10-K: Trans American Aquaculture Reports 2023 Results, Faces Going Concern Uncertainty

Trans American Aquaculture's 2023 annual report reveals increased revenue but significant net losses and going concern challenges.

Summary

• Trans American Aquaculture, Inc. reported a net loss of $1,894,993 for the year ended December 31, 2023, compared to a net loss of $922,817 in 2022.
• The company's revenue increased to $101,574 in 2023 from $49,001 in 2022, primarily due to increased shrimp production.
• Cost of goods sold rose to $661,591 in 2023 from $287,132 in 2022, due to increased production and a $579,916 inventory write-down to net realizable value.
• General and administrative expenses increased significantly to $864,768 in 2023 from $148,609 in 2022, driven by higher legal, professional fees, and accrued CEO salary.
• The company's current liabilities exceeded its current assets by $3,478,423 as of December 31, 2023, and it had a cash balance of $6,600.
• The company is in forbearance on a $5.6 million secured debt, and its liquidity is impacted by this debt and shareholder notes totaling $1,667,985.
• The company's independent auditor has raised substantial doubt about its ability to continue as a going concern due to accumulated deficits, failure to attain profitable operations, and dependence on additional financing.

Sentiment

Score: 3

Explanation: The document highlights significant financial losses, a going concern warning from the auditor, and substantial debt, overshadowing the revenue growth and unique product offering. The overall sentiment is negative due to the company's precarious financial situation.

Positives

• The company's revenue increased by 107% in 2023, indicating growth in sales.
• The company is working towards full compliance with Best Aquaculture Practices (BAP) guidelines.
• The company has a unique product offering of jumbo, farm-raised shrimp that is 100% a product of the United States.
• The company has partnerships with marketing professionals to help build its brand.

Negatives

• The company experienced a significant net loss of $1,894,993 in 2023.
• The company's cost of goods sold increased by 130% in 2023.
• The company's general and administrative expenses increased by 482% in 2023.
• The company's current liabilities significantly exceed its current assets.
• The company has a very low cash balance of $6,600.
• The company is in forbearance on a $5.6 million secured debt.
• The company's auditor has raised substantial doubt about its ability to continue as a going concern.

Risks

• The company's ability to continue as a going concern is uncertain due to accumulated deficits and dependence on additional financing.
• The company is in forbearance on a secured debt, which may go into default, potentially leading to foreclosure.
• The company's liquidity is significantly impacted by current debt, some of which is in default.
• The company is involved in a legal dispute with Kings Aqua Farm LLC, which could negatively impact its business.
• The company is heavily reliant on key personnel, and their departure could disrupt operations.
• The company's financial results are substantially dependent on volatile shrimp prices.
• The company's success is dependent on the procurement of broodstock with strong genetic lineages.
• The company's business is seasonal and subject to weather conditions.
• The company's shrimp product is subject to external factors like weather and disease.
• The company's operations are subject to government regulations, including food safety and aquaculture regulations.
• The company's stock is considered a penny stock, which may make it difficult to trade.
• The company's stock price is likely to be highly volatile.

Future Outlook

The company anticipates needing additional funding to finance growth and achieve strategic objectives, and is targeting strategic partners to accelerate sales and marketing. The company's ability to continue as a going concern is dependent on the success of future capital offerings or alternative financing arrangements, expansion of operations, and generating sales.

Management Comments

• Management believes that the company is a leading aquaculture company due to Best Aquaculture Practices (BAP) guidelines.
• Management believes that the company's products are superior due to the quality of feed ingredients, transparency in the production process, eco-friendliness, and safety.
• Management believes that the company's onsite maturation and hatchery facilities give it a distinct advantage over other farms in Texas.
• Management believes that the company's animals have strong genetic lineage due to their proven track record of disease resistance and superior growth rates.

Industry Context

The shrimp industry is experiencing price volatility, with prices dropping as much as 44% since 2022. The company's business is highly dependent on shrimp prices and demand. The global demand for farm-raised shrimp is increasing, with an estimated annual growth rate of 6.72% through 2028. The company is focusing on the U.S. domestic market, which is the second-largest consumer market for shrimp.

Comparison to Industry Standards

• The company's focus on producing larger shrimp (28+ grams) differentiates it from many global producers who focus on smaller shrimp.
• The company's claim of being the only team in the U.S. capable of producing shrimp of greater than 28 grams on a large-scale consistent basis is a significant differentiator.
• The company's use of strong genetic lineage broodstock and onsite maturation and hatchery facilities is a competitive advantage compared to other farms in Texas.
• The company's adherence to Best Aquaculture Practices (BAP) guidelines, while not yet fully compliant, is a positive differentiator in the industry.
• The company faces competition from various importers of shrimp to the U.S., including Chicken of the Sea, Order, Aqua Star Importers, Eastern Fish Co., and Mseafood Corporation, as well as local competition from Bowers Shrimp Farm.

Management Changes

Corporate Governance

Legal Proceedings

• Kings Aqua Farm, LLC filed an Original Petition for Declaratory Judgment against TAA in December 2023, claiming damages of $250,000 to $1,000,000.
• The petition relates to a prior lawsuit against TAA by a third party regarding water rights on land sold to TAA by Kings Aqua Farm.
• The petition alleges that the amount of legal services charged by LBBS were unconscionable.

Related Party Transactions

• TAA issued unsecured promissory notes to Excellaqua, S.A., Luis Arturo Granda Roman, and Adam Thomas in 2021.
• The company issued an unsecured promissory note to Adam Thomas for $63,514 in 2022.
• TAA issued Jeffery Sedacca an unsecured promissory note in the principal amount of $50,000 in 2023.

Stakeholder Impact

• Shareholders face significant risk of losing their investment due to the company's financial instability and going concern uncertainty.
• Employees may be impacted by potential financial instability and the company's ability to continue operations.
• Customers may be affected by potential disruptions in supply due to the company's financial challenges.
• Creditors face the risk of non-payment due to the company's financial difficulties.

Next Steps

• The company plans to clear and prepare the remaining 660 acres of its farm for stocking in March 2025.
• The company is in the process of obtaining GAA/BAP certification for its farm and hatchery.
• The company intends to adopt a Code of Ethics during the fiscal year ending December 31, 2024.

Key Dates

Keywords

aquaculture, shrimp farming, Pacific white shrimp, broodstock, seafood, farm-raised, BAP, going concern, debt, financial results, reverse acquisition, penny stock