ds-20220930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended September 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 S No £

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). S Yes £ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer £ Accelerated filer S Non-accelerated filer £ Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. £

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No S

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 November 17, 2022.

DRIVE SHACK INC.

FORM 10-Q

INDEX


		PAGE
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets as of September 30, 2022 (unaudited) and December 31, 2021	1
	Consolidated Statements of Operations (unaudited) for the three and nine months ended September 30, 2022 and 2021	2
	Consolidated Statements of Comprehensive Loss (unaudited) for the three and nine months ended September 30, 2022 and 2021	3
	Consolidated Statements of Changes in Equity (unaudited) for the three and nine months ended September 30, 2022 and 2021	4
	Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2022 and 2021	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43
Item 4.	Controls and Procedures	43
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	45
Item 1A.	Risk Factors	45
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	47
Item 6.	Exhibits	47
SIGNATURES		48

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

DRIVE SHACK INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share data)


	(unaudited)
	September 30, 2022		December 31, 2021
Assets
Current assets
Cash and cash equivalents	$	11,655	$	58,286
Restricted cash	4,348		3,480
Accounts receivable, net	5,852		5,563

Real estate securities, available-for-sale	2,041		3,486
Other current assets	35,123		30,034
Total current assets	59,019		100,849
Restricted cash, noncurrent	216		798
Property and equipment, net of accumulated depreciation	186,125		179,260
Operating lease right-of-use assets	192,167		181,915
Intangibles, net of accumulated amortization	12,657		13,430

Other assets	5,507		6,538
Total assets	$	455,691	$	482,790

Liabilities and Equity
Current liabilities
Obligations under finance leases	$	4,847	$	5,400
Membership deposit liabilities	20,847		18,039
Accounts payable and accrued expenses	40,416		34,469
Deferred revenue	15,469		26,301

Other current liabilities	28,246		26,524
Total current liabilities	109,825		110,733
Credit facilities and obligations under finance leases - noncurrent	6,773		9,075
Operating lease liabilities - noncurrent	179,732		166,031
Junior subordinated notes payable	51,169		51,174
Membership deposit liabilities, noncurrent	107,292		104,430
Deferred revenue, noncurrent	10,748		10,005
Other liabilities	2,816		1,487
Total liabilities	$	468,355	$	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 September 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 September 30, 2022 and December 31, 2021, respectively.	924		921
Additional paid-in capital	3,231,506		3,233,608
Accumulated deficit	(3,308,612)		(3,268,876)
Accumulated other comprehensive income (loss)	(834)		1,163
Total equity of the company	$	(15,433)	$	28,399
Noncontrolling interest	2,769		1,456
Total equity (deficit)	$	(12,664)	$	29,855
Total liabilities and equity	$	455,691	$	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 September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Revenues
Golf operations	$	70,872	$	62,257	$	193,732	$	177,170
Sales of food and beverages	17,802		14,109		50,612		34,167
Total revenues	88,674		76,366		244,344		211,337

Operating costs
Operating expenses	70,026		60,729		190,638		165,234
Cost of sales - food and beverages	4,985		3,696		14,134		8,951
General and administrative expense	8,572		9,685		29,190		25,697
Depreciation and amortization	6,819		5,823		19,144		17,852
Pre-opening costs	2,145		2,030		4,830		3,375
(Gain) loss on lease terminations and impairment	1,318		324		16,350		2,972

Total operating costs	93,865		82,287		274,286		224,081
Operating income (loss)	(5,191)		(5,921)		(29,942)		(12,744)

Other income (expenses)
Interest and investment income	220		190		636		502
Interest expense, net	(2,608)		(2,626)		(8,802)		(7,964)
Other income (loss), net	920		107		4,559		29
Total other income (expenses)	(1,468)		(2,329)		(3,607)		(7,433)
Loss before income tax	(6,659)		(8,250)		(33,549)		(20,177)
Income tax expense	472		616		2,061		1,562
Consolidated net loss	(7,131)		(8,866)		(35,610)		(21,739)
Less: net income (loss) attributable to noncontrolling interest	21		(15)		(60)		(15)
Net loss attributable to the Company	(7,152)		(8,851)		(35,550)		(21,724)
Preferred dividends	(1,395)		(1,395)		(4,185)		(4,185)
Loss applicable to common stockholders	$	(8,547)	$	(10,246)	$	(39,735)	$	(25,909)

Loss applicable to common stock, per share
Basic	$	(0.09)	$	(0.11)	$	(0.43)	$	(0.29)
Diluted	$	(0.09)	$	(0.11)	$	(0.43)	$	(0.29)

Weighted average number of shares of common stock outstanding
Basic	92,385,019		92,085,846		92,339,823		88,938,344
Diluted	92,385,019		92,085,846		92,339,823		88,938,344

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 September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net loss	$	(7,131)	$	(8,866)	$	(35,610)	$	(21,739)
Other comprehensive loss:
Net unrealized gain (loss) on available-for-sale securities	(1,004)		(72)		(1,997)		(214)
Other comprehensive gain (loss)	(1,004)		(72)		(1,997)		(214)
Total comprehensive loss	$	(8,135)	$	(8,938)	$	(37,607)	$	(21,953)
Comprehensive loss attributable to noncontrolling interest	21		(15)		(60)		(15)
Comprehensive loss attributable to the Company	$	(8,156)	$	(8,923)	$	(37,547)	$	(21,938)

See notes to Consolidated Financial Statements.

DRIVE SHACK INC. AND SUBSIDIARIES

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

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 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 loss	—	—		—	—		—		—		(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)
Dividends declared	—	—		—	—		—		(1,395)		—		—		(1,395)
Stock-based compensation	—	—		—	—		110		—		—		—		110

Contributed Capital	—	—		—	—		$	(928)					928		—
Capital Distribution	—	—		—	—		—		—		—		(245)		(245)
Comprehensive income (loss)
Net loss	—	—		—	—		—		(7,152)		—		21		(7,131)
Other comprehensive loss	—	—		—	—		—		—		(1,004)		—		(1,004)
Total comprehensive loss															$	(8,135)
Equity (deficit) - September 30, 2022	2,463,321	$	61,583	92,385,019	$	924	$	3,231,506	$	(3,308,612)	$	(834)	$	2,769	$	(12,664)

DRIVE SHACK INC. AND SUBSIDIARIES

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

(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, 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
Dividends declared	—	—		—	—		—		(1,395)		—		—		(1,395)
Stock-based compensation	—	—		—	—		597		—		—		—		597
Shares issued from restricted stock units	—	—			—		—		—		—		—		—
Capital contribution	—	—		—	—		—		—		—		1,041		1,041
Comprehensive income (loss)															—
Net loss	—	—		—	—		—		(8,851)		—		(15)		(8,866)
Other comprehensive income	—	—		—	—		—		—		(72)		—		(72)
Total comprehensive loss													1,026		$	(8,938)
Equity (deficit) - September 30, 2021	2,463,321	$	61,583	92,085,419	$	921	$	3,233,866	$	(3,257,835)	$	1,254	$	1,026	$	40,815

See notes to Consolidated Financial Statements.

DRIVE SHACK INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(Dollars in thousands, except share data)


	Nine Months Ended September 30,
	2022		2021
Cash Flows From Operating Activities
Net loss	$	(35,610)	$	(21,739)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization	19,144		17,852
Amortization of discount and premium	(557)		(409)
Other amortization	7,319		6,092
Amortization of revenue on golf membership deposit liabilities	(1,708)		(1,642)
Amortization of prepaid golf membership dues	(11,804)		(12,646)
Non-cash operating lease expense	6,251		3,157
Stock-based compensation	(444)		1,504
Loss on lease terminations and impairment	16,350		2,972
Gain from insurance proceeds for property loss	(3,033)		—

Other losses, net	70		119


Change in:
Accounts receivable, net, other current assets and other assets - noncurrent	(4,347)		(8,271)
Accounts payable and accrued expenses, deferred revenue, other current liabilities and other liabilities - noncurrent	20,280		5,141
Net cash provided by (used in) operating activities	11,911		(7,870)
Cash Flows From Investing Activities

Insurance proceeds for property loss	3,033		—
Acquisition and additions of property and equipment and intangibles	(50,969)		(22,251)

Net cash used in investing activities	(47,936)		(22,251)
Cash Flows From Financing Activities
Repayments of debt obligations	(4,182)		(4,620)
Golf membership deposits received	13		1,484
Proceeds from issuance of common stock	3		53,905
Capital distribution paid	(285)		—
Preferred stock dividends paid	(4,185)		(2,790)
Other financing activities	(1,684)		(673)
Net cash provided by (used in) financing activities	(10,320)		47,306
Net Increase (Decrease) in Cash and Cash Equivalents, Restricted Cash and Restricted Cash, noncurrent	(46,345)		17,185
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	$	16,219	$	68,018



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	$	1,670
Capital contribution	$	—	$	1,041
Non-cash purchases of property and equipment	$	(13,081)	$	(620)
Additions for right of use assets in exchange for new operating lease liabilities	$	30,756	$	9,862
Cash paid during the period for interest expense	$	1,745	$	2,165
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)

SEPTEMBER 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 September 30, 2022, the Company's entertainment golf segment was comprised of eight 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; Washington, D.C; and Houston, Texas.

The Company’s traditional golf segment is one of the largest operators of traditional golf properties in the United States. As of September 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.

Going Concern — 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.

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 macro-economic conditions make it less likely that the Company will succeed in any effort to sell, finance or otherwise monetize assets at a sufficient value 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.

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

DRIVE SHACK INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

SEPTEMBER 30, 2022

(Dollars in tables in thousands, except share data)

it will need to obtain external financing sources notwithstanding the negative conditions afflicting debt markets and other sources of potential liquidity.

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/A filed with the Securities and Exchange Commission (the "SEC") on November 18, 2022. There have been no significant changes to our critical accounting policies as disclosed in our Annual Report on Form 10-K/A 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)

SEPTEMBER 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)

SEPTEMBER 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 it 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:


	September 30, 2022		December 31, 2021
Cash and cash equivalents	$	11,655	58,286
Restricted cash	4,348		3,480
Restricted cash, noncurrent	216		798
Total Cash and cash equivalents, Restricted cash and Restricted cash, noncurrent	$	16,219	$	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 September 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:


	September 30, 2022		December 31, 2021
Managed property receivables	$	13,526	$	19,316
Prepaid expenses	7,137		2,524
Deposits	1,805		1,827
Inventory	2,921		2,229

Miscellaneous current assets, net	9,734		4,138
Other current assets	$	35,123	$	30,034

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


	September 30, 2022		December 31, 2021
Prepaid expenses	$	1,717	$	2,156
Deposits	3,115		3,335
Miscellaneous assets, net	675		1,047
Other assets	$	5,507	$	6,538

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


	September 30, 2022		December 31, 2021

Operating lease liabilities	$	18,304	$	16,519
Accrued rent	3,654		3,455
Dividends payable	930		930
Miscellaneous current liabilities	5,358		5,620
Other current liabilities	$	28,246	$	26,524

DRIVE SHACK INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

SEPTEMBER 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 September 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 September 30, 2022 the Trusts had refunded a total of approximately $0.5 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 September 30,					Nine Months Ended September 30,
	2022		2021			2022		2021




Collateral management fee income, net	$	22	$	46		$	92	$	148

Insurance proceeds	662		—		—	4,086

Loss on sale of long-lived assets and intangibles	—		—