Our Company
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•Front Yard acquired the equity interests of AAMC'sIndia subsidiary, the equity interests of AAMC'sCayman 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 inCharlotte, 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. OnJanuary 11, 2021 , Front Yard completed its previously announced merger. Each share of common stock of Front Yard, subject to certain exceptions, was cancelled, extinguished, and automatically converted into the right to receive cash in an amount equal to$16.25 per share. Upon the closing of the Merger, AAMC received cash in an amount of approximately$47.5 million for the Front Yard common stock it held at the closing date.
Given these events, we have been very actively evaluating a number of business opportunities and acquisition targets in which to potentially focus the Company's resources.
In addition to the fund management and mortgage businesses more closely related to the Company's history, management intends to explore new businesses. While no decision has been made on the new businesses that the Company will pursue, management intends to explore, in the near term, fee based real estate investment banking and opportunities in cryptocurrency related businesses.
There can be no assurances that the Company will in fact proceed with any of these business opportunities. The Company is considering all of its options.
The Company recognizes the need to proceed as promptly as reasonably practicable with its assessment of the new business opportunities. This process is consistent with the Company's status as a transient investment company. For a discussion of the risks associated with the Company being a transient investment company, see Item 1A - " Risk Factors " in Part II of this Quarterly Report on Form 10-Q.
In the interim, the Company has invested in mortgage real estate investment trusts and has financed the acquisition of these assets with a margin loan. The Company intends to continue to invest its excess cash in securities of Companies engaged in the real estate industry, consistent with the Company's expertise. The Company expects these to be temporary investments, pending the commencement of the new businesses.
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
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Our operating results are affected by various factors and market conditions, including the following:
Revenues
Our revenues historically consisted of fees due to us under the asset management
agreements with Front Yard. Under the Amended AMA, our revenues included a
quarterly Base Management Fee and a potential annual Incentive Fee. During the
year ended
Under the Amended AMA, our revenues also included reimbursements of certain expenses in our management of Front Yard's business, which related primarily to travel and certain operating expenses solely related to our management of Front Yard's business and the base salary, bonus, benefits and stock compensation, if any, solely of the General Counsel dedicated to Front Yard. All other salary, bonus, benefits and stock compensation of AAMC's employees (other than Front Yard share-based compensation issued to them by Front Yard) are the responsibility of AAMC and are not reimbursed by Front Yard pursuant to the Amended AMA.
In addition, we received dividends on the shares of Front Yard common stock that we owned when Front Yard declared and paid dividends to its holders of common stock. Upon the declaration of such dividends, we recorded them as other income. The amount of dividends we received varied with Front Yard's financial performance, taxable income, liquidity needs and other factors deemed relevant by Front Yard's Board of Directors. Lastly, we recognized changes in the fair value of our holdings of Front Yard common stock as other income or loss that was directly dependent upon fluctuations in the market price of Front Yard's common stock
In the first quarter of 2021, there were no fees recognized or recoveries
because the Amended AMA was terminated effective
As a result of the Termination Agreement, we have classified all of our revenues from Front Yard within discontinued operations in our condensed consolidated statements of operations. See Item 1 - Financial statements (unaudited) - "Note 2. Discontinued Operations" for further information.
We have dividend earning assets held as Level 1 securities and have begun recognizing dividend income. See Item 1 - Financial statements (unaudited) - "Note 3. Fair Value of Financial Instruments" for further information.
As we continue to focus on developing and implementing new businesses and obtaining additional clients for our company, the results of these new businesses, as well as any additional asset management fees related to such businesses, are expected to affect our revenues and results of operations.
Expenses
Our expenses consist primarily of salaries and employee benefits, legal and professional fees and general and administrative expenses. 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.
As a result of the Termination Agreement, we have classified certain expenses within discontinued operations in our condensed consolidated statements of operations. See Item 1 - Financial statements (unaudited) - "Note 2. Discontinued Operations" for further information.
Other Income (Loss)
Other income (loss) is primarily driven by adjustments to fair value of our Equity securities and Dividend income earned on the positions held. The amount of dividends we receive will vary with financial performance, taxable income, liquidity needs and other factors deemed relevant by Board of Directors of these equity securities. Unrealized gains and losses on these equity securities will be directly dependent upon fluctuations in the market price of these securities. See Item 3. Quantitative and q ualitative d isclosures
a bout m arket r isk
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Results of Operations
The following sets forth discussion of our results of operations for the three
months ended
Results of Continuing Operations
The following discussion compares our results of continuing operations for the
three months ended
Salaries and Employee Benefits
Salaries and employee benefits were
Legal and Professional Fees
Legal and professional fees were
General and Administrative Expenses
General and administrative expenses were
Change in Fair Value of Front Yard Common Stock
The change in fair value of Front Yard common stock was
Dividend Income on Front Yard Common Stock
Dividends recognized on shares of Front Yard common stock were zero and
Dividend Income
Dividend income was
Change in Fair Value of
Change in fair value of equity securities was
Results of Discontinued Operations
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On
The following discussion compares our results of discontinued operations for the
three months ended
Revenues of Discontinued Operations
Revenues from discontinued operations decreased to zero from
Expenses from Discontinued Operations
Expenses from discontinued operations decreased to zero from
Other Income from Discontinued Operations
Other income from discontinued operations increased to
Liquidity and Capital Resources
As of
Between
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(table of contents) OnFebruary 3, 2020 , Luxor filed a complaint in theSupreme Court of the State of New York , County ofNew 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 theMarch 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$150,000,000 for the Series A Shares, as well as payment of its costs and expenses in the lawsuit. OnMay 25, 2020 , Luxor's complaint was amended to addPutnam Equity Spectrum Fund andPutnam 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. OnJune 12, 2020 , AAMC moved to dismiss the Amended Complaint in favor of AAMC's first-filed declaratory judgment action in theU.S. Virgin Islands . OnAugust 4, 2020 , the court denied AAMC's motion to dismiss.
On
As described above, AAMC previously filed an action for declaratory relief to confirm its interpretation of the redemption provisions in the Certificate, and intends to vigorously defend itself against the claims by Luxor.
AAMC intends to continue to pursue its strategic business initiatives despite this litigation. See " Our Company " above for more information on our business initiatives. 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 .
Equity Securities
Between
Treasury Shares
At
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