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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
FORM 10-Q/A
(Amendment No. 1)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from _______________ to _______________ 
Commission File Number: 001-31458 
Drive Shack Inc.
(Exact name of registrant as specified in its charter)
Maryland 81-0559116
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
10670 N. Central Expressway, Suite 700, Dallas, TX
 75231
(Address of principal executive offices) (Zip Code)
(646) 585-5591
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbols(s)Name of each exchange on which registered
Common Stock, $0.01 par value per shareDS
New York Stock Exchange (NYSE)
9.75% Series B Cumulative Redeemable Preferred Stock, $0.01 par value per shareDS-PB
New York Stock Exchange (NYSE)
8.05% Series C Cumulative Redeemable Preferred Stock, $0.01 par value per shareDS-PC
New York Stock Exchange (NYSE)
8.375% Series D Cumulative Redeemable Preferred Stock, $0.01 par value per shareDS-PD
New York Stock Exchange (NYSE)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  x No o 
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 o Accelerated filer x Non-accelerated filer o Smaller reporting company ☐ Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date.
Common stock, $0.01 par value per share: 92,385,019 shares outstanding as of May 9, 2022.



EXPLANATORY NOTE

This Amendment No. 1 to Form 10-Q (this “Amendment”) amends the Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2022 originally filed on May 10, 2022 (the “Original Filing” and, together with this Amendment, the “Quarterly Report on Form 10-Q”) by Drive Shack Inc., a Maryland corporation (“Drive Shack,” the “Company,” “we,” or “us”).

Subsequent to the issuance of the Original Filing, management reevaluated, in consultation with our external auditor, Ernst & Young LLP (“EY”), certain controls relating to long-lived asset impairment testing. As a result of this reevaluation, management has subsequently identified a deficiency in controls related to the design and operating effectiveness of the Company’s internal controls associated with the identification and calculation of long-lived asset impairments and has further concluded that such deficiency represented a material weakness as of March 31, 2022. A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements would not be prevented or detected on a timely basis. As a result of the material weakness, there is more than a remote likelihood that a material misstatement in our annual or interim financial statements would not be prevented or detected. However, the material weakness did not result in a restatement of our consolidated financial statements presented in this Amendment.

This Amendment does not amend, update or change any other items or disclosures in the Original Filing, except for Note 16. Subsequent Events, Going Concern, Item 4. Controls and Procedures, and accordingly, should be read in conjunction with the Original Filing. The Original Filing continues to speak as of the date of the Original Filing, and we have not updated the disclosures contained therein to reflect any events which occurred at a date subsequent to the Original Filing except as otherwise disclosed in this Amendment.










CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements relate to, among other things, our operating performance, the performance of our investments, the stability of our earnings, and our financing needs. Forward-looking statements are generally identifiable by use of forward-looking terminology such as “may,” “will,” “should,” “potential,” “intend,” “expect,” “endeavor,” “seek,” “anticipate,” “estimate,” “overestimate,” “underestimate,” “believe,” “could,” “project,” “forecast,” “predict,” “continue” or other similar words or expressions. Forward-looking statements are based on certain assumptions, discuss future expectations, describe future plans and strategies, contain projections of results of operations or of financial condition or state other forward-looking information. Our ability to predict results or the actual outcome of future plans or strategies is inherently uncertain. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements. These forward-looking statements involve risks, uncertainties and other factors that may cause our actual results in future periods to differ materially from forecasted results, including those set forth in the section entitled “Risk Factors” in our Annual Report on Form 10-K filed with or furnished to the SEC. We disclaim any intent or obligation to update these forward-looking statements.


DRIVE SHACK INC.  
FORM 10-Q/A
INDEX


PART I.   FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

DRIVE SHACK INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
(unaudited)
March 31, 2022December 31, 2021
Assets
Current assets
Cash and cash equivalents$44,068 $58,286 
Restricted cash3,985 3,480 
Accounts receivable, net5,405 5,563 
Real estate securities, available-for-sale3,655 3,486 
Other current assets31,577 30,034 
Total current assets88,690 100,849 
Restricted cash, noncurrent216 798 
Property and equipment, net of accumulated depreciation172,002 179,260 
Operating lease right-of-use assets198,926 181,915 
Intangibles, net of accumulated amortization13,509 13,430 
Other assets6,374 6,538 
Total assets$479,717 $482,790 
Liabilities and Equity
Current liabilities
Obligations under finance leases$5,186 $5,400 
Membership deposit liabilities18,039 18,039 
Accounts payable and accrued expenses33,310 34,469 
Deferred revenue23,323 26,301 
Other current liabilities29,375 26,524 
Total current liabilities109,233 110,733 
Credit facilities and obligations under finance leases - noncurrent8,867 9,075 
Operating lease liabilities - noncurrent183,302 166,031 
Junior subordinated notes payable51,172 51,174 
Membership deposit liabilities, noncurrent105,749 104,430 
Deferred revenue, noncurrent10,864 10,005 
Other liabilities1,716 1,487 
Total liabilities$470,903 $452,935 
Commitments and contingencies
Equity
Preferred stock, $0.01 par value, 100,000,000 shares authorized, 1,347,321 shares of 9.75% Series B Cumulative Redeemable Preferred Stock, 496,000 shares of 8.05% Series C Cumulative Redeemable Preferred Stock, and 620,000 shares of 8.375% Series D Cumulative Redeemable Preferred Stock, liquidation preference $25.00 per share, issued and outstanding as of March 31, 2022 and December 31, 2021
$61,583 $61,583 
Common stock, $0.01 par value, 1,000,000,000 shares authorized, 92,362,845 and 92,093,425 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively.
921 921 
Additional paid-in capital3,232,912 3,233,608 
Accumulated deficit(3,289,237)(3,268,876)
Accumulated other comprehensive income1,163 1,163 
Total equity of the company$7,342 $28,399 
Noncontrolling interest1,472 1,456 
Total equity$8,814 $29,855 
Total liabilities and equity$479,717 $482,790 
See notes to Consolidated Financial Statements.
1

DRIVE SHACK INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(Dollars in thousands, except share data)
 Three Months Ended March 31,
 20222021
Revenues  
Golf operations$55,284 $53,161 
Sales of food and beverages13,698 7,930 
Total revenues68,982 61,091 
Operating costs
Operating expenses55,139 48,870 
Cost of sales - food and beverages3,361 2,104 
General and administrative expense9,063 7,982 
Depreciation and amortization6,193 6,245 
Pre-opening costs747 556 
Loss on lease terminations and impairment12,871 3,209 
Total operating costs87,374 68,966 
Operating loss(18,392)(7,875)
Other income (expenses)
Interest and investment income201 153 
Interest expense, net(2,646)(2,626)
Other income (loss), net2,645 (61)
Total other income (expenses)200 (2,534)
Loss before income tax(18,192)(10,409)
Income tax expense 721 495 
Consolidated net loss(18,913)(10,904)
Less: net income attributable to noncontrolling interest53 — 
Net loss attributable to the Company(18,966)(10,904)
Preferred dividends(1,395)(1,395)
Loss applicable to common stockholders$(20,361)$(12,299)
Loss applicable to common stock, per share  
Basic$(0.22)$(0.15)
Diluted$(0.22)$(0.15)
Weighted average number of shares of common stock outstanding  
Basic92,254,084 82,558,881 
Diluted92,254,084 82,558,881 

See notes to Consolidated Financial Statements.
2

DRIVE SHACK INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (unaudited)
(Dollars in thousands, except share data)
 Three Months Ended March 31,
 20222021
Net loss$(18,913)$(10,904)
Other comprehensive loss:  
Net unrealized gain (loss) on available-for-sale securities— (76)
Other comprehensive gain (loss)— (76)
Total comprehensive loss $(18,913)$(10,980)
Comprehensive loss attributable to noncontrolling interest53 — 
Comprehensive loss attributable to the Company$(18,966)$(10,980)
  
See notes to Consolidated Financial Statements.
3

DRIVE SHACK INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (unaudited)
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(Dollars in thousands, except share data)
Drive Shack Inc. Stockholders
 Preferred StockCommon Stock
 SharesAmountSharesAmountAdditional Paid-
in Capital		Accumulated
Deficit		Accumulated Other Comp.
Income (loss)		Noncontrolling InterestTotal Equity
(Deficit)
Equity (deficit) - December 31, 20212,463,321 $61,583 92,093,425 $921 $3,233,608 $(3,268,876)$1,163 $1,456 $29,855 
Dividends declared— — — — — (1,395)— — (1,395)
Stock-based compensation— — — — (696)— — — (696)
Shares issued from options and restricted stock units— — 269,420 — — — — — — 
Contributed Capital— — — — — — — 3 3 
Capital Distribution— — — — — — — (40)(40)
Comprehensive income (loss)
Net income (loss)— — — — — (18,966)— 53 (18,913)
Other comprehensive loss— — — — — — — — — 
Total comprehensive loss16 $(18,913)
Equity (deficit) - March 31, 20222,463,321 $61,583 92,362,845 $921 $3,232,912 $(3,289,237)$1,163 $1,472 $8,814 
Equity (deficit) - December 31, 20202,463,321 $61,583 67,323,592 $673 $3,178,704 $(3,232,391)$1,468 $— $10,037 
Dividends declared— — — — — (930)— — (930)
Stock-based compensation— — — — 350 — — — 350 
Shares issued from options and restricted stock units— — 745,881 7 (7)— — — 
Shares issued from equity raise— — 23,958,333 $239 $53,666 $— $— — 53,905 
Comprehensive income (loss)
Net loss— — — — — (10,904)— — (10,904)
Other comprehensive loss— — — — — — (76)— (76)
Total comprehensive loss— (10,980)
Equity (deficit) - March 31, 20212,463,321 $61,583 92,027,806 $919 $3,232,713 $(3,244,225)$1,392 $— $52,382 


See notes to Consolidated Financial Statements.
4


DRIVE SHACK INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(Dollars in thousands, except share data)
 Three Months Ended March 31,
 20222021
Cash Flows From Operating Activities  
Net loss$(18,913)$(10,904)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization6,193 6,245 
Amortization of discount and premium(171)(126)
Other amortization2,044 2,000 
Amortization of revenue on golf membership deposit liabilities(508)(564)
Amortization of prepaid golf membership dues(3,935)(6,467)
Non-cash operating lease expense736 107 
Stock-based compensation(696)349 
Loss on lease terminations and impairment12,871 3,209 
Gain from insurance proceeds for property loss(2,781)— 
Other losses, net120 182 
Change in:
Accounts receivable, net, other current assets and other assets - noncurrent(1,220)(3,868)
Accounts payable and accrued expenses, deferred revenue, other current liabilities and other liabilities - noncurrent3,798 2,281 
Net cash used in operating activities(2,462)(7,556)
Cash Flows From Investing Activities  
Insurance proceeds for property loss2,781 — 
Acquisition and additions of property and equipment and intangibles(10,964)(6,542)
Net cash used in investing activities(8,183)(6,542)
Cash Flows From Financing Activities
Repayments of debt obligations(1,499)(1,685)
Golf membership deposits received45 815 
Proceeds from issuance of common stock— 53,905 
Capital distribution paid(40)— 
Preferred stock dividends paid(1,395)— 
Other financing activities(761)(187)
Net cash provided by (used in) financing activities(3,650)52,848 
Net Increase (Decrease) in Cash and Cash Equivalents, Restricted Cash and Restricted Cash, noncurrent(14,295)38,750 
Cash and Cash Equivalents, Restricted Cash and Restricted Cash, noncurrent, Beginning of Period62,564 50,833 
Cash and Cash Equivalents, Restricted Cash and Restricted Cash, noncurrent, End of Period$48,269 $89,583 
Supplemental Schedule of Non-Cash Investing and Financing Activities
Preferred stock dividends declared but not paid$930 $930 
Additions to finance lease assets and liabilities$1,297 $298 
Decreases in accounts payable and accrued expenses related to the purchase of property and equipment$(235)$(1,916)
Additions for operating right of use assets and liabilities$21,467 $— 
Cash paid during the period for interest expense$540 $— 
Cash paid during the period for income taxes$— $— 

See notes to Consolidated Financial Statements.
5
DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
MARCH 31, 2022
(Dollars in tables in thousands, except share data)

Note 1. ORGANIZATION
Drive Shack Inc., which is referred to in this Quarterly Report on Form 10-Q, as Drive Shack or the Company, is an owner and operator of golf-related leisure and entertainment venues focused on bringing people together through competitive socializing. The Company, a Maryland corporation, was formed in 2002, and its common stock is traded on the NYSE under the symbol “DS.”
The Company conducts its business through the following segments: (i) entertainment golf, (ii) traditional golf and (iii) corporate. For a further discussion of the reportable segments, see Note 4.
As of March 31, 2022, the Company's entertainment golf segment was comprised of six owned or leased entertainment golf venues across four states with locations in Orlando, Florida; West Palm Beach, Florida; Raleigh, North Carolina; Richmond, Virginia; The Colony, Texas; and Charlotte, North Carolina.
The Company’s traditional golf segment is one of the largest operators of traditional golf properties in the United States. As of March 31, 2022, the Company owned, leased or managed fifty-five (55) traditional golf properties across nine states.

The corporate segment consists primarily of securities and other investments and executive management.

Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In March 2020, a global pandemic was declared by the World Health Organization related to the rapidly growing outbreak of a novel strain of coronavirus (“COVID-19”).

Many jurisdictions in which we operate have previously imposed capacity limitations and other restrictions affecting our operations. The extended length of the COVID-19 pandemic and the related government response may continue to cause prolonged periods of various operational restrictions and capacity limitations impacting future business operations. In addition, the duration and intensity of the pandemic may result in changes in customer behaviors or preferences. These may lead to increased asset recovery and valuation risks, such as impairment of long-lived and other assets. The extent to which COVID-19 continues to impact our business will depend on future developments, which remain highly uncertain and cannot be predicted, including additional actions taken by various governmental bodies and private enterprises to contain COVID-19 or mitigate its impact, among others.

Basis of Presentation — The accompanying Consolidated Financial Statements and related notes of the Company have been prepared in accordance with U.S. generally accepted accounting principles or GAAP for interim financial reporting and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. The portions of equity in consolidated subsidiaries that are not attributable, directly or indirectly, to us are presented as noncontrolling interest. All significant intercompany accounts and transactions have been eliminated. Accordingly, certain information and footnote disclosures normally included in financial statements prepared under U.S. generally accepted accounting principles, or GAAP, have been condensed or omitted. In the opinion of management, all adjustments considered necessary for a fair presentation of the Company’s financial position, results of operations and cash flows have been included and are of a normal and recurring nature. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. These financial statements should be read in conjunction with the Company’s Consolidated Financial Statements for the year ended December 31, 2021 and notes thereto included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "SEC") on March 18, 2022. There have been no significant changes to our critical accounting policies as disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

Use of Estimates – Our estimates are based on information available to management at the time of preparation of the Consolidated Financial Statements, including the result of historical analysis, our understanding and experience of the Company’s operations, our knowledge of the industry and market-participant data available to us. Actual results have historically been in line with management’s estimates and judgments used in applying each of the accounting policies, and management periodically re-evaluates accounting estimates and assumptions. Actual results could differ from these estimates and materially impact our Consolidated Financial Statements. However, the Company does not expect our assessments and assumptions to materially change in the future.

Seasonality – Seasonality can affect our results of operations. Our traditional golf business is subject to seasonal fluctuations as colder temperatures and shorter days reduce the demand for outdoor activities. As a result, the traditional golf business
6
DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MARCH 31, 2022
(Dollars in tables in thousands, except share data)
generates a disproportionate share of its annual revenue in the second and third quarters of each year. In addition, our Drive Shack and Puttery venues could be significantly impacted on a season-to-season basis, based on corporate event and social gathering volumes during holiday seasons and school vacation schedules. For this reason, a quarter-to-quarter comparison may not be a good indicator of our current and/or future performance.

Leasing Arrangements — The Company evaluates at lease inception whether an arrangement is or contains a lease by providing the Company with the right to control an asset. Operating leases are accounted for on the balance sheet with the Right of Use (“ROU”) assets in "Operating lease right-of-use assets" and lease liabilities are recognized in "Other current liabilities" and "Operating lease liabilities - noncurrent" in the Consolidated Balance Sheets. Finance lease ROU assets, current lease liabilities and noncurrent lease liabilities are recognized in "Property and equipment, net of accumulated depreciation," and "Obligations under finance leases" and "Credit facilities and obligations under finance leases - noncurrent" in the Consolidated Balance Sheets, respectively.

All lease liabilities are measured at the present value of the associated payments, discounted using the Company’s incremental borrowing rate determined using a portfolio approach based on the rate of interest that the Company would pay to borrow an amount equal to the lease payments for a similar term and in a similar economic environment on a collateralized basis. ROU assets, for both operating and finance leases, are initially measured based on the lease liability, adjusted for initial direct costs, prepaid rent, and lease incentives received. Operating leases are subsequently amortized into lease cost on a straight-line basis. Depreciation of the finance lease ROU assets is subsequently calculated using the straight-line method over the shorter of the estimated useful lives or the expected lease terms and recorded in "Depreciation and amortization" on the Consolidated Statements of Operations.

In addition to the fixed minimum payments required under the lease arrangements, certain leases require variable lease payments, which are payment of the excess of various percentages of gross revenue or net operating income over the minimum rental payments as well as payment of taxes assessed against the leased property. The leases generally also require payment for the cost of insurance and maintenance. Variable lease payments are recognized when the associated activity occurs and contingency is resolved.

The Company has elected to combine lease and non-lease components for all lease contracts.

Impairment of Long-lived Assets — The Company periodically reviews the carrying amounts of its long-lived assets, including real estate held-for-use and held-for-sale, as well as finite-lived intangible assets and right-of-use assets, to determine whether current events or circumstances indicate that such carrying amounts may not be recoverable. The assessment of recoverability is based on management’s estimates by comparing the sum of the estimated undiscounted cash flows generated by the underlying asset, or other appropriate grouping of assets, to its carrying value to determine whether an impairment existed at its lowest level of identifiable cash flows. If the carrying amount is greater than the expected undiscounted cash flows, the asset is considered impaired and an impairment is recognized to the extent the carrying value of such asset exceeds its fair value. The Company generally measures fair value by considering sale prices for similar assets or by discounting estimated future cash flows using an appropriate discount rate.
7
DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MARCH 31, 2022
(Dollars in tables in thousands, except share data)
Cash and Cash Equivalents and Restricted Cash — The Company considers all highly liquid short-term investments with maturities of 90 days or less when purchased to be cash equivalents. Substantially all amounts on deposit with major financial institutions exceed insured limits. The Company has not experienced any losses in the accounts and believe that the Company is
not exposed to significant credit risk because the accounts are at major financial institutions.

The following table summarizes the Company's Cash and Cash Equivalents, Restricted Cash and Restricted Cash, noncurrent:

March 31, 2022December 31, 2021
Cash and cash equivalents$44,068 58,286 
Restricted cash3,985 3,480 
Restricted cash, noncurrent216 798 
Total Cash and cash equivalents, Restricted cash and Restricted cash, noncurrent$48,269 $62,564 

Accounts Receivable, Net — Accounts receivable are stated at amounts due from customers, net of an allowance for doubtful accounts of $0.9 million as of March 31, 2022 and December 31, 2021. The allowance for doubtful accounts is based upon several factors including the length of time the receivables are past due, historical payment trends, current economic factors, and our expectations of future events that affect collectability. Collateral is generally not required.

Other Current Assets — The following table summarizes the Company's other current assets:
March 31, 2022December 31, 2021
Managed property receivables$16,995 $19,316 
Prepaid expenses4,953 2,524 
Deposits1,827 1,827 
Inventory2,657 2,229 
Miscellaneous current assets, net5,145 4,138 
Other current assets$31,577 $30,034 
Other Assets — The following table summarizes the Company's other assets:
March 31, 2022December 31, 2021
Prepaid expenses$2,334 $2,156 
Deposits3,310 3,335 
Miscellaneous assets, net730 1,047 
Other assets$6,374 $6,538 

Other Current Liabilities — The following table summarizes the Company's other current liabilities:
March 31, 2022December 31, 2021
Operating lease liabilities$16,996 $16,519 
Accrued rent3,006 3,455 
Dividends payable930 930 
Miscellaneous current liabilities8,443 5,620 
Other current liabilities$29,375 $26,524 

8
DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MARCH 31, 2022
(Dollars in tables in thousands, except share data)
Membership Deposit Liabilities - Initiation fees are non-refundable and recorded as revenue over the expected seven year life of an active membership. Until 2021, private country club members generally paid an advance initiation deposit upon their acceptance as a member to the respective country club that is refundable 30 years after the date of acceptance as a member. The difference between the initiation deposit paid by the member and the present value of the refund obligation is deferred and recognized into golf operations revenue in the Consolidated Statements of Operations on a straight-line basis over the expected life of an active membership, which is estimated to be seven years. The present value of the refund obligation is recorded as a membership deposit liability in the Consolidated Balance Sheets and accretes over a 30-year nonrefundable term using the effective interest method. This accretion is recorded as interest expense in the Consolidated Statements of Operations.

In 2002 American Golf Corporation ("AGC"), when it was owned by a previous owner, entered into a Restated Membership Deposit Assumption Agreement, with two trusts established by a previous owner of AGC (the “Trusts”) under which the Trusts agreed to unconditionally assume the obligations of AGC to refund certain membership deposit liabilities ("MDLs") in exchange for shares in AGC. The MDLs assumed were refundable 30 years from the date of acceptance of the member with the first liabilities assumed by the Trusts becoming refundable in 2020. The total redemption value of membership deposit liabilities assumed by the Trusts was $181.9 million. No asset was recorded at the time of our acquisition of AGC in recognition of this assumption agreement for the $181.9 million of liabilities assumed by the Trusts for the following reasons. 1) the substantial time period between the assumption of the liabilities and the first liabilities becoming refundable; 2) the inability of AGC to verify and monitor the assets of the Trusts to ensure the ability to perform under the terms of the assumption agreements; 3) the fact that the Trusts are not required to maintain any assets that would support such performance; 4) the Trust settlors were not required contractually to fund the Trusts; and 5) The Company does not have the ability to determine the likelihood that the Trusts will meet their obligations. In the event the Trusts are not able to fulfill their obligations, the Company would be responsible for refunding the outstanding balance of the MDL and therefore, recognizes these MDLs on its balance sheet. Though the Trusts initially assumed $181.9 million of MDLs the balance of related MDLs carried on the books of AGC, as of March 31, 2022, has been reduced to an undiscounted nominal value of $115 million through various assignments to third parties and partial membership refunds due to membership transfers. To-date, the Trust has met all of their obligations that have come due for which the Trust assumed responsibility under the Restated Membership Deposit Assumption Agreement. As of March 31, 2022 the Trusts had refunded a total of approximately $0.3 million of MDLs, all of which they were obligated to pay under the terms of the assumption agreements.

Other Income (Loss), Net — These items are comprised of the following:
 Three Months Ended March 31,
 20222021
Collateral management fee income, net$37 $56 
Insurance proceeds2,781 — 
Loss on sale of long-lived assets and intangibles(38)(15)
Gain on Lease Modification/Termination42 — 
Other loss(177)(102)
Other gain (loss), net$2,645 $(61)



9
DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MARCH 31, 2022
(Dollars in tables in thousands, except share data)
Note 3. REVENUES

The majority of the Company’s revenue is recognized at the time of sale to customers at the Company’s entertainment golf venues and traditional golf properties, including green fees, cart rentals, bay play, events and sales of food, beverages and merchandise. Revenue from membership dues is recognized in the month earned. Membership dues received in advance are included in deferred revenue and recognized as revenue ratably over the appropriate period, which is generally twelve months or less for private club members and the following month for The Players Club members.

The Company’s revenue is all generated within the entertainment golf and traditional golf segments. The following tables disaggregate revenue by category: entertainment golf venues, public and private golf properties (owned and leased) and managed golf properties.
Three Months Ended March 31, 2022
Ent. golf venuesPublic golf propertiesPrivate golf propertiesManaged golf properties (A)CorporateTotal
Golf operations$6,428 $19,506 $14,565 $14,602 $183 $55,284 
Sales of food and beverages7,749 4,364 1,585 — 13,698 
Total revenues$14,177 $23,870 $16,150 $14,602 $183 $68,982 
Three Months Ended March 31, 2021
Ent. golf venuesPublic golf propertiesPrivate golf propertiesManaged golf properties (A)CorporateTotal
Golf operations$3,421 $19,172 $14,719 $15,849 $— $53,161 
Sales of food and beverages4,802 1,855 1,273 — — 7,930 
Total revenues$8,223 $21,027 $15,992 $15,849 $— $61,091 
(A)Includes $13.0 million and $13.8 million for the three months ended March 31, 2022, and for the three months ended March 31, 2021, respectively, related to management contract reimbursements reported under ASC 606.
10
DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MARCH 31, 2022
(Dollars in tables in thousands, except share data)
Note 4. SEGMENT REPORTING

The Company currently has three reportable segments: (i) entertainment golf, (ii) traditional golf and (iii) corporate. The chief operating decision maker (“CODM”) for each segment is the chief executive officer and president, who reviews discrete financial information for each reportable segment to manage the Company, including resource allocation and performance assessment.

The Company's entertainment golf segment, launched in 2018, is comprised of Drive Shack venues that feature tech-enabled hitting bays with in-bay dining, full-service restaurants, bars, and event spaces and Puttery venues that feature indoor putting courses anchored by bars and other social spaces as well as a full-service kitchen that serve to create engaging and fun experiences for guests. As of March 31, 2022, the Company owned or leased four Drive Shack venues across three states which are located in Orlando, Florida; West Palm Beach, Florida; Raleigh, North Carolina; and Richmond, Virginia, and leased two Puttery venues located in The Colony, Texas and Charlotte, North Carolina.

The Company's traditional golf segment is one of the largest operators of golf courses and country clubs in the United States. As of March 31, 2022, the Company owned, leased or managed 55 traditional golf properties across nine states.

The corporate segment consists primarily of investments in loans and securities, interest income on short-term investments, general and administrative expenses as a public company, interest expense on the junior subordinated notes payable (Note 8) and income tax expense (Note 14).
11
DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MARCH 31, 2022
(Dollars in tables in thousands, except share data)
Summary financial data on the Company’s segments is given below, together with a reconciliation to the same data for the Company as a whole:
Three Months Ended March 31, 2022Entertainment GolfTraditional GolfCorporateTotal
Revenues
Golf operations$6,428 $48,673 $183 $55,284 
Sales of food and beverages7,749 5,949 — 13,698 
Total revenues14,177 54,622 183 68,982 
Operating costs
Operating expenses8,260 46,815 64 55,139 
Cost of sales - food and beverages1,743 1,618 — 3,361 
General and administrative expense (A)3,726 2,894 2,443 9,063 
Depreciation and amortization3,441 2,644 108 6,193 
Pre-opening costs (C)747 — — 747 
(Gain) Loss on lease terminations and impairment12,889 (18)— 12,871 
Total operating costs30,806 53,953 2,615 87,374 
Operating income (loss) (16,629)669 (2,432)(18,392)
Other income (expenses)
Interest and investment income1 26 174 201 
Interest expense (D)(58)(2,249)(339)(2,646)
Other income (loss), net(16)2,628 33 2,645 
Total other income (expenses)(73)405 (132)200 
Income tax expense31 — 690 721 
Net income (loss)(16,733)1,074 (3,254)(18,913)
   Less: net income attributable to NCI— — 53 53 
   Net loss attributable to the company(16,733)1,074 (3,307)(18,966)
   Preferred dividends— — (1,395)(1,395)
Net income (loss) applicable to common stockholders$(16,733)$1,074 $(4,702)$(20,361)
March 31, 2022Entertainment GolfTraditional GolfCorporateTotal
Total assets$191,043 $258,616 $30,058 $479,717 
Total liabilities68,520 337,113 65,270 470,903 
Preferred stock— — 61,583 61,583 
Noncontrolling interest1,852 — (380)1,472 
Equity (loss) attributable to common stockholders$120,671 $(78,497)$(96,415)$(54,241)
Additions to property and equipment (including finance leases) during the three months ended March 31, 2022$10,459 $1,759 $(686)$11,532 






12
DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MARCH 31, 2022
(Dollars in tables in thousands, except share data)
Three Months Ended March 31, 2021Entertainment GolfTraditional GolfCorporateTotal
Revenues
Golf operations$3,421 $49,740 $— $53,161 
Sales of food and beverages4,802 3,128 — 7,930 
Total revenues8,223 52,868 — 61,091 
Operating costs
Operating expenses5,133 43,737 — 48,870 
Cost of sales - food and beverages1,085 1,019 — 2,104 
General and administrative expense (A)2,198 2,378 3,210 7,786 
General and administrative expense - acquisition and transaction expenses (B)192 — 4 196 
Depreciation and amortization2,952 3,221 72 6,245 
Pre-opening costs (C)556 — — 556 
(Gain) Loss on lease terminations and impairment22 — 3,187 3,209 
Total operating costs12,138 50,355 6,473 68,966 
Operating loss(3,915)2,513 (6,473)(7,875)
Other income (expenses)
Interest and investment income— 20 133 153 
Interest expense (D)(82)(2,251)(316)(2,649)
Capitalized interest (D)— 8 15 23 
Other income (loss), net— (114)53 (61)
Total other income (expenses)(82)(2,337)(115)(2,534)
Income tax expense— — 495 495 
Net loss(3,997)176 (7,083)(10,904)
   Preferred dividends— — (1,395)(1,395)
Loss applicable to common stockholders$(3,997)$176 $(8,478)$(12,299)

March 31, 2021Entertainment GolfTraditional GolfCorporateTotal
Total assets$176,618 $261,310 $61,933 $499,861 
Total liabilities44,951 339,447 63,081 447,479 
Preferred stock— — 61,583 61,583 
Equity$131,667 $(78,137)$(62,731)$(9,201)
Additions to property and equipment (including finance leases) during the three months ended March 31, 2021$3,789 $1,135 $— $4,924 


(A)General and administrative expenses included severance expenses of $0.2 million and $0.1 million for the three months ended March 31, 2022 and 2021, respectively.
(B)Acquisition and transaction expenses include costs related to completed and potential acquisitions and transactions and strategic initiatives which may include advisory, legal, accounting and other professional or consulting fees.
(C)Pre-opening costs are expensed as incurred and consist primarily of venue-related marketing expenses, lease expense, employee payroll, travel and related expenses, training costs, food, beverage and other operating expenses incurred prior to opening an entertainment golf venue.
(D)Interest expense included the accretion of membership deposit liabilities in the amount of $2.0 million and $2.0 million for the three months ended March 31, 2022 and 2021, respectively. Interest expense and capitalized interest are combined in interest expense, net on the Consolidated Statements of Operations.

13
DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MARCH 31, 2022
(Dollars in tables in thousands, except share data)

Note 5. PROPERTY AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION
 
The following table summarizes the Company’s property and equipment:
 
 March 31, 2022December 31, 2021
 Gross Carrying AmountAccumulated DepreciationNet Carrying ValueGross Carrying AmountAccumulated DepreciationNet Carrying Value
Land$6,770 $— $6,770 $6,770 $— $6,770 
Buildings and improvements156,949 (48,877)108,072 155,086 (46,399)108,687 
Furniture, fixtures and equipment58,223 (30,966)27,257 56,809 (28,821)27,988 
Finance leases - equipment28,064 (13,954)14,110 29,886 (15,602)14,284 
Construction in progress15,793 — 15,793 21,531 — 21,531 
Total Property and Equipment$265,799 $(93,797)$172,002 $270,082 $(90,822)$179,260 


Note 6. LEASES
The Company's commitments under lease arrangements are primarily leases for entertainment golf venues and traditional golf properties and related facilities, office leases and leases for golf carts and equipment. The majority of lease terms for our entertainment golf venues and traditional golf properties and related facilities initially range from 10 to 20 years and include up to eight 5-year renewal options. In addition to minimum payments, certain leases require payment of the excess of various percentages of gross revenue or net operating income over the minimum rental payments. The leases generally require the payment of taxes assessed against the leased property and the cost of insurance and maintenance. Certain leases include scheduled increases or decreases in minimum rental payments at various times during the term of the lease. During the three months ended March 31, 2022, the Company commenced two new leases for entertainment golf venues. Right-of-use assets and lease liabilities of $21.6 million and $21.4 million, respectively related to these two leases are included on the Consolidated Balance Sheet as of and for the three months ended March 31, 2022.

Note 7. INTANGIBLES, NET OF ACCUMULATED AMORTIZATION

The following table summarizes the Company’s intangible assets:
 March 31, 2022December 31, 2021
 Gross Carrying AmountAccumulated AmortizationNet Carrying ValueGross Carrying AmountAccumulated AmortizationNet Carrying Value
Trade name$721 $(192)$529 $721 $(187)$534 
Management contracts28,913 (18,337)10,576 28,913 (17,960)10,953 
Internally-developed software1,217 (962)255 417 (143)274 
Membership base4,012 (3,319)693 4,012 (3,304)708 
Non-amortizable liquor licenses1,456 — 1,456 961 — 961 
Total Intangibles$36,319 $(22,810)$13,509 $35,024 $(21,594)$13,430 

14
DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MARCH 31, 2022
(Dollars in tables in thousands, except share data)
Note 8. DEBT

The following table presents certain information regarding the Company’s debt obligations at March 31, 2022 and December 31, 2021:
  March 31, 2022December 31, 2021
Debt Obligation/CollateralMonth IssuedOutstanding
Face
Amount		Carrying
Value		Final Stated MaturityWeighted
Average
Coupon		 Weighted Average
Funding
Cost (A)		Weighted Average Life (Years)Face Amount of
Floating Rate Debt		Outstanding Face AmountCarrying Value
Credit Facilities and Finance Leases
Vineyard IIDec 1993$200 $200 Dec 20431.79%3.18 %21.7$— $200 $200 
Finance leases (Equipment)Jul 2014 - Mar 202213,853 13,853 Mar 2022 - Aug 2027
3.5% to 11.06%
5.77 %3.4— 14,275 14,275 
14,053 14,053 5.70 %3.7— 14,475 14,475 
Less current portion of obligations under finance leases5,186 5,186 5,400 5,400 
Credit facilities and obligations under finance leases - noncurrent8,867 8,867 9,075 9,075 
Corporate         
Junior subordinated notes payable (B)Mar 200651,004 51,172 Apr 2035
 LIBOR+2.25%
3.18 %13.0951,004 51,004 51,174 
Total debt obligations $65,057 $65,225    3.73 %11.2$51,004 $65,479 $65,649 

(A)Including the effect of deferred financing costs.
(B)Collateral for this obligation is the Company's general credit.

Note 9. REAL ESTATE SECURITIES
 
The following is a summary of the Company’s real estate securities at March 31, 2022, which are classified as available-for-sale and are, therefore, reported at fair value with changes in fair value recorded in other comprehensive income, except for securities that are other-than-temporarily impaired.
  Amortized Cost BasisGross Unrealized  Weighted Average
Asset TypeOutstanding Face AmountOther-Than- Temporary Impairment(Discount) PremiumAfter Impairment and PremiumGainsLossesCarrying
 Value (A)		Number of SecuritiesRating (B)CouponYieldLife
(Years) (C)		Principal Subordination (D)
March 31, 2022
ABS - Non-Agency RMBS (E)$4,000 $(1,521)$13 $2,492 $1,163 $— $3,655 1 CCC0.77 %29.16 %0.967.4 %
December 31, 2021
ABS - Non-Agency RMBS (E)$4,000 $(1,521)$(156)$2,323 $1,163 $— $3,486 1 CCC0.68 %29.16 %1.667.4 %
  
(A)See Note 9 regarding the estimation of fair value, which is equal to carrying value for all securities.
(B)Represents the weighted average of the ratings of all securities in each asset type, expressed as an S&P equivalent rating. For each security rated by multiple rating agencies, the lowest rating is used. Ratings provided were determined by third-party rating agencies, represent the most recent credit ratings available as of the reporting date and may not be current.
(C)The weighted average life is based on the timing of expected cash flows on the assets.
(D)Percentage of the outstanding face amount of securities and residual interests that is subordinate to the Company’s investment.
(E)The ABS - Non-Agency RMBS is a floating rate security and the collateral securing it is located in various geographic regions in the United States. The Company does not have significant investments in any one geographic region.

The Company had no securities in an unrealized loss position as of March 31, 2022.
15
DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MARCH 31, 2022
(Dollars in tables in thousands, except share data)

Note 10. FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair Value Summary Table

The following table summarizes the carrying values and estimated fair values of the Company’s financial instruments at March 31, 2022: 
March 31, 2022December 31, 2021
Carrying ValueEstimated Fair ValueFair Value Method (A)Carrying ValueEstimated Fair Value
Assets   
Real estate securities, available-for-sale $3,655 $3,655 Pricing models - Level 3$3,486 $3,486 
Cash and cash equivalents44,068 44,068  58,286 58,286 
Restricted cash, current and noncurrent4,201 4,201  4,278 4,278 
Liabilities   
Junior subordinated notes payable$51,172 $29,956 Pricing models - Level 351,174 $27,625 

(A)Pricing models are used for (i) real estate securities that are not traded in an active market, and, therefore, have little or no price transparency, and for which significant unobservable inputs must be used in estimating fair value, or (ii) debt obligations which are private and not traded.

Fair Value Measurements

The fair value of financial instruments is categorized based on the priority of the inputs to the valuation technique and categorized into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The Company follows this hierarchy for its financial instruments measured at fair value.

Level 1 - Quoted prices in active markets for identical instruments.
Level 2 - Valuations based principally on observable market parameters, including:
•quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability (such as interest rates and yield curves observable at commonly quoted intervals, implied volatilities and credit spreads), and
•market corroborated inputs (derived principally from or corroborated by observable market data).
Level 3 - Valuations determined using unobservable inputs that are supported by little or no market activity, and that are significant to the overall fair value measurement.

The Company’s real estate securities and debt obligations are currently not traded in active markets and therefore have little or no price transparency. As a result, the Company has estimated the fair value of these illiquid instruments based on internal pricing models subject to the Company's controls described below.
With respect to fair value estimates generated based on the Company’s internal pricing models, the Company’s management validates the inputs and outputs of the internal pricing models by comparing them to available independent third-party market parameters and models, where available, for reasonableness. The Company believes its valuation methods and the assumptions used are appropriate and consistent with those of other market participants.

Fair value measurements categorized within Level 3 are sensitive to changes in the assumptions or methodologies used to determine fair value and such changes could result in a significant increase or decrease in the fair value. For the Company’s investments in real estate securities categorized within Level 3 of the fair value hierarchy, the significant unobservable inputs include the discount rates, assumptions relating to prepayments, default rates and loss severities.



16
DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MARCH 31, 2022
(Dollars in tables in thousands, except share data)
Significant Unobservable Inputs

The following table provides quantitative information regarding the significant unobservable inputs used by the Company for assets and liabilities measured at fair value on a recurring basis as of March 31, 2022:
   Weighted Average Significant Input
Asset TypeAmortized Cost BasisFair ValueDiscount
Rate		Prepayment
Speed		Cumulative Default RateLoss
Severity
ABS - Non-Agency RMBS$2,492 $3,655 11.0 %7.5 %2.6 %65.0 %

All of the inputs used have some degree of market observability, based on the Company’s knowledge of the market, relationships with market participants, and use of common market data sources. Collateral prepayment, default and loss severity projections are in the form of “curves” or “vectors” that vary for each monthly collateral cash flow projection. Methods used to develop these projections vary by asset class but conform to industry conventions. The Company uses assumptions that generate its best estimate of future cash flows of each respective security.

Real estate securities measured at fair value on a recurring basis using Level 3 inputs changed during the three months ended March 31, 2022 as follows:
 ABS - Non-Agency RMBS
Balance at December 31, 2021$3,486 
Total gains (losses) (A)— 
Amortization included in interest income174 
Proceeds(5)
Balance at March 31, 2022$3,655 

(A)None of the gains (losses) recorded in earnings during the period is attributable to the change in unrealized gains (losses) relating to Level 3 assets still held at the reporting date. There were no purchases or sales during the three months ended March 31, 2022. There were no transfers into or out of Level 3 during the three months ended March 31, 2022.

Liabilities for Which Fair Value is Only Disclosed
 
The following table summarizes the level of the fair value hierarchy, valuation techniques and inputs used for estimating each class of liabilities not measured at fair value in the statement of financial position but for which fair value is disclosed:
Type of Liabilities Not Measured At Fair Value for Which Fair Value Is DisclosedFair Value HierarchyValuation Techniques and Significant Inputs
Junior subordinated notes payableLevel 3Valuation technique is based on discounted cash flows. Significant inputs include:
lAmount and timing of expected future cash flows
lInterest rates
lMarket yields and the credit spread of the Company
17
DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MARCH 31, 2022
(Dollars in tables in thousands, except share data)
Note 11. EQUITY AND EARNINGS PER SHARE
 
Earnings per Share

The Company is required to present both basic and diluted earnings per share (“EPS”). The following table shows the amounts used in computing basic and diluted EPS:
Three Months Ended March 31,
20222021
Numerator for basic and diluted earnings per share:
   Loss from continuing operations after preferred dividends$(20,361)$(12,299)
   Loss Applicable to Common Stockholders$(20,361)$(12,299)
Denominator:
Denominator for basic earnings per share - weighted average shares92,254,084 82,558,881 
Effect of dilutive securities
  Options— — 
  RSUs— — 
Denominator for diluted earnings per share - adjusted weighted average shares92,254,084 82,558,881 
Basic earnings per share:
Loss from continuing operations per share of common stock after preferred dividends$(0.22)$(0.15)
Loss Applicable to Common Stock, per share $(0.22)$(0.15)
Diluted earnings per share:
Loss from continuing operations per share of common stock after preferred dividends$(0.22)$(0.15)
Loss Applicable to Common Stock, per share $(0.22)$(0.15)
Basic EPS is calculated by dividing net income (loss) applicable to common stockholders by the weighted average number of shares of common stock outstanding during each period. Diluted EPS is calculated by dividing net income (loss) applicable to common stockholders by the weighted average number of shares of common stock outstanding plus the additional dilutive effect of dilutive securities during each period. The Company’s dilutive securities are its options and RSUs. During the three months ended March 31, 2022 and 2021, based on the treasury stock method, the Company had 50,724 and 881,911 potentially dilutive securities, respectively, which were excluded due to the Company's loss position. Net loss applicable to common stockholders is equal to net loss less preferred dividends.


18
DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MARCH 31, 2022
(Dollars in tables in thousands, except share data)
Stock Options

The following is a summary of the changes in the Company’s outstanding options for the three months ended March 31, 2022:
Number of OptionsWeighted Average Strike PriceWeighted Average Life Remaining (in years)
Balance at December 31, 20213,582,548 $3.17 
Balance at March 31, 20223,582,548 $3.17 1.4
Exercisable at March 31, 20223,006,044 $3.08 1.3

As of March 31, 2022, the Company’s outstanding options were summarized as follows:
Number of Options
Held by a former Manager3,006,044 
Granted to the former Manager and subsequently transferred to certain Manager’s employees (A)576,504 
Total3,582,548 

(A)The Company and a former manager (the "Manager") agreed that options held by certain employees formerly employed by that Manager will not terminate or be forfeited as a result of the Termination and Cooperation Agreement, and the vesting of such options will relate to the relevant holder’s employment with the Company and its affiliates following January 1, 2018. In both February 2017 and April 2018, the former Manager issued 1,152,495 options to certain employees formerly employed by the Manager as part of their compensation. The options fully vest and are exercisable one year prior to the option expiration date, beginning March 2020 through January 2024.

Stock-based compensation expense is recognized on a straight-line basis through the vesting date of the options. Stock-based compensation expense related to the employee options was $0.1 million during the three months ended March 31, 2022, and $0.2 million during the three months ended March 31, 2021, and is recorded in general and administrative expense on the Consolidated Statements of Operations. During the three months ended March 31, 2022, the Company reversed $0.6 million in stock compensation expense related to certain previously issued options. The unrecognized stock-based compensation expense related to the unvested options was $0.3 million as of March 31, 2022 and will be expensed over a weighted average of 0.9 years.

Restricted Stock Units (RSUs)

The following is a summary of the changes in the Company’s RSUs for the three months ended March 31, 2022.
Number of RSUsWeighted Average Grant Date Fair Value (per unit)
Balance at December 31, 2021193,190 $2.2 
Vested(1,431)$4.66 
Forfeited (A)(8,047)$4.66 
Balance at March 31, 2022183,712 $2.07 
(A) Unvested RSUs are forfeited by non-employee directors upon their departure from the board of directors and generally forfeited by employees upon their termination.

The Company grants RSUs to the non-employee directors as part of their annual compensation. The RSUs are subject to a one-year vesting period. During the three months ended March 31, 2022, the Company granted no RSUs to non-employee directors and 87,757 RSUs granted to non-employee directors vested. The Company also grants RSUs to employees as part of their annual compensation. The RSUs vest in equal annual installments on each of the first three anniversaries of the grant date.
19
DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MARCH 31, 2022
(Dollars in tables in thousands, except share data)
During the three months ended March 31, 2022, the Company did not grant RSUs to employees and 1,431 RSUs granted to employees vested. Stock-based compensation expense is recognized on a straight-line basis through the vesting date of the RSUs. Stock-based compensation expense related to RSUs was $0.1 million and $0.1 million for the three months ended March 31, 2022 and 2021, respectively. Stock-based compensation expense is recorded in general and administrative expense on the Consolidated Statements of Operations. During the three months ended March 31, 2022, the Company reversed $0.3 million in stock compensation expense related to certain previosuly issued RSUs. The unrecognized stock-based compensation expense related to the unvested RSUs was $0.2 million as of March 31, 2022 and will be expensed over a weighted average period of 0.3 years.

Preferred Stock

Dividends totaling $1.4 million were paid on January 31, 2022 to holders of record of preferred stock on January 1, 2022, in an amount equal to $0.609375, $0.503125 and $0.523438 per share on the 9.750% Series B, 8.050% Series C and 8.375% Series D preferred stock, respectively

On March 2, 2022, the Board of Directors of the Company declared dividends on the Company’s preferred stock for the period beginning February 1, 2022 and ending April 30, 2022. The dividends are payable on May 2, 2022, to holders of record of preferred stock on April 1, 2022, in an amount equal to $0.609375, $0.503125 and $0.523438 per share on the 9.750% Series B, 8.050% Series C and 8.375% Series D preferred stock, respectively. As of March 31, 2022, $5.6 million of dividends on the Company's cumulative preferred stock were unpaid and in arrears.

Noncontrolling Interest

On July 12, 2021, the Company entered into an investment agreement among the Company and Symphony Ventures, which we refer to as Symphony, a company organized under the laws of Ireland, in which the Company agreed to sell to Symphony 10% of the partnership interests in each of the wholly owned subsidiary limited partnerships, which we refer to as “SLPs”, formed by the Company to hold each of the Company’s Puttery venues, in exchange for an amount in cash equal to 10% of the total cost to build the Puttery venue owned by such SLP. Symphony’s purchase price in each such SLP will be fully committed on the date the certificate of occupancy for the Puttery venue is received, up to a total commitment of $10 million. We control through a wholly owned subsidiary all general partnership interests and 90% of the limited partnership interests in the SLP, thus retaining all rights, powers and authority that govern the partnership and, as a result, we consolidate the financial results of this SLP, and report the noncontrolling interest representing the economic interest in the SLP held by Symphony. Currently the Company and Symphony are party to two SLPs, for the Puttery location in The Colony, Texas and Charlotte, North Carolina.

Note 12. TRANSACTIONS WITH AFFILIATES AND AFFILIATED ENTITIES

Agreements with the Former Manager

At March 31, 2022, the Manager, through its affiliates, and principals of the Manager, owned 9.0 million shares of the Company’s common stock and Fortress, through its affiliates, had options relating to an additional 3.0 million shares of the Company’s common stock (Note 11).

Note 13. COMMITMENTS AND CONTINGENCIES
 
Litigation - The Company is and may become, from time to time, involved in legal actions in the ordinary course of business, including governmental and administrative investigations, inquiries and proceedings concerning employment, labor, environmental, personal injury and other claims. Although management is unable to predict with certainty the eventual outcome of any legal action, management believes the ultimate liability arising from such actions, individually and in the aggregate, which existed at March 31, 2022, will not materially affect the Company’s consolidated results of operations, financial position or cash flow. Given the inherent unpredictability of these types of proceedings, however, it is possible that future adverse outcomes could have a material effect on our financial results.

Environmental Costs — As a commercial real estate owner, the Company is subject to potential environmental costs. At March 31, 2022, management of the Company is not aware of any environmental concerns that would have a material adverse effect on the Company’s consolidated financial position or results of operations.
20
DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MARCH 31, 2022
(Dollars in tables in thousands, except share data)

Surety Bonds — The Company is required to maintain bonds under certain third-party agreements, as requested by certain utility providers, and under the rules and regulations of licensing authorities and other governmental agencies. The Company had bonds outstanding of approximately $0.9 million as of March 31, 2022.

Month-to-Month Leases — The traditional golf segment has four month-to-month property leases which are cancellable by the parties with 30 days written notice. The traditional golf segment also has various month-to-month operating leases for carts and equipment. Lease expense is recorded in short-term lease cost as disclosed in Note 6.

Membership Deposit Liability — In the traditional golf business, until 2021 private country club members generally paid an advance initiation deposit upon their acceptance as a member to the respective country club. Initiation deposits are refundable 30 years after the date of acceptance as a member. As of March 31, 2022, the total nominal value of initiation fee deposits was approximately $249.3 million with annual maturities through 2051.

In 2002 American Golf Corporation ("AGC"), when it was owned by a previous owner, entered into a Restated Membership Deposit Assumption Agreement, with two trusts established by a previous owner of AGC (the “Trusts”) under which the Trusts agreed to unconditionally assume the obligations of AGC to refund certain membership deposit liabilities ("MDLs") in exchange for shares in AGC. The MDLs assumed were refundable 30 years from the date of acceptance of the member with the first liabilities assumed by the Trusts becoming refundable in 2020. The total redemption value of membership deposit liabilities assumed by the Trusts was $181.9 million. No asset was recorded at the time of our acquisition of AGC in recognition of this assumption agreement for the $181.9 million of liabilities assumed by the Trusts for the following reasons. 1) the substantial time period between the assumption of the liabilities and the first liabilities becoming refundable; 2) the inability of AGC to verify and monitor the assets of the Trusts to ensure the ability to perform under the terms of the assumption agreements; 3) the fact that the Trusts are not required to maintain any assets that would support such performance; 4) the Trust settlors were not required contractually to fund the Trusts; and 5) The Company does not have the ability to determine the likelihood that the Trusts will meet their obligations. In the event the Trusts are not able to fulfill their obligations, the Company would be responsible for refunding the outstanding balance of the MDL and therefore, recognizes these MDLs on its balance sheet. Though the Trusts initially assumed $181.9 million of MDLs the balance of related MDLs carried on the books of AGC, as of March 31, 2022, has been reduced to an undiscounted nominal value of $115 million through various assignments to third parties and partial membership refunds due to membership transfers. To-date, the Trust has met all of their obligations that have come due for which the Trust assumed responsibility under the Restated Membership Deposit Assumption Agreement. As of March 31, 2022 the Trusts had refunded a total of approximately $0.3 million of MDLs under the terms of the assumption agreements.

Restricted Cash — Approximately $4.0 million of restricted cash at March 31, 2022 is used as credit enhancement for traditional golf’s obligations related to the performance of lease agreements and certain insurance claims.

Commitments - As of March 31, 2022, the Company has additional operating leases that have not yet commenced of $65.3 million. The leases are expected to commence over the next 12 months with initial lease terms of approximately 10 years. These leases are primarily real estate leases for future entertainment golf venues and the commencement of these leases is contingent on completion of due diligence and satisfaction of certain contingencies which generally occurs prior to construction.

Preferred Dividends in Arrears - As of March 31, 2022, $5.6 million of dividends on the Company's cumulative preferred stock were unpaid and in arrears.

Note 14. INCOME TAXES

The Company's income tax provision (benefit) for interim periods is determined using an estimate of the Company's annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period.
The Company's income tax provision was $0.7 million and $0.5 million for the three months ended March 31, 2022 and 2021, respectively.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences become deductible.
21
DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MARCH 31, 2022
(Dollars in tables in thousands, except share data)
The Company recorded a valuation allowance against its deferred tax assets as of March 31, 2022 as management does not believe that it is more likely than not that the deferred tax assets will be realized.
The Company and its subsidiaries file U.S. federal and state income tax returns in various jurisdictions. As of March 31, 2022, the Company is currently not subject to examination by the IRS for any open tax years and is currently under examination in Idaho for open tax years 2017 and after.

At March 31, 2022 and December 31, 2021, the Company reported a total liability for unrecognized tax benefits of $0.6 million. The Company does not anticipate any significant increases or decreases to the balance of unrecognized tax benefits during the next 12 months.

22
DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MARCH 31, 2022
(Dollars in tables in thousands, except share data)
Note 15. IMPAIRMENT

The following table summarizes the amounts the Company recorded in the Consolidated Statements of Operations:

Three Months Ended March 31,
20222021
Loss on lease terminations$35 $— 
Impairment on corporate office assets (held-for-use)— 3,209 
Impairment on entertainment golf properties12,854 — 
Other gains(18)— 
Total loss on impairment$12,871 $3,209 

During the three months ended March 31, 2022, the Company recorded impairment charges of $11.3 million related to construction in progress assets for its Drive Shack New Orleans venue. The assets consist primarily of a partially constructed, unfinished building and parking lot. The Company has determined that it will not restart construction of the venue and will seek to either terminate the underlying ground lease or seek a subtenant for the site. As the fair value inputs utilized are unobservable, the Company determined that the significant inputs used to value these properties fall within Level 3 for fair value reporting.

During the three months ended March 31, 2022, the Company recorded impairment charges of $1.6 million related to certain assets acquired for our Puttery venues in Charlotte, North Carolina; Miami, Florida; and Washington, DC. The assets consisted of gameplay tracking cameras and supporting hardware and software for our venues. The Company has determined that it will not utilize the devices and they will therefore not be installed. The Company is unable to recover the cost of the devices and the impairment charge represents the full value of the equipment.

During the three months ended March 31, 2021, the Company recorded impairment charges of $3.2 million related to right-of-use and other lease related assets of our former headquarters office in New York given the relocation of the Company’s headquarters to Dallas, TX. This included impairment of leasehold improvements of $0.3 million, furniture fixtures, and equipment of $0.6 million, and ROU assets of $2.3 million. The Company evaluated the recoverability of the carrying value of these assets using the income approach based on future assumptions of cash flows. The development of discounted cash flow models used to estimate the fair value of the asset groups required the application of significant judgement in determining market participant assumptions, including the projected sublease income over the remaining lease terms, expected downtime prior to the commencement of future subleases, expected lease incentives offered to future tenants, and discount rates that reflected the level of risk associated with these future cash flows. As the fair value inputs utilized are unobservable, the Company determined that the significant inputs used to value these properties fall within Level 3 for fair value reporting.

Note 16. SUBSEQUENT EVENTS

The Company has evaluated subsequent events through the filing of this Quarterly Report on Form 10-Q, and determined that there have been no events that have occurred that would require adjustments to our disclosures in the consolidated financial statements.

Going Concern — During the period ended September 30, 2022, subsequent to the date of the Consolidated Financial Statements, management determined that there is a substantial doubt about the Company's ability to continue as a going concern over the 12 months from the date of the filing of this Amendment. The disclosure in this Footnote 16 speaks as of the date of this Amendment and not as of the date of the Original Filing.

The financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.

23
DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MARCH 31, 2022
(Dollars in tables in thousands, except share data)
However, our business is dependent upon obtaining substantial funding from various sources. We generated a net loss in the third quarter ended September 30, 2022, and, as previously disclosed, in the fiscal years ended December 31, 2021, and December 31, 2020, and the first and second fiscal quarters of 2022. We do not anticipate that our operational and development cash requirements will be met through current liquidity and internally generated cash flows. Although we have historically depended on external financing sources at this stage in our growth plan, a variety of recent factors, including macroeconomic and geopolitical events such as inflation, rising interest rates and violent conflict in Ukraine, caused financing conditions in the United States to deteriorate in the second quarter and we believe this deterioration accelerated in the third quarter as rates rose. Relatedly, worsening financial conditions make it less likely that the Company will be successful in any effort to sell, finance or otherwise monetize assets to generate liquidity, since potential buyers may be cash constrained, face increased costs due to supply chain issues and face difficulty in pursuing financing sources.

In light of our liquidity position and these recently worsening financial conditions in the United States, management has concluded that there is a substantial doubt about the Company's ability to continue as a going concern over the next 12 months from the date of the filing of this Amendment.

Specifically, the Company’s current liquidity, including primarily cash and cash equivalents, is not sufficient to fund operations without additional sources of liquidity over the next 12 months. Therefore, the ability of the Company to continue operations is dependent on the degree of success of management’s plans to manage existing cash balances and to obtain additional financing to fund its short-term liquidity requirements. In order to manage existing cash balances, management intends to continue to reduce expenditures broadly across all aspects of its business. In order to mitigate the going concern, management expects that it will need to obtain external financing sources notwithstanding the negative conditions afflicting debt markets and other sources of potential liquidity
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ITEM 4. CONTROLS AND PROCEDURES
 
(a)Disclosure Controls and Procedures. The Company’s management, with the participation of the Company’s Chief Executive Officer and Interim Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this report. The Company’s disclosure controls and procedures are designed to provide reasonable assurance that information is recorded, processed, summarized and reported accurately and completely. Based on such evaluation, the Company’s Chief Executive Officer and Interim Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were not effective at the reasonable assurance level as of March 31, 2022, because the material weakness discussed below under “Material Weakness in Internal Control Over Financial Reporting” that existed as of December 31, 2021, had not been remediated by the end of the period covered by this Quarterly Report on Form 10-Q. This material weakness in the Company’s internal control over financial reporting and the Company’s remediation efforts are described below. Notwithstanding the identified material weakness, management believes that the consolidated financial statements included in the Original Filing present fairly, in all material respects, our financial position, results of operations, and cash flows as of and for the periods presented in accordance with U.S. GAAP.

(b)Changes in Internal Control Over Financial Reporting. There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Material Weakness in Internal Control Over Financial Reporting

A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements would not be prevented or detected on a timely basis.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of March 31, 2022. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in the Internal Control-Integrated Framework (2013).

Based on our assessment, management concluded that, as of December 31, 2022, the Company’s internal control over financial reporting included a material weakness related to the design and operating effectiveness of the Company's internal controls associated with the identification of impairment indicators and the evaluation of properties identified as potentially subject to impairments. This material weakness had not been fully remediated by the end of the period covered by this Quarterly Report on Form 10-Q. The Company's internal controls did not:

a.Detect the lack of inclusion of right-of-use assets or management contracts (intangible assets) in the carrying value of courses for which an impairment indicator was identified.
b.Consider the remaining lease term of each course when assessing the sufficiency of projected future undiscounted cash flows to recover the course’s net asset value.
c.Appropriately review budgetary information by course for use in evaluating the potential presence of impairment indicators.

Remediation Considerations Related to Material Weakness

With respect to the material weakness related to the design and operating effectiveness of the Company’s internal controls associated with long-lived asset impairments, management plans to take a number of actions, including, but not limited to, implementing additional controls over the identification of potential impairment indicators, the determination of the appropriate carrying values for assets subject to impairment, and over the evaluation of the assumptions used in determining any potential long-lived asset impairments.


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PART II. OTHER INFORMATION
 
Item 6. Exhibits
Exhibit NumberExhibit Description
Separation Agreement, effective May 10, 2022, by and between Drive Shack Inc. and Michael L. Nichols (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q, Exhibit 10.1, filed on May 10, 2022).
Certification of Chief Executive Officer as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Interim Chief Financial Officer as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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.
Certification of Interim Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101
The following financial information from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations; (iii) Consolidated Statements of Comprehensive Loss; (iv) Consolidated Statements of Changes in Equity; (v) Consolidated Statements of Cash Flows; and (vi) Notes to Consolidated Financial Statements.
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).


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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:
 DRIVE SHACK INC.
  
 By:/s/ Hana Khouri
 Hana Khouri
 Chief Executive Officer and President
   
 November 18, 2022

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