of approximately $2.5 million in cash (excluding transaction costs and ~~December 31, 2017, there~~working capital adjustments) funded by new RED term loans and $4.5 million in the form of Ashford Inc. common stock consisting of 135,366 shares issued July 18, 2019, subject to a six month stock consideration collar. The issued Ashford Inc. shares were ~~no borrowings outstanding under the Loan Agreement. In connection with the line~~determined using a 30-Day VWAP of ~~credit, OpenKey granted the creditors a 10-year warrant to purchase approximately 28,000 shares of OpenKey's preferred stock at $1.61 per share. The~~$33.24 and had an estimated fair value of ~~the warrants, estimated to be $28,000, was recorded in noncontrolling interests in consolidated entities and debt issuance costs, which will be amortized over the term~~approximately $4.5 million as of the ~~line of credit.~~

On April 6, 2017, Pure Rooms entered into a term loan of $375,000 and a line of credit of $100,000 for which the creditor does not have recourse to Ashford Inc. The term loan has a fixed interest rate of 5.00% per annum. Subsequentacquisition date. Pursuant to the ~~end~~acquisition agreement, in the event that the 30-Day VWAP of the ~~quarter on October 1, 2018, we paid off the $39,000 balance~~common stock on the ~~term loan. The line~~six month anniversary of ~~credit has~~the closing date of the acquisition is lower than the price of the common stock on July 18, 2019, the Company may repurchase the stock at such lower stock price, such that the number of shares of common stock issued is reduced. In the event that the 30-Day VWAP of the common stock on the six month anniversary of the closing date of the acquisition is higher than the price of the common stock on July 18, 2019, the Company may repurchase shares of common stock at a ~~variable interest rate~~price of ~~Prime Rate plus 1.00%. There is no stated maturity date related to~~$0.01 per share, such that the ~~line of credit as it is payable on demand; accordingly,~~stock consideration for the ~~balance has been classified as a current liability on our condensed consolidated balance sheets.~~

transaction remains $4.5 million in common stock.

Certain segments of our business are capital intensive and may require additional financing from time to time. Any additional financings, if and when pursued, may not be available on favorable terms or at all, which could have a negative impact on our liquidity and capital resources. Aggregate subsidiary notes payable, net was $24.9 million and $17.8 million as of June 30, 2019 and December 31, 2018, respectively. As of June 30, 2019, our subsidiaries were in compliance with all financial debt covenants. For further discussion see note 6 to our condensed consolidated financial statements.

Sources and Uses of Cash

As of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, we had ~~$64.9~~$40.0 million and ~~$36.5~~$51.5 million of cash and cash equivalents, respectively, and ~~$10.7~~$13.3 million and ~~$9.1~~$7.9 million of restricted cash, respectively.

Net Cash Flows Provided by (Used in) Operating Activities. Operating activities provided net cash flows of ~~$15.6~~$14.5 million and ~~$18.0~~$12.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, respectively. The ~~lower~~increase in cash flows provided by operating activities in the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, were due primarily to ~~$9.6 million of transaction costs related to the acquisition of Premier, $1.4 million paid in contingent consideration related to the November 2017 acquisition of J&S, as well as~~ the timing of payments to vendors, ~~and~~the timing of operating subsidiaries’ receipt of ~~revenues. In connection with our Fourth Amended~~revenues and ~~Restated Braemar Advisory Agreement, we received a $5.0 million cash payment~~an increase in ~~June 2017 from Braemar which positively impacted operating cash flows in the nine months ended September 30, 2017.~~earnings.

Net Cash Flows Provided by (Used in) Investing Activities. For the ~~nine~~six months ended ~~September~~June 30, ~~2018, investing activities used~~2019, net cash flows used in investing activities were $25.5 million due to the acquisition of ~~$9.3~~BAV Services for $4.3 million ($5.0 million cash consideration less working capital adjustments of approximately $700,000) and the $2.2 million investment in REA Holdings. Capital expenditures include $13.1 million and $1.4 million related to our ERFP agreements with Ashford Trust and Braemar, respectively, $3.7 million of audio visual equipment and FF&E, and $988,000 for RED marine vessels.

For the six months ended June 30, 2018, net cash flows used in investing activities were $8.2 million, which is attributable to purchases of ~~FF&E,~~furniture, fixtures and equipment, including audio visual equipment and computer software, of ~~$7.5~~$4.5 million and ~~$4.0~~$3.7 million in payments for assets related to RED Hospitality and Leisure LLC, partially offset by $2.3 million of cash acquired in the acquisition of Premier. For the nine months ended September 30, 2017, investing activities used net cash flows of $1.7 million, which was attributable to purchases of computer software and FF&E of $1.8 million, partially offset by proceeds from the disposal of FF&E of $15,000 and $129,000 of cash acquired in the acquisition of Pure Rooms.RED.

Net Cash Flows Provided by (Used in) Financing Activities. For the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, net cash flows provided by financing activities were ~~$23.9 million, due to~~$4.9 million. These cash flows consisted of ~~$18.1~~$7.3 million ~~received~~of proceeds from ~~the issuance~~borrowings on notes payable, $989,000 of net borrowings on our ~~common stock, $2.7 million~~revolving credit facilities, $455,000 of contributions from noncontrolling interests in a consolidated entity, ~~$6.0 million~~and employee advances of ~~proceeds from borrowings on notes payable, $1.7 million of net borrowings on our revolving credit facilities and net repayments in advances to employees of $45,000~~$353,000 associated with tax withholdings for restricted stock vesting. These were offset by ~~$1.7~~$2.8 million of payments for dividends on our preferred stock, ~~$1.4~~$1.3 million of payments on notes payable and capital leases, ~~$1.2 million paid in contingent consideration related to the November 2017 acquisition of J&S, $314,000~~$63,000 in distributions to non-controlling interests, and ~~$72,000~~$41,000 of loan cost payments.

For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, net cash flows ~~used in~~provided by financing activities were ~~$54.5~~$3.7 million. These cash ~~outflows~~flows consisted of ~~$55.3~~$2.7 million ~~of distributions to noncontrolling interests in consolidated entities primarily related to the AQUA Fund that is now dissolved, partially offset by $983,000~~ of contributions from noncontrolling interests in a consolidated ~~entity.~~entity, $1.8 million of proceeds from borrowings on notes payable, $199,000 of net borrowings on the JSAV revolving credit facility, and employee advances of $45,000 associated with tax withholdings for restricted stock vestings, partially offset by $939,000 of payments on notes payable and capital leases, $14,000 in distributions to non-controlling interests, and $15,000 of loan cost payments.

Off-Balance Sheet Arrangements

In the normal course of business, we may form or invest in partnerships or joint ventures. We evaluate each partnership and joint venture to determine whether the entity is a VIE. If the entity is determined to be a VIE, we assess whether we are the primary beneficiary and need to consolidate the entity. For further discussion see notes 1 and 2 to our condensed consolidated financial statements.

Contractual Obligations and Commitments

There have been no material changes since December 31, ~~2017,~~2018, outside the ordinary course of business, to contractual obligations ~~specified in the table of contractual obligations~~and commitments included in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our ~~2017~~2018 Form 10-K, except with respect to the Braemar ERFP Agreement described elsewhere in this MD&A in “Recent ~~Developments”.~~Developments.”

Critical Accounting Policies

Our accounting policies that are critical or most important to understanding our financial condition and results of operations and that require management to make the most difficult judgments are described in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our ~~2017~~2018 Form 10-K.

There have been no material changes in these critical accounting policies other than as discussed in note 2 to the condensed consolidated financial statements with respect to ~~revenue recognition.~~leases.


ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Our primary market risk exposures consist of changes in interest rates on borrowings under our debt instruments that bear interest at variable rates that fluctuate with market interest rates as well as foreign currency exchange rate risk.

Interest Rate Risk—At ~~September~~June 30, ~~2018,~~2019, our total indebtedness of ~~$18.5~~$25.1 million included ~~$17.9~~$24.6 million of variable-rate debt. The impact on our results of operations of a 100 basis point change in interest rate on the outstanding balance of variable-rate debt at ~~September~~June 30, ~~2018,~~2019, would be approximately ~~$179,000~~$246,000 annually. Interest rate changes have no impact on the remaining ~~$603,000~~$467,000 of fixed rate debt.

The amount above was determined based on the impact of a hypothetical interest rate on our borrowings and assumes no changes in our capital structure. As the information presented above includes only those exposures that existed at ~~September~~June 30, ~~2018,~~2019, it does not consider exposures or positions that could arise after that date. Accordingly, the information presented herein has limited predictive value. As a result, the ultimate realized gain or loss with respect to interest rate fluctuations will depend on exposures that arise during the period, the hedging strategies at the time, and the related interest rates.

Foreign Exchange Risk—The majority of our revenues, expenses and capital purchases are transacted in U.S. dollars. ~~On November 1, 2017, we acquired~~We own a controlling interest in ~~J&S Audiovisual,~~JSAV, which has operations in Mexico and the Dominican Republic, and therefore we have exposure with respect to exchange rate fluctuations. Exchange rate gains or losses related to foreign currency transactions are immaterial recognized as transaction gains or losses in our income statement as incurred. We have chosen not to hedge foreign exchange risks related to our foreign currency denominated earnings and cash flows through the use of financial instruments.


ITEM 4.	CONTROLS AND PROCEDURES

Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, our management has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of ~~September~~June 30, ~~2018.~~2019. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the evaluation date, our disclosure controls and procedures are effective (i) to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission rules and forms; and (ii) to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.

During the period ended June 30, 2019, we implemented controls to ensure we adequately evaluated our contracts and properly assessed the impact of the new lease accounting standard on our financial statements to facilitate the adoption of the standard on January 1, 2019. Our subsidiaries have implemented procedures to support the accounting at each subsidiary and we have implemented processes and controls to review the subsidiary level output on a quarterly basis. Additionally, we have implemented tools to calculate and controls to review our accounting for leases at the corporate level.

Changes in Internal Control over Financial Reporting

There were no changes in our internal controls over financial reporting during the fiscal quarter ended ~~September~~June 30, ~~2018,~~2019, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II. OTHER INFORMATION


ITEM 1.	LEGAL PROCEEDINGS

The Company is engaged in various legal proceedings which have arisen but have not been fully adjudicated. The likelihood of loss for these legal proceedings, based on definitions within contingency accounting literature, ranges from remote to reasonably possible and to probable. Based on estimates of the range of potential losses associated with these matters, management does not believe the ultimate resolution of these proceedings, either individually or in the aggregate, will have a material adverse effect upon the financial position or results of operations of the Company. However, the adjudication of legal proceedings is difficult to predict, and if the Company failed to prevail in one or more of these legal matters, and the associated realized losses were to exceed the Company’s current estimates of the range of potential losses, the Company’s financial position or results of operations could be materially adversely affected in future periods.


ITEM 1A.	RISK FACTORS

The discussion of our business and operations should be read together with the risk factors contained in Item 1A of our Annual Report, filed with the SEC, which describe various risks and uncertainties to which we are or may become subject. ~~You should also review the risk factors associated with our acquisition of Premier in our Definitive Proxy Statement dated and filed with the SEC on July 12, 2018.~~ These risks and uncertainties have the potential to affect our business, financial condition, results of operations, cash flows, strategies, or prospects in a material and adverse manner. ~~At September 30, 2018,~~Because there ~~have been~~is no ~~material changes~~way to determine in advance whether, or to what extent, any present uncertainty will ultimately impact our business, you should give equal weight to the risk factors ~~set forth~~contained therein and to the following:

The market price of the Company’s common stock may decline compared to the historical market price of the Company’s common stock as a result of the Company’s planned acquisition of the Hotel Management business of Remington.

The market price of the Company’s common stock could decline during the period between signing and closing of the Company’s planned acquisition of the Hotel Management business of Remington, a privately held company. On May 31, 2019, immediately before the merger between the Company and Ashford Merger Sub Inc., a Maryland corporation (the “Merger”), was publicly announced, the closing price of the Company’s common stock was $44.52, and on August 6, 2019, the closing price of the Company’s common stock was $29.95, representing a decline in the price of the common stock of approximately 32.7%. Such declines in the value of the Company’s common stock may continue, including as a result of Ashford Trust’s and Braemar’s anticipated divestiture of the 793,043 shares of common stock in the Company they collectively own, which is a condition to the closing of the Company’s planned acquisition of the Hotel Management business of Remington and which shares represent, in the aggregate, approximately 30.3% of the Company’s shares outstanding as of August 6, 2019. In the twenty trading days prior to and including August 6, 2019, an average of 12,669 of the Company’s shares were traded on a daily basis. In light of the historical trading volume of the Company’s shares, sales of shares by Ashford Trust or Braemar (or sales by holders who receive such shares from Ashford Trust or Braemar, including if such shares are distributed to Ashford Trust’s or Braemar’s stockholders on a pro rata basis) could cause the price of the Company’s shares to decline.

In addition, the market price of the Company’s common stock (prior to the closing of the Merger) may decline compared to the historical market price of the Company’s common stock as a result of the Company’s planned acquisition of the Hotel Management business of Remington if the Company is not perceived as likely to, or does not, achieve the benefits of the transactions as rapidly or to the extent anticipated by the Company or by financial or industry analysts, or the effect of the transactions on the Company’s financial results is not consistent with the expectations of the Company or the financial or industry analysts. While it is intended that the acquisition of the Hotel Management business of Remington will be accretive to our performance metrics (including after taking into account the possible conversion of the Series D Convertible Preferred Stock into our common stock), there can be no assurance that this will be the case, since, among other things, the expenses we have incurred as a result of the acquisition may be higher than we anticipated and revenue from the Hotel Management business may decrease in the near-term and/or long-term. The failure of the acquisition to be accretive to the Company's stockholders could have a material adverse effect on the Company's business, financial condition, and results of operations.

In addition, the risks associated with implementing the Company’s long-term business plan and strategy following the Company’s planned acquisition of the Hotel Management business of Remington may be different from the risks related to the Company’s existing business and the trading price of the Company’s common stock could be adversely affected.

Sales of substantial amounts of the Company’s common stock in the public markets, or the perception that they might occur, including as a result of the divestiture of the Company’s common stock by Ashford Trust and Braemar in connection with the Company’s planned acquisition of the Hotel Management business of Remington or when the transfer restrictions under the Investor Rights Agreement end in 2023, could cause the market price of the Company’s common stock to decline.

As a closing condition to the Company’s planned acquisition of the Hotel Management business of Remington, Ashford Trust and Braemar will each need to divest their respective holdings of the Company’s common stock. If Ashford Trust and Braemar sell their shares in the Company (or if holders who receive such shares from Ashford Trust and Braemar sell such shares, including if such shares are distributed to Ashford Trust’s or Braemar’s stockholders on a pro rata basis), such sales could cause the Company’s common stock to decline. As of August 6, 2019, Ashford Trust and Braemar collectively own 793,043 shares of common stock in the Company. If both Ashford Trust and Braemar divest themselves of their holdings in the Company’s common stock, this would result in 30.3% of the Company’s common stock being distributed prior to the closing of the Merger. If Ashford Trust and Braemar decide to spin-off their holdings of the Company’s common stock to their stockholders, it is possible that some of those stockholders would decide to sell their shares of the Company’s common stock on the public market, which could result in a significant decline in price before the closing of the Merger. In the twenty trading days prior to and including August 6, 2019, an average of 12,669 of the Company’s shares were traded on a daily basis. In light of the historical trading volume of the Company’s shares, sales of shares by Ashford Trust and Braemar (or sales by holders who receive such shares from Ashford Trust or Braemar) could cause the price of the Company’s shares to decline.

In addition, secondary sales of a substantial number of shares of the Company’s common stock (prior to the closing of the Merger) into the public market, or the perception that these sales might occur, could cause the market price of the Company’s common stock to decline and may make it more difficult for you to sell your common stock at a time and price that you deem appropriate. Pursuant to the Investor Rights Agreement (as amended by the First Amendment to the Combination Agreement, dated July 17, 2019) among the Bennetts and certain other parties, for five years after the closing of the Company’s planned acquisition of the Hotel Management business of Remington, each of the Covered Investors (as defined in the Investor Rights Agreement) is prohibited from selling or otherwise transferring the Company’s common stock or Series D Convertible Preferred Stock to any person that is or would become, together with such person’s affiliates and associates, a beneficial owner of 10% or more of the shares of the Company’s common stock, considering the Series D Convertible Preferred Stock on an as-converted basis, subject to specified exceptions. After such transfer restrictions expire, all of the shares of the Company’s common stock or Series D Convertible Preferred Stock owned by the Covered Investors will be eligible for sale in the public market, subject to compliance with applicable regulatory limitations.

The market price of the Company’s common stock could decline as a result of the sale of a substantial number of shares of the Company’s common stock in the public market, the availability of shares of the Company’s common stock for sale, or the perception in the market that the holders of a large number of shares of the Company’s common stock intend to sell.

Our investments in acquisition targets may not be as accretive to our common shareholders as expected due to unfavorable post-acquisition settlement of earn-outs, contingent consideration or stock consideration collar features as a result of undervalued common stock.

From time to time, we may acquire interests in other businesses for strategic reasons or to take advantage of limited market opportunities. The timing of those acquisitions may not be within our control and we may use our common stock as consideration in an acquisition at a time when we believe our common stock is undervalued which is dilutive to our existing shareholders. In addition, a percentage of consideration in acquisition transactions often consists of earn-outs, holdbacks, escrows and other contingent consideration, some of which may cause the Company to pay additional consideration; in times of economic uncertainty, a greater percentage of acquisition consideration tends to be contingent. Accordingly, our investments in acquisition targets may not be as accretive to our common shareholders as expected because the value we actually realize may ultimately be lower than the carrying value currently reflected in our ~~Annual Report.~~consolidated financial statements and/or the expectations of our investors or securities analysts.

Any failure by our international operations to comply with anti-corruption laws or trade sanctions could increase our costs, reduce our profits, limit our growth, harm our reputation, or subject us to broader liability.

We are subject to restrictions imposed by the U.S. Foreign Corrupt Practices Act and anti-corruption laws and regulations of other countries applicable to our operations. Anti-corruption laws and regulations generally prohibit companies and their intermediaries from making certain payments to government officials or other persons in order to influence official acts or decisions or to obtain or retain business. These laws also require us to maintain adequate internal controls and accurate books and records. We conduct operations in parts of the world where corruption is common, and our compliance with anti-corruption laws may potentially conflict with local customs and practices. The compliance programs, internal controls and policies we maintain and enforce to promote compliance with applicable anti-bribery and anti-corruption laws may not prevent our associates, contractors

or agents from acting in ways prohibited by these laws and regulations. We are also subject to trade sanctions administered by the U.S. Office of Foreign Assets Control and the U.S. Department of Commerce, and authorities in other countries where we do business. Our compliance programs and internal controls also may not prevent conduct that is prohibited under these rules. The U.S. or other countries may impose additional sanctions at any time against any country in which or with whom we do business. Depending on the nature of the sanctions imposed, our operations in the relevant country could be restricted or otherwise adversely affected. Any violations of anti-corruption laws and regulations or trade sanctions could result in significant civil and criminal penalties, reduce our profits, disrupt or have a material adverse effect on our business, damage our reputation, or result in lawsuits being brought against the Company or its officers or directors. In addition, the operation of these laws or an imposition of further restrictions in these areas could increase our cost of operations, reduce our profits or cause us to forgo development opportunities, or cease operations in certain countries, that would otherwise support growth.


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

Purchases of Equity Securities by the Issuer

None.


ITEM 3.	DEFAULT UPON SENIOR SECURITIES

None.


ITEM 4.	MINE SAFETY DISCLOSURES

None.


ITEM 5.	OTHER INFORMATION

None.


ITEM 6.	EXHIBITS



Exhibit		Description
2.1		Combination Agreement, dated as of ~~April 6, 2018~~May 31, 2019, between Monty J. Bennett, Archie Bennett, Jr., Remington Holdings, L.P., Remington Holdings GP, ~~LLC, Project Management~~ LLC, MJB Investments, LP, ~~Mark A. Sharkey, Remington Holdings, L.P.,~~ Ashford Inc., James L. Cowen, Jeremy J. Welter, Ashford Nevada Holding Corp. and Ashford Merger Sub Inc. (incorporated by reference to Exhibit 2.1 of Form 8-K, filed on ~~April 9, 2018)~~June 3, 2019) (File No. 001-36400)
2.2		First Amendment to Combination Agreement, dated as of July 17, 2019, between Monty J. Bennett, Archie Bennett, Jr., Remington Holdings, L.P., Remington Holdings GP, LLC, MJB Investments, LP, Ashford Inc., James L. Cowen, Jeremy J. Welter, Ashford Nevada Holding Corp. and Ashford Merger Sub Inc. (incorporated by reference to Exhibit 2.2 of Form 8-K, filed on July 19, 2019) (File No. 001-36400)
3.1		Amended and Restated Articles of Incorporation of Ashford Inc. (incorporated by reference to Exhibit 3.1 of Form 8-K, filed on August 8, 2018) (File No. 001-36400)
3.2		Ashford Inc. Articles of Amendment (incorporated by reference to Exhibit 3.2 of Form 8-K, filed on August 8, 2018) (File No. 001-36400)
3.3		Articles Supplementary of establishing the Series B Convertible Preferred Stock of Ashford Inc. (incorporated by reference to Exhibit 3.3 of Form 8-K, filed on August 8, 2018) (File No. 001-36400)
3.4		Articles Supplementary establishing the Series C Preferred Stock of Ashford Inc. (incorporated by reference to Exhibit 3.4 of Form 8-K, filed on August 8, 2018) (File No. 001-36400)
3.5		Amended and Restated Bylaws of ~~New Holdco~~Ashford Inc. (incorporated by reference to Exhibit 3.5 ~~of Form 8-K, filed on August 8, 2018) (File No. 001-36400)~~
~~4.1~~		Rights Agreement, dated August 8, 2018, between Ashford Inc. and Computershare Trust Company, N.A., as Rights Agent, which includes the Form of Articles Supplementary of Series C Preferred Stock as Exhibit A, the Form of Rights Certificate as Exhibit B, and the Summary of Rights as Exhibit C (incorporated by reference to Exhibit 4.1 of Form 8-K, filed on August 8, 2018) (File No. 001-36400)
~~10.1~~		Investor Rights Agreement, dated August 8, 2018, by and among Ashford Holding Corp., Archie Bennett, Jr., Monty J. Bennett, MJB Investments, LP, Mark A. Sharkey, and any other Persons that become parties by joinder as provided herein (incorporated by reference to Exhibit 10.1 of Form 8-K, filed on August 8, 2018) (File No. 001-36400)
~~10.2~~		Merger and Registration Rights Agreement dated August 8, 2018, by and among Ashford Inc., Ashford Holding Corp., and Ashford Merger Sub Inc., and, solely for the purposes of Article V hereof, Archie Bennett, Jr., MJB Investments, LP and Mark A. Sharkey (incorporated by reference to Exhibit 10.2 of Form 8-K, filed on August 8, 2018) (File No. 001-36400)
~~10.3~~		Ashford Inc. Amended and Restated Mutual Exclusivity Agreement, dated August 8, 2018, by and among Ashford Hospitality Advisors LLC, Ashford Inc. and Remington Lodging & Hospitality LLC, and consented to by Monty J. Bennett (incorporated by reference to Exhibit 10.3 of Form 8-K, filed on August 8, 2018) (File No. 001-36400)
~~10.4~~		Braemar Mutual Exclusivity Agreement, dated August 8, 2018, by and among Braemar Hospitality Limited Partnership, Braemar Hotels & Resorts, Inc. and Project Management LLC (incorporated by reference to Exhibit 10.4 of Form 8-K, filed on August 8, 2018) (File No. 001-36400)
~~10.5~~		Braemar Master Project Management Agreement, dated August 8, 2018, by and among Braemar TRS Corporation, CHH III Tenant Parent Corp., RC Hotels (Virgin Islands), Inc., Project Management LLC and Braemar Hospitality Limited Partnership (incorporated by reference to Exhibit 10.5 of Form 8-K, filed on August 8, 2018) (File No. 001-36400)
~~10.6~~		Mutual Exclusivity Agreement, dated August 8, 2018, by and among Ashford Hospitality Limited Partnership, Ashford Hospitality Trust, Inc. and Project Management LLC (incorporated by reference to Exhibit 10.6 of Form 8-K, filed on August 8, 2018) (File No. 001-36400)
~~10.7~~		Master Project Management Agreement, dated August 8, 2018, by and among Ashford TRS Corporation, RI Manchester Tenant Corporation, CY Manchester Tenant Corporation, Project Management LLC and Ashford Hospitality Limited Partnership (incorporated by reference to Exhibit 10.7 of Form 8-K, filed on August 8, 2018) (File No. 001-36400)
31.1*		Certifications of Chief Executive Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of Securities Exchange Act of 1934, as amended
31.2*		Certifications of Chief Financial Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of Securities Exchange Act of 1934, as amended
32.1*		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.1		Form of Merger Agreement and Registration Rights Agreement (incorporated by reference to Exhibit 99.1 of Form 8-K, filed on June 3, 2019) (File No. 001-36400)
99.2

Form of Certificate of Designation of the Series D Convertible Preferred Stock of Ashford Nevada Holding Corp. (incorporated by reference to Exhibit 99.2 of Form 8-K, filed on June 3, 2019) (File No. 001-36400)


99.3	Form of Investor Rights Agreement (incorporated by reference to Exhibit 99.3 of Form 8-K, filed on June 3, 2019 as amended by the First Amendment to the Combination Agreement, dated as of July 17, 2019, filed as Exhibit 2.2 of Form 8-K/A, filed on July 19, 2019) (File No. 001-36400)
99.4	Form of Non-Competition Agreement (incorporated by reference to Exhibit 99.4 of Form 8-K, filed on June 3, 2019) (File No. 001-36400)
99.5	Form of Transition Cost Sharing Agreement (incorporated by reference to Exhibit 99.5 of Form 8-K, filed on June 3, 2019) (File No. 001-36400)
The following materials from the Company’s quarterly report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2018,~~2019, are formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets; (ii) Condensed Consolidated Statements of Operations; (iii) Condensed Consolidated Statements of Comprehensive Income (Loss); (iv) Condensed Consolidated ~~Statement~~Statements of Equity; (v) Condensed Consolidated Statements of Cash Flows; and (vi) Notes to Condensed Consolidated Financial Statements. In accordance with Rule 402 of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”), or otherwise subject to the liability of that section, and shall not be part of any registration statement or other document filed under the Securities Act of 1933 or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

101.INS	XBRL Instance Document	Submitted electronically with this report.
101.SCH	XBRL Taxonomy Extension Schema Document	Submitted electronically with this report.
101.CAL	XBRL Taxonomy Calculation Linkbase Document	Submitted electronically with this report.
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document	Submitted electronically with this report.
101.LAB	XBRL Taxonomy Label Linkbase Document.	Submitted electronically with this report.
101.PRE	XBRL Taxonomy Presentation Linkbase Document.	Submitted electronically with this report.

* Filed herewith.

SIGNATURES

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

ASHFORD INC.



Date:	~~November~~August 8, ~~2018~~2019	By:	/s/ MONTY J. BENNETT
			Monty J. Bennett
			Chief Executive Officer

Date:	~~November~~August 8, ~~2018~~2019	By:	/s/ DERIC S. EUBANKS
			Deric S. Eubanks
			Chief Financial Officer

6472



	September 30, 2018
	Ashford Holdings			J&S⁽³⁾			OpenKey⁽⁴⁾			Pure Rooms ⁽⁵⁾		RED ⁽⁶⁾
Ashford Inc. ownership interest	99.83		%	85.00		%	45.61		%	70.00	%	80.00	%
Redeemable noncontrolling interests^{(1) (2)}	0.17		%	15.00		%	29.65		%	—	%	—	%
Noncontrolling interests in consolidated entities	—		%	—		%	24.74		%	30.00	%	20.00	%
	100.00		%	100.00		%	100.00		%	100.00	%	100.00	%

Carrying value of redeemable noncontrolling interests	$	313		$	2,227		$	1,238		n/a		n/a
Redemption value adjustment, year-to-date	(79		)	—			(497		)	n/a		n/a
Redemption value adjustment, cumulative	279			—			1,524			n/a		n/a
Carrying value of noncontrolling interests	—			—			519			166		(36	)
Assets, available only to settle subsidiary's obligations ⁽⁷⁾	n/a			38,974			2,411			2,267		6,182
Liabilities ⁽⁸⁾	n/a			24,170			500			2,151		2,605
Notes payable ⁽⁸⁾	n/a			13,354			—			39		2,501
Revolving credit facility ⁽⁸⁾	n/a			2,526			—			100		16

	December 31, 2017
	Ashford Holdings			J&S⁽³⁾			OpenKey⁽⁴⁾			Pure Rooms ⁽⁵⁾		RED ⁽⁶⁾
Ashford Inc. ownership interest	99.80		%	85.00		%	43.90		%	70.00	%	—	%
Redeemable noncontrolling interests^{(1) (2)}	0.20		%	15.00		%	39.59		%	—	%	—	%
Noncontrolling interests in consolidated entities	—		%	—		%	16.51		%	30.00	%	—	%
	100.00		%	100.00		%	100.00		%	100.00	%	—	%

Carrying value of redeemable noncontrolling interests	$	385		$	2,522		$	2,204		n/a		n/a
Redemption value adjustment, year-to-date	224			—			1,046			n/a		n/a
Redemption value adjustment, cumulative	358			—			2,021			n/a		n/a
Carrying value of noncontrolling interests	—			439			128			205		—
Assets, available only to settle subsidiary's obligations ⁽⁷⁾	n/a			36,951			1,403			1,865		—
Liabilities ⁽⁸⁾	n/a			21,821			889			1,652		—
Notes payable ⁽⁸⁾	n/a			9,917			—			220		—
Revolving credit facility ⁽⁸⁾	n/a			814			—			100		—



	Three Months Ended September 30, 2018
	As Reported		Financial Results Prior to Adoption of Revenue Recognition Standard			Impact of Adoption of Revenue Recognition Standard
Advisory services revenue:
Base advisory fee	$	11,655	$	11,655		$	—
Incentive advisory fee	452		(241		)	693
Reimbursable expenses	2,607		2,607			—
Non-cash stock/unit-based compensation	6,170		6,170			—
Other advisory revenue	132		132			—
Total advisory services revenue	21,016		20,323			693

Audio visual	14,526		14,526			—
Project management	3,616		3,616			—
Other	2,407		2,407			—
Total revenue	$	41,565	$	40,872		$	693



Cash	$	9,176
Term loan	10,000
Fair value of Ashford Inc. common stock	5,063
Fair value of contingent consideration	1,196
Purchase price consideration	25,435
Fair value of redeemable noncontrolling interest	2,724
Total fair value of purchase price	$	28,159