Correspondence 0001654954-23-011978 from Royalty Management Holding Corp (RMCO)
Royalty Management Holding Corp
Date: Sept. 18, 2023 · CIK: 0001843656 · Accession: 0001654954-23-011978
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 333-268817
Referenced dates: August 31, 2023
Letter
Division of Corporation Finance Office of Real Estate & Construction American Acquisition Opportunity Inc. Amendment No. 5 to Registration Statement on Form S-4 Filed August 24, 2023 File No. 333-268817
Dear Mr. Holt, Mr. Gabor, Ms. Menjivar, and Mr. Efron:
On behalf of our client, American Acquisition Opportunity Inc., a Delaware corporation (the “Company”), we submit to the staff (the “Staff”) of the U.S. Securities and Exchange Commission (the “SEC”) this letter setting forth the Company’s response to the comments contained in the Staff’s letter dated August 31, 2023 (the “Comment Letter”) regarding Amendment No. 5 to the Company’s Registration Statement on Form S-4 the “Fifth Amended Registration Statement”). Concurrent herewith, we are filing Amendment No. 6 to the Registration Statement reflecting the changes set forth below (the “Sixth Amended Registration Statement”). For ease of reference, we have reproduced the comments below in bold with our response following each comment.
Amendment No. 5 to Registration Statement on Form S-4 filed August 24, 2023
Unaudited Pro Forma Condensed Combined Statement of Operations for the Six Months Ended June 30, 2023, page 49
1.
It appears that the updated unaudited pro forma information presented on pages 49 to 51 does not actually represent the 6-month interim period ended June 30, 2023. It appears that the numerical information presented on pages 49 to 51 actually is identical to the numerical information presented on pages 52 to 54 which relates to the full year ended December 31, 2022. Please provide the updated unaudited pro forma information for the interim period in an amended filing.
Response: The Pro Forma Data presentation for the six-month interim period has been corrected in accordance with the Staff’s comment.
U.S. Securities and Exchange Commission
September 18, 2023
Unaudited Pro Forma Condensed Combined Statements of Operations, page 52
2.
We note your response to comment 1 and it appears that the information provided within your tables on page 59 continue to have a number of inconsistencies with information provided elsewhere within your filing. It appears that the weighted average shares as well as the net loss per share information presented in the historical columns for Royalty and American Acquisition Opportunity on page 59 do not agree with the historical financial statements presented elsewhere in the filing and do not agree to the amounts presented on pages 52 to 54. Please update the information within your filing to address the inconsistencies between the amounts included within your table on page 59 and the amounts presented in your historical financial statements and to address the inconsistencies between the weighted average share amounts and net loss per share amounts presented on pages 52 to 54 and the amounts presented in your historical financial statements.
Response: The referenced tables have been corrected in accordance with the Staff’s comment.
Certain Royalty Projected Financial Information, page 76
3.
We note your response to comment 4. Please revise to make clear whether the disinterested board members still believe the Royalty financial projections have a reasonable basis. In this regard, we note your statement that “[d]ue to the fact that the original projections were reasonable at the time of the transaction signing, the disinterested board members in their business judgement did not request updated projections but rather focused on actual results.” Refer to Item 10(b)(3)(iii) of Regulation S-K.
Additionally, please revise to make clear, if true, that the disinterested board members still recommend the business combination despite Royalty’s failure to achieve projected results to date. In this regard, we note your inclusion of the Royalty financial projections as one of the range of factors the American Acquisition Opportunity board considered in approving the business combination and recommending it to stockholders.
Response: The disclosure has been revised to state that that the disinterested directors believe that the projections had a reasonable basis at the time the projections were provided. As disclosed, the disinterested board did not think it necessary to obtain new projections after the merger agreement had been signed as it deemed that actual results were more critical. The disinterested board reviews on a regular basis the results of Royalty as compared to the projections as well as the reasons for the variations between the projections and the actual results. While the actual results are not as projected, the disinterested board believes that there are a range of factors resulting in this difference and continues to recommend approval of the business combination.
4.
We note that the company attributes the missing of projections to the delay in closing of the transaction. Please revise to clarify how the delay accounts for the significant difference in your projected and actual revenues. Please revise to disclose all material assumptions used to develop the projections. Please also update your disclosure in “Key Factors Affecting Our Performance” in your MD&A.
Response: The disclosure has been revised to disclose that the delay in the closing was one of the reasons for the variance between actual results and projected results. The material assumptions used have been disclosed.
U.S. Securities and Exchange Commission
September 18, 2023
5.
We note the disclaimers throughout this section that readers are cautioned not to rely on the projections in making a decision regarding the transaction. While it is acceptable to include qualifying language concerning subjective analyses, it is inappropriate to indicate that investors cannot rely on disclosure. Please revise accordingly.
Response: The disclosure has been revised in accordance with the Staff’s comment.
Liquidity and Capital Resources, page 116
6.
We note your response to comment 5. Please revise your disclosure to provide updated information about Royalty’s financial position and further risks to its business operations and liquidity in light of Royalty’s failure to achieve projected results to date.
Response: The disclosure has been revised in accordance with the Staff’s comment.
Cash Flows, page 117
7.
We note your response to comment 6 and it appears that the cash flow activity for the year ended December 31, 2022 has not been updated to agree to the restated information on page F-62. Please update the cash flow activity for the year ended December 31, 2022 and the heading for the December 31, 2022 column should be updated to indicate that the activity was restated.
Response: The Cash Flow information on page 117 has been revised in accordance with the Staff’s comment.
Unaudited Interim Financial Statements of AMERICAN ACQUISITION OPPORTUNITY INC.,
page F-2
8.
Please double-check the mathematical integrity for each of the financial statements presented on pages F-2 to F-5. It appears that as of June 30, 2023 that total assets minus total liabilities (inclusive of Class A redemption value) does not equal total shareholder’s equity. Also, it appears that the column for the statements of operations for the six months ended June 30, 2023 does not calculate to the net income (loss) amount of $577,076. Additionally, it appears that the total shareholder’s equity column amount of $(4,371,310) as of December 31, 2022 as presented on page F-4 does not correspond to the amount presented on the balance sheet on page F-2. The items identified above are simply a sample and you should double-check the amounts in each of the financial statements as indicated above and make corrections is an amended filing and advise us accordingly. The selected historical financial information on page 29 will need to be updated and the balance sheet amounts on page F-2 should agree with the corresponding amounts within the unaudited pro forma balance sheet for the historical SPAC column on page 46.
Response: The referenced financial statements have been corrected in accordance with the Staff’s comment.
U.S. Securities and Exchange Commission
September 18, 2023
9.
Please double-check the mathematical integrity of your table on page F-17 rolling forward the changes in your warrant liabilities from January 1, 2023 to June 30, 2023. Please update in an amended filing and advise us accordingly.
Response: Page F-17 has been revised in accordance with the Staff’s comment
Condensed Consolidated Statement of Cash Flows, page F-43
10.
Please tell us what the adjustment labeled Intangible Assets in the amount of $145,000 represents.
Response: Due to change in contract terms of the transaction with Texas Tech, the classification of the investment was changed from an intangible asset to a note receivable effective 1/1/2023. Please see the response to comment #17 as well.
Note 6 – Intangible Assets, page F-68
11.
We note your response to comment 9. Please tell us for the Mining Permit Package, MC Mining, Carnegie ORR, Energy Technologies Inc., Coaking Coal Financing LLC, RMC Environmental Services LLC and Texas Tech University intangible assets whether or not they correlate directly to any of the revenue captions on your royalty projections on page 76 and summarize for us how each intangible asset correlates to the revenue caption(s).
Response: In response to the Staff’s comment, the requested information is as follows:
Mining Permit Package – This intangible is included within the caption “Surface and Mineral Rights Acquisition” as it relates to the business plan of that revenue line which is deriving a royalty from the business of surface and mineral rights..
MC Mining –This intangible is included under the caption “Real Estate” and is related to this caption as it represents an interest in lease income.
Carnegie ORR – This intangible is included under the caption “Carnegie 2” and is related to this caption as it the underlying mining site identified.
Energy Technologies Inc. – This intangible is included under the caption “ETI – Clean Energy” and is related to this caption as it is the underlying item for this revenue line.
Coaking Coal Financing LLC – No, this was not included in projections.
RMC Environmental Services LLC – No, this was not included in projections.
Texas Tech University – No, this was not included in projections
U.S. Securities and Exchange Commission
September 18, 2023
12.
Regarding your response to comment 9 as it relates to the Mining Permit Package as well as to Carnegie Override Royalty (combined as the “Permit Royalties”) you have indicated that tonnage royalty shall continue until such time all coal is mined from the Permit Royalties and that you view this will continue for the foreseeable future. Please provide a fulsome response related to your considerations of Accounting Standards Codification (ASC) 350-30-35-3, 3(c) and 35-4. In your response, please tell us if there is a timeframe associated with the permits (for each of the Permit Royalties) and whether or not the permits require renewal and describe the renewal process and the relative significance of permit renewal costs. Additionally, tell us how you gave consideration to resource constraints including whether the coal reserves to be mined are resource limited in either years or tonnage. Further, help us understand your consideration of section 35-4 which indicates that indefinite life determination with respect to a life that extends beyond the foreseeable future means that “there is no foreseeable limit on period of time over which it is expected to contribute to the cash flows of the reporting entity.”
Response: In response to the Staff’s comment, please note the determination was made in accordance with the following guidance with the application of the guidance to the specific royalty stream indicated in bold
Mining Permit Package
ASC 350-30-35-1
The accounting for a recognized intangible asset is based on its useful life to the reporting entity. An intangible with a finite useful life shall be amortized; an intangible asset with an indefinite useful life shall not be amortized.
ASC 350-30-35-3
The estimate of the useful life of an intangible asset to an entity shall be based on an analysis of all pertinent factors, in particular, all of the following factors with no one factor being more presumptive than the other:
a. The expected use of the asset by the entity. Royalty
b. The expected useful life of another asset or a group of assets to which the useful life of the intangible asset may relate. NA
c. Any legal, regulatory, or contractual provisions that may limit the useful life. The cash flows and useful lives of intangible assets that are based on legal rights are constrained by the duration of those legal rights. Thus, the useful lives of such intangible assets cannot extend beyond the length of their legal rights and may be shorter. The permitting requirements allow for automatic annual renewals provided as long as minimum standards are being abided by.
d. The entity’s own historical experience in renewing or extending similar arrangements, consistent with the intended use of the asset by the entity, regardless of whether those arrangements have explicit renewal or extension provisions. In the absence of that experience, the entity shall consider the assumptions that market participants would use about renewal or extension consistent with the highest and best use of the asset by market participants, adjusted for entity specific factors in this paragraph. Within the mining industry most contracts contain automatic renewals which avoid risks of future permit or regulator review or transfers
e. The effects of obsolescence, demand, competition, and other economic factors (such as the stability of the industry, known technological advances, legislative action that results in an uncertain or changing regulatory environment, and expected changes in distribution channels). Low effect as royalty is based off of sales for inputs into the steel production
f. The level of maintenance expenditures required to obtain the expected future cash flows from the asset (for example, a material level of required maintenance in relation to the carrying amount of the asset may suggest a very limited useful life). As in determining the useful life of depreciable tangible assets, regular maintenance may be assumed but enhancements may not. Noted.
U.S. Securities and Exchange Commission
September 18, 2023
ASC 350-30-35-4
If no legal, regulatory, contractual, competitive, economic, or other factors limit the useful life of an intangible asset to the reporting entity, the useful life of the asset shall be considered to be indefinite. The Permits are operated under an assumption of automatic 5-year renewals which is standard for the industry. Ongoing renewal costs are minimal and are mostly clerical in nature. Future potential renewal modifications or delays are unknown at the present time. The company is not the operator of the permits and therefore does not have decision making power over speed or volume in which the underlying resources are extracted therefore determining eventual useful life of contributed cash flows is not possible.
Description of Asset and future c
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CORRESP
1
filename1.htm
amao_corresp.htm
Joan S. Guilfoyle
Senior Counsel
901 New York Avenue NW
3rd Floor East
Washington, DC 20001-4432
Direct 202.524.8467
Main 202.618.5000
Fax 202.618.5001
jguilfoyle@loeb.com
September 18, 2023
Benjamin Holt
Jeffrey Gabor
Shannon Menjivar
Howard Efron
Division of Corporation Finance
Office of Real Estate & Construction
U.S. Securities and Exchange Commission
100 F Street N.E.
Washington, D.C. 20549
Re:
American Acquisition Opportunity Inc.
Amendment No. 5 to Registration Statement on Form S-4
Filed August 24, 2023
File No. 333-268817
Dear Mr. Holt, Mr. Gabor, Ms. Menjivar, and Mr. Efron:
On behalf of our client, American Acquisition Opportunity Inc., a Delaware corporation (the “Company”), we submit to the staff (the “Staff”) of the U.S. Securities and Exchange Commission (the “SEC”) this letter setting forth the Company’s response to the comments contained in the Staff’s letter dated August 31, 2023 (the “Comment Letter”) regarding Amendment No. 5 to the Company’s Registration Statement on Form S-4 the “Fifth Amended Registration Statement”). Concurrent herewith, we are filing Amendment No. 6 to the Registration Statement reflecting the changes set forth below (the “Sixth Amended Registration Statement”). For ease of reference, we have reproduced the comments below in bold with our response following each comment.
Amendment No. 5 to Registration Statement on Form S-4 filed August 24, 2023
Unaudited Pro Forma Condensed Combined Statement of Operations for the Six Months Ended June 30, 2023, page 49
1.
It appears that the updated unaudited pro forma information presented on pages 49 to 51 does not actually represent the 6-month interim period ended June 30, 2023. It appears that the numerical information presented on pages 49 to 51 actually is identical to the numerical information presented on pages 52 to 54 which relates to the full year ended December 31, 2022. Please provide the updated unaudited pro forma information for the interim period in an amended filing.
Response: The Pro Forma Data presentation for the six-month interim period has been corrected in accordance with the Staff’s comment.
1
U.S. Securities and Exchange Commission
September 18, 2023
Unaudited Pro Forma Condensed Combined Statements of Operations, page 52
2.
We note your response to comment 1 and it appears that the information provided within your tables on page 59 continue to have a number of inconsistencies with information provided elsewhere within your filing. It appears that the weighted average shares as well as the net loss per share information presented in the historical columns for Royalty and American Acquisition Opportunity on page 59 do not agree with the historical financial statements presented elsewhere in the filing and do not agree to the amounts presented on pages 52 to 54. Please update the information within your filing to address the inconsistencies between the amounts included within your table on page 59 and the amounts presented in your historical financial statements and to address the inconsistencies between the weighted average share amounts and net loss per share amounts presented on pages 52 to 54 and the amounts presented in your historical financial statements.
Response: The referenced tables have been corrected in accordance with the Staff’s comment.
Certain Royalty Projected Financial Information, page 76
3.
We note your response to comment 4. Please revise to make clear whether the disinterested board members still believe the Royalty financial projections have a reasonable basis. In this regard, we note your statement that “[d]ue to the fact that the original projections were reasonable at the time of the transaction signing, the disinterested board members in their business judgement did not request updated projections but rather focused on actual results.” Refer to Item 10(b)(3)(iii) of Regulation S-K.
Additionally, please revise to make clear, if true, that the disinterested board members still recommend the business combination despite Royalty’s failure to achieve projected results to date. In this regard, we note your inclusion of the Royalty financial projections as one of the range of factors the American Acquisition Opportunity board considered in approving the business combination and recommending it to stockholders.
Response: The disclosure has been revised to state that that the disinterested directors believe that the projections had a reasonable basis at the time the projections were provided. As disclosed, the disinterested board did not think it necessary to obtain new projections after the merger agreement had been signed as it deemed that actual results were more critical. The disinterested board reviews on a regular basis the results of Royalty as compared to the projections as well as the reasons for the variations between the projections and the actual results. While the actual results are not as projected, the disinterested board believes that there are a range of factors resulting in this difference and continues to recommend approval of the business combination.
4.
We note that the company attributes the missing of projections to the delay in closing of the transaction. Please revise to clarify how the delay accounts for the significant difference in your projected and actual revenues. Please revise to disclose all material assumptions used to develop the projections. Please also update your disclosure in “Key Factors Affecting Our Performance” in your MD&A.
Response: The disclosure has been revised to disclose that the delay in the closing was one of the reasons for the variance between actual results and projected results. The material assumptions used have been disclosed.
2
U.S. Securities and Exchange Commission
September 18, 2023
5.
We note the disclaimers throughout this section that readers are cautioned not to rely on the projections in making a decision regarding the transaction. While it is acceptable to include qualifying language concerning subjective analyses, it is inappropriate to indicate that investors cannot rely on disclosure. Please revise accordingly.
Response: The disclosure has been revised in accordance with the Staff’s comment.
Liquidity and Capital Resources, page 116
6.
We note your response to comment 5. Please revise your disclosure to provide updated information about Royalty’s financial position and further risks to its business operations and liquidity in light of Royalty’s failure to achieve projected results to date.
Response: The disclosure has been revised in accordance with the Staff’s comment.
Cash Flows, page 117
7.
We note your response to comment 6 and it appears that the cash flow activity for the year ended December 31, 2022 has not been updated to agree to the restated information on page F-62. Please update the cash flow activity for the year ended December 31, 2022 and the heading for the December 31, 2022 column should be updated to indicate that the activity was restated.
Response: The Cash Flow information on page 117 has been revised in accordance with the Staff’s comment.
Unaudited Interim Financial Statements of AMERICAN ACQUISITION OPPORTUNITY INC.,
page F-2
8.
Please double-check the mathematical integrity for each of the financial statements presented on pages F-2 to F-5. It appears that as of June 30, 2023 that total assets minus total liabilities (inclusive of Class A redemption value) does not equal total shareholder’s equity. Also, it appears that the column for the statements of operations for the six months ended June 30, 2023 does not calculate to the net income (loss) amount of $577,076. Additionally, it appears that the total shareholder’s equity column amount of $(4,371,310) as of December 31, 2022 as presented on page F-4 does not correspond to the amount presented on the balance sheet on page F-2. The items identified above are simply a sample and you should double-check the amounts in each of the financial statements as indicated above and make corrections is an amended filing and advise us accordingly. The selected historical financial information on page 29 will need to be updated and the balance sheet amounts on page F-2 should agree with the corresponding amounts within the unaudited pro forma balance sheet for the historical SPAC column on page 46.
Response: The referenced financial statements have been corrected in accordance with the Staff’s comment.
3
U.S. Securities and Exchange Commission
September 18, 2023
9.
Please double-check the mathematical integrity of your table on page F-17 rolling forward the changes in your warrant liabilities from January 1, 2023 to June 30, 2023. Please update in an amended filing and advise us accordingly.
Response: Page F-17 has been revised in accordance with the Staff’s comment
Condensed Consolidated Statement of Cash Flows, page F-43
10.
Please tell us what the adjustment labeled Intangible Assets in the amount of $145,000 represents.
Response: Due to change in contract terms of the transaction with Texas Tech, the classification of the investment was changed from an intangible asset to a note receivable effective 1/1/2023. Please see the response to comment #17 as well.
Note 6 – Intangible Assets, page F-68
11.
We note your response to comment 9. Please tell us for the Mining Permit Package, MC Mining, Carnegie ORR, Energy Technologies Inc., Coaking Coal Financing LLC, RMC Environmental Services LLC and Texas Tech University intangible assets whether or not they correlate directly to any of the revenue captions on your royalty projections on page 76 and summarize for us how each intangible asset correlates to the revenue caption(s).
Response: In response to the Staff’s comment, the requested information is as follows:
Mining Permit Package – This intangible is included within the caption “Surface and Mineral Rights Acquisition” as it relates to the business plan of that revenue line which is deriving a royalty from the business of surface and mineral rights..
MC Mining –This intangible is included under the caption “Real Estate” and is related to this caption as it represents an interest in lease income.
Carnegie ORR – This intangible is included under the caption “Carnegie 2” and is related to this caption as it the underlying mining site identified.
Energy Technologies Inc. – This intangible is included under the caption “ETI – Clean Energy” and is related to this caption as it is the underlying item for this revenue line.
Coaking Coal Financing LLC – No, this was not included in projections.
RMC Environmental Services LLC – No, this was not included in projections.
Texas Tech University – No, this was not included in projections
4
U.S. Securities and Exchange Commission
September 18, 2023
12.
Regarding your response to comment 9 as it relates to the Mining Permit Package as well as to Carnegie Override Royalty (combined as the “Permit Royalties”) you have indicated that tonnage royalty shall continue until such time all coal is mined from the Permit Royalties and that you view this will continue for the foreseeable future. Please provide a fulsome response related to your considerations of Accounting Standards Codification (ASC) 350-30-35-3, 3(c) and 35-4. In your response, please tell us if there is a timeframe associated with the permits (for each of the Permit Royalties) and whether or not the permits require renewal and describe the renewal process and the relative significance of permit renewal costs. Additionally, tell us how you gave consideration to resource constraints including whether the coal reserves to be mined are resource limited in either years or tonnage. Further, help us understand your consideration of section 35-4 which indicates that indefinite life determination with respect to a life that extends beyond the foreseeable future means that “there is no foreseeable limit on period of time over which it is expected to contribute to the cash flows of the reporting entity.”
Response: In response to the Staff’s comment, please note the determination was made in accordance with the following guidance with the application of the guidance to the specific royalty stream indicated in bold
Mining Permit Package
ASC 350-30-35-1
The accounting for a recognized intangible asset is based on its useful life to the reporting entity. An intangible with a finite useful life shall be amortized; an intangible asset with an indefinite useful life shall not be amortized.
ASC 350-30-35-3
The estimate of the useful life of an intangible asset to an entity shall be based on an analysis of all pertinent factors, in particular, all of the following factors with no one factor being more presumptive than the other:
a. The expected use of the asset by the entity. Royalty
b. The expected useful life of another asset or a group of assets to which the useful life of the intangible asset may relate. NA
c. Any legal, regulatory, or contractual provisions that may limit the useful life. The cash flows and useful lives of intangible assets that are based on legal rights are constrained by the duration of those legal rights. Thus, the useful lives of such intangible assets cannot extend beyond the length of their legal rights and may be shorter. The permitting requirements allow for automatic annual renewals provided as long as minimum standards are being abided by.
d. The entity’s own historical experience in renewing or extending similar arrangements, consistent with the intended use of the asset by the entity, regardless of whether those arrangements have explicit renewal or extension provisions. In the absence of that experience, the entity shall consider the assumptions that market participants would use about renewal or extension consistent with the highest and best use of the asset by market participants, adjusted for entity specific factors in this paragraph. Within the mining industry most contracts contain automatic renewals which avoid risks of future permit or regulator review or transfers
e. The effects of obsolescence, demand, competition, and other economic factors (such as the stability of the industry, known technological advances, legislative action that results in an uncertain or changing regulatory environment, and expected changes in distribution channels). Low effect as royalty is based off of sales for inputs into the steel production
f. The level of maintenance expenditures required to obtain the expected future cash flows from the asset (for example, a material level of required maintenance in relation to the carrying amount of the asset may suggest a very limited useful life). As in determining the useful life of depreciable tangible assets, regular maintenance may be assumed but enhancements may not. Noted.
5
U.S. Securities and Exchange Commission
September 18, 2023
ASC 350-30-35-4
If no legal, regulatory, contractual, competitive, economic, or other factors limit the useful life of an intangible asset to the reporting entity, the useful life of the asset shall be considered to be indefinite. The Permits are operated under an assumption of automatic 5-year renewals which is standard for the industry. Ongoing renewal costs are minimal and are mostly clerical in nature. Future potential renewal modifications or delays are unknown at the present time. The company is not the operator of the permits and therefore does not have decision making power over speed or volume in which the underlying resources are extracted therefore determining eventual useful life of contributed cash flows is not possible.
Description of Asset and future c