Our Company

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 have historically operated in a single segment focused on providing asset management and certain corporate governance services to investment vehicles.

On August 13, 2020, AAMC, Front Yard and Front Yard Residential L.P. ("FYR LP") entered into a Termination and Transition Agreement (the "Termination Agreement"), under which, on December 31, 2020 (the "Termination Date"):



•Front Yard 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 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.
On January 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 December 31, 2020, the Base Management Fee we recognized under the Amended AMA was subject to a quarterly minimum of $3,584,000. The Company did not recognize any incentive fees.

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 December 31, 2020.

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

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Results of Operations

The following sets forth discussion of our results of operations for the three months ended March 31, 2021 and 2020.

Results of Continuing Operations

The following discussion compares our results of continuing operations for the three months ended March 31, 2021 Compared to three months ended March 31, 2020. 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 $3.5 million and $3.1 million during the three months ended March 31, 2021 and 2020, respectively. This increase is primarily due to restricted stock grants issued and vested in February.

Legal and Professional Fees

Legal and professional fees were $1.9 million and $1.5 million during the three months ended March 31, 2021 and 2020, respectively. This increase is primarily driven by legal and professional fees related to litigation as well as fees incurred in the creation of new business lines.

General and Administrative Expenses

General and administrative expenses were $0.8 million and $0.6 million during the three months ended March 31, 2021 and 2020, respectively. The increase is primarily due to higher software and subscription costs.

Change in Fair Value of Front Yard Common Stock

The change in fair value of Front Yard common stock was $0.1 million and $(0.6) million during the three months ended March 31, 2021 and 2020, 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, the Company received cash in exchange for shares held.

Dividend Income on Front Yard Common Stock

Dividends recognized on shares of Front Yard common stock were zero and $0.2 million during the three months ended March 31, 2021 and 2020, respectively. Commencing in the first quarter of 2020, Front Yard has determined not to pay dividends on its common stock until further notice or until required under REIT qualification rules applicable to Front Yard.

Dividend Income

Dividend income was $2.2 million and zero during the three months ended March 31, 2021 and 2020, respectively. This increase is primarily due to dividends declared on equity securities acquired during the first quarter of 2021.

Change in Fair Value of Equity Securities

Change in fair value of equity securities was $5.7 million and zero during the three months ended March 31, 2021 and 2020, respectively. This increase is primarily due to price appreciation on equity securities acquired during the first quarter of 2021.

Results of Discontinued Operations


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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.

The following discussion compares our results of discontinued operations for the three months ended March 31, 2021 Compared to three months ended March 31, 2020. Our results of operations for the periods presented are not indicative of our expected results in future periods.

Revenues of Discontinued Operations

Revenues from discontinued operations decreased to zero from $4.0 million for the three months ended March 31,2021 and 2020, respectively. The decrease is driven by the Base Management Fee revenues earned associated with the Amended AMA with Front Yard. As we completed the transition contemplated by the Termination and Transition Agreement with Front Yard on December 31, 2020, revenues were no longer earned by to the Disposal Group.

Expenses from Discontinued Operations

Expenses from discontinued operations decreased to zero from $2.0 million for the three months ended March 31,2021 and 2020, respectively. The decrease is driven by expenses associated with the Disposal Group in the first quarter of 2020 associated with the management of Front Yard under the Amended AMA. As we completed the transition contemplated by the Termination and Transition Agreement with Front Yard on December 31, 2020, expenses were no longer allocated to the Disposal Group.

Other Income from Discontinued Operations

Other income from discontinued operations increased to $7.5 million from a nominal amount for the three months ended March 31,2021 and 2020, respectively. The increase is driven by the completion of the sale of the remainder of the Disposal group, which was completed on January 1, 2021.

Liquidity and Capital Resources

As of March 31, 2021, we had cash and cash equivalents of $14.9 million compared to cash and cash equivalents of $41.6 million as of December 31, 2020. The decrease in cash and cash equivalents in 2021 was primarily due to investments in equity securities during the quarter, offset partially by the receipt of $47.5 million associated with the merger of Front Yard. As of March 31, 2021, we held $102.7 million in equity securities, financed partially by borrowings of $28.4 million obtained under a standard margin lending arrangement.

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 $250,000,000 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, 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 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.



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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
$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, AAMC entered into a settlement agreement with Putnam (the "Putnam Agreement"). 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 more fully described in the Putnam Agreement. For more information on the Putnam Agreement, please see Exhibit 10.3 .

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 February 9, 2021 and February 17, 2021, we purchased an $97 million of equity securities with $68 million of cash on hand and $29 million borrowed under a standard margin arrangement with our banking institution.

Treasury Shares

At March 31, 2021, 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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