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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, 2021
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 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)
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 Regulations 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: 92,093,425 shares outstanding as of October 31, 2021.


DRIVE SHACK INC.  
FORM 10-Q
INDEX
PAGE
 
 
1
2
3
 
4
 
6
26
40
40
 
41
41
41
42
43


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, 2021 December 31, 2020
Assets
Current assets
Cash and cash equivalents $ 63,867  $ 47,786 
Restricted cash 3,442  2,252 
Accounts receivable, net 4,084  4,446 
Real estate securities, available-for-sale 3,414  3,223 
Other current assets 28,605  14,410 
Total current assets 103,412  72,117 
Restricted cash, noncurrent 709  795 
Property and equipment, net of accumulated depreciation 174,616  169,425 
Operating lease right-of-use assets 186,220  192,828 
Intangibles, net of accumulated amortization 13,767  15,124 
Other assets 5,752  6,765 
Total assets $ 484,476  $ 457,054 
Liabilities and Equity
Current liabilities
Obligations under finance leases $ 5,638  $ 6,470 
Membership deposit liabilities 17,978  14,692 
Accounts payable and accrued expenses 33,812  29,596 
Deferred revenue 13,086  23,010 
Other current liabilities 20,744  28,217 
Total current liabilities 91,258  101,985 
Credit facilities and obligations under finance leases - noncurrent 9,997  12,751 
Operating lease liabilities - noncurrent 174,776  167,837 
Junior subordinated notes payable 51,177  51,182 
Membership deposit liabilities, noncurrent 102,521  99,862 
Deferred revenue, noncurrent 10,555  9,953 
Other liabilities 3,377  3,447 
Total liabilities $ 443,661  $ 447,017 
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, 2021 and December 31, 2020
$ 61,583  $ 61,583 
Common stock, $0.01 par value, 1,000,000,000 shares authorized, 92,086,727 and 67,323,592 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively
921  673 
Additional paid-in capital 3,233,866  3,178,704 
Accumulated deficit (3,257,835) (3,232,391)
Accumulated other comprehensive income 1,254  1,468 
Total equity of the company $ 39,789  $ 10,037 
Noncontrolling interest 1,026  — 
Total equity $ 40,815  $ 10,037 
Total liabilities and equity $ 484,476  $ 457,054 

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 September 30, Nine Months Ended September 30,
  2021 2020 2021 2020
Revenues    
Golf operations $ 62,257  $ 58,766  $ 177,170  $ 137,066 
Sales of food and beverages 14,109  7,699  34,167  22,634 
Total revenues 76,366  66,465  211,337  159,700 
Operating costs
Operating expenses 60,729  54,993  165,234  142,584 
Cost of sales - food and beverages 3,696  2,170  8,951  6,654 
General and administrative expense 9,685  7,916  25,697  24,102 
Depreciation and amortization 5,823  6,853  17,852  20,329 
Pre-opening costs 2,030  227  3,375  1,049 
(Gain) Loss on lease terminations and impairment 324  302  2,972  (2,031)
Total operating costs 82,287  72,461  224,081  192,687 
Operating income (loss) (5,921) (5,996) (12,744) (32,987)
Other income (expenses)
Interest and investment income 190  135  502  400 
Interest expense, net (2,626) (2,896) (7,964) (8,232)
Other income (loss), net 107  (157) 29  (24,212)
Total other income (expenses) (2,329) (2,918) (7,433) (32,044)
Loss before income tax (8,250) (8,914) (20,177) (65,031)
Income tax expense 616  498  1,562  1,269 
Consolidated net loss (8,866) (9,412) (21,739) (66,300)
Less: net loss attributable to noncontrolling interest (15) —  (15) — 
Net loss attributable to the Company (8,851) (9,412) (21,724) (66,300)
Preferred dividends (1,395) (1,395) (4,185) (4,185)
Loss applicable to common stockholders $ (10,246) $ (10,807) $ (25,909) $ (70,485)
Loss applicable to common stock, per share    
Basic $ (0.11) $ (0.16) $ (0.29) $ (1.05)
Diluted $ (0.11) $ (0.16) $ (0.29) $ (1.05)
Weighted average number of shares of common stock outstanding    
Basic 92,085,846  67,212,532  88,938,344  67,131,827 
Diluted 92,085,846  67,212,532  88,938,344  67,131,827 

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 September 30, Nine Months Ended September 30,
  2021 2020 2021 2020
Net loss $ (8,866) $ (9,412) $ (21,739) $ (66,300)
Other comprehensive loss:    
Net unrealized gain (loss) on available-for-sale securities (72) (67) (214) (322)
Other comprehensive gain (loss) (72) (67) (214) (322)
Total comprehensive loss $ (8,938) $ (9,479) $ (21,953) $ (66,622)
Comprehensive loss attributable to noncontrolling interest (15) —  (15) — 
Comprehensive loss attributable to the Company $ (8,923) $ (9,479) $ (21,938) $ (66,622)
  
See notes to Consolidated Financial Statements.
3

DRIVE SHACK INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (unaudited)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(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 —  —  —  —  —  —  —  — 
Contributed Capital 1,041  1,041 
Comprehensive income (loss)
Net loss —  —  —  —  —  (8,851) —  (15) (8,866)
Other comprehensive income —  —  —  —  —  —  (72) —  (72)
Total comprehensive loss (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 
Equity (deficit) - December 31, 2019 2,463,321  $ 61,583  67,068,751  $ 671  $ 3,177,183  $ (3,175,572) $ 1,710  $ —  $ 65,575 
Dividends declared —  —  —  —  —  (465) —  —  (465)
Stock-based compensation —  —  —  —  201  —  —  —  201 
Shares issued from restricted stock units —  —  1,762  —  —  —  —  — 
Comprehensive income (loss)
Net loss —  —  —  —  —  (17,362) —  —  (17,362)
Other comprehensive income —  —  —  —  —  —  (38) —  (38)
Total comprehensive loss —  (17,400)
Equity (deficit) - March 31, 2020 2,463,321  $ 61,583  67,070,513  $ 671  $ 3,177,384  $ (3,193,399) $ 1,672  $ —  $ 47,911 
Stock-based compensation —  —  —  —  500  —  —  —  500 
4

Shares issued from restricted stock units —  —  141,849  1  (1) —  —  —  — 
Comprehensive income (loss)
Net loss —  —  —  —  —  (39,526) —  —  (39,526)
Other comprehensive income —  —  —  —  —  —  (217) —  (217)
Total comprehensive loss —  (39,743)
Equity (deficit) - June 30, 2020 2,463,321  $ 61,583  67,212,362  $ 672  $ 3,177,883  $ (3,232,925) $ 1,455  $ —  $ 8,668 
Dividends declared —  —  —  —  —  —  —  —  — 
Stock-based compensation —  —  —  —  436  —  —  —  436 
Shares issued from restricted stock units (directors) —  —  15,582  —  —  —  —  —  — 
Comprehensive income (loss)
Net loss —  —  —  —  —  (9,412) —  —  (9,412)
Other comprehensive loss —  —  —  —  —  —  (67) —  (67)
Total comprehensive loss —  (9,479)
Equity (deficit) - September 30, 2020 2,463,321  $ 61,583  67,227,944  $ 672  $ 3,178,319  $ (3,242,337) $ 1,388  $ —  $ (375)


See notes to Consolidated Financial Statements.
5


DRIVE SHACK INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(Dollars in thousands, except share data)
  Nine Months Ended September 30,
  2021 2020
Cash Flows From Operating Activities    
Net loss $ (21,739) $ (66,300)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 17,852  20,329 
Amortization of discount and premium (409) (304)
Other amortization 6,092  6,135 
Amortization of revenue on golf membership deposit liabilities (1,642) (1,173)
Amortization of prepaid golf membership dues (12,646) (9,556)
Non-cash operating lease expense 3,157  7,636 
Stock-based compensation 1,504  1,137 
(Gain) Loss on lease terminations and impairment 2,972  (2,681)
Equity in earnings, net of impairment from equity method investments —  24,020 
Other losses, net 119  390 
Change in:
Accounts receivable, net, other current assets and other assets - noncurrent (8,271) 3,614 
Accounts payable and accrued expenses, deferred revenue, other current liabilities and other liabilities - noncurrent 5,141  14,452 
Net cash used in operating activities (7,870) (2,301)
Cash Flows From Investing Activities    
Proceeds from sale of property and equipment —  (74)
Acquisition and additions of property and equipment and intangibles (22,251) (9,607)
Net cash used in investing activities (22,251) (9,681)
Cash Flows From Financing Activities
Repayments of debt obligations (4,620) (3,849)
Golf membership deposits received 1,484  2,241 
Proceeds from issuance of common stock 53,905  — 
Preferred stock dividends paid (2,790) (1,395)
Other financing activities (673) (475)
Net cash provided by (used in) financing activities 47,306  (3,478)
Net Increase (Decrease) in Cash and Cash Equivalents, Restricted Cash and Restricted Cash, noncurrent 17,185  (15,460)
Cash and Cash Equivalents, Restricted Cash and Restricted Cash, noncurrent, Beginning of Period 50,833  31,964 
Cash and Cash Equivalents, Restricted Cash and Restricted Cash, noncurrent, End of Period $ 68,018  $ 16,504 
Supplemental Schedule of Non-Cash Investing and Financing Activities
Preferred stock dividends declared but not paid $ 930  $ — 
Additions to finance lease assets and liabilities $ 1,670  $ 4,030 
Capital contribution $ 1,041  $ — 
(Decreases)/increases in accounts payable and accrued expenses related to the purchase of property and equipment $ (620) $ 2,555 
Additions for operating right of use assets and liabilities $ 9,862  $ — 
Cash paid during the period for interest expense $ 2,165  $ — 
Cash paid during the period for income taxes $ 1,489  $ — 

See notes to Consolidated Financial Statements.
6
DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
SEPTEMBER 30, 2021
(Dollars in tables in thousands, except share data)

Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Drive Shack Inc., a Maryland corporation, was formed in 2002, and its common stock is traded on the NYSE under the symbol “DS.” Drive Shack Inc., together with its subsidiaries, is referenced herein as "Drive Shack Inc.", "the Company", "we", or "our". The Company owns and operates golf-related leisure and entertainment venues and courses focused on bringing people together through competitive socializing, by combining sports and entertainment with elevated food and beverage ("F&B") offerings. 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, 2021, the Company's entertainment golf segment was comprised of five owned or leased entertainment golf venues across four states with locations in Florida, North Carolina, Texas and Virginia.
The Company’s traditional golf segment is one of the largest operators of traditional golf properties in the United States. As of September 30, 2021, the Company owned, leased or managed 56 traditional golf properties across nine states.
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”). In response to the rapid spread of COVID-19, authorities around the world implemented numerous measures to contain the virus, such as travel bans and restrictions, quarantines, "stay-at-home" or "shelter-in-place" orders and business shutdowns. Many jurisdictions in which we operate required mandatory store closures or imposed capacity limitations and other restrictions affecting our operations. As a result, during March 2020, we temporarily closed all of our entertainment golf venues and substantially all of our traditional golf courses and furloughed a substantial majority of our employees. In response to the uncertainty caused by the pandemic, we took several actions after we suspended operations to preserve our liquidity position and prepare for multiple contingencies.

Following the temporary closure of our venues in March 2020 in response to the COVID-19 pandemic, three of our four Drive Shack entertainment golf venues and all of our traditional golf properties were reopened by the end of the second quarter 2020, subject to locally mandated capacity limitations and operational restrictions. Our entertainment golf venue in Orlando, Florida re-opened in December 2020. Restrictions on large group gatherings were in effect in the majority of the jurisdictions in which we operate, which resulted in the postponement or cancellation of events, banquets, and other large group gatherings. By April of this year, the Centers for Disease Control and Prevention lifted restrictions on group events and our business has begun to return to normal.

These developments had a material adverse impact on Company revenues, results of operations and cash flows in historical periods, and the Company believes that the risk of further negative effects is not insignificant, as of the date of this Quarterly Report on Form 10-Q, subject to the degree to which the pandemic subsides, intensifies or maintains the current status quo.

The accompanying Consolidated Financial Statements and related notes of the Company have been prepared in accordance with accounting principles generally accepted in the United States 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, 2020 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 16, 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.
7
DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2021
(Dollars in tables in thousands, except share data)

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 and lease liabilities are recognized in "Operating lease right-of-use assets," "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.

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. Restricted cash is required primarily for construction in progress, letters of credit, and credit card processing.

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

September 30, 2021 December 31, 2020
Cash and cash equivalents $ 63,867  47,786 
Restricted cash 3,442  2,252 
Restricted cash, noncurrent 709  795 
Total Cash and cash equivalents, Restricted cash and Restricted cash, noncurrent $ 68,018  $ 50,833 

8
DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2021
(Dollars in tables in thousands, except share data)
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 September 30, 2021 and December 31, 2020. 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, 2021 December 31, 2020
Managed property receivables $ 18,739  $ 3,236 
Prepaid expenses 2,938  3,158 
Deposits 1,502  767 
Inventory 2,106  1,950 
Construction in progress receivables 2,279  1,839 
Miscellaneous current assets, net 1,041  3,460 
Other current assets $ 28,605  $ 14,410 
Other Assets — The following table summarizes the Company's other assets:
September 30, 2021 December 31, 2020
Prepaid expenses $ 1,373  $ 2,154 
Deposits 3,442  2,504 
Miscellaneous assets, net 937  2,107 
Other assets $ 5,752  $ 6,765 

Other Current Liabilities — The following table summarizes the Company's other current liabilities:
September 30, 2021 December 31, 2020
Operating lease liabilities $ 16,294  $ 19,894 
Accrued rent —  4,318 
Dividends payable 930  — 
Miscellaneous current liabilities 3,520  4,005 
Other current liabilities $ 20,744  $ 28,217 

Membership Deposit Liabilities - Private country club members in our traditional golf business generally pay an advance initiation fee deposit upon their acceptance as members to their respective country clubs. Initiation fee deposits are refundable 30 years after the date of acceptance as a member. The difference between the initiation fee 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. See Note 2. Revenues. 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.

9
DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2021
(Dollars in tables in thousands, except share data)
Other Income (Loss), Net — These items are comprised of the following:
  Three Months Ended September 30, Nine Months Ended September 30,
  2021 2020 2021 2020
Collateral management fee income, net $ 46  $ 62  $ 148  $ 199 
Equity in earnings, net of impairment from equity method investments —  —  —  (24,020)
Gain (loss) on sale of long-lived assets and intangibles —  —  (64) — 
Gain (loss) on sale of traditional golf properties —  (9) —  (63)
Other (loss) income 61  (210) (55) (328)
Other income (loss), net $ 107  $ (157) $ 29  $ (24,212)

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. Currently the Company and Symphony are party to one SLP, for the Puttery location in Dallas, Texas. 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. No fees or other discounts or commissions are payable to underwriters or other entities in connection with the foregoing.

Recent Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The standard removes certain exceptions for investments, intraperiod allocations and interim tax calculations and adds guidance to reduce complexity in accounting for income taxes. The effective date of the standard is for annual periods beginning after December 15, 2020, with early adoption permitted. The various amendments in the standard are applied on a retrospective basis, modified retrospective basis and prospective basis, depending on the amendment. The Company adopted ASU 2019-12 as of the fiscal year beginning January 1, 2021. The adoption of ASU 2019-12 had no material impact on the Company's financial statements.

10
DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2021
(Dollars in tables in thousands, except share data)
Note 2. 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.

Private country club members in our traditional golf business generally pay an advance initiation fee deposit upon their acceptance as members to their respective country clubs. Initiation fee deposits are refundable 30 years after the date of acceptance as a member. The difference between the initiation fee 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. See Note 1. Summary of Significant Accounting Policies - Membership Deposit Liabilities.

Virtually all of the Company’s revenues are 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 September 30, 2021 Nine Months Ended September 30, 2021
Ent. golf venues Public golf properties Private golf properties Managed golf properties (A) Total Ent. golf venues Public golf properties Private golf properties Managed golf properties (A) Total
Golf operations $ 5,239  $ 30,065  $ 10,715  $ 16,238  $ 62,257  $ 13,976  $ 77,932  $ 37,756  $ 47,506  $ 177,170 
Sales of food and beverages 6,070  6,334  1,705  —  14,109  17,145  12,182  4,840  —  34,167 
Total revenues $ 11,309  $ 36,399  $ 12,420  $ 16,238  $ 76,366  $ 31,121  $ 90,114  $ 42,596  $ 47,506  $ 211,337 
Three Months Ended September 30, 2020 Nine Months Ended September 30, 2020
Ent. golf venues Public golf properties Private golf properties Managed golf properties (A) Total Ent. golf venues Public golf properties Private golf properties Managed golf properties (A) Total
Golf operations $ 2,736  $ 27,361  $ 11,833  $ 16,836  $ 58,766  $ 7,408  $ 56,419  $ 31,994  $ 41,245  $ 137,066 
Sales of food and beverages 3,440  2,719  1,540  —  7,699  10,675  7,914  4,045  —  22,634 
Total revenues $ 6,176  $ 30,080  $ 13,373  $ 16,836  $ 66,465  $ 18,083  $ 64,333  $ 36,039  $ 41,245  $ 159,700 
(A)Includes $14.7 million and $41.3 million for the three and nine months ended September 30, 2021, as well as $15.2 million and $37.1 million for the three and nine months ended September 30, 2020, respectively, related to management contract reimbursements reported under ASC 606 - Revenue Recognition.
11
DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2021
(Dollars in tables in thousands, except share data)
Note 3. PROPERTY AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION

The following table summarizes the Company’s property and equipment:
 
  September 30, 2021 December 31, 2020
  Gross Carrying Amount Accumulated Depreciation Net Carrying Value Gross Carrying Amount Accumulated Depreciation Net Carrying Value
Land $ 6,770  $ —  $ 6,770  $ 6,770  $ —  $ 6,770 
Buildings and improvements 142,073  (44,156) 97,917  142,635  (40,198) 102,437 
Furniture, fixtures and equipment 51,479  (28,802) 22,677  51,622  (24,422) 27,200 
Finance leases - equipment 30,504  (14,997) 15,507  34,339  (15,296) 19,043 
Construction in progress 31,745  —  31,745  13,975  —  13,975 
Total Property and Equipment $ 262,571  $ (87,955) $ 174,616  $ 249,341  $ (79,916) $ 169,425 


Note 4. SEGMENT REPORTING
 
The Company currently has three reportable segments: (i) entertainment golf, (ii) traditional golf and (iii) corporate. The Company has determined that its chief operating decision maker (“CODM”) is the chief executive officer and president, who reviews discrete financial information, including resource allocation and performance assessment, for each reportable segment to manage the Company.

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. It is also comprised of Puttery, the Company’s newest competitive socializing and entertainment platform.

The Company's traditional golf segment is one of the largest operators of golf courses and country clubs in the United States. As of September 30, 2021, the Company owned, leased or managed 56 traditional golf properties across nine states. Following the close of business on March 31, 2021, management agreements expired for the Lomas Santa Fe Country Club, Tustin Ranch Golf Club, and Yorba Linda Country Club, reducing the total number of courses managed in our traditional golf business to 22.
On May 5, 2021, the SeaCliff Country Club ("SeaCliff") lease expired, reducing the total number of leased or owned courses to 34. The total annual revenue generated by the four properties during the fiscal year ended December 31, 2020 and the quarter ended March 31, 2021 was $22.4 million and $6.6 million, respectively. The total revenue generated by SeaCliff for the quarter ended June 30, 2021 was not material. On September 1, 2021, the Company was notified the lease for the Tilden Golf Course will not be renewed as of December 31, 2021. The total revenue generated for the fiscal year ended December 31, 2020 and year-to-date as of September 30, 2021, was $3.4 million and $3.5 million, respectively.


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 7) and income tax expense (Note 13).

12
DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2021
(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:
Nine Months Ended September 30, 2021 Entertainment Golf Traditional Golf Corporate Total
Revenues
Golf operations $ 13,976  $ 163,194  $ —  $ 177,170 
Sales of food and beverages 17,145  17,022  —  34,167 
Total revenues 31,121  180,216  —  211,337 
Operating costs
Operating expenses 17,397  147,822  15  165,234 
Cost of sales - food and beverages 3,982  4,974  (5) 8,951 
General and administrative expense (A) 8,171  7,700  8,993  24,864 
General and administrative expense - acquisition and transaction expenses (B) 824  —  9  833 
Depreciation and amortization 8,942  8,854  56  17,852 
Pre-opening costs (C) 3,374  —  1  3,375 
(Gain) Loss on lease terminations and impairment 22  (237) 3,187  2,972 
Total operating costs 42,712  169,113  12,256  224,081 
Operating income (loss) (11,591) 11,103  (12,256) (12,744)
Other income (expenses)
Interest and investment income —  55  447  502 
Interest expense (D) (230) (6,848) (964) (8,042)
Capitalized interest (D) (24) 37  65  78 
Other income (loss), net 3  (115) 141  29 
Total other income (expenses) (251) (6,871) (311) (7,433)
Income tax expense —  —  1,562  1,562 
Net income (loss) (11,842) 4,232  (14,129) (21,739)
   Less: net loss attributable to NCI (15) —  —  (15)
   Net loss attributable to the company (11,827) 4,232  (14,129) (21,724)
   Preferred dividends —  —  (4,185) (4,185)
Net income (loss) applicable to common stockholders $ (11,827) $ 4,232  $ (18,314) $ (25,909)
September 30, 2021 Entertainment Golf Traditional Golf Corporate Total
Total assets $ 168,463  $ 254,878  $ 61,135  $ 484,476 
Total liabilities 51,128  329,173  63,360  443,661 
Preferred stock —  —  61,583  61,583 
Noncontrolling interest 1,026  —  —  1,026 
Equity $ 116,309  $ (74,295) $ (63,808) $ (21,794)
Additions to property and equipment (including finance leases) during the nine months ended September 30, 2021 $ 17,810  $ 5,477  $ 375  $ 23,662 
13
DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2021
(Dollars in tables in thousands, except share data)
Three Months Ended September 30, 2021 Entertainment Golf Traditional Golf Corporate Total
Revenues
Golf operations $ 5,239  $ 57,018  $ —  $ 62,257 
Sales of food and beverages 6,070  8,039  —  14,109 
Total revenues 11,309  65,057  —  76,366 
Operating costs
Operating expenses 6,718  53,998  13  60,729 
Cost of sales - food and beverages 1,453  2,248  (5) 3,696 
General and administrative expense (A) 3,697  2,628  2,900  9,225 
General and administrative expense - acquisition and transaction expenses (B) 456  —  4  460 
Depreciation and amortization 3,038  2,851  (66) 5,823 
Pre-opening costs (C) 2,030  —  —  2,030 
(Gain) Loss on lease terminations and impairment —  324  —  324 
Total operating costs 17,392  62,049  2,846  82,287 
Operating income (loss) (6,083) 3,008  (2,846) (5,921)
Other income (expenses)
Interest and investment income —  19  171  190 
Interest expense (D) (71) (2,229) (323) (2,623)
Capitalized interest (D) (24) 9  12  (3)
Other income (loss), net 3  60  44  107 
Total other income (expenses) (92) (2,141) (96) (2,329)
Income tax expense —  —  616  616 
Net income (loss) (6,175) 867  (3,558) (8,866)
   Less: net loss attributable to NCI (15) —  —  (15)
   Net loss attributable to the company (6,160) 867  (3,558) (8,851)
   Preferred dividends —  —  (1,395) (1,395)
Net income (loss) applicable to common stockholders $ (6,160) $ 867  $ (4,953) $ (10,246)
14
DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2021
(Dollars in tables in thousands, except share data)
Nine Months Ended September 30, 2020 Entertainment Golf Traditional Golf Corporate Total
Revenues
Golf operations $ 7,408  $ 129,658  $ —  $ 137,066 
Sales of food and beverages 10,675  11,959  —  22,634 
Total revenues 18,083  141,617  —  159,700 
Operating costs
Operating expenses 15,041  127,543  —  142,584 
Cost of sales - food and beverages 2,747  3,907  —  6,654 
General and administrative expense (A) 6,278  8,092  6,617  20,987 
General and administrative expense - acquisition and transaction expenses (B) 1,861  196  1,058  3,115 
Depreciation and amortization 9,012  11,100  217  20,329 
Pre-opening costs (C) 1,049  —  —  1,049 
(Gain) Loss on lease terminations and impairment 16  (2,047) —  (2,031)
Total operating costs 36,004  148,791  7,892  192,687 
Operating loss (17,921) (7,174) (7,892) (32,987)
Other income (expenses)
Interest and investment income 1  56  343  400 
Interest expense (D) (301) (6,691) (1,319) (8,311)
Capitalized interest (D) —  23  56  79 
Other income (loss), net —  (381) (23,831) (24,212)
Total other income (expenses) (300) (6,993) (24,751) (32,044)
Income tax expense 1  —  1,268  1,269 
Net loss (18,222) (14,167) (33,911) (66,300)
   Preferred dividends —  —  (4,185) (4,185)
Loss applicable to common stockholders $ (18,222) $ (14,167) $ (38,096) $ (70,485)

September 30, 2020 Entertainment Golf Traditional Golf Corporate Total
Total assets $ 152,062  $ 285,262  $ 12,165  $ 449,489 
Total liabilities 40,340  345,851  63,673  449,864 
Preferred stock —  —  61,583  61,583 
Equity $ 111,722  $ (60,589) $ (113,091) $ (61,958)
Additions to property and equipment (including finance leases) during the nine months ended September 30, 2020 $ 5,506  $ 3,596  $ 403  $ 9,505 
15
DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2021
(Dollars in tables in thousands, except share data)
Three Months Ended September 30, 2020 Entertainment Golf Traditional Golf Corporate Total
Revenues
Golf operations $ 2,736  $ 56,030  $ —  $ 58,766 
Sales of food and beverages 3,440  4,259  —  7,699 
Total revenues 6,176  60,289  —  66,465 
Operating costs
Operating expenses 4,240  50,753  —  54,993 
Cost of sales - food and beverages 843  1,327  —  2,170 
General and administrative expense (A) 1,749  2,810  2,256  6,815 
General and administrative expense - acquisition and transaction expenses (B) 996  41  64  1,101 
Depreciation and amortization 2,991  3,789  73  6,853 
Pre-opening costs (C) 227  —  —  227 
Total operating costs 11,062  59,006  2,393  72,461 
Operating loss (4,886) 1,283  (2,393) (5,996)
Other income (expenses)
Interest and investment income —  18  117  135 
Interest expense (D) (94) (2,446) (357) (2,897)
Capitalized interest (D) —  1  —  1 
Other income (loss), net —  (215) 58  (157)
Total other income (expenses) (94) (2,642) (182) (2,918)
Income tax expense 1  —  497  498 
Net loss (4,981) (1,359) (3,072) (9,412)
   Preferred dividends —  —  (1,395) (1,395)
Loss applicable to common stockholders $ (4,981) $ (1,359) $ (4,467) $ (10,807)

(A)General and administrative expenses included severance expenses of $0.1 million and $0.2 million for the three and nine months ended September 30, 2021, respectively, and $0.4 million and $1.1 million for the three and nine months ended September 30, 2020, 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 $6.2 million for the three and nine months ended September 30, 2021, respectively, and $2.3 million and $6.1 million for the three and nine months ended September 30, 2020, respectively. Interest expense and capitalized interest are combined in interest expense, net on the Consolidated Statements of Operations.

Note 5. LEASES
The Company's commitments under lease arrangements are primarily ground leases, in the case of our Drive Shack brand, and commercial leases, in the case of our Puttery brand, 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. Equipment and golf cart leases initially range between 24 to 66 months and typically contain renewal options which may be on a month-to-month basis. An option to renew a lease is included in the determination of the ROU asset and lease liability when it is reasonably certain that the renewal option will be exercised. The company has elected to combine lease and non-lease components for all lease contracts.
Lease related costs recognized in the Consolidated Statements of Operations for the three and nine months ended September 30, 2021, and September 30, 2020, are as follows:
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Finance lease cost
16
DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2021
(Dollars in tables in thousands, except share data)
Amortization of right-of-use assets $ 1,412  $ 1,480  $ 4,159  $ 4,496 
Interest on lease liabilities 279  217  901  803 
Total finance lease cost 1,691  1,697  5,060  5,299 
Operating lease cost
Operating lease cost 6,144  8,881  22,714  27,146 
Short-term lease cost 109  432  619  1,282 
Variable lease cost 7,005  5,044  16,635  9,375 
Total operating lease cost 13,258  14,357  39,968  37,803 
Total lease cost $ 14,949  $ 16,054  $ 45,028  $ 43,102 
Other information related to leases included on the Consolidated Balance Sheet as of and for the nine months ended September 30, 2021 are as follows:
Operating Leases Financing Leases
Right-of-use assets $ 186,220  $ 15,507 
Lease liabilities $ 191,070  $ 15,436 
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows $ 22,375  $ 279 
Financing cash flows $ —  $ 4,620 
Right-of-use assets obtained in exchange for lease liabilities $ 9,862  $ 1,670 
Weighted average remaining lease term 14.4 years 1.5 years
Weighted average discount rate 8.2  % 6.2  %

Future minimum lease payments under non-cancellable leases as of September 30, 2021 are as follows:
Operating Leases Financing Leases
October 1, 2021 - December 31, 2021 $ 18,733  $ 1,732 
2022 31,078  5,871 
2023 31,019  4,877 
2024 23,945  2,713 
2025 21,578  1,510 
Thereafter 182,248  572 
Total minimum lease payments 308,601  17,275 
Less: imputed interest 117,531  1,839 
Total lease liabilities $ 191,070  $ 15,436 


(Gain) Loss on Lease Terminations and Impairment

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

17
DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2021
(Dollars in tables in thousands, except share data)
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
(Gain) Loss on lease terminations $ 3  $ 201  $ (652) $ (2,924)
Impairment on corporate office assets (held-for-use) —  —  3,303  — 
Impairment on traditional golf properties (held-for-use) —  —  —  792 
Other losses 321  101  321  101 
Total (Gain) Loss on lease terminations and impairment $ 324  $ 302  $ 2,972  $ (2,031)


(Gain) Loss on lease terminations -
During the nine months ended September 30, 2021, the Company recorded a gain of $0.7 million on the termination of one traditional golf course lease. The gain related to the derecognition of long-lived, intangible, and ROU assets and membership deposit liability balances.

During nine months ended September 30, 2020, the Company recorded a gain of $2.9 million on the termination of two traditional golf course leases. The gains related to the derecognition of long-lived, intangible, and ROU assets and membership deposit liability balances.

Held-for-use impairment -
During the nine months ended September 30, 2021, the Company recorded impairment charges of $3.3 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 includes impairment of leasehold improvements of $0.1 million, furniture fixtures, and equipment of $0.3 million, and ROU assets of $2.7 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 6. INTANGIBLES, NET OF ACCUMULATED AMORTIZATION

The following table summarizes the Company’s intangible assets:
  September 30, 2021 December 31, 2020
  Gross Carrying Amount Accumulated Amortization Net Carrying Value Gross Carrying Amount Accumulated Amortization Net Carrying Value
Trade name $ 721  $ (181) $ 540  $ 700  $ (163) $ 537 
Management contracts 28,913  (17,583) 11,330  31,043  (18,427) 12,616 
Internally-developed software 341  (127) 214  314  (79) 235 
Membership base 4,012  (3,290) 722  5,944  (5,236) 708 
Non-amortizable liquor licenses 961  —  961  1,028  —  1,028 
Total Intangibles $ 34,948  $ (21,181) $ 13,767  $ 39,029  $ (23,905) $ 15,124 

18
DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2021
(Dollars in tables in thousands, except share data)
Note 7. DEBT

The following table presents certain information regarding the Company’s debt obligations at September 30, 2021 and December 31, 2020:
    September 30, 2021 December 31, 2020
Debt Obligation/Collateral Month Issued Outstanding
Face
Amount 		Carrying
Value 		Final Stated Maturity Weighted
Average
Coupon 		  Weighted Average
Funding
Cost (A) 		Weighted Average Life (Years) Face Amount of
Floating Rate Debt 		Outstanding Face Amount Carrying Value
Credit Facilities and Finance Leases
Vineyard II Dec 1993 $ 200  $ 200  Dec 2043 2.43% 2.38  % 22.2 $ —  $ 200  $ 200 
Finance leases (Equipment) Jul 2014 - Jun 2021 15,436  15,436  Sep 2021 - Jan 2027
3.00% to 15.00%
6.11  % 3.4 —  19,021  19,021 
15,636  15,636  6.05  % 3.7 —  19,221  19,221 
Less current portion of obligations under finance leases 5,638  5,638  6,470  6,470 
Credit facilities and obligations under finance leases - noncurrent 9,997  9,997  12,751  12,751 
Corporate                  
Junior subordinated notes payable (B) Mar 2006 51,004  51,177  Apr 2035
 LIBOR+2.25%
2.38  % 13.59 51,004  51,004  51,182 
Total debt obligations   $ 66,640  $ 66,813        3.24  % 11.3 $ 51,004  $ 70,225  $ 70,403 

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

Note 8. REAL ESTATE SECURITIES
 
The following is a summary of the Company’s real estate securities at September 30, 2021, 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 Basis Gross Unrealized     Weighted Average
Asset Type Outstanding Face Amount Before Impairment Other-Than- Temporary Impairment After Impairment Gains Losses Carrying
 Value (A) 		Number of Securities Rating (B) Coupon Yield Life
(Years) (C) 		Principal Subordination (D)
September 30, 2021
ABS - Non-Agency RMBS (E) $ 4,000  $ 3,680  $ (1,521) $ 2,159  $ 1,255  $ —  $ 3,414  1  CCC 0.72  % 29.16  % 1.9 63.5  %
December 31, 2020
ABS - Non-Agency RMBS (E) $ 4,000  $ 3,276  $ (1,521) $ 1,755  $ 1,468  $ —  $ 3,223  1  CCC 0.73  % 29.14  % 2.6 52.2  %
  
(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 September 30, 2021.
19
DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2021
(Dollars in tables in thousands, except share data)

Note 9. 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 September 30, 2021: 
September 30, 2021 December 31, 2020
Carrying Value Estimated Fair Value Fair Value Method (A) Carrying Value Estimated Fair Value
Assets      
Real estate securities, available-for-sale $ 3,414  $ 3,414  Pricing models - Level 3 $ 3,223  $ 3,223 
Cash and cash equivalents 63,867  63,867    47,786  47,786 
Restricted cash, current and noncurrent 4,151  4,151    3,047  3,047 
Liabilities      
Junior subordinated notes payable $ 51,177  $ 27,445  Pricing models - Level 3 $ 51,182  $ 18,591 

(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 defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. In determining fair value, the accounting standards establish a three-level hierarchy for inputs used in measuring fair value as follows: Level One inputs are quoted prices available for identical assets or liabilities in active markets; Level Two inputs are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; and Level Three inputs are unobservable and reflect management's own assumptions.

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, and other current liabilities approximate fair value because of their short-term nature. 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.

The Company has various processes and controls in place to ensure that fair value measurements are reasonably estimated. With respect to broker and pricing service quotations, and in order to ensure these quotes represent a reasonable estimate of fair value, the Company’s quarterly procedures include a comparison of such quotations to quotations from different sources, outputs generated from its internal pricing models and transactions completed, as well as on its knowledge and experience of these markets. 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 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.

Significant Unobservable Inputs

20
DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2021
(Dollars in tables in thousands, except share data)
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 September 30, 2021:
      Weighted Average Significant Input
Asset Type Amortized Cost Basis Fair Value Discount
Rate 		Prepayment
Speed 		Cumulative Default Rate Loss
Severity
ABS - Non-Agency RMBS $ 2,159  $ 3,414  11.0  % 7.5  % 2.8  % 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 nine months ended September 30, 2021 as follows:
  ABS - Non-Agency RMBS
Balance at December 31, 2020 $ 3,223 
Total gains (losses) (A)  
Included in other comprehensive income (loss) (214)
Amortization included in interest income 425 
Purchases, sales and repayments (A)  
Proceeds (20)
Balance at September 30, 2021 $ 3,414 

(A) There were no purchases, sales or transfers into or out of Level 3 during the nine months ended September 30, 2021.

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 Disclosed Fair Value Hierarchy Valuation Techniques and Significant Inputs
Junior subordinated notes payable Level 3 Valuation technique is based on discounted cash flows. Significant inputs include:
l Amount and timing of expected future cash flows
l Interest rates
l Market yields and the credit spread of the Company
21
DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2021
(Dollars in tables in thousands, except share data)
Note 10. EQUITY AND EARNINGS PER SHARE
 
A. Stock Options

The following is a summary of the changes in the Company’s outstanding options for the nine months ended September 30, 2021:
Number of Options Weighted Average Strike Price Weighted Average Life Remaining (in years)
Balance at December 31, 2020 4,935,732  $ 2.57 
Exercised (1,353,184) 1.00 
Balance at September 30, 2021 3,582,548  $ 3.17  1.88
Exercisable at September 30, 2021 2,578,926  $ 3.24  1.94

As of September 30, 2021, the Company’s outstanding options were summarized as follows:
Number of Options
Held by a former Manager 2,578,593 
Issued to a former Manager and subsequently transferred to certain of that Manager’s employees (A) 1,003,622 
Issued to the independent directors 333 
Total 3,582,548 
Weighted average strike price $ 3.17 

(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. For the nine months ended September 30, 2021, the former Manager exercised 1,353,184 options at a weighted average strike price of $1.00 resulting in common shares issued of 916,783.

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 $0.2 million and $0.6 million during the three and nine months ended September 30, 2021, and $0.3 million and $0.2 million during the three and nine months ended September 30, 2020, 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 $0.5 million as of September 30, 2021 and will be expensed over a weighted average of 1.3 years.

B. Restricted Stock Units ("RSUs")

The following is a summary of the changes in the Company’s RSUs for the nine months ended September 30, 2021.
Number of RSUs Weighted Average Grant Date Fair Value (per unit)
Balance at December 31, 2020 259,238  $ 3.72 
Vested / Released (68,251) $ 4.60 
Forfeited (53,002) $ 3.74 
Balance at September 30, 2021 137,985  $ 3.27 
22
DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2021
(Dollars in tables in thousands, except share data)

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 nine months ended September 30, 2021, the Company granted no RSUs to non-employee directors and 5,423 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 nine months ended September 30, 2021, the Company granted no RSUs to employees and 62,828 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 $0.3 million during the three and nine months ended September 30, 2021, and $0.2 million and $0.5 million for the three and nine months ended September 30, 2020, respectively. Stock-based compensation expense 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 $0.2 million as of September 30, 2021 and will be expensed over a weighted average period of 0.48 years.

C. Dividends

No dividends were declared on the 9.750% Series B, 8.050% Series C or 8.375% Series D preferred stock, for the twelve-month period beginning February 1, 2020 and ending January 31, 2021. As of September 30, 2021, $5.6 million of dividends on the Company's cumulative preferred stock were unpaid and in arrears.

On March 12, 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 7, 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 9, 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.


23
DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2021
(Dollars in tables in thousands, except share data)
D. Earnings Per Share
The following table shows the Company's basic and diluted earnings per share (“EPS”):
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Numerator for basic and diluted earnings per share:
   Loss Applicable to Common Stockholders $ (10,246) $ (10,807) $ (25,909) $ (70,485)
Denominator:
Denominator for basic earnings per share - weighted average shares 92,085,846  67,212,532  88,938,344  67,131,827 
Effect of dilutive securities
  Options —  —  —  — 
  RSUs —  —  —  — 
Denominator for diluted earnings per share - adjusted weighted average shares 92,085,846  67,212,532  88,938,344  67,131,827 
Basic earnings per share:
Loss from continuing operations per share of common stock after preferred dividends $ (0.11) $ (0.16) $ (0.29) $ (1.05)
Loss Applicable to Common Stock, per share $ (0.11) $ (0.16) $ (0.29) $ (1.05)
Diluted earnings per share:
Loss from continuing operations per share of common stock after preferred dividends $ (0.11) $ (0.16) $ (0.29) $ (1.05)
Loss Applicable to Common Stock, per share $ (0.11) $ (0.16) $ (0.29) $ (1.05)

The Company’s dilutive securities are outstanding stock options and RSUs. During the three and nine months ended September 30, 2021, based on the treasury stock method, the Company had 329,724 and 584,360 outstanding stock options and RSUs, respectively, which were excluded due to the Company's loss position. During the three and nine months ended September 30, 2020, based on the treasury stock method, the Company had 450,498 and 632,722 potentially dilutive securities, respectively.

On February 2, 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 resulting in net proceeds to the Company of $54.6 million, after deducting the underwriters discount of $2.9 million. Other expenses related to the offering totaled $0.6 million. The Company intends to use all of the net proceeds from the offering to fund its Puttery expansion and for general corporate purposes.

Note 11. TRANSACTIONS WITH AFFILIATES AND AFFILIATED ENTITIES
Other Affiliated Entities
The Company incurred expenses for services of a Company executive prior to execution of an employment agreement, which were reimbursed to an affiliate of a member of the board of directors, subject to Board approval. The Company accrued $0.2 million in compensation expense for the year ended December 31, 2019, and an additional $0.1 million during 2020. The amounts were repaid as of December 31, 2020.

24
DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2021
(Dollars in tables in thousands, except share data)
Note 12. COMMITMENTS AND CONTINGENCIES
 
Legal Contingencies - 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 September 30, 2021, 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.

Commitments - As of September 30, 2021, the Company had future payments for additional operating leases that had not yet commenced of $31.7 million. The leases are expected to commence over the next 0 - 24 months with lease terms of approximately 10 to 15 years. These leases are primarily commercial leases for future Puttery venues and the recognition of these leases on our balance sheet generally occurs when the Company takes possession of the underlying property.

Preferred Dividends in Arrears - As of September 30, 2021, $5.6 million of dividends on the Company's cumulative preferred stock were unpaid and in arrears.

Note 13. 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 $0.6 million and $1.6 million for the three and nine months ended September 30, 2021, respectively and $0.5 million and $1.3 million for the three and nine months ended September 30, 2020, 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.
The Company maintained a valuation allowance against its deferred tax assets as of September 30, 2021 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 United States federal and state income tax returns in various jurisdictions. As of September 30, 2021, 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 December 31, 2020 and September 30, 2021, the Company reported a total liability for unrecognized tax benefits of $1.2 million. The Company does not anticipate any significant increases or decreases to the balance of unrecognized tax benefits during the next 12 months.

Note 14. SUBSEQUENT EVENTS

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.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s discussion and analysis of financial condition and results of operations is intended to help the reader understand the results of operations and financial condition of Drive Shack Inc., which is referred to, together with its subsidiaries as Drive Shack Inc. or the Company. The following should be read in conjunction with the unaudited Consolidated Financial Statements and notes thereto and with Part II, Item 1A. “Risk Factors” of this report and Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

This discussion contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. 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 the SEC on March 16, 2021 and in our quarterly or current reports as filed with or furnished to the SEC. We disclaim any intent or obligation to update these forward-looking statements.



GENERAL

Business Overview

The Company owns and operates golf-related leisure and social entertainment venues and courses focused on bringing people together through competitive socializing, by combining sports and entertainment with elevated F&B offerings.

The Company conducts its business through an integrated portfolio spanning three brands, Drive Shack, American Golf, and Puttery. Drive Shack, which launched in 2018, owns and operates four entertainment golf venues featuring tech-enabled hitting bays with in-bay dining, full-service restaurants, bars, and event spaces. American Golf, the longest-running business in our portfolio, owns, leases, and manages 56 traditional golf properties spanning nine states throughout the United States. Puttery, the Company's newest competitive socializing and entertainment platform, is an adult-focused, modern spin on putting, re-defining the game and creating an immersive experience supported by innovative technology focused on competitive socializing. With a high-energy atmosphere that combines plentiful curated culinary offerings and inventive craft cocktails centered around a lively bar area with great music, guests can relax and enjoy their evening before, during and after their tee time. The Company launched its first Puttery venue in September 2021 in The Colony, Texas.


Recent Developments

On July 12, 2021, the Company entered into an Investment Agreement among the Company and Symphony Ventures, a partnership organized under the laws of Ireland, pursuant to which Symphony Ventures committed to invest $10.0 million in Puttery (the "Commitment"). On the terms and subject to the conditions set forth in the Investment Agreement, the Company will sell to Symphony Ventures 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 Ventures’ purchase price in each such SLP will be applied to satisfy the commitment. In connection with each investment in an SLP, Symphony Ventures will receive the option to purchase partnership interests representing an additional 10% of the partnership interests in such SLP, at a purchase price equal to the original purchase price, exercisable within the first year following each investment. The Commitment expires on January 1, 2024. Following the satisfaction of its commitment of $10.0 million, Symphony Ventures will have the right, but not the obligation, to invest in each Puttery venue that the Company opens through the end of 2023, on the same terms as those applicable to the committed amount. See Note 1 to the Financial Statements for further information.

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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.


COVID-19 Update

In response to the COVID-19 global pandemic declared by the World Health Organization in March 2020, many states and localities in which we operate issued “stay at home” or “shelter in place” orders and other social distancing measures, in addition to mandatory store closures, capacity limitations and other restrictions affecting our operations. As a result, during March 2020, we temporarily closed all of our entertainment golf venues and substantially all of our traditional golf properties.

Subsequent to our closures, the gradual easing of restrictions has permitted us to safely and responsibly resume operations at both our entertainment golf venues and our traditional golf properties. Subject to locally mandated COVID-19 capacity and other limitations, all of our traditional golf properties and three of our four Drive Shack venues were safely and responsibly reopened by the end of the second quarter 2020. The fourth Drive Shack venue was reopened at the end of the fourth quarter of 2020. As of September 30, 2021, all of our entertainment golf venues and traditional golf properties were fully open and operating.


CARES Act

On March 27, 2020, Congress enacted the CARES Act to provide certain relief in response to the COVID-19 pandemic. The CARES Act includes numerous tax provisions and other stimulus measures. Among the various provisions in the CARES Act, the Company is utilizing the payroll tax deferrals offered as it continues to evaluate the applicability of other benefits.



General

•Entertainment Golf | Drive Shack and Puttery
Drive Shack offers competitive, social entertainment through its golf-related leisure and large-format entertainment venues with gaming and premier golf technology, a chef-inspired menu, craft cocktails, and engaging social events throughout the year. Each Drive Shack venue features expansive, climate-controlled, suite style bays with lounge seating; augmented-reality golf games and virtual course play; a restaurant and multiple bars; an outdoor patio with lawn games; and arcade games.
As of September 30, 2021, the Company operated four Drive Shack venues located in Orlando, Florida; West Palm Beach, Florida; Raleigh, North Carolina; and Richmond, Virginia. Additionally, the Company is committed to leases in New Orleans, Louisiana and in Manhattan (Randall’s Island), New York for Drive Shack venues. Drive Shack venues are freestanding, 60,000 square feet, open-air venues built on approximately 12 acres.
This segment also includes the Company's newest entertainment golf brand, Puttery, an adult-focused, modern spin on putting, re-defining the game within an immersive experience and innovative technology focused on competitive socializing and offers curated culinary offerings and inventive craft cocktails. Puttery venues range in size from 15,000 to 20,000 square feet and feature tech-forward putting courses anchored by bars and other social spaces that will serve to create engaging and fun experiences for guests.
The Company has announced its first five venues in The Colony, Texas just outside of Dallas; Charlotte, North Carolina; Washington DC; Miami, Florida and Houston, Texas. The Colony, Texas venue opened in September 2021 and Charlotte is projected to open in December 2021. Washington DC is projected to open in Q2 2022; Miami and Houston are projected to open in Q3 of 2022. Three additional locations are currently in or nearing lease execution.

•Traditional Golf | American Golf
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American Golf, acquired by the Company in December 2013, is one of the largest operators of golf properties in the United States. As an owner, lessee, and manager of golf courses and country clubs for over 45 years, we believe American Golf is one of the most experienced operators in the traditional golf industry. As of September 30, 2021, we owned, leased or managed 56 properties across nine states. American Golf is focused on delivering lasting experiences for our guests, with over 35,000 members and over 1.2 million rounds played at our properties during the nine months ended September 30, 2021.
Our traditional golf operations are organized into three principal categories due to the nature of the revenue streams generated by the following properties: (1) public properties (all leased), (2) private properties (leased and owned) and (3) managed properties (public and private).

New Venue Development and Growth | Puttery

We believe Drive Shack Inc. is the only company comprised of a truly integrated portfolio of both Entertainment and Traditional Golf businesses, which provides us with a unique opportunity to unlock top site locations by leveraging the operational experiences and municipal relationships developed by our traditional golf business. The Company strives to forward innovate and revolutionize next generation experiences. In September 2021, the Company launched Puttery, its newest competitive indoor socializing and entertainment platform.

Puttery is expected to expand our business by diversifying our experiential offerings with an adult-focused modern spin on indoor putting through innovative technology featuring a series of tech-forward putting courses anchored by bars and other social spaces that will serve to create engaging and fun experiences for our guests.

Our Puttery venues require much less space than a Drive Shack venue at approximately 15,000 - 20,000 sq.ft. of indoor new or existing retail space. Puttery expands store potential by hundreds of markets due to the vast availability of real estate, shorter development timelines, less capital risk and higher development yields. Advanced data and demographic analytics will allow us to strategically evaluate and develop a robust pipeline of target sites in prioritized markets across the United States. As we look to further grow our Puttery brand, the smaller format offers us the opportunity to improve investment returns and take advantage of the vast availability of retail space at favorable rates.

Notable Operational Results

During the third quarter, our traditional golf properties generated revenue of $65.1 million, our Drive Shack venues generated revenue of $10.5 million, and our newest brand, Puttery, generated revenue of $0.8 million in its first month of operation in September 2021.

Golf continues to emerge as one of the top outdoor activities naturally conducive to social distancing practices. Our traditional golf properties produced strong results during the nine months ended September 30, 2021, highlighting the unwavering demand for the sport. Restrictions on large gatherings are no longer in effect in the primary jurisdictions in which we operate. As such we are experiencing a steady return of events, banquets and other large gatherings which has led to increased sales of food and beverages.


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RESULTS OF OPERATIONS

The following tables summarize our results of operations for the three and nine months ended September 30, 2021 and 2020:
  Three Months Ended September 30, Increase (Decrease)
(dollar amounts in thousands) 2021 2020 Amount %
Revenues
Golf operations (A) $ 62,257  $ 58,766  $ 3,491  5.9  %
Sales of food and beverages 14,109  7,699  6,410  83.3  %
Total revenues 76,366  66,465  9,901  14.9  %
Operating costs
Operating expenses (A) 60,729  54,993  5,736  10.4  %
Cost of sales - food and beverages 3,696  2,170  1,526  70.3  %
General and administrative expense 9,685  7,916  1,769  22.3  %
Depreciation and amortization 5,823  6,853  (1,030) (15.0) %
Pre-opening costs 2,030  227  1,803  794.3 
(Gain) Loss on lease terminations and impairment 324  302  22  7.3  %
Total operating costs 82,287  72,461  9,826  13.6  %
Operating loss (5,921) (5,996) (75) (1.3) %
Other income (expenses)
Interest and investment income 190  135  55  40.7  %
Interest expense, net (2,626) (2,896) (270) (9.3) %
Other income (loss), net 107  (157) 264  168.2  %
Total other income (expenses) (2,329) (2,918) 589  20.2  %
Loss before income tax $ (8,250) $ (8,914) $ (664) (7.4) %
Nine Months Ended September 30, Increase (Decrease)
(dollar amounts in thousands) 2021 2020 Amount %
Revenues
Golf operations (A) $ 177,170  $ 137,066  $ 40,104  29.3  %
Sales of food and beverages 34,167  22,634  11,533  51.0  %
Total revenues 211,337  159,700  51,637  32.3  %
Operating costs 0
Operating expenses (A) 165,234  142,584  22,650  15.9  %
Cost of sales - food and beverages 8,951  6,654  2,297  34.5  %
General and administrative expense 25,697  24,102  1,595  6.6  %
Depreciation and amortization 17,852  20,329  (2,477) (12.2) %
Pre-opening costs 3,375  1,049  2,326  221.7 
(Gain) Loss on lease terminations and impairment 2,972  (2,031) 5,003  (246.3) %
Total operating costs 224,081  192,687  31,394  16.3  %
Operating loss (12,744) (32,987) (20,243) (61.4) %
Other income (expenses)
Interest and investment income 502  400  102  25.5  %
Interest expense, net (7,964) (8,232) (268) (3.3) %
Other income (loss), net 29  (24,212) 24,241  100.1  %
Total other income (expenses) (7,433) (32,044) 24,611  76.8  %
Loss before income tax $ (20,177) $ (65,031) $ (44,854) (69.0) %

(A) Includes $14.7 million and $41.3 million for the three and nine months ended September 30, 2021, and $15.2 million and $37.1 million for the three and nine months ended September 30, 2020, respectively, due to management contract reimbursements reported under ASC 606.
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Revenues from Golf Operations

Revenues from golf operations comprise principally: (1) daily green fees, golf cart rentals, and The Player's Club membership dues at American Golf’s public properties, (2) initiation fees, membership dues and guest fees at American Golf’s private properties, (3) management fees and reimbursed operating expenses at American Golf’s managed courses and (4) bay play at Drive Shack locations.

Given the discretionary nature of our products, trends in consumer spending will impact our revenue from golf operations on a quarter-by-quarter basis and, particularly in traditional golf as an outdoor activity, and seasonal weather patterns have a significant impact.
Three Months Ended Increase (Decrease)
(dollar amounts in thousands) September 30,
2021 		September 30,
2020 		Amount %
Golf operations $ 62,257  $ 58,766  $ 3,491  5.9  %
Percentage of total revenue 81.5  % 88.4  %

Revenues from golf operations increased by $3.5 million primarily due to (a) an increase of $1.0 million in traditional golf related to course re-openings after courses closed during part of 2020 due to COVID-19 restrictions, and (b) an increase of $2.5 million in entertainment golf, of which $2.2 million is attributed to higher traffic at the venues as COVID-19 restrictions continue to be lifted versus the prior year period, and $0.3 million is attributed to the grand opening of the Puttery in Colony, Texas.


Nine Months Ended Increase (Decrease)
(dollar amounts in thousands) September 30,
2021 		September 30,
2020 		Amount %
Golf operations $ 177,170  $ 137,066  $ 40,104  29.3  %
Percentage of total revenue 83.8  % 85.8  %

Revenues from golf operations increased by $40.1 million primarily due to (a) a $33.5 million increase in traditional golf related to course re-openings after courses closed during part of 2020 due to COVID-19 restrictions, and (b) a $6.5 million increase in entertainment golf, of which $5.7 million is primarily due to higher traffic at the venues as COVID-19 restrictions continue to be lifted versus the prior year period at the onset of the pandemic, and $0.3 million is attributed to the grand opening of the Puttery in Colony, Texas.

Sales of Food and Beverages

Three Months Ended Increase (Decrease)
(dollar amounts in thousands) September 30,
2021 		September 30,
2020 		Amount %
Sales of food and beverages $ 14,109  $ 7,699  $ 6,410  83.3  %
Percentage of total revenue 18.5  % 11.6  %

Sales of food and beverages increased by $6.4 million, due to a $3.8 million increase in traditional golf, and a $2.6 million increase in entertainment golf. The increase in traditional golf was primarily due to the return of tournament and large group event-related revenues as COVID-19 related restrictions were lifted. Entertainment golf increased due to higher traffic at the venues related to the lifting of COVID-19 restrictions.

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Nine Months Ended Increase (Decrease)
(dollar amounts in thousands) September 30,
2021 		September 30,
2020 		Amount %
Sales of food and beverages $ 34,167  $ 22,634  $ 11,533  51.0  %
Percentage of total revenue 16.2  % 14.2  %

Sales of food and beverages increased by $11.5 million, due to a $5.0 million increase in traditional golf, and a $6.5 million increase in entertainment golf. The increase in traditional golf was primarily due to the return of tournament and large group event-related revenues as COVID-19 related restrictions were lifted. Entertainment golf increased due to higher traffic at the venues related to the lifting of COVID-19 restrictions.

Operating Expenses

Operating expenses consist of course and venue level payroll and payroll-related (including hourly and salary wages, bonuses and commissions, health benefits, and payroll taxes), occupancy (including rent, property tax, and common area maintenance), and other course and venue level operating expenses (including utilities, repair and maintenance, and marketing), excluding pre-opening costs, which are recorded separately. Operating expenses also include course level operating costs for our traditional golf managed courses, for which we are reimbursed.

Three Months Ended Increase (Decrease)
(dollar amounts in thousands) September 30,
2021 		September 30,
2020 		Amount %
Operating expenses $ 60,729  $ 54,993  $ 5,736  10.4  %
Percentage of total revenue 79.5  % 82.7  %

Operating expenses increased by $5.7 million, primarily due to a $3.2 million increase in traditional golf, and a $2.5 million increase in entertainment golf. The increase was primarily due to increases in payroll and payroll related expenses as venues and events continue to ramp up this year with COVID-19 restrictions lifting.

Nine Months Ended Increase (Decrease)
(dollar amounts in thousands) September 30,
2021 		September 30,
2020 		Amount %
Operating expenses $ 165,234  $ 142,584  $ 22,650  15.9  %
Percentage of total revenue 78.2  % 89.3  %

Operating expenses increased by $22.7 million, due to a $20.3 million increase in traditional golf, and a $2.4 million increase in entertainment golf. The increase was primarily due to increased costs to support increased operations with the lifting of COVID-19 restrictions.

Cost of Sales - Food and Beverages
Three Months Ended Increase (Decrease)
(dollar amounts in thousands) September 30,
2021 		September 30,
2020 		Amount %
Cost of sales - food and beverages $ 3,696  $ 2,170  $ 1,526  70.3  %
Percentage of total revenue 4.8  % 3.3  %

Cost of sales - food and beverages increased by $1.5 million directionally in-line with corresponding increase in food and beverage sales in traditional golf and entertainment golf.

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Nine Months Ended Increase (Decrease)
(dollar amounts in thousands) June 30,
2021 		September 30,
2020 		Amount %
Cost of sales - food and beverages $ 8,951  $ 6,654  $ 2,297  34.5  %
Percentage of total revenue 4.2  % 4.2  %

Cost of sales - food and beverages increased by $2.3 million directionally in-line with corresponding increase in sales partially offset as prior year also included spoilage charges isolated to Q1-2020 from the onset of the pandemic and resulting course and venue shutdowns.

General and Administrative Expense (including Acquisition and Transaction Expense)

General and administrative expense consists of costs associated with our corporate support and administrative functions that support development and operations and includes stock-based compensation.
Three Months Ended Increase (Decrease)
(dollar amounts in thousands) September 30,
2021 		September 30,
2020 		Amount %
General and administrative expense $ 9,685  $ 7,916  $ 1,769  22.3  %
Percentage of total revenue 12.7  % 11.9  %

General and administrative expense increased by $1.8 million consisting of a $0.2 million decrease in traditional golf resulting from a reduction of legal expenses, a $1.4 million increase in entertainment golf, and a $0.6 million increase at Corporate. The increases are due primarily to higher payroll and payroll-related expenses compared to reduced headcounts during the pandemic.
Nine Months Ended Increase (Decrease)
(dollar amounts in thousands) September 30,
2021 		September 30,
2020 		Amount %
General and administrative expense $ 25,697  $ 24,102  $ 1,595  6.6  %
Percentage of total revenue 12.2  % 15.1  %

General and administrative expense increased by $1.6 million, consisting of a $0.6 million decrease in traditional golf, a $0.9 million increase in entertainment golf, and an increase of $1.3 million at Corporate. The decrease in traditional golf is primarily due to payroll related expenses. The increase in entertainment golf is primarily due to an increase of $2.0 million in business development and personnel costs, offset by a reduction of $1.3 million in professional fees. The increase at Corporate is mainly due to increased payroll related expenses of $1.8 million partially offset by a reduction of $0.5 million in business development and insurance related expenses.

Depreciation and Amortization

Depreciation and amortization consists of depreciation on property and equipment and financing lease assets, as well as amortization of intangible assets.
Three Months Ended Increase (Decrease)
(dollar amounts in thousands) September 30,
2021 		September 30,
2020 		Amount %
Depreciation and amortization $ 5,823  $ 6,853  $ (1,030) (15.0) %
Percentage of total revenue 7.6  % 10.3  %

Depreciation and amortization decreased by $(1.0) million primarily due to the dispositions of the SeaCliff , Yorba Linda, and Lomas Santa Fe Country Clubs.
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Nine Months Ended Increase (Decrease)
(dollar amounts in thousands) September 30,
2021 		September 30,
2020 		Amount %
Depreciation and amortization $ 17,852  $ 20,329  $ (2,477) (12.2) %
Percentage of total revenue 8.4  % 12.7  %

Depreciation and amortization decreased by $(2.5) million primarily due the dispositions of the SeaCliff , Yorba Linda, and Lomas Santa Fe Country Clubs.

Pre-Opening Costs
Pre-opening costs consist primarily of venue-related lease expenses, employee payroll, marketing expenses, travel and related expenses, training costs, food, beverage and other operating expenses incurred prior to opening an entertainment golf venue.
Three Months Ended Increase (Decrease)
(dollar amounts in thousands) September 30,
2021 		September 30,
2020 		Amount %
Pre-opening costs $ 2,030  $ 227  $ 1,803  794.3  %
Percentage of total revenue 2.7  % 0.3  %

The increase is due to the recent opening of Puttery Colony and the impending grand opening of Puttery Charlotte.

Nine Months Ended Increase (Decrease)
(dollar amounts in thousands) September 30,
2021 		September 30,
2020 		Amount %
Pre-opening costs $ 3,375  $ 1,049  $ 2,326  221.7  %
Percentage of total revenue 1.6  % 0.7  %

The increase is due to the recent opening of Puttery Colony and the impending grand opening of Puttery Charlotte.

(Gain) Loss on lease terminations and impairment

Impairment and other losses consists of any gains or losses due to lease terminations, inclusive of lease termination costs and related legal fees as well as the write-off of the net book value of property and equipment, intangible assets, ROU assets and liabilities, and remaining working capital items; impairment charges on long-lived assets, including property and equipment, intangibles, and operating lease assets; and the net book value of assets retired in the normal course of business.
Three Months Ended Increase (Decrease)
(dollar amounts in thousands) September 30,
2021 		September 30,
2020 		Amount %
(Gain) Loss on lease terminations and impairment $ 324  $ 302  $ 22  7.3  %
Percentage of total revenue 0.4  % 0.5  %

There was no significant change in (Gain) Loss on lease terminations and impairment.

Nine Months Ended Increase (Decrease)
(dollar amounts in thousands) September 30,
2021 		September 30,
2020 		Amount %
(Gain) Loss on lease terminations and impairment $ 2,972  $ (2,031) $ 5,003  (246.3) %
Percentage of total revenue 1.4  % (1.3) %

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(Gain) Loss on lease terminations and impairment increased by $5.0 million primarily due to the 2021 gain on lease termination of SeaCliff, partially offset by the impairment of assets related to our New York, NY corporate office totaling $3.2 million, versus the 2020 gain on lease terminations related to two properties, Buffalo Creek and Monarch Bay.

Interest and Investment Income

Interest and investment income consists primarily of interest earned on cash balances and a real estate security.
Three Months Ended Increase (Decrease)
(dollar amounts in thousands) September 30,
2021 		September 30,
2020 		Amount %
Interest and investment income $ 190  $ 135  $ 55  40.7  %
Percentage of total revenue 0.2  % 0.2  %

There was no significant change in interest and investment income.

Nine Months Ended Increase (Decrease)
(dollar amounts in thousands) September 30,
2021 		September 30,
2020 		Amount %
Interest and investment income $ 502  $ 400  $ 102  25.5  %
Percentage of total revenue 0.2  % 0.3  %

There was no significant change in interest and investment income.

Interest Expense, Net

Interest expense, net, consists primarily of interest expense on the accretion of membership deposit liabilities, on the Company's junior subordinated notes payable, and on financing lease obligations, offset by amounts capitalized into construction in progress during the construction and development of new venues.
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Three Months Ended Increase (Decrease)
(dollar amounts in thousands) September 30,
2021 		September 30,
2020 		Amount %
Interest expense, net $ (2,626) $ (2,896) $ (270) (9.3) %
Percentage of total revenue (3.4) % (4.4) %

Interest expense, net decreased by less than $(0.3) million, not a significant change.

Nine Months Ended Increase (Decrease)
(dollar amounts in thousands) September 30,
2021 		September 30,
2020 		Amount %
Interest expense, net $ (7,964) $ (8,232) $ (268) (3.3) %
Percentage of total revenue (3.8) % (5.2) %

Interest expense, net decreased by less than $(0.3) million, not a significant change.

Other Income (Loss), Net

Other income (loss), net, consists of gains on the sale of traditional golf properties and earnings from our equity method investment.
Three Months Ended Increase (Decrease)
(dollar amounts in thousands) September 30,
2021 		September 30,
2020 		Amount %
Other income (loss), net $ 107  $ (157) $ 264  168.2  %
Percentage of total revenue 0.1  % (0.2) %

Other income (loss), net increased by $0.3 million primarily due to gain from extinguishments of debt related to our member deposit liabilities.
Nine Months Ended Increase (Decrease)
(dollar amounts in thousands) September 30,
2021 		September 30,
2020 		Amount %
Other income (loss), net $ 29  $ (24,212) $ 24,241  100.1  %
Percentage of total revenue —  % (15.2) %

Other income (loss), net increased by $24.2 million primarily due to $24.7 million impairment that was recognized during the nine months ended September 30, 2020.


SEGMENT RESULTS

Entertainment Golf
Three Months Ended Increase (Decrease)
(in thousands) September 30,
2021 		September 30,
2020 		Amount
Revenues
Golf operations $ 5,239  $ 2,736  $ 2,503 
Sales of food and beverages 6,070  3,440  2,630 
Total revenues 11,309  6,176  5,133 
Total operating costs 17,392  11,062  6,330 
Operating loss $ (6,083) $ (4,886) $ 1,197 

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Total revenues

The increase in total entertainment golf revenues during the three months ended September 30, 2021 was due to more events and customers after the lifting of COVID-19 restrictions.

Operating loss

The increase in operating loss during the three months ended September 30, 2021 was primarily due to increased general and administrative expenses as a result of higher payroll and payroll-related expenses as venues reopened once COVID-19 restrictions were lifted.
Nine Months Ended Increase (Decrease)
(in thousands) September 30,
2021 		September 30,
2020 		Amount
Revenues
Golf operations $ 13,976  $ 7,408  $ 6,568 
Sales of food and beverages 17,145  10,675  6,470 
Total revenues 31,121  18,083  13,038 
Total operating costs 42,712  36,004  6,708 
Operating loss $ (11,591) $ (17,921) $ (6,330)

Total revenues

The increase in total entertainment golf revenues during the nine months ended September 30, 2021 was due to the return of events and customers as the venues reopened following pandemic closures.

Operating loss

The decrease in operating loss during the nine months ended September 30, 2021 was as due to increased revenues following the return of events and customers as the venues reopened following pandemic closures.




Traditional Golf
Three Months Ended Increase (Decrease)
(in thousands) September 30,
2021 		September 30,
2020 		Amount
Revenues
Golf operations $ 57,018  $ 56,030  $ 988 
Sales of food and beverages 8,039  4,259  3,780 
Total revenues 65,057  60,289  4,768 
Total operating costs 62,049  59,006  3,043 
Operating income (loss) $ 3,008  $ 1,283  $ 1,725 

Total revenues

The increase in traditional golf total revenues during the three months ended September 30, 2021 was primarily due to course re-openings after the courses were closed in March 2020 due to COVID-19 restrictions.

Operating income (loss)

36

The reversal of our operating loss during the three months ended September 30, 2021 was primarily due increased revenues and enhanced margins as the courses fully reopened following pandemic closures.

Nine Months Ended Increase (Decrease)
(in thousands) September 30,
2021 		September 30,
2020 		Amount
Revenues
Golf operations $ 163,194  $ 129,658  $ 33,536 
Sales of food and beverages 17,022  $ 11,959  5,063 
Total revenues 180,216  141,617  38,599 
Total operating costs 169,113  148,791  20,322 
Operating income (loss) $ 11,103  $ (7,174) $ 18,277 

Total revenues

The increase in total traditional golf revenues during the nine months ended September 30, 2021 was primarily due to course re-openings after being closed due to COVID-19 restrictions.

Operating income (loss)

The reversal of our operating loss during the nine months ended September 30, 2021 was due to improved margins from the increased revenue as the courses re-opened from being closed due to COVID-19 restrictions.


Corporate
Three Months Ended Increase (Decrease)
(in thousands) September 30,
2021 		September 30,
2020 		Amount
Total operating costs $ 2,846  $ 2,393  $ 453 
Operating loss $ (2,846) $ (2,393) $ 453 
Operating loss

The increase in operating loss during the three months ended September 30, 2021 was primarily due to increased payroll related expenses.




Nine Months Ended Increase (Decrease)
(in thousands) September 30,
2021 		September 30,
2020 		Amount
Total operating costs $ 12,256  $ 7,892  $ 4,364 
Operating loss $ (12,256) $ (7,892) $ (4,364)
Operating loss

The increase in operating loss during the nine months ended September 30, 2021 was primarily due to the $3.3 million impairment of corporate assets located at our New York, NY office, and a $1.7 million increase in payroll related expenses partially offset by a $0.6 million decrease in acquisition and transaction expenses.


37


LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of liquidity are cash and cash equivalents on hand which resulted primarily from our February 2021 equity offering. The Company raised net proceeds of $54.6 million, after the underwriters discount of $2.9 million, through a common equity offering that closed in February 2021. Other expenses related to the offering totaled $0.6 million. Additionally, the company closed on the sale of its Rancho San Joaquin property in October 2020 resulting in net cash proceeds of $33.6 million. The proceeds generated by these transactions are being reinvested in our entertainment golf business.

As of September 30, 2021, we had $63.9 million of cash and cash equivalents.

Our primary cash needs are capital expenditures for opening new Drive Shack and Puttery entertainment golf venues and for general corporate purposes.

The Company’s growth strategy is capital intensive and our ability to execute is dependent upon many factors, including the current and future operating performance of our entertainment golf venues and traditional golf properties, the pace of expansion, real estate markets, site locations, our ability to raise financing and the nature of the arrangements negotiated with landlords. Based upon current levels of operations and anticipated growth, we expect that cash flows from operations, combined with other financing alternatives in place or available, and further combined with the asset sales, as discussed below, will be sufficient to meet our working capital and capital expenditure requirements for the foreseeable future.

As of September 30, 2021, we are actively exploring the capital markets to meet our medium and long-term liquidity requirements to fund planned growth, including new venue development and construction, product innovation and general corporate needs. Our financial objectives include diversifying our financing sources, optimizing the mix and maturity of new debt financings, public or private equity and debt issuances and strategically monetizing our remaining real estate securities and other investments. We continually monitor market conditions for these financing and capital opportunities and, at any given time, may enter into or pursue one or more of the transactions described above. However, we cannot ensure that capital will be available on reasonable terms, if at all.



Summary of Cash Flows

The following table and discussion summarize our key cash flows from operating, investing and financing activities:
Nine Months Ended September 30,
2021 2020
Net cash (used in) provided by:
Operating activities $ (7,870) $ (2,301)
Investing activities (22,251) (9,681)
Financing activities 47,306  (3,478)
Net Increase (Decrease) in Cash and Cash Equivalents, Restricted Cash and Restricted Cash, noncurrent $ 17,185  $ (15,460)

Operating Activities
Cash flows used in operating activities consist primarily of net losses adjusted for certain items including depreciation and amortization of assets, amortization of prepaid golf member dues, impairment losses, other gains and losses from the sale of assets, stock-based compensation expense, and the effect of changes in operating assets and liabilities.

Net cash used in operating activities was $7.9 million for the nine months ended September 30, 2021 and $2.3 million for the nine months ended September 30, 2020. Changes in operating cash flow activities are described below:

•Operating cash flows increased due to the following:
◦$10.8 million in net operating cash flows generated from the entertainment golf venues;
◦$2.0 million reduction in corporate payroll primarily due to reductions in headcount;
◦$0.5 million reduction in interest payments associated with the junior subordinated notes due to a lower coupon rate.
38


•Operating cash flows decreased due to the following:
◦$9.7 million in net operating cash flows generated from traditional golf operations;
◦$6.0 million primarily due to additional general and administrative payments;
◦$0.7 million in tax payments;
◦$2.5 million in payment of annual bonuses in 2021 that were earned in 2020.


Investing Activities

Cash flows provided by investing activities primarily relate to proceeds from the sales of traditional golf properties, and cash flows used in investing activities primarily consist of capital expenditures for the construction and development of entertainment golf venues and renovations of existing facilities. 

Investing activities used $22.3 million during the nine months ended September 30, 2021 and $9.7 million during the nine months ended September 30, 2020.

Capital Expenditures. Our capital expenditures for the nine months ended September 30, 2021 and 2020 were $22.3 million and $9.6 million, respectively.

We expect our capital expenditures over the next 12 months to range between $90 and $100 million, depending on the Company's ability to obtain additional financing, which includes developing new Drive Shack and Puttery venues and remodeling and maintaining existing facilities.

Financing Activities

Cash flows used in or provided by financing activities consist primarily of cash from the borrowing or repayment of debt obligations, deposits received on golf memberships, payment of preferred dividends, and the issuance of common stock.

Financing activities provided $47.3 million during the nine months ended September 30, 2021 and used $3.5 million during the nine months ended September 30, 2020. The increase was primarily due to $53.9 million of net proceeds from our equity raise that was completed on February 2, 2021.

Off-Balance Sheet Arrangements

There have been no significant changes to our off-balance sheet arrangements as disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

CONTRACTUAL OBLIGATIONS

During the nine months ended September 30, 2021, we had all of the material contractual obligations referred to in our annual report on Form 10-K for the year ended December 31, 2020.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

Management’s discussion and analysis of financial condition and results of operations is based upon our Consolidated Financial Statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of financial statements in conformity with GAAP requires the use of estimates and assumptions that could affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses.

Actual results could differ from these estimates and materially impact our Consolidated Financial Statements. 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, 2020. See Note 2 in Part I, Item 1 “Financial Statements” for additional information.

Recent Accounting Pronouncements

See Note 2 in Part I, Item 1. “Financial Statements” for information about recent accounting pronouncements.
39


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Market risk is the exposure to loss resulting from changes in interest rates, credit spreads, foreign currency exchange rates, commodity prices and equity prices. We substantially exited our real estate related debt positions, which significantly reduced our market risk exposure related to interest rate risk, credit spread risk and credit risk. We are also exposed to inflationary factors in our business.

There have been no material changes to our exposure to market risks as described in Part II, Item 7A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

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 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 Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective.

(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.

40

PART II. OTHER INFORMATION
 
Item 1. Legal Proceedings
 
The information required by this Item is incorporated by reference to Part I, Item 1, Note 15: Commitments and Contingencies-Legal Contingencies.

Item 1A. Risk Factors
 
There were no material changes to the risk factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds
 
None.





41

Item 6. Exhibits
Exhibit Number Exhibit Description
Certification of Chief Executive Officer as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of 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 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, 2021, 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).
* Management contract or compensatory plan or arrangement.


42

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 9, 2021
By: /s/ Michael Nichols
Michael Nichols
Chief Financial Officer
 
November 9, 2021
  By: /s/ Lawrence A. Goodfield, Jr.
Lawrence A. Goodfield, Jr.
Chief Accounting Officer and Treasurer
November 9, 2021

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