AINC 8-K 8-12-15


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

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Date of Report (date of earliest event reported): August 6, 2015

ASHFORD INC.
(Exact name of registrant as specified in its charter)

DELAWARE
 
001-36400
 
46-5292553
(State or other jurisdiction of incorporation
 or organization)
 
(Commission
File Number)
 
(IRS employer
identification number)
 
 
 
 
 
14185 Dallas Parkway, Suite 1100
 
 
 
 
Dallas, Texas
 
 
 
75254
(Address of principal executive offices)
 
 
 
(Zip code)

    Registrant’s telephone number, including area code: (972) 490-9600


Check the appropriate box if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o
 
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
 
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
 
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o
 
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))







ITEM 4.02    NON-RELIANCE ON PREVIOUSLY ISSUED FINANCIAL STATEMENTS OR A RELATED AUDIT REPORT OR COMPLETED INTERIM REVIEW.
On August 6, 2015, the Audit Committee of the Board of Directors of Ashford Inc. (the “Company”), after consulting with management and discussing with the Company’s independent registered public accounting firm, Ernst & Young LLP (“EY”), concluded that it is necessary to amend and restate our previously filed unaudited interim financial statements in the Quarterly Report on Form 10-Q for the quarter ended March 31, 2015. In connection with the preparation of our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2015, management discussed with EY that the Company had incorrectly overstated the Company’s valuation allowance on deferred tax assets and also had not properly consolidated the financial position and operating results of certain private investment funds managed by Ashford Investment Management, LLC (“AIM”), a wholly-owned subsidiary of the Company. Accordingly, the Company’s previously filed unaudited interim financial statements for the quarter ended March 31, 2015 should no longer be relied upon.
The net impact to our first quarter financial results (discussed in more detail below) from the reversal of the valuation allowance and consolidation of the private investment funds is:
no impact to adjusted EBITDA;
no material impact to cash; and
Net Income and Adjusted Net Income will be approximately $1.2 million higher.
At the end of each quarter, we assess the need for a valuation allowance which involves consideration of both positive and negative evidence related to the likelihood of realization of our deferred tax assets. In performing this assessment as of March 31, 2015, we did not appropriately consider carryback potential of certain deferred tax assets in determining whether it is more likely than not that we will utilize a portion of our deferred tax assets. As a result, we overstated our income tax expense for the three months ended March 31, 2015 and understated our deferred tax assets as of March 31, 2015 by $1.2 million. The analysis utilized in determining the valuation allowance involves considerable management judgment and assumptions.
Separately, certain reconsideration events occurred during the three months ended March 31, 2015, that were not properly considered in concluding whether certain private investment funds managed by AIM (i) were variable interest entities deemed to be controlled by Ashford Inc. and (ii) should be consolidated as of March 31, 2015. Accordingly, the financial position and results of operations, along with the applicable noncontrolling interests of 100%, of the related private investment funds managed by AIM were not consolidated by Ashford Inc. and not included in our financial statements as of and for the three months ended March 31, 2015 included in our previously filed Form 10-Q. The analysis utilized in determining whether or not to consolidate an entity is considerably complex and involves significant judgment.
In a few days, we will amend our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2015 to restate the financial statements for these misstatements and to revise certain related information, including the discussion of internal controls and procedures.





The preliminary effect of these adjustments are as follows:
 
March 31, 2015
 
As Previously
Reported
 
Restatement
Adjustments
 
As Restated
Assets
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
$
24,916

 
$
14

 
$
24,930

Restricted cash
5,934

 

 
5,934

Investments in securities

 
2,978

 
2,978

Prepaid expenses and other
1,412

 
(260
)
 
1,152

Receivables

 
6

 
6

Due from Ashford Trust OP, net
9,185

 

 
9,185

Due from Ashford Prime OP
2,829

 

 
2,829

Deferred tax assets

 
1,203

 
1,203

Total current assets
44,276

 
3,941

 
48,217

Furniture, fixtures and equipment, net
4,525

 

 
4,525

Deferred tax assets

 
20

 
20

Total assets
$
48,801

 
$
3,961

 
$
52,762

Liabilities and Equity
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Accounts payable and accrued expenses
$
6,179

 
$

 
$
6,179

Due to affiliates
483

 
(55
)
 
428

Liabilities associated with investments in securities

 
366

 
366

Deferred compensation plan
221

 

 
221

Other liabilities
5,934

 
45

 
5,979

Total current liabilities
12,817

 
356

 
13,173

Deferred compensation plan
24,990

 

 
24,990

Total liabilities
37,807

 
356

 
38,163

Commitments and contingencies (Note 5)
 
 
 
 
 
Redeemable noncontrolling interests in Ashford LLC
535

 

 
535

Equity:
 
 
 
 
 
Preferred stock, $0.01 par value, 50,000,000 shares authorized:
 
 
 
 
 
Series A cumulative preferred stock, no shares issued and outstanding at March 31, 2015 and December 31, 2014

 

 

Common stock, $0.01 par value, 100,000,000 shares authorized, 1,986,851 shares issued and 1,986,369 and 1,986,851 shares outstanding at March 31, 2015 and December 31, 2014, respectively
20

 

 
20

Additional paid-in capital
229,284

 

 
229,284

Accumulated deficit
(217,931
)
 
1,223

 
(216,708
)
Treasury stock, at cost, 482 shares at March 31, 2015
(64
)
 

 
(64
)
Total stockholders’ equity of the Company
11,309

 
1,223

 
12,532

Noncontrolling interests in consolidated entities
(850
)
 
2,382

 
1,532

Total equity
10,459

 
3,605

 
14,064

Total liabilities and equity
$
48,801

 
$
3,961

 
$
52,762






 
Three Months Ended March 31, 2015
 
As Previously
Reported
 
Restatement
Adjustments
 
As Restated
Revenue
 
 
 
 
 
Advisory services
$
12,923

 
$

 
$
12,923

Other
195

 

 
195

Total revenue
13,118

 

 
13,118

Expenses
 
 
 
 
 
Salaries and benefits
17,493

 

 
17,493

Depreciation
129

 

 
129

General and administrative
3,880

 
250

 
4,130

Total expenses
21,502

 
250

 
21,752

Operating loss
(8,384
)
 
(250
)
 
(8,634
)
Interest income

 
1

 
1

Dividend income

 
6

 
6

Unrealized gain on investments

 
47

 
47

Realized loss on investments

 
(2
)
 
(2
)
Loss before income taxes
(8,384
)
 
(198
)
 
(8,582
)
Income tax expense
(1,454
)
 
1,223

 
(231
)
Net loss
(9,838
)
 
1,025

 
(8,813
)
Loss from consolidated entities attributable to noncontrolling interests
763

 
198

 
961

Net loss attributable to redeemable noncontrolling interests in Ashford LLC
21

 
(3
)
 
18

Net loss attributable to the Company
$
(9,054
)
 
$
1,220

 
$
(7,834
)
Comprehensive loss attributable to the Company
$
(9,054
)
 
$
1,220

 
$
(7,834
)
Loss per share – basic and diluted:
 
 
 
 
 
Loss attributable to common stockholders
$
(4.57
)
 
$
0.62

 
$
(3.95
)
Weighted average common shares outstanding basic and diluted
1,982

 

 
1,982

 
Common Stock
 
Additional Paid-in Capital
 
Accumulated
 Deficit
 
Treasury Stock
 
Noncontrolling Interests in Consolidated Entities
 
Total
 
Redeemable Noncontrolling Interests in Ashford LLC
 
Shares
 
Amounts
 
 
 
Shares
 
Amounts
 
 
 
Balance at January 1, 2015
1,987

 
$
20

 
$
228,003

 
$
(213,042
)
 

 
$

 
$
(87
)
 
$
14,894

 
$
424

Purchase of treasury stock

 

 

 

 

 
(64
)
 

 
(64
)
 

Equity-based compensation

 

 
951

 
4,297

 

 

 

 
5,248

 

Contributions from noncontrolling interests in consolidated entities

 

 

 

 

 

 

 

 

Excess tax benefit on equity-based compensation

 

 
853

 

 

 

 

 
853

 

Employee advances

 

 
(523
)
 

 

 

 

 
(523
)
 

Redemption value adjustment

 

 

 
(132
)
 

 

 

 
(132
)
 
132

Net loss

 

 

 
(9,054
)
 

 

 
(763
)
 
(9,817
)
 
(21
)
Balance at March 31, 2015 (As Previously Reported)
1,987

 
$
20

 
$
229,284

 
$
(217,931
)
 

 
$
(64
)
 
$
(850
)
 
$
10,459

 
$
535

 
(Restatement Adjustments)
Contributions from noncontrolling interests in consolidated entities

 

 

 

 

 

 
2,580

 
2,580

 

Redemption value adjustment

 

 

 
3

 

 

 

 
3

 
3

Net loss

 

 

 
1,220

 

 

 
(198
)
 
1,022

 
(3
)
Balance at March 31, 2015 (As Restated)
1,987

 
$
20

 
$
229,284

 
$
(216,708
)
 

 
$
(64
)
 
$
1,532

 
$
14,064

 
$
535






 
Three Months Ended March 31, 2015
 
As Previously
Reported
 
Restatement
Adjustments
 
As Restated
Cash Flows from Operating Activities
 
 
 
 
 
Net loss
$
(9,838
)
 
$
1,025

 
$
(8,813
)
Adjustments to reconcile net loss to net cash flows used in operating activities:
 
 
 
 
 
Depreciation
129

 

 
129

Non-cash deferred compensation expense
5,256

 

 
5,256

Equity-based compensation
5,248

 

 
5,248

Excess tax benefit on equity-based compensation
(853
)
 

 
(853
)
Deferred tax benefit

 
(1,223
)
 
(1,223
)
Realized and unrealized gain on investments

 
(45
)
 
(45
)
Purchases of investments in securities

 
(3,895
)
 
(3,895
)
Sales of investments in securities

 
1,005

 
1,005

Changes in operating assets and liabilities:
 
 
 
 
 
Restricted cash
(2,597
)
 

 
(2,597
)
Prepaid expenses and other
(699
)
 
260

 
(439
)
Receivables

 
(6
)
 
(6
)
Due to broker

 
323

 
323

Due from Ashford Trust OP, net
(336
)
 

 
(336
)
Due from Ashford Prime OP
(283
)
 

 
(283
)
Accounts payable and accrued expenses
(2,316
)
 

 
(2,316
)
Due to affiliates
(448
)
 
(55
)
 
(503
)
Other liabilities
2,597

 
45

 
2,642

Net cash used in operating activities
(4,140
)
 
(2,566
)
 
(6,706
)
Cash Flows from Investing Activities
 
 
 
 
 
Additions to furniture, fixtures and equipment
(807
)
 

 
(807
)
Net cash used in investing activities
(807
)
 

 
(807
)
Cash Flows from Financing Activities
 
 
 
 
 
Excess tax benefit on equity-based compensation
853

 

 
853

Purchase of treasury shares
(64
)
 

 
(64
)
Employee advances
(523
)
 

 
(523
)
Contributions from noncontrolling interests in consolidated entities

 
2,580

 
2,580

Net cash provided by financing activities
266

 
2,580

 
2,846

Net change in cash
(4,681
)
 
14

 
(4,667
)
Cash at beginning of period
29,597

 

 
29,597

Cash at end of period
$
24,916

 
$
14

 
$
24,930






SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Dated: August 12, 2015
 
ASHFORD INC.
 
 
 
 
By:
 
/s/ DAVID A. BROOKS
 
 
 
David A. Brooks
 
 
 
Chief Operating Officer and General Counsel