ALTISOURCE ASSET MANAGEMENT CORP Management’s discussion and analysis of financial condition and results of operations (form 10-Q)

Our Business

Altisource Asset Management Corporation (“we,” “our,” “us” or the “Company”) was
incorporated in the United States Virgin Islands (“USVI”) on March 15, 2012 (our
“inception”), and we commenced operations in December 2012. In October 2013, we
applied for and were granted registration by the Securities and Exchange
Commission
(the “SEC”) as a registered investment adviser under Section 203(c)
of the Investment Advisers Act of 1940. We historically operated in a single
segment focused on providing asset management and certain corporate governance
services to investment vehicles. Our primary client was Front Yard Residential
Corporation
(“Front Yard”), a public real estate investment trust (“REIT”)
focused on acquiring and managing quality, affordable single-family rental
(“SFR”) properties throughout the United States.

On August 13, 2020, we entered into a Termination and Transition Agreement (the
“Termination Agreement”) with Front Yard and Front Yard Residential L.P. (“FYR
LP
“) to terminate the Amended and Restated Asset Management Agreement, dated as
of May 7, 2019 (the “Amended AMA”), by and among Front Yard, FYR LP and AAMC,
and to provide for a transition plan to facilitate the internalization of Front
Yard’s asset management function (the “Transition Plan”). The Termination
Agreement was effective on December 31, 2020, the date that the parties mutually
agreed that the Transition Plan had been satisfactorily completed (the
“Termination Date”) and, the Amended AMA was terminated in its entirety.

As disclosed in our public filings, the Company’s prior business operations
ceased in the first week of 2021. During 2021, the Company engaged in a
comprehensive search to acquire an operating company with the proceeds received
from the sale of its operations in accordance with the Termination Agreement. A
range of industries were included in the search, including, but not limited to,
real estate lending, cryptocurrency, block-chain technology and insurance
operations. Outside professional firms, including among others, Cowen and
Company, LLC
, an investment bank, and Norton Rose Fulbright LLP, a global law
practice, were engaged to provide due diligence, legal and valuation expertise
to assist in our search.

Ultimately, in March 2022, AAMC determined to move forward with the newly
created Alternative Lending Group (ALG) and grow organically and to pursue an
opportunity related to Crypto ATMs.

With a capital commitment of $40 million to grow the operations of ALG, the
Company intends to perform the following:


•Build out a niche origination platform as well as a loan acquisition team;
•Fund the originated or acquired alternative loans from a combination of Company
equity and future lines of credit;
•Sell the originated and acquired alternative loans through forward commitment
and repurchase contracts;
•Leverage senior management's expertise in this space; and
•Utilize AAMC's existing operations in India to drive controls and cost
efficiencies.

The type of product we expect to originate or acquire are alternative loans that
offer opportunities for rapid growth and allow us to tap into underserved
markets. We intend to stay agile on the loan product mix, but we are currently
focused on markets not addressed by banks, agency aggregators and most
traditional lenders, including but not limited to:


•Transitional Loans: bridge loans on single family and commercial real estate;
•Ground-up Construction Loans: assisting developers in projects with the primary
focus on workforce housing;
•Investor Loans: Non-agency loans on investment rental properties that are debt
service coverage ratio type loans;
•Special Purpose Credit Programs: loans to extend special purpose credit to
applicants who meet certain eligibility requirements such as credit assistance
programs; and
•"Gig Economy" Loans: Loans to professionals, self-employed borrowers, start-up
business owners lacking income documentation to qualify for Agency purchase.

In the near future, we expect our main business segment to be ALG, whose primary
sources of income will be derived from mortgage banking activities generated
through the origination and acquisition of loans, and their subsequent sale or
securitization as well as net interest income from loans while held on the
balance sheet.


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In addition to ALG operations, AAMC will also invest capital into a Crypto ATM
business through its Right of First Refusal Agreement with the cryptocurrency
company, ForumPay, with the intent to deploy crypto enabled ATMs worldwide. The
Crypto ATMs using ForumPay’s software will generally allow users to purchase
multiple cryptocurrencies such as Bitcoin, Ethereum and Litecoin, using fiat
currency, sell the same cryptocurrencies and eventually remit payments globally
either in cryptocurrency or the local fiat currency. The Company will earn
revenue by charging fees for utilizing the ATMs for exchange between
cryptocurrency and local fiat currency.

The Right of First Refusal Agreement includes the following provisions:


•Co-marketing efforts between AAMC and ForumPay;
•ForumPay to provide advanced technology that includes:
•Cash purchases of cryptocurrencies;
•Cryptocurrency conversions to cash (in local currency);
•Capacity to fund remittances to third parties (in crypto or local currencies);
and
•AAMC will be responsible for ATM hardware, installation, maintenance, operation
and insurance.

We will initially invest $2.0 million and plan to invest more as the opportunity
warrants.

For a discussion of the risks associated with the Company’s new business, see

Item 1A – “Risk Factors” in Part II of this Quarterly Report on Form 10-Q.

Asset Management Agreement with Front Yard

For details on the Amended AMA with Front Yard and a description of the
Termination Agreement and its key terms, please see Item 1 – Financial
statements (unaudited) – “Note 1. Organization and Basis of Presentation” and
“Management Overview” above.

Metrics Affecting our Consolidated Results

Our operating results are affected by various factors and market conditions,
including the following:

Expenses

Our expenses consist primarily of salaries and employee benefits, legal and
professional fees, and general and administrative expenses and acquisition
charges. Salaries and employee benefits include the base salaries, incentive
bonuses, medical coverage, retirement benefits, non-cash share-based
compensation and other benefits provided to our employees for their services.
Legal and professional fees include services provided by third-party attorneys,
accountants and other service providers of a professional nature. General and
administrative expenses include costs related to the general operation and
overall administration of our business as well as non-cash share-based
compensation expense related to restricted stock awards to our Directors.
Acquisition charges reflect professional fees incurred solely for the purpose of
assisting the Company in the identification of target companies and subsequent
due diligence, valuation, and deal structuring services required to properly
assess the viability of the target companies.

Other Income

Other income primarily relates to income generated from marketable securities
acquired and sold by the Company either through the Front Yard transaction,
primarily in 2020 or on the public market in 2021.


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Results of Operations

The following sets forth discussion of our results of operations for the three
months ended March 31, 2022 and 2021.

Results of Continuing Operations

The following discussion compares our results of continuing operations for the
three months ended March 31, 2022 compared to three months ended March 31, 2021.
Our results of operations for the periods presented are not indicative of our
expected results in future periods.

Salaries and Employee Benefits

Salaries and employee benefits were $0.9 million during the three months ended
March 31, 2022, compared to $3.5 million during the three months ended March 31,
2021
. This decrease is primarily due to restricted stock grants which were
issued and vested in February 2021.

Legal, Acquisition and Professional Fees

Legal fees increased slightly to $1.4 million from $1.3 million during the three
months ended March 31, 2022 and 2021, respectively. This increase is primarily
due to legal and consulting fees related to the Luxor litigation and employment
issues. We incurred $0.4 million and zero as acquisition costs in three months
ended March 31, 2022 and 2021, respectively. Professional fees decreased to $0.3
million
and $0.5 million for the three months ended March 31, 2022 and 2021,
respectively.

General and Administrative Expenses

General and administrative expenses decreased slightly to $0.7 million from $0.8
million
during the three months ended March 31, 2022 and 2021, respectively.

Change in Fair Value of Front Yard Common Stock

The change in fair value of Front Yard common stock was $0.0 million and $0.1
million
during the three months ended March 31, 2022 and 2021, respectively.
These changes in fair value were due solely to changes in the market price of
Front Yard’s common stock, as reported on the New York Stock Exchange. Upon the
closing of the Front Yard merger in January 2021, the Company received cash in
exchange for shares held.

Dividend and Gain on Sale Income

No dividends were received in three months ended March 31, 2022, because no REIT
equity securities were held during that period. Dividend income was $2.2 million
during the three months ended March 31, 2021 on REIT equity securities. No gains
were recognized on REIT equity securities during the three months ended March
31, 2022
and 2021, respectively

Results of Discontinued Operations

On August 13, 2020, we and Front Yard entered into the Termination Agreement,
pursuant to which they have agreed to effectively internalize the asset
management function of Front Yard. The termination of the Amended AMA and the
sale of the certain assets and operations to Front Yard represents a significant
strategic shift that will have a major effect on our operations and financial
results. Therefore, we have classified the results of our operations related to
Front Yard as discontinued operations in our condensed consolidated statements
of operations. Discontinued operations includes (i) the management fee revenues
generated under our asset management agreements with Front Yard, (ii) expense
reimbursements from Front Yard and the underlying expenses, (iii) the results of
operations of our India and Cayman Islands subsidiaries, (iv) the employment
costs associated with certain individuals wholly dedicated to Front Yard and (v)
the costs associated with our lease in Charlotte, North Carolina, that was
assumed by Front Yard. On January 1, 2021, we completed the sale of the
remainder of the Disposal Group and recorded a pre-tax gain on disposal of $7.5
million
. See Item 1 – Financial statements (unaudited) – “Note 2. Discontinued
Operations” for further information.

We had no results from discontinued operations in the three months ended March
31, 2022
.


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Liquidity and Capital Resources

As of March 31, 2022, we had cash and cash equivalents of $54.4 million compared
to cash and cash equivalents of $78.3 million as of December 31, 2021. The
decrease in cash and cash equivalents was primarily due to the purchase of loans
in the ALG. At December 31, 2021, we held no Front Yard common stock. We are
developing new sources of income through our strategic business plan. We believe
these sources of liquidity are sufficient to enable us to meet anticipated
short-term (one-year) liquidity requirements. Our ongoing cash expenditures
consist of: salaries and employee benefits, legal and professional fees, lease
obligations and other general and administrative expenses.

As referred to in Note 1 in our consolidated financial statements, the
Company has settled with certain owners of its Series A Shares which has reduced
the outstanding balance from $250 million to approximately $144 million. The
remaining outstanding Series A Shares are owned by Luxor in which we are
currently in litigation over various claims.

AAMC intends to continue to pursue its strategic business initiatives despite
this litigation. See ” Our Company. ” If Luxor were to prevail in its lawsuit,
we may need to cease or curtail our business initiatives and our liquidity could
be materially and adversely affected. For more information on the legal
proceedings with Luxor, see “Item 1A. Risk Factors” and “Item 3. Legal
Proceedings” in the Annual Report on Form 10-K for the year ended December 31,
2021
.

Loans held for investment, at fair value

On March 31, 2022, we purchased $17.7 million in loans upon the creation of ALG.
These loans primarily relate to business purpose bridge loans for the
positioning of real estate properties.

Equity Securities

Between February 9, 2021 and February 17, 2021, we purchased $97.0 million of
equity securities with $68 million of cash on hand and $29 million borrowed
under a standard margin arrangement with our banking institution. As of
March 31, 2022, all equity securities had been liquidated and the standard
margin arrangement was paid in full.

Treasury Shares

At March 31, 2022, a total of $268.7 million in shares of our common stock had
been repurchased under the authorization by our Board of Directors to repurchase
up to $300.0 million in shares of our common stock. Repurchased shares are held
as treasury stock and are available for general corporate purposes. We have an
aggregate of $31.3 million remaining available for repurchases under our
Board-approved repurchase plan.

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