10-Q: Altisource Asset Management Corporation Reports Q2 2024 Results: Focus Shifts to EV Technology

Altisource Asset Management Corporation (AAMC) reports a net loss for Q2 2024, transitioning its primary focus to electric vehicle (EV) intellectual property development.

Summary

• Altisource Asset Management Corporation (AAMC) reported a net loss of $2.2 million for the three months ended June 30, 2024, and a net loss of $5.3 million for the six months ended June 30, 2024.
• The company's primary focus has shifted to electric vehicle (EV) intellectual property development following a non-exclusive patent and technology licensing agreement (PTL Agreement) with System73 Limited.
• AAMC has made payments of approximately $2.9 million toward contractual obligations under the PTL Agreement through June 30, 2024.
• Loan interest income decreased to $34,000 for the three months ended June 30, 2024, compared to $1.6 million for the same period in 2023.
• The company's loans held for sale decreased to $56,000 as of June 30, 2024, compared to $4.5 million as of December 31, 2023, due to the liquidation of the loan portfolio.
• Loans held for investment decreased to $4.0 million as of June 30, 2024, compared to $5.6 million as of December 31, 2023.
• The company had cash and cash equivalents of $8.1 million as of June 30, 2024, compared to $8.7 million as of December 31, 2023.
• AAMC entered into a revolving loan agreement with Altisource Solutions Inc. for up to $3 million, with no amounts drawn as of June 30, 2024.

Sentiment

Score: 4

Explanation: The sentiment is neutral to slightly negative. While the company is focusing on a potentially high-growth area (EV technology), the current financial results are weak, and there are risks associated with the transition and the need for potential future capital raises. The company's stockholders equity does not meet the NYSE Americans continued listing requirements and standards for minimum stockholders equity, which is below the NYSE Americans minimum requirement.

Positives

• The company is actively managing its expenses and has reduced costs to conserve cash.
• AAMC has the ability to originate and purchase loans in the future, should it choose to do so.
• The company has a non-exclusive patent and technology licensing agreement (PTL Agreement) with System73 Limited to develop electric vehicle (EV) technology.
• The company believes that the cash on hand and future collection of outstanding loans receivable will provide sufficient liquidity to enable the Company to meet its obligations due within the next year.

Negatives

• AAMC reported net losses of $2.2 million and $5.3 million for the threeand six-month periods ended June 30, 2024, respectively.
• Loan interest income decreased significantly due to the liquidation of the loan portfolio.
• The company is incurring significant electric vehicle intellectual property development costs, with $2.9 million spent through June 30, 2024.
• There is risk that the Company will need to seek additional sources of capital to continue its operations and to fulfill is longer-term obligations, including its notes payable that mature in 2027 and thereafter, especially if the Company is unable to realize future benefits from the PTL Agreement.

Risks

• The company's ability to realize future benefits from the PTL Agreement is uncertain.
• AAMC may need to seek additional sources of capital to continue operations and fulfill longer-term obligations.
• The company's stockholders equity does not meet the NYSE Americans continued listing requirements and standards for minimum stockholders equity, which is below the NYSE Americans minimum requirement.
• There is no assurance that the NYSE will accept the plan of compliance or that the Company will be able to execute on that plan, either of which could result in the Company becoming subject to delisting procedures as set forth in the NYSE American Company Guide.
• A delisting of our common stock from the NYSE American could negatively affect the price and liquidity of our common stock and could impair our ability to raise capital in the future.

Future Outlook

While the Company has the ability to originate and purchase loans in the future, it does not anticipate doing so other than on a very selective basis.

Management Comments

• Following a full year of ALGs operations, our Board of Directors mandated a comprehensive review of the Companys mortgage platform to improve the performance of the business.
• The Company made significant progress in reducing costs and streamlining operations.
• The Companys investment in the EV business and the development of those business assets is currently the principal line of business of the Company.

Industry Context

The company is shifting its focus to the electric vehicle (EV) market, which is a rapidly growing industry with increasing demand for efficient and optimized EV technology.

Comparison to Industry Standards

• It is difficult to compare AAMC's performance directly to industry standards due to its unique transition from asset management to EV technology development.
• However, the company's financial performance can be compared to other small-cap companies in the asset management and technology sectors.
• For example, companies like Ellington Financial (EFC) in the asset management space and Ideanomics (IDEX) in the EV technology space could be considered for comparative analysis, though their business models and risk profiles may differ significantly.
• AAMC's investment in EV technology can be benchmarked against industry leaders like Tesla (TSLA) and established automotive manufacturers investing in EV development, but AAMC's scale and resources are significantly smaller.

Legal Proceedings

• The company is involved in ongoing legal proceedings, including AAMCs damage claims against Blackrock and PIMCO.
• The parties agreed and stipulated to dismissal with prejudice of the following actions: (i) Luxor Capital Group LP, et. al v. Altisource Asset Management Corporation filed in the Supreme Court of the State of New York in the County of New York, with index number 650746/2020 (including Luxors withdrawal of its pending request for further appellate review by the New York Court of Appeals), and (ii) Altisource Asset Management Corporation v. Nathaniel Redleaf et. al pending in the United States District Court for the District of the Virgin Islands, with case number 1:23-cv-00002.

Related Party Transactions

• On June 3, 2024, the Company, as lender, entered into a revolving loan agreement (the Loan) with Altisource Solutions Inc., (the Borrower), which is affiliated with a major shareholder of the Company.
• Under the terms of the revolving loan agreement, the Company will provide a revolving loan facility to the Borrower in an initial aggregate amount of up to $1,000,000 but not less than $250,000 and with the potential to be increased up to $3,000,000 in the aggregate as set forth in the Loan.

Stakeholder Impact

• Shareholders may be concerned about the company's net losses and the decrease in loan interest income.
• Employees may be affected by the company's cost reduction measures and employee headcount reductions.
• Customers may be impacted by the company's shift in focus to electric vehicle technology.
• Suppliers may be affected by the company's reduced loan origination activity.
• Creditors may be concerned about the company's ability to meet its obligations due to the net losses and the need for potential future capital raises.

Next Steps

• The company will continue to invest in electric vehicle intellectual property development.
• AAMC will monitor the performance of the PTL Agreement and the commercialization contract with Seabird Technologies Limited.
• The company will manage its expenses and conserve cash.
• AAMC will need to increase its income in the near future, recognize or book certain financial gains, or otherwise raise outside capital to regain compliance with NYSE American continued listing requirements.

Key Dates

Keywords

electric vehicles, loan portfolio, financial results, patent licensing, liquidity, AAMC, Altisource, System73