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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 JUNE 30, 2021

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR TRANSITION PERIOD FROM __________ TO __________

COMMISSION FILE NUMBER: 001-36063

https://cdn.kscope.io/3508658fe51c25d3bba4f6e48fe5c26c-aamc-20210630_g1.jpg

Altisource Asset Management Corporation
(Exact name of registrant as specified in its charter)
U.S. Virgin Islands66-0783125
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)

5100 Tamarind Reef
Christiansted, U.S. Virgin Islands 00820
(Address of principal executive office)

(704) 275-9113
(Registrant’s telephone number, including area code)

Securities registered or to be registered pursuant to Section 12(b) of the Act:
  
Title of each class
Trading Symbol(s)
 
Name of each exchange on which registered
Common stock, par value $0.01 per shareAAMCNYSE American

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 No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated FilerAccelerated Filer
Non-Accelerated FilerSmaller 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

As of August 6, 2021, 2,055,561 shares of our common stock were outstanding (excluding 1,360,980 shares held as treasury stock).








Altisource Asset Management Corporation
June 30, 2021
Table of Contents

i


(table of contents)
References in this report to “we,” “our,” “us,” “AAMC” or the “Company” refer to Altisource Asset Management Corporation and its consolidated subsidiaries, unless otherwise indicated. References in this report to “Front Yard” refer to Front Yard Residential Corporation and its consolidated subsidiaries, unless otherwise indicated.

Special note on forward-looking statements

Our disclosure and analysis in this Quarterly Report on Form 10-Q contain, and our officers, directors and authorized spokespersons may make, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In some cases, you can identify forward-looking statements by the use of forward-looking terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “targets,” “predicts” or “potential” or the negative of these words and phrases or similar words or phrases that are predictions of or indicate future events or trends and that do not relate solely to historical matters. You can also identify forward-looking statements by discussions of strategy, plans or intentions.

The forward-looking statements contained in this report reflect our current views about future events and are subject to numerous known and unknown risks, uncertainties, assumptions and changes in circumstances that may cause our actual business, operations, results or financial condition to differ significantly from those expressed in any forward-looking statement. Factors that may materially affect such forward-looking statements include, but are not limited to:

our ability to successfully engage in new businesses;
our search for a permanent Chief Executive Officer;
our ability to develop and implement new businesses or, to the extent such businesses are developed, our ability to make them successful or sustain the performance of any such businesses;
our ability to retain and maintain our strategic relationships;
our ability to obtain additional asset management clients;
the potential for the COVID-19 pandemic to adversely affect our business, financial position, operations, business prospects, customers, employees and third-party service providers;
our ability to effectively compete with our competitors;
the failure of our service providers to effectively perform their obligations under their agreements with us;
our ability to integrate newly acquired business;
developments in the litigation regarding our redemption obligations under the Certificate of Designations of our Series A Convertible Preferred Stock (the “Series A Shares”), including our ability to obtain declaratory relief confirming that we were not obligated to redeem any of the Series A Shares on the March 15, 2020 redemption date if we do not have funds legally available to redeem all, but not less than all, of the Series A Shares requested to be redeemed on that redemption date;
general economic and market conditions; and
the failure of our information technology systems, a breach thereto, and our ability to integrate and improve those systems at a pace fast enough to keep up with competitors and security threats.

While forward-looking statements reflect our good faith beliefs, assumptions, and expectations, they are not guarantees of future performance. Such forward-looking statements speak only as of their respective dates, and we assume no obligation to update them to reflect changes in underlying assumptions, new information or otherwise. For a further discussion of these and other factors that could cause our future results to differ materially from any forward-looking statements, please see Part II, Item 1A in this Quarterly Report on Form 10-Q and “Item 1A. Risk factors” in our Annual Report on Form 10-K for the year ended December 31, 2020.

ii


(table of contents)
Part I
Item 1. Financial statements (unaudited)

Altisource Asset Management Corporation
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts)
June 30, 2021December 31, 2020
(unaudited)
Current assets:
Cash and cash equivalents$52,027 $41,623 
Equity securities, at fair value39,804  
Front Yard common stock, at fair value 47,355 
Receivable from Front Yard 3,414 
Dividends receivable681  
Prepaid expenses and other assets2,875 3,328 
Current assets held for sale 894 
Total current assets95,387 96,614 
Non-current assets:
Right-of-use lease assets894 656 
Other non-current assets419 503 
Non-current assets held for sale 1,979 
Total non-current assets1,313 3,138 
Total assets$96,700 $99,752 
Current liabilities:
Accrued salaries and employee benefits$299 $2,539 
Accounts payable and accrued liabilities2,374 9,152 
Short-term lease liabilities128 75 
Current liabilities held for sale 1,338 
Total current liabilities2,801 13,104 
Non-current liabilities:
Long-term lease liabilities793 600 
Other non-current liabilities3,497 1,027 
Non-current liabilities held for sale 1,599 
Total non-current liabilities4,290 3,226 
Total liabilities7,091 16,330 
Commitments and contingencies (Note 6)
  
Redeemable preferred stock:
Preferred stock, $0.01 par value, 250,000 and 250,000 shares issued as June 30, 2021 and December 31, 2020, respectively. 168,200 shares outstanding and $168,200 redemption value as of June 30, 2021 and 250,000 shares outstanding and $250,000 redemption value as of December 31, 2020.
168,200 250,000 
Stockholders' deficit:
Common stock, $0.01 par value, 5,000,000 authorized shares; 3,416,541 and 2,055,561 shares issued and outstanding, respectively, as of June 30, 2021 and 2,966,207 and 1,650,212 shares issued and outstanding, respectively, as of December 31, 2020
34 30 
Additional paid-in capital127,372 46,574 
Retained earnings71,538 63,426 
Accumulated other comprehensive loss54 (65)
Treasury stock, at cost, 1,360,980 shares as of June 30, 2021 and 1,315,995 shares as of December 31, 2020
(277,589)(276,543)
Total stockholders' deficit(78,591)(166,578)
Total liabilities and equity$96,700 $99,752 
See accompanying notes to condensed consolidated financial statements.
1

(table of contents)
Altisource Asset Management Corporation
Condensed Consolidated Statements of Operations
(In thousands, except share and per share amounts)
(Unaudited)

Three months ended June 30,Six months ended June 30,
2021202020212020
Expenses:
Salaries and employee benefits$(345)$3,319 $3,200 $6,413 
Legal and professional fees2,655 1,746 4,540 3,226 
General and administrative611 564 1,364 1,150 
Total expenses2,921 5,629 9,104 10,789 
Other income (loss):
Change in fair value of Front Yard common stock (5,279)146 (5,913)
Dividend income on Front Yard common stock   244 
Change in fair value of equity securities(2,411) 3,310  
Dividend income887  3,041  
Gain on sale of equity securities6,360  6,360  
Interest expense(24) (60) 
Other income 4 6 139 24 
Total other income (loss)4,816 (5,273)12,936 (5,645)
Net income (loss) from continuing operations before income taxes1,895 (10,902)3,832 (16,434)
Income tax (benefit) expense(333)(690)1,961 (568)
Net income (loss) from continuing operations2,228 (10,212)1,871 (15,866)
Discontinued operations:
Income from operations related to Front Yard, net of tax 2,377  4,274 
Gain on disposal of operations related to Front Yard  7,485  
Income tax expense related to disposal  1,272  
Net gain on discontinued operations 2,377 6,213 4,274 
Net income (loss)2,228 (7,835)8,084 (11,592)
Amortization of preferred stock issuance costs   (42)
Net income (loss) attributable to common stockholders$2,228 $(7,835)$8,084 $(11,634)
Continuing operations earnings per share
Net income (loss) from continuing operations$2,228 (10,212)1,871 (15,866)
    Reverse amortization of preferred stock issuance costs   42 
    Gain on preferred stock transaction  71,883  
Numerator for earnings per share from continuing operations$2,228 $(10,212)$73,754 $(15,824)
Discontinued operations earnings per share
Net income from discontinued operations$ $2,377 $6,213 $4,274 
Earnings (loss) per share of common stock – basic:
Continuing operations – basic$1.09 $(6.27)$37.86 $(9.80)
Discontinued operations – basic 1.46 3.19 2.63 
Earnings (loss) per basic common share$1.09 $(4.81)$41.05 $(7.17)
Weighted average common stock outstanding – basic2,050,786 1,629,285 1,948,070 1,622,497 
Earnings (loss) per share of common stock – diluted:
Continuing operations – diluted$1.01 $(6.27)$34.50 $(9.80)
Discontinued operations – diluted 1.46 2.91 2.63 
Earnings (loss) per diluted common share$1.01 $(4.81)$37.41 $(7.17)
Weighted average common stock outstanding – diluted2,195,806 1,629,285 2,137,513 1,622,497 
See accompanying notes to condensed consolidated financial statements.
2

(table of contents)
Altisource Asset Management Corporation
Condensed Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
(Unaudited)

Three months ended June 30,Six months ended June 30,
2021202020212020
Net income (loss)$2,228 $(7,835)$8,084 $(11,592)
Other comprehensive loss:
Currency translation adjustments, net(4)(4)(6)(93)
Total other comprehensive loss:(4)(4)(6)(93)
Comprehensive income (loss)$2,224 $(7,839)$8,078 $(11,685)

See accompanying notes to condensed consolidated financial statements.
3

(table of contents)
Altisource Asset Management Corporation
Condensed Consolidated Statements of Stockholders' Deficit
(In thousands, except share amounts)
(Unaudited)


Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive LossTreasury StockTotal Stockholders' Deficit
Number of SharesAmount
December 31, 20202,966,207 $30 $46,574 $63,426 $(65)$(276,543)$(166,578)
Common shares issued under share-based compensation plans, net of shares withheld for employee taxes153,429 2 (2)— — (800)(800)
Share-based compensation— — 2,446 — — (219)2,227 
Currency translation adjustments, net— — — — (2)— (2)
Acquisition and disposition of subsidiaries— — — 28 125 — 153 
Preferred stock conversion288,283 2 78,935 — — — 78,937 
Net income— — — 5,856 — — 5,856 
March 31, 20213,407,919 34 127,953 69,310 58 (277,562)(80,207)
Common shares issued under share-based compensation plans, net of shares withheld for employee taxes8,622 — — — — — — 
Shares withheld for taxes upon vesting of restricted stock— — — — — (27)(27)
Share-based compensation— — (581)— — — (581)
Currency translation adjustments, net— — — — (4)— (4)
Net income— — — 2,228 — — 2,228 
June 30, 20213,416,541 $34 $127,372 $71,538 $54 $(277,589)$(78,591)
Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive LossTreasury StockTotal Stockholders' Deficit
Number of SharesAmount
December 31, 20192,897,177 $29 $44,646 $23,662 $(33)$(276,232)$(207,928)
Common shares issued under share-based compensation plans, net of shares withheld for employee taxes39,562 — 4 — — — 4 
Shares withheld for taxes upon vesting of restricted stock— — — — — (196)(196)
Amortization of preferred stock issuance costs— — — (42)— — (42)
Share-based compensation— — 477 — — — 477 
See accompanying notes to condensed consolidated financial statements.
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Currency translation adjustments, net— — — — (89)— (89)
Net loss— — — (3,757)— — (3,757)
March 31, 20202,936,739 29 45,127 19,863 (122)(276,428)(211,531)
Common shares issued under share-based compensation plans, net of shares withheld for employee taxes5,858 — 10 — — — 10 
Share-based compensation— — 393 — — — 393 
Currency translation adjustments, net— — — — (4)— (4)
Net loss— — — (7,835)— — (7,835)
June 30, 20202,942,597 $29 $45,530 $12,028 $(126)$(276,428)$(218,967)

See accompanying notes to condensed consolidated financial statements.
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Altisource Asset Management Corporation
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

Six months ended June 30,
20212020
Operating activities:
Net income (loss)$8,084 $(11,592)
Less: Income from discontinued operations, net of tax6,213 4,274 
Income (loss) from continuing operations1,871 (15,866)
Adjustments to reconcile net income (loss) from continuing operations to net cash from (used in) operating activities:
Depreciation164 177 
Change in fair value of Front Yard common stock(146)5,913 
Share-based compensation1,866870 
Amortization of operating lease right-of-use assets71 38 
Dividend income(3,041) 
Change in fair value of equity securities(3,310) 
Gain on securities(6,360) 
Changes in operating assets and liabilities, net of effects from discontinued operations and acquisition of subsidiary:
Receivable from Front Yard3,414 1,128 
Prepaid expenses and other assets(984)(748)
Other non-current assets1,743 (370)
Accrued salaries and employee benefits(2,235)183 
Accounts payable and accrued liabilities(6,920)(59)
Other non-current liabilities and operating lease liabilities2,716 (34)
Net cash (used in) continuing operations(11,151)(8,768)
Net cash from discontinued operations5,439 4,451 
Net cash (used in) operating activities(5,712)(4,317)
Investing activities:
Purchase of equity securities(96,950) 
Dividends received2,360  
Proceeds from sale of equity securities114,316  
Investment in property and equipment(511)(22)
Net cash from (used in) continuing operations19,215 (22)
Net cash from discontinued operations511 483 
Net cash from investing activities19,726 461 
Financing activities:
Proceeds from borrowed funds28,549  
Repayment of borrowed funds(28,549) 
Settlement of preferred stock(2,868) 
Proceeds and payment of tax withholding on stock options exercised, net5 14 
Shares withheld for taxes upon vesting of restricted stock(1,046)(196)
Net payment to subsidiaries included in disposal group(80)271 
Net cash from (used in) continuing operations(3,989)89 
Net cash from (used in) discontinued operations80 (271)
Net cash (used in) financing activities(3,909)(182)
Net change in cash and cash equivalents10,105 (4,038)
Effect of exchange rate changes on cash and cash equivalents115 (82)
Consolidated cash and cash equivalents, beginning of period41,807 19,965 
Consolidated cash and cash equivalents, end of the period$52,027 $15,845 

See accompanying notes to condensed consolidated financial statements.
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Altisource Asset Management Corporation
Condensed Consolidated Statements of Cash Flows (Continued)
(In thousands)
(Unaudited)
Six months ended June 30,
20212020
Supplemental disclosure of cash flow information (continuing and discontinued operations):
    Cash paid for interest$60 $ 
Income taxes paid225 143 
Right-of-use lease assets recognized - operating leases308  
Reconciliation of cash and cash equivalents to consolidated balance sheets:
Cash and cash equivalents$52,027 $11,182 
Cash and cash equivalents included in assets of discontinued operations 4,663 
Consolidated cash and cash equivalents$52,027 $15,845 
See accompanying notes to condensed consolidated financial statements.
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Altisource Asset Management Corporation
Notes to Condensed Consolidated Financial Statements
June 30, 2021
(Unaudited)

1. Organization and Basis of Presentation

Altisource Asset Management Corporation (“we,” “our,” “us,” or the “Company”) was incorporated in the U.S. Virgin Islands (“USVI”) on March 15, 2012 (our “inception”) and commenced operations on December 21, 2012.

Our primary client has been 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. All of our revenue for periods in fiscal year 2020 was generated through our asset management agreements with Front Yard.

Asset Management Agreements and Termination Agreement with Front Yard

On May 7, 2019, we entered into the Amended and Restated Asset Management Agreement (the “Amended AMA”) with Front Yard and Front Yard Residential L.P. (“FYR LP”), under which we were provided to be the exclusive asset manager for Front Yard for an initial term of five years. The Amended AMA had the option to renew automatically each year thereafter for an additional one-year term, subject in each case to certain termination provisions. The Amended AMA provided for a fee structure in which we were entitled to a Base Management Fee and a potential Incentive Fee.

On August 13, 2020, AAMC, Front Yard and FYR LP entered into a Termination and Transition Agreement (the “Termination Agreement”), under which, on December 31, 2020 (the “Termination Date”):

Front Yard agreed to acquire on January 1, 2021, the equity interests of AAMC's India subsidiary. Additionally, Front Yard acquired the equity interests of AAMC's Cayman Islands subsidiary, the right to solicit and hire designated AAMC employees that had oversight of the management of Front Yard's business and other assets of AAMC that were used in connection with the operation of Front Yard's business (the “Disposal Group”) for an aggregate purchase price of $8.2 million.
In satisfaction of the amounts payable in Front Yard stock, we received 1,298,701 shares of Front Yard common stock. We recorded a nominal gain on the shares received.
AAMC assigned its office lease in Charlotte, North Carolina. Certain assets related to the lease, primarily office and employee-related equipment were written off, none of which were individually material, and were recorded through other income (loss).
Two business days prior to the Termination Date, Mr. Ellison resigned as Co-Chief Executive Officer of AAMC.

We have concluded that the Disposal Group met the held-for-sale criteria and have therefore classified the Disposal Group as held for sale on our condensed consolidated balance sheets. The termination of the Amended AMA and the sale of the Disposal Group also represents a significant strategic shift that will have a major effect on our operations and financial results. Therefore, we have classified the results of operations related to Front Yard as discontinued operations in our condensed consolidated statements of operations.

On January 1, 2021, we completed the sale of our India subsidiary and recognized a one-time gain before tax of $7.5 million on the disposal. Following the sale of the Disposal Group on January 1, 2021, no further activity has been recognized as discontinued operations in our condensed consolidated financial results. For further information, please see Note 2.
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Basis of presentation and use of estimates

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). All wholly owned subsidiaries are included, and all intercompany accounts and transactions have been eliminated.

In management's opinion, the unaudited interim condensed consolidated financial statements contain all adjustments that are of a normal recurring nature and are necessary for a fair presentation of our financial position, results of operations and cash flows for the interim periods. The interim results are not necessarily indicative of results for a full year. We have omitted certain notes and other information from the interim condensed consolidated financial statements presented in this Quarterly Report on Form 10-Q as permitted by SEC rules and regulations. These condensed consolidated financial statements should be read in conjunction with our annual consolidated financial statements included within our Annual Report on Form 10-K for the year ended December 31, 2020.

Use of estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Redeemable Preferred stock

Issuance of Series A Convertible Preferred Stock in 2014 Private Placement

During the first quarter of 2014, we issued 250,000 shares of convertible preferred stock for $250.0 million (“Series A Shares”) to institutional investors. Under the Certificate of Designations of the Series A Shares (the “Certificate”), we have the option to redeem all of the Series A Shares on March 15, 2020 and on each successive five-year anniversary of March 15, 2020 thereafter. In connection with these same redemption dates, each holder of our Series A Shares has the right to give notice requesting us to redeem all of the shares of Series A Shares held by such holder out of legally available funds. In accordance with the terms of the Certificate, if we have legally available funds to redeem all, but not less than all, of the Series A Shares requested to be redeemed on a redemption date, we will deliver to those holders who have requested redemption in accordance with the Certificate a notice of redemption. If we do not have legally available funds to redeem all, but not less than all, of the Series A Shares requested to be redeemed on a redemption date, we will not provide a notice of redemption. The redemption right will be exercisable in connection with each redemption date every five years until the mandatory redemption date in 2044. If we are required to redeem all of the holder's Series A Shares, we are required to do so for cash at a price equal to $1,000 per share (the issuance price) out of funds legally available therefor. Due to the redemption provisions of the Series A Preferred Stock, we classify these shares as mezzanine equity, outside of permanent stockholders' equity.

Between January 31, 2020 and February 3, 2020, we received purported notices from holders of our Series A Shares requesting us to redeem an aggregate of $250.0 million liquidation preference of our Series A Shares on March 15, 2020. We did not have legally available funds to redeem all of the Series A Shares on March 15, 2020. As a result, we do not believe, under the terms of the Certificate, that we were (or are) obligated to redeem any of the Series A Shares under the Certificate, and, consistent with the exclusive forum provisions of our Third Amended and Restated Bylaws, on January 27, 2020, we filed a claim for declaratory relief in the Superior Court of the Virgin Islands, Division of St. Croix, against Luxor Capital Group, LP and certain of its funds and managed accounts (collectively, “Luxor”) to confirm our interpretation of the Certificate. Luxor has removed the action to the U.S District Court for the Virgin Islands, and, on March 24, 2020, AAMC moved to remand the action back to the Superior Court of the Virgin Islands, Division of St. Croix. That motion is fully briefed and pending. On May 15, 2020, Luxor moved to dismiss AAMC's declaratory judgment complaint. That motion has been fully briefed and submitted to the Court as of July 29, 2020.

On February 3, 2020, Luxor filed a complaint in the Supreme Court of the State of New York, County of New York, against AAMC for breach of contract, specific performance, unjust enrichment, and related damages and expenses. The complaint alleges that AAMC’s position that it will not redeem any of Luxor’s Series A Shares on the March 15, 2020 redemption date is a material breach of AAMC’s redemption obligations under the Certificate. Luxor seeks an order requiring AAMC to redeem its Series A Shares, recovery of no less than $144,212,000 in damages, which is equal to the amount Luxor would receive if AAMC redeemed all of Luxor’s Series A Shares at the redemption price of $1,000 per share set forth in the Certificate, as well as payment of its costs and expenses in the lawsuit. In the alternative, Luxor seeks a return of its initial purchase price of
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$150,000,000 for the Series A Shares, as well as payment of its costs and expenses in the lawsuit. On May 25, 2020, Luxor’s complaint was amended to add Putnam Equity Spectrum Fund and Putnam Capital Spectrum Fund (collectively, “Putnam”), which also invested in the Series A Shares, as plaintiff. Putnam held 81,800 Series A Shares. Collectively, Luxor and Putnam seek a recovery of no less than $226,012,000 in damages, which is equal to the amount Luxor and Putnam would receive if AAMC redeemed all of Luxor’s and Putnam’s Series A Shares at the redemption price of $1,000 per share set forth in the Certificate, as well as payment of their costs and expenses in the lawsuit. In the alternative, Luxor and Putnam seek a return of the initial purchase price of $231,800,000 for the Series A Shares, as well as payment of their costs and expenses in the lawsuit. On June 12, 2020, AAMC moved to dismiss the Amended Complaint in favor of AAMC’s first-filed declaratory judgment action in the U.S. Virgin Islands. On August 4, 2020, the court denied AAMC’s motion to dismiss.

On February 17, 2021, the Company entered into a settlement agreement dated as of February 17, 2021 (the “Putnam Agreement”) with Putnam. Pursuant to the Putnam Agreement, AAMC and Putnam agreed to exchange all of Putnam’s 81,800 Series A Shares for 288,283 shares of AAMC’s common stock. AAMC agreed to pay to Putnam $1,636,000 within three business days of the effective date of the Putnam Agreement and $1,227,000 on the one-year anniversary of the effective date of the Putnam Agreement, and in return Putnam agreed to release AAMC from all claims related to the Series A Shares and enter into a voting rights agreement as more fully described in the Putnam Agreement. Finally, AAMC granted to Putnam a most favored nations provision with respect to future settlements of the Series A Shares. As a result of the transaction, we recognized a one-time gain directly to Additional paid in capital of $71.9 million.

AAMC intends to continue to pursue its strategic business initiatives despite this litigation. 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.

The holders of Series A Preferred Stock are not entitled to receive dividends with respect to the Series A Preferred Stock. The shares of Series A Preferred Stock are convertible into shares of our common stock at a conversion price of $1,250 per share (or an exchange ratio of 0.8 shares of common stock for each share of Series A Preferred Stock), subject to certain anti-dilution adjustments.

Upon certain change of control transactions or upon the liquidation, dissolution or winding up of the Company, holders of the Series A Preferred Stock will be entitled to receive an amount in cash per Series A Preferred Stock equal to the greater of:

(i)   $1,000 plus the aggregate amount of cash dividends paid on the number of shares of common stock into which such shares of Series A Preferred Stock was convertible on each ex-dividend date for such dividends; and
(ii)   the number of shares of common stock into which the Series A Preferred Stock is then convertible multiplied by the then current market price of the common stock.

The Certificate confers no voting rights to holders, except with respect to matters that materially and adversely affect the voting powers, rights or preferences of the Series A Preferred Stock or as otherwise required by applicable law.

With respect to the distribution of assets upon the liquidation, dissolution or winding up of the Company, the Series A Preferred Stock ranks senior to our common stock and on parity with all other classes of preferred stock that may be issued by us in the future.

The Series A Preferred Stock is recorded net of issuance costs, which were amortized on a straight-line basis through the first potential redemption date in March 2020.

2016 Employee Preferred Stock Plan

On May 26, 2016, the 2016 Employee Preferred Stock Plan (the “Employee Preferred Stock Plan”) was approved by our stockholders. Pursuant to the Employee Preferred Stock Plan, the Company may grant one or more series of non-voting preferred stock, par value $0.01 per share, in the Company to induce certain employees to become employed and remain employees of the Company in the USVI, and any of its future USVI subsidiaries, to encourage ownership of shares in the Company by such USVI employees and to provide additional incentives for such employees to promote the success of the Company’s business.

Pursuant to our stockholder approval of the Employee Preferred Stock Plan, on December 29, 2016, the Company authorized 14 additional series of preferred stock of the Company, consisting of Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F Preferred Stock, Series G Preferred Stock, Series H Preferred Stock,
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Series I Preferred Stock, Series J Preferred Stock, Series K Preferred Stock, Series L Preferred Stock, Series M Preferred Stock, Series N Preferred Stock and Series O Preferred Stock, and each series shall consist of up to an aggregate of 1,000 shares.

We have issued shares of preferred stock under the Employee Preferred Stock Plan to certain of our USVI employees. These shares of preferred stock are mandatorily redeemable by us in the event of such employee's termination of service with the Company for any reason. At June 30, 2021 and December 31, 2020, we had 1,200 and 1,100 shares outstanding, respectively, and we included the redemption value of these shares of $12,000 and $11,000, respectively, within accounts payable and accrued liabilities in our condensed consolidated balance sheets. In January 2021, our Board of Directors declared and paid an aggregate of $1.6 million (in relation to the 2020 fiscal year) of dividends on these shares of preferred stock. Such dividends are included in salaries and employee benefits in our condensed consolidated statements of operations.

Recently issued accounting standards

Adoption of recent accounting standards

In January 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments, which amends the guidance on measuring credit losses on financial assets held at amortized cost. ASU 2016-13, as amended, is intended to address the issue that the previous “incurred loss” methodology was restrictive for an entity's ability to record credit losses based on not yet meeting the “probable” threshold. The new language requires these assets to be valued at amortized cost presented at the net amount expected to be collected with a valuation provision. This ASU is effective for fiscal years beginning after December 15, 2019. The amendments in ASU 2016-13 should be applied on a modified retrospective transition basis. We adopted this standard on January 1, 2020, and our adoption of the standard did not have a material impact on our consolidated financial statements.

Recently issued accounting standards not yet adopted

In December 2019, the FASB issued ASU 2019-12, Income Taxes - Simplifying the Accounting for Income Taxes (Topic 740), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for fiscal years beginning after December 15, 2021. We are currently evaluating the impact of this standard.

In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” which provides practical expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The expedients and exceptions provided by the amendments in this update apply only to contracts, hedging relationships, and other transactions that reference the London interbank offered rate (“LIBOR”) or another reference rate expected to be discontinued as a result of reference rate reform. These amendments are not applicable to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. ASU No. 2020-04 is effective as of March 12, 2020 through December 31, 2022 and may be applied to contract modifications and hedging relationships from the beginning of an interim period that includes or is subsequent to March 12, 2020. We will adopt this standard when LIBOR is discontinued. We are evaluating the impact the new standard will have on our consolidated financial statements and related disclosures, but do not anticipate a material impact.


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2. Discontinued Operations

On August 13, 2020, AAMC and Front Yard entered into Termination and Transition Agreement, pursuant to which they agreed to effectively internalize the asset management function of Front Yard. Pursuant to the agreement, Front Yard has acquired the equity interests of AAMC's India subsidiary, the equity interests of AAMC's Cayman Islands subsidiary, the right to solicit and hire designated AAMC employees that oversaw the management of Front Yard's business and other assets of AAMC that are used in connection with the operation of Front Yard's business.

On December 31, 2020, in connection with the Termination Agreement, the company completed the assignment of our lease in Charlotte, North Carolina to Front Yard. Additionally, on December 31, 2020, we completed the sale of our Cayman Islands subsidiary.

On January 1, 2021, in connection with the Termination Agreement, the company completed the sale of our India subsidiary.

The carrying value of major classes of assets and liabilities related to our discontinued operations that constitute the Disposal Group at June 30, 2021 and December 31, 2020 were as follows ($ in thousands):

June 30, 2021December 31, 2020
(unaudited)
Current assets held for sale:
Cash and cash equivalents$ $184 
Short-term investments 
Prepaid expenses and other assets 710 
Total current assets held for sale 894 
Non-current assets held for sale:
Right-of-use lease assets 1,612 
Other non-current assets 367 
Total non-current assets held for sale 1,979 
Total assets held for sale$ $2,873 
Current liabilities held for sale:
Accrued salaries and employee benefits$ $910 
Accounts payable and accrued liabilities 300 
Short-term lease liabilities 128 
Total current liabilities held for sale 1,338 
Non-current liabilities held for sale:
Non-current lease liabilities 1,599 
Total non-current liabilities held for sale 1,599 
Total liabilities held for sale$ $2,937 

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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 December 31, 2020. The operating results of these items are presented in our consolidated statements of operations as discontinued operations for all periods presented and revenues and expenses directly related to discontinued operations were eliminated from our ongoing operations.

The following table details the components comprising net income from our discontinued operations ($ in thousands):

Three months ended June 30,Six months ended June 30,
2021202020212020
Revenues from discontinued operations:
Management fees from Front Yard$ $3,584 $ $7,168 
Expense reimbursements from Front Yard 713  1,081 
Total revenues from discontinued operations 4,297  8,249 
Expenses from discontinued operations:
Salaries and employee benefits 1,507  2,957 
Legal and professional fees 59  113 
General and administrative 328  837 
Total expenses from discontinued operations 1,894  3,907 
Other income from discontinued operations:
Gain on disposal  7,485  
Other income 11  30 
Total other income from discontinued operations 11 7,485 30 
Net income from discontinued operations before income taxes 2,414 7,485 4,372 
Income tax expense 37 1,272 98 
Net income from discontinued operations$ $2,377 $6,213 $4,274 

The following table details cash flow information related to our discontinued operations for the periods indicated ($ in thousands):

Six months ended June 30,
20212020
Total operating cash flows from discontinued operations$5,439 $4,451 
Total investing cash flows from discontinued operations511 483 
Total financing cash flows from discontinued operations80 (271)


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3. Fair Value of Financial Instruments

The following table sets forth the carrying amount and the fair value of our financial assets by level within the fair value hierarchy as of the dates indicated ($ in thousands):
Level 1Level 2Level 3
Carrying AmountQuoted Prices in Active Markets Observable Inputs Other Than Level 1 Prices Unobservable Inputs
June 30, 2021
Recurring basis (assets):
Equity securities$39,804 $39,804 $ $ 
Front Yard common stock    
December 31, 2020
Recurring basis (assets):
Equity securities$ $ $ $ 
Front Yard common stock47,355 47,355   

We did not transfer any assets from one level to another level during the six months ended June 30, 2021 or during the year ended December 31, 2020.

The fair value of our holdings in both equity securities and Front Yard common stock are based on unadjusted quoted prices from active markets. The fair values of equity securities are classified as Level 1 in the fair value hierarchy because we use quoted prices for identical assets in active markets.

At December 31, 2020, we held 2,923,166 shares of Front Yard's common stock representing approximately 4.9% of Front Yard's then-outstanding common stock. We previously acquired 1,624,465 shares of Front Yard's common stock in open market transactions, and on December 31, 2020, we received 1,298,701 shares of Front Yard's common stock in connection with the transactions contemplated in the Termination Agreement with Front Yard. On January 11, 2021, Front Yard completed its previously announced merger, and all 2,923,166 shares were sold.

Investment gains/losses in the second quarter of 2021 and 2020 are summarized as follows ($ in thousands):

Three months ended June 30,Six months ended June 30,
2021202020212020
Equity securities:
Change in unrealized gains (losses) during the period on securities held at the end of the end of the period$(2,411)$ $3,310 $ 
Investment gains on securities sold during the period6,360  6,360  
3,949  9,670  
Front Yard common stock:
Change in unrealized losses during the period on securities held at the end of the period (5,279) (5,913)
Investment gains on securities sold during the period  146  
 (5,279)146 (5,913)
Total change in fair value of equity securities and Front Yard common stock$3,949 $(5,279)$9,816 $(5,913)

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Investment gains and losses include unrealized gains and losses from changes in fair values during the period on positions that we still own, as well as gains and losses on positions sold during the period. As reflected in the condensed consolidated statements of cash flows, we received proceeds from sales of Front Yard common stock of $47.5 million in the six months ended June 30, 2021 and zero in the six months ended June 30, 2020. In the preceding table, investment gains/losses on equity securities sold during the period reflect the difference between the sales proceeds and the fair value of the equity securities sold at the beginning of the applicable quarterly period.

A summary of the year-to-date activity of Front Yard common stock and equity securities is presented in the table below ($ in thousands):

Front Yard Common StockEquity Securities
SharesCostSharesCost
December 31, 20202,923$41,635 $ 
Purchased 8,12396,950 
Sold(2,923)(41,635)(5,073)(60,456)
June 30, 2021$ 3,050$36,494 

A summary of the cost basis, fair value and the corresponding amounts of gross unrealized gains and losses recognized as of the dates indicated are presented in the table below ($ in thousands):
CostGross Unrealized GainsGross Unrealized LossesFair Value
June 30, 2021
Equity securities$36,494 $3,310 $ $39,804