Annual report pursuant to Section 13 and 15(d)

EQUITY AND EARNINGS PER SHARE

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EQUITY AND EARNINGS PER SHARE
 12 Months Ended
Dec. 31, 2021
Equity [Abstract]  
EQUITY AND EARNINGS PER SHARE 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:
For Year Ended December 31,
2021 2020 2019
Numerator for basic and diluted earnings per share:
Loss from continuing operations after preferred dividends $ (36,949) $ (61,934) $ (60,434)
Loss Applicable to Common Stockholders $ (36,949) $ (61,934) $ (60,434)
Denominator:
Denominator for basic earnings per share - weighted average shares 89,733,378  67,158,745  67,039,556 
Effect of dilutive securities
Options —  —  — 
RSUs —  —  — 
Denominator for diluted earnings per share - adjusted weighted average shares 89,733,378  67,158,745  67,039,556 
Basic earnings per share:
Loss from continuing operations per share of common stock after preferred dividends $ (0.41) $ (0.92) $ (0.90)
Loss Applicable to Common Stock, per share $ (0.41) $ (0.92) $ (0.90)
Diluted earnings per share:
Loss from continuing operations per share of common stock after preferred dividends $ (0.41) $ (0.92) $ (0.90)
Loss Applicable to Common Stock, per share $ (0.41) $ (0.92) $ (0.90)
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 2021, 2020, and 2019, based on the treasury stock method, the Company had 550,753, 623,140 and 2,113,022 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.
Common Stock Issuances

In 2018, the Company issued a total of 50,000 shares of its common stock to an independent director as part of the Director Stock Program described below.

In 2019, the Company issued a total of 6,000 shares of its common stock to an independent director as part of the Director Stock Program.

In 2019, the Company issued a total of 27,099 of its common stock to independent directors upon vesting of RSUs that were granted in 2018.
In 2019, the Company issued a total of 8,548 shares of its common stock to employees upon vesting of RSUs that were granted in 2019.

In 2020, the Company issued a total of 50,653 of its common stock to its independent directors upon vesting of RSUs that were granted in 2019.

In 2020, the Company issued a total of 160,792 shares of its common stock to employees upon vesting of RSUs that were granted in 2019.

In 2020, the Company issued 43,396 shares of its common stock to a former executive upon the exercise of vested options that were granted in 2018.

In 2021, the Company issued a total of 13,429 of its common stock to its independent directors upon vesting of RSUs that were granted in 2019.

In 2021, the Company issued a total of 61,520 shares of its common stock to employees upon vesting of RSUs that were granted in 2019.

In 2021, the Company issued 736,551 shares of its common stock to a former executive upon the exercise of vested options that were granted in 2018.

In 2021, the Company completed the public offering of 23,285,553 shares of common stock and the sale of 672,780 shares of common stock to the Chairman of our board of directors.

Incentive and Option Plans

The Drive Shack Inc. 2018 Omnibus Incentive Plan (the "2018 Plan") was effective upon approval by our shareholders in May 2018 and provides for the issuance of equity-based awards in various forms to eligible participants. As of December 31, 2021, the 2018 Plan has 5,284,184 shares available for grant in the aggregate, subject to an annual limitation.

All outstanding options granted under prior option plans will continue to be subject to the terms and conditions set forth in the agreements evidencing such options and the terms of respective option plan.
As detailed in the 2018 Plan, the board of directors may permit a first time non-employee director to make a one-time election to participate in a stock purchase and matching grant program (the "Director Stock Program") which provides that if the non-employee director purchases shares of the Company's common stock at fair value within 30 days following the date the individual becomes a non-employee director, then the Company will issue a matching grant of fully vested shares of common stock equal to 20% of the aggregate fair value of the purchased shares. In 2018, a non-employee director purchased 41,667 shares and the Company issued 8,333 shares representing the matching grant. In 2019, a non-employee director purchased 5,000 shares and the Company issued 1,000 shares representing the matching grant. There were no non-employee director purchases in 2020 and 2021.
Stock Options
The following is a summary of the changes in the Company's outstanding options for the year ended December 31, 2021.
Number of Options Weighted Average Strike Price Weighted Average Life Remaining (in years)
Balance at December 31, 2020 4,935,732  $ 2.57 
Vested (1,353,184) 1.00 
Balance at December 31, 2021 3,582,548  $ 3.17  1.6 years
Outstanding at December 31, 2021 2,578,926  $ 2.59  1.7 years
The Company's outstanding options are summarized as follows:
Year Ended December 31,
2021 2020
Held by the former Manager 2,578,926  3,627,245 
Granted to the former Manager and subsequently transferred to certain Manager’s employees (B) 1,003,622  1,308,154 
Granted to the independent directors —  333 
Granted to Drive Shack employees (A)(C) —  — 
Total 3,582,548  4,935,732 

(A)In 2019, in connection with the former CEO's retirement, the related option awards were modified to accelerate the vesting of 1,117,118 options, subject to a 90-day exercise period which was not exercised and expired on February 9, 2020. The former CEO forfeited 2,234,237 options upon departure. As a result of the modification, the Company reversed $2.1 million in stock compensation expense. The expense for the modified award was recorded at the modification date fair value.
(B)The Company and Fortress (the former Manager) agreed that options held by certain employees formerly employed by the 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. In 2019, a certain employee was terminated by the Company and 921,992 options reverted back to the former Manager. The Company reversed $1.2 million in stock compensation expense related to these options.
(C)In 2018, the Company granted 75,000 options to an employee as provided in their employment agreement. The options fully vest on the third anniversary of the grant date. In 2019, the Company granted 695,652 options to an employee that vest and become exercisable in equal annual installment on each of the first three anniversaries of the grant date. In 2021, no options were cancelled as part of an employee's departure from the Company per a separation and release agreement.

The valuation of the employee options has been determined using the Black-Scholes option valuation model. The Black-Scholes option valuation model uses assumptions of expected volatility, expected dividend yield of the Company’s stock, expected term of the awards and the risk-free interest rate. The fair value of the options was determined using the following assumptions:
Option Valuation Date April 2019 November 2019
Expected Volatility 36.80  % 44.73  %
Expected Dividend Yield 0.00  % 0.00  %
Expected Remaining Term 6.0 years 0.3 years
Risk-Free Rate 2.34  % 1.57  %
Fair Value at Valuation Date $ 1,280  $ 67 

Stock-based compensation expense is recognized on a straight-line basis from grant date through the vesting date of the options. Stock-based compensation expense related to the employee options was $1.4 million, $0.8 million, and $0.6 million (net of the reversals of stock compensation expenses described above), during the years ended December 31, 2021, 2020, and 2019 respectively, and was recorded in general and administrative expense on the Consolidated Statements of Operations. The unrecognized stock-based compensation expense related to the unvested options was $0.6 million as of December 31, 2021 and will be expensed over a weighted average of 1.1 years.

The closing price on the New York Stock Exchange for the Company’s common stock as of December 31, 2021 was $1.43 per share.
Restricted Stock Units (RSUs)

The following is a summary of the changes in the Company's RSUs for the year ended December 31, 2021:
Number of RSUs Weighted Average Grant Date Fair Value (per unit)
Balance at December 31, 2020 259,238  $ 3.72 
Granted (A) 149,660  $ 1.47 
Released (162,706) $ 3.45 
Forfeited (B) (53,002) $ 3.74 
Outstanding at December 31, 2021 193,190  $ 2.20 
(A)The Company's non-employee directors were granted 149,660 RSUs during 2021 as part of the annual compensation. The RSUs are subject to a one year vesting period.
(B)Unvested RSUs are forfeited by non-employee directors upon their departure from the board of directors and 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 year ended December 31, 2021, the Company granted 149,660 RSUs to non-employee directors and 13,429 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. During the year ended December 31, 2021, the Company did not grant RSUs to employees and 61,520 RSUs granted to employees vested and were released. Stock-based compensation expense related to the RSUs was $0.7 million, $0.7 million, and $0.7 million during the years ended December 31, 2021, 2020, and 2019 respectively, and was recorded in general and administrative expense on the Consolidated Statements of Operations. The unrecognized stock-based compensation expense related to the unvested RSUs was $0.3 million as of December 31, 2021 and is expected to be recognized over a weighted average of 1.1 years.
Tax Benefits Preservation Plan

In connection with the adoption of a Tax Benefit Preservation Plan in 2016 and subsequent years through 2020, our board of directors approved the Articles Supplementary of Series E Junior Participating Preferred Stock, which was filed with the State Department of Assessments and Taxation of Maryland on December 8, 2016.
Preferred Stock
In March 2003, the Company issued 2.5 million shares ($62.5 million face amount) of its 9.75% Series B Cumulative Redeemable Preferred Stock (the “Series B Preferred”). In October 2005, the Company issued 1.6 million shares ($40.0 million face amount) of its 8.05% Series C Cumulative Redeemable Preferred Stock (the “Series C Preferred”). In March 2007, the Company issued 2.0 million shares ($50.0 million face amount) of its 8.375% Series D Cumulative Redeemable Preferred Stock (the “Series D Preferred”). The Series B Preferred, Series C Preferred and Series D Preferred are non-voting, have a $25 per share liquidation preference, no maturity date and no mandatory redemption. The Company has the option to redeem the Series B Preferred, the Series C Preferred and the Series D Preferred, at their liquidation preference. If the Series C Preferred or Series D Preferred cease to be listed on the NYSE or the AMEX, or quoted on the NASDAQ, and the Company is not subject to the reporting requirements of the Exchange Act, the Company has the option to redeem the Series C Preferred or Series D Preferred, as applicable, at their liquidation preference and, during such time any shares of Series C Preferred or Series D Preferred are outstanding, the dividend will increase to 9.05% or 9.375% per annum, respectively.
In connection with the issuance of the Series B Preferred, Series C Preferred and Series D Preferred, the Company incurred approximately $2.4 million, $1.5 million, and $1.8 million of costs, respectively, which were netted against the proceeds of such offerings. If any series of preferred stock were redeemed, the related costs would be recorded as an adjustment to income available for common stockholders at that time.
In March 2010, the Company settled its offer to exchange (the “Exchange Offer”) shares of its common stock and cash for shares of its preferred stock. After settlement of the Exchange Offer, 1,347,321 shares of Series B Preferred Stock, 496,000 shares of Series C Preferred Stock and 620,000 shares of Series D Preferred Stock remain outstanding for trading on the New York Stock Exchange.
On March 11, 2021 the board of directors declared dividends on the Company’s preferred stock for the period beginning February 1, 2021 and ending April 30, 2021, payable on April 30, 2021 to holders of record of preferred stock on April 1, 2021, 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. Dividends totaling $1.4 million were paid on April 29, 2021.

On May 5, 2021 the board of directors declared dividends on the Company’s preferred stock for the period beginning May 1, 2021 and ending July 31, 2021, payable on July 30, 2021 to holders of record of preferred stock on July 1, 2021, 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. Dividends totaling $1.4 million were paid on July 30, 2021.

On August 5, 2021 the board of directors declared dividends on the Company’s preferred stock for the period beginning August 1, 2021 and ending October 31, 2021, payable on November 1, 2021 to holders of record of preferred stock on October 1, 2021, 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. Dividends totaling $1.4 million were paid on October 29, 2021.
On November 5, 2021, the board of directors of the Company declared dividends on the Company's preferred stock for the period beginning November 1, 2021, and ending January 31, 2022. The dividends are payable 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. As of December 31, 2021, $0.9 million remained upaid.
Non-Controlling Interests

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. Currently the Company and Symphony are party to two SLPs, for the Puttery location in Dallas, Texas and Charlotte, North Carolina. 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. In exchange for its purchase of limited partnership interests in the SLP, Symphony agreed to pay cash consideration of $1,041,000 on or after
November 11, 2021. Symphony’s purchase price for limited partnership interests in the SLP in respect of Charlotte will be finalized in the first quarter of 2021. .No fees or other discounts or commissions are payable to underwriters or other entities in connection with the foregoing