ds-20220630

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 June 30, 2022


☐			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 class	Trading Symbols(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	DS	New York Stock Exchange (NYSE)
9.75% Series B Cumulative Redeemable Preferred Stock, $0.01 par value per share	DS-PB	New York Stock Exchange (NYSE)
8.05% Series C Cumulative Redeemable Preferred Stock, $0.01 par value per share	DS-PC	New York Stock Exchange (NYSE)
8.375% Series D Cumulative Redeemable Preferred Stock, $0.01 par value per share	DS-PD	New York Stock Exchange (NYSE)
Preferred Stock Purchase Rights	N/A	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. o

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 August 8, 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 June 30, 2022 originally filed on August 9, 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 June 30, 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


		PAGE
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets as of June 30, 2022 (unaudited) and December 31, 2021	1
	Consolidated Statements of Operations (unaudited) for the three and six months ended June 30, 2022 and 2021	2
	Consolidated Statements of Comprehensive Loss (unaudited) for the three and six months ended June 30, 2022 and 2021	3
	Consolidated Statements of Changes in Equity (unaudited) for the three and six months ended June 30, 2022 and 2021	4
	Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2022 and 2021	5
	Notes to Consolidated Financial Statements	6


Item 4.	Controls and Procedures	26
PART II. OTHER INFORMATION



Item 6.	Exhibits	27
SIGNATURES		28

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

DRIVE SHACK INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share data)


	(unaudited)
	June 30, 2022		December 31, 2021
Assets
Current assets
Cash and cash equivalents	$	22,685	$	58,286
Restricted cash	4,143		3,480
Accounts receivable, net	5,730		5,563

Real estate securities, available-for-sale	2,846		3,486
Other current assets	30,599		30,034
Total current assets	66,003		100,849
Restricted cash, noncurrent	216		798
Property and equipment, net of accumulated depreciation	181,126		179,260
Operating lease right-of-use assets	191,848		181,915
Intangibles, net of accumulated amortization	13,106		13,430

Other assets	5,739		6,538
Total assets	$	458,038	$	482,790

Liabilities and Equity
Current liabilities
Obligations under finance leases	$	5,023	$	5,400
Membership deposit liabilities	20,905		18,039
Accounts payable and accrued expenses	34,776		34,469
Deferred revenue	17,018		26,301

Other current liabilities	27,733		26,524
Total current liabilities	105,455		110,733
Credit facilities and obligations under finance leases - noncurrent	7,875		9,075
Operating lease liabilities - noncurrent	176,458		166,031
Junior subordinated notes payable	51,169		51,174
Membership deposit liabilities, noncurrent	105,122		104,430
Deferred revenue, noncurrent	12,165		10,005
Other liabilities	2,793		1,487
Total liabilities	$	461,037	$	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 June 30, 2022 and December 31, 2021	$	61,583	$	61,583
Common stock, $0.01 par value, 1,000,000,000 shares authorized, 92,385,019 and 92,093,425 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively.	924		921
Additional paid-in capital	3,232,324		3,233,608
Accumulated deficit	(3,300,065)		(3,268,876)
Accumulated other comprehensive income	170		1,163
Total equity of the company	$	(5,064)	$	28,399
Noncontrolling interest	2,065		1,456
Total equity (deficit)	$	(2,999)	$	29,855
Total liabilities and equity	$	458,038	$	482,790

See notes to Consolidated Financial Statements.

DRIVE SHACK INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

(Dollars in thousands, except share data)


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Revenues
Golf operations	$	67,577	$	61,750	$	122,861	$	114,912
Sales of food and beverages	19,112		12,129		32,810		20,059
Total revenues	86,689		73,879		155,671		134,971

Operating costs
Operating expenses	65,473		55,635		120,613		104,504
Cost of sales - food and beverages	5,788		3,151		9,149		5,255
General and administrative expense	11,558		8,028		20,622		16,012
Depreciation and amortization	6,132		5,784		12,325		12,029
Pre-opening costs	1,938		789		2,685		1,345
(Gain) loss on lease terminations and impairment	2,161		(561)		15,032		2,648

Total operating costs	93,050		72,826		180,426		141,793
Operating income (loss)	(6,361)		1,053		(24,755)		(6,822)

Other income (expenses)
Interest and investment income	216		159		416		312
Interest expense, net	(3,547)		(2,713)		(6,194)		(5,339)
Other income (loss), net	993		(18)		3,640		(79)
Total other income (expenses)	(2,338)		(2,572)		(2,138)		(5,106)
Loss before income tax	(8,699)		(1,519)		(26,893)		(11,928)
Income tax expense	868		450		1,589		945
Consolidated net loss	(9,567)		(1,969)		(28,482)		(12,873)
Less: net loss attributable to noncontrolling interest	(134)		—		(81)		—
Net loss attributable to the Company	(9,433)		(1,969)		(28,401)		(12,873)
Preferred dividends	(1,395)		(1,395)		(2,790)		(2,790)
Loss applicable to common stockholders	$	(10,828)	$	(3,364)	$	(31,191)	$	(15,663)

Loss applicable to common stock, per share
Basic	$	(0.12)	$	(0.04)	$	(0.34)	$	(0.18)
Diluted	$	(0.12)	$	(0.04)	$	(0.34)	$	(0.18)

Weighted average number of shares of common stock outstanding
Basic	92,378,928		92,065,615		92,316,851		87,338,509
Diluted	92,378,928		92,065,615		92,316,851		87,338,509

See notes to Consolidated Financial Statements.

DRIVE SHACK INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (unaudited)

(Dollars in thousands, except share data)


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Net loss	$	(9,567)	$	(1,969)	$	(28,482)	$	(12,873)
Other comprehensive loss:
Net unrealized gain (loss) on available-for-sale securities	(993)		(66)		(993)		(142)
Other comprehensive gain (loss)	(993)		(66)		(993)		(142)
Total comprehensive loss	$	(10,560)	$	(2,035)	$	(29,475)	$	(13,015)
Comprehensive loss attributable to noncontrolling interest	(134)		—		(81)		—
Comprehensive loss attributable to the Company	$	(10,426)	$	(2,035)	$	(29,394)	$	(13,015)

See notes to Consolidated Financial Statements.

DRIVE SHACK INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT) (unaudited)

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021

(Dollars in thousands, except share data)


	Drive Shack Inc. Stockholders
	Preferred Stock			Common Stock
	Shares	Amount		Shares	Amount		Additional Paid- in Capital		Accumulated Deficit		Accumulated Other Comp. Income (loss)		Noncontrolling Interest		Total Equity (Deficit)
Equity (deficit) - December 31, 2021	2,463,321	$	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)

Total comprehensive loss													16		$	(18,913)
Equity (deficit) - March 31, 2022	2,463,321	$	61,583	92,362,845	$	921	$	3,232,912	$	(3,289,237)	$	1,163	$	1,472	$	8,814
Dividends declared	—	—		—	—		—		(1,395)		—		—		(1,395)
Stock-based compensation	—	—		—	—		139		—		—		—		139
Shares issued from options and restricted stock units	—	—		22,174	3		—		—		—		—		3
Contributed Capital	—	—		—	—		(727)		—		—		727		—

Comprehensive income (loss)
Net loss	—	—		—	—		—		(9,433)		—		(134)		(9,567)
Other comprehensive income	—	—		—	—		—		—		(993)		—		(993)
Total comprehensive loss													593		(10,560)
Equity (deficit) - June 30, 2022	2,463,321	$	61,583	92,385,019	$	924	$	3,232,324	$	(3,300,065)	$	170	$	2,065	$	(2,999)













Equity (deficit) - December 31, 2020	2,463,321	$	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, 2021	2,463,321	$	61,583	92,027,806	$	919	$	3,232,713	$	(3,244,225)	$	1,392	$	—	$	52,382
Dividends declared	—	—		—	—		—		(1,395)		—		—		(1,395)
Stock-based compensation	—	—		—	2		556		—		—		—		558
Shares issued from options and restricted stock units	—	—		57,613	—		—		—		—		—		—
Comprehensive income (loss)
Net loss	—	—		—	—		—		(1,969)		—		—		(1,969)
Other comprehensive income	—	—		—	—		—		—		(66)		—		(66)
Total comprehensive loss													—		(2,035)
Equity (deficit) - June 30, 2021	2,463,321	$	61,583	92,085,419	$	921	$	3,233,269	$	(3,247,589)	$	1,326	$	—	$	49,510

See notes to Consolidated Financial Statements.

DRIVE SHACK INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(Dollars in thousands, except share data)


	Six Months Ended June 30,
	2022		2021
Cash Flows From Operating Activities
Net loss	$	(28,482)	$	(12,873)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization	12,325		12,029
Amortization of discount and premium	(357)		(262)
Other amortization	4,933		4,126
Amortization of revenue on golf membership deposit liabilities	(1,139)		(1,101)
Amortization of prepaid golf membership dues	(7,870)		(9,726)
Non-cash operating lease expense	2,521		2,161
Stock-based compensation	(556)		906
Loss on lease terminations and impairment	15,032		2,648
Gain from insurance proceeds for property loss	(2,877)		—

Other losses, net	(188)		143


Change in:
Accounts receivable, net, other current assets and other assets - noncurrent	67		(6,522)
Accounts payable and accrued expenses, deferred revenue, other current liabilities and other liabilities - noncurrent	4,070		8,939
Net cash provided by (used in) operating activities	(2,521)		468
Cash Flows From Investing Activities

Insurance proceeds for property loss	2,877		—
Acquisition and additions of property and equipment and intangibles	(28,784)		(16,139)

Net cash used in investing activities	(25,907)		(16,139)
Cash Flows From Financing Activities
Repayments of debt obligations	(2,904)		(3,082)
Golf membership deposits received	58		1,325
Proceeds from issuance of common stock	3		53,905
Capital distribution paid	(40)		—
Preferred stock dividends paid	(2,790)		(1,395)
Other financing activities	(1,419)		(470)
Net cash provided by (used in) financing activities	(7,092)		50,283
Net Increase (Decrease) in Cash and Cash Equivalents, Restricted Cash and Restricted Cash, noncurrent	(35,520)		34,612
Cash and Cash Equivalents, Restricted Cash and Restricted Cash, noncurrent, Beginning of Period	62,564		50,833
Cash and Cash Equivalents, Restricted Cash and Restricted Cash, noncurrent, End of Period	$	27,044	$	85,445



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	$	1,548	$	495

Decreases in accounts payable and accrued expenses related to the purchase of property and equipment	$	(3,361)	$	(2,688)
Additions for right of use assets in exchange for new operating lease liabilities	$	25,336	$	7,002
Cash paid during the period for interest expense	$	1,076	$	1,552
Cash paid during the period for income taxes	$	1,985	$	1,489

See notes to Consolidated Financial Statements.

DRIVE SHACK INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

JUNE 30, 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 June 30, 2022, the Company's entertainment golf segment was comprised of seven owned or leased entertainment golf venues across four states and the District of Columbia with locations in Orlando, Florida; West Palm Beach, Florida; Raleigh, North Carolina; Richmond, Virginia; The Colony, Texas; Charlotte, North Carolina; and Washington, D.C.

The Company’s traditional golf segment is one of the largest operators of traditional golf properties in the United States. As of June 30, 2022, the Company owned, leased or managed fifty-three (53) 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.

DRIVE SHACK INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

JUNE 30, 2022

(Dollars in tables in thousands, except share data)

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 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.

DRIVE SHACK INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

JUNE 30, 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 believes 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:


	June 30, 2022		December 31, 2021
Cash and cash equivalents	$	22,685	58,286
Restricted cash	4,143		3,480
Restricted cash, noncurrent	216		798
Total Cash and cash equivalents, Restricted cash and Restricted cash, noncurrent	$	27,044	$	62,564

Accounts Receivable, Net — Accounts receivable are stated at amounts due from customers, net of an allowance for doubtful accounts of $0.3 million as of June 30, 2022 and $0.9 million as of 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:


	June 30, 2022		December 31, 2021
Managed property receivables	$	13,314	$	19,316
Prepaid expenses	4,016		2,524
Deposits	1,805		1,827
Inventory	2,791		2,229

Miscellaneous current assets, net	8,673		4,138
Other current assets	$	30,599	$	30,034

Other Assets — The following table summarizes the Company's other assets:


	June 30, 2022		December 31, 2021
Prepaid expenses	$	1,717	$	2,156
Deposits	3,241		3,335
Miscellaneous assets, net	781		1,047
Other assets	$	5,739	$	6,538

Other Current Liabilities — The following table summarizes the Company's other current liabilities:


	June 30, 2022		December 31, 2021

Operating lease liabilities	$	17,031	$	16,519
Accrued rent	3,797		3,455
Dividends payable	930		930
Miscellaneous current liabilities	5,975		5,620
Other current liabilities	$	27,733	$	26,524

DRIVE SHACK INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

JUNE 30, 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 June 30, 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 June 30, 2022 the Trusts had refunded a total of approximately $0.4 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 June 30,					Six Months Ended June 30,
	2022		2021			2022		2021




Collateral management fee income, net	$	33	$	48		$	70	$	104

Insurance proceeds	622		—		—	3,424

Loss on sale of long-lived assets and intangibles	—		(49)			(38)		(64)
Gain on Lease Modification/Termination	(95)		—			(53)

Other gain (loss)	433		(17)			237		(119)
Other gain (loss), net	$	993	$	(18)		$	3,640	$	(79)

DRIVE SHACK INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

JUNE 30, 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 June 30, 2022												Six Months Ended June 30, 2022
	Ent. golf venues		Public golf properties		Private golf properties		Managed golf properties (A)		Corporate		Total		Ent. golf venues		Public golf properties		Private golf properties		Managed golf properties (A)		Corporate		Total
Golf operations	$	7,397	$	30,741	$	11,716	$	17,515	$	208	$	67,577	$	13,827	$	50,242	$	26,282	$	32,117	$	393	$	122,861
Sales of food and beverages	8,316		8,612		2,184		—		—		19,112		16,066		12,975		3,769		—		—		32,810
Total revenues	$	15,713	$	39,353	$	13,900	$	17,515	$	208	$	86,689	$	29,893	$	63,217	$	30,051	$	32,117	$	393	$	155,671


	Three Months Ended June 30, 2021												Six Months Ended June 30, 2021
	Ent. golf venues		Public golf properties		Private golf properties		Managed golf properties (A)		Corporate		Total		Ent. golf venues		Public golf properties		Private golf properties		Managed golf properties (A)		Corporate		Total
Golf operations	$	5,316	$	28,693	$	12,323	$	15,418	$	—	$	61,750	$	8,737	$	47,866	$	27,042	$	31,267	$	—	$	114,912
Sales of food and beverages	6,273		3,994		1,862		—		—		12,129		11,075		5,849		3,135		—		—		20,059
Total revenues	$	11,589	$	32,687	$	14,185	$	15,418	$	—	$	73,879	$	19,812	$	53,715