Altisource Asset Management(AAMC) - 2021 Q3 - Quarterly Report

Part I - Financial Information Financial Statements (Unaudited) This section presents Altisource Asset Management Corporation's unaudited condensed consolidated financial statements and accompanying notes for the nine months ended September 30, 2021 Condensed Consolidated Balance Sheets Total assets decreased to $88.8 million, liabilities significantly reduced to $6.9 million, and stockholders' deficit improved to $(68.2) million by September 30, 2021 Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2021 (unaudited) | December 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $84,544 | $41,623 | | Front Yard common stock, at fair value | $0 | $47,355 | | Total current assets | $87,427 | $96,614 | | Total assets | $88,763 | $99,752 | | Liabilities & Equity | | | | Total current liabilities | $3,479 | $13,104 | | Total liabilities | $6,933 | $16,330 | | Redeemable preferred stock | $150,000 | $250,000 | | Total stockholders' deficit | $(68,170) | $(166,578) | Condensed Consolidated Statements of Operations The company reported a net income of $2.4 million for the nine months ended September 30, 2021, driven by gains from discontinued operations and preferred stock transactions Statement of Operations Highlights (Nine Months Ended Sept 30, in thousands) | Line Item | 2021 | 2020 | | :--- | :--- | :--- | | Total expenses | $14,292 | $14,471 | | Total other income (loss) | $11,641 | $(5,575) | | Net income (loss) from continuing operations | $(3,826) | $(18,955) | | Net gain on discontinued operations | $6,213 | $19,117 | | Net income (loss) | $2,387 | $162 | | Earnings (loss) per basic common share | $45.54 | $0.07 | Condensed Consolidated Statements of Stockholders' Deficit Stockholders' deficit improved from $(166.6) million to $(68.2) million, primarily due to a $95.0 million increase in additional paid-in capital from preferred stock transactions - The stockholders' deficit decreased from $166.6 million to $68.2 million during the first nine months of 2021[19] - Key drivers for the improvement include a $78.9 million gain from a preferred stock conversion in Q1 and a $16.1 million gain from another conversion in Q3, both credited to Additional Paid-in Capital[19] Condensed Consolidated Statements of Cash Flows Net cash from investing activities was $58.9 million, leading to a $42.6 million increase in cash and equivalents, ending at $84.5 million by September 30, 2021 Cash Flow Summary (Nine Months Ended Sept 30, in thousands) | Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash (used in) operating activities | $(11,504) | $9,279 | | Net cash from investing activities | $58,907 | $3,615 | | Net cash (used in) financing activities | $(4,781) | $(182) | | Net change in cash and cash equivalents | $42,622 | $12,712 | | Cash and cash equivalents, end of period | $84,544 | $32,639 | Notes to Condensed Consolidated Financial Statements Notes detail the Front Yard agreement termination, significant litigation with Luxor Capital, preferred shareholder settlements, and other accounting policies - The termination of the asset management agreement with Front Yard on December 31, 2020, and the subsequent sale of the Disposal Group on January 1, 2021, resulted in a pre-tax gain of $7.5 million and are classified as discontinued operations[29][30] - The company is in a legal dispute with Luxor Capital regarding the redemption of $250.0 million in Series A Preferred Stock, with AAMC believing it is not obligated to redeem the shares due to insufficient legally available funds[36][70][71] - In 2021, AAMC settled with preferred shareholders Putnam and Wellington, resulting in a $71.9 million gain from the Putnam exchange and a $16.1 million gain from the Wellington cash payment[40][41] - The company is involved in arbitrations with its former CEO, Indroneel Chatterjee, and former General Counsel, Graham Singer, over claims of wrongful termination and discrimination, respectively[75][76] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the strategic shift post-Front Yard, exploring new business opportunities, analyzing expense changes, and assessing liquidity challenges from ongoing litigation - Following the termination of the Front Yard agreement, AAMC is actively exploring new business lines, including potential acquisitions or mergers in cryptocurrency and brokerage-related businesses[99] - Upon the closing of the Front Yard merger, AAMC received approximately $47.5 million in cash for its stock holdings[98] Key Expense Changes (Nine Months Ended Sept 30, 2021 vs 2020) | Expense Category | 2021 (in millions) | 2020 (in millions) | Change Driver | | :--- | :--- | :--- | :--- | | Salaries and Employee Benefits | $4.1 | $8.1 | Decrease due to sale of Front Yard operations and executive departures | | Legal and Professional Fees | $8.3 | $4.7 | Increase due to litigation, employment issues, and new business assessment costs | - As of September 30, 2021, cash and cash equivalents stood at $84.5 million, indicating strong liquidity, though potential adverse effects exist if the Luxor litigation is unsuccessful[117][122] - During Q3 2021, the company liquidated its equity securities portfolio, selling $38.5 million in securities and fully repaying its margin loan[123] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk from mortgage REIT equity investments was mitigated by the liquidation of its entire portfolio in Q3 2021 - The primary market risk was investment risk related to a concentration in mortgage REIT equity securities, which were sensitive to interest rates and economic policy changes[131][132] - This investment risk was significantly reduced as the company liquidated its entire equity securities portfolio during the third quarter of 2021[123] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2021, with no material changes to internal controls over financial reporting - Based on an evaluation as of the end of the reporting period, the Interim CEO and CFO concluded that the company's disclosure controls and procedures were effective[134] - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[135] Part II - Other Information Legal Proceedings This section refers to Note 6, "Commitments and Contingencies," for a detailed description of the company's legal proceedings - For a description of the Company's legal proceedings, refer to Note 6, "Commitments and Contingencies" of the interim condensed consolidated financial statements[138] Risk Factors New risks include expenses exceeding minimal income while holding cash, and the challenge of successfully launching or profitably operating a new business - A key risk is that until a new business is engaged, the company's assets will consist almost entirely of cash and government securities, resulting in minimal income that will be significantly exceeded by expenses[138] - The company faces the risk of being unable to establish new businesses, and even if it does, they may not be profitable due to challenges in hiring, competition, and marketing[139] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds during the period - None[139] Other Information Kevin Sullivan was appointed as the company's General Counsel and Chief Compliance Officer on September 20, 2021 - On September 20, 2021, Kevin Sullivan commenced employment with the Company as General Counsel and Chief Compliance Officer[142] Exhibits This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including corporate governance documents and required CEO/CFO certifications - The report includes standard exhibits such as Articles of Incorporation, Bylaws, and CEO/CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[144]