Anvil
1月前
FACTUAL BACKGROUND AND REASON FOR BANKRUPTCY FILING
8. The Debtor, Trans American Aquaculture, LLC (hereinafter referred to as
“Company” or “Debtor”), was formed in 2017 by Adam Thomas, Luis Arturo Granda and Cesar
Granda with the intent of revitalizing shrimp farming in southern Texas. The owners and operators
of the company have combined more than 100 years of successful shrimp cultivation throughout the
Americas. The company operates out of the largest scale shrimp farm in the United States on the
1,880 acres of real property located in Rio Hondo, Texas. Over the last 6 and a half years, the
company has produced more than one million pounds of shrimp and has produced just over
$2,000,000 in revenue.
9. Calendar year 2017 wasspent rehabilitating and preparing the farm for the first 2018
harvest. In 2018, just over 365,000 lbs. of shrimp were produced that yielded just over $1 million in
revenue. The production lessons learned set the Debtor up for financial success going into 2019.
However, to achieve its harvest goals, it needed to raise additional capital to ensure capital
expenditures and operating expenses could be covered. The Debtor had applied for a loan and
believed it would be approved by a regional bank and would be partially guaranteed by the SBA.
Unfortunately, just prior to its harvest being completed in 2018, the Debtor was served with a water
rights lawsuit from the former landowner. The lawsuit involved a few lots that were crossed by the
canal which brings salt water into the farm. While the Debtor ultimately won the lawsuit, the SBA
would not approve the loan request while there was active litigation against the Company. It was
only after the Debtor had poured money into capital expenditures that they received the formal
notice from the SBA and the originating regional bank that the loan would not be approved. This
effectively shut the Debtor down for 2019 and caused it to be able to produce only had about 40,000 7
pounds of shrimp. The only revenue it received during 2019 consisted mostly of receivablesfrom the
2018 harvest in the amount of about $120,000.
10. The lawsuit over the water rights from the former property owner was scheduled for
hearing on a motion for summary judgment in November of 2019, but the Plaintiff was granted an
extension until February of 2020. Then, once again just prior to the hearing in February, another
extension was granted until April. Of course, in March of 2020, COVID pandemic shut down all
court hearings and consideration of the summary judgment was postponed again. With COVID
restrictions delaying any resolution of the lawsuit, the Debtor went into the 2020 year without the
ability to obtain financing due to the pending litigation, and several members of the LLC agreed to
fund operations allowing the Debtor to be able to produce a marginal harvest of 178,000 lbs. of
shrimp. This resulted in only about $315,000 in revenue.
11. Operations in 2021 were already difficult considering the COVID restrictions, but
several members of the Company continued to provide capital to fund expenses. Once again,
however, their investments resulted in low production because the historic freeze that struck the Rio
Grande Valley in late February killed the shrimp it had planned to harvest in early March 2021.
12. The Company did not have enough capital to continue operations going into 2022 and
with its history of operating losses getting a lender to extend credit to the Debtor was not possible.
Since the financial outlook was so bleak the owners of the Debtor decided against making further
investments the Company looked for alternatives to fund the Company. The result was a reverse
merger with a public company. In September of 2022, the Debtor formally merged in with a public
company, Gold River Productions Inc, and it took over as the sole operator.
13. By going public the Debtor hoped to utilize the public markets to raise capital for its
operations. To an extent, this was successful. In January of 2023, the Company signed an investment 7
agreement with GHS Investments. It committed to funding theCompany through milestone achieved
in itsfiling of securities registration statement and beyond. The initial deal with GHS was $250,000
at the closing of the deal, which occurred in late January of 2023. The second portion of funds,
another $250,000 was due upon the filing of itsregistration statement, which they had required to be
filed an S-1, which requires fully audited financials. The last tranche of funds was to be provided
upon the effectiveness of the S-1, which as of the date of filing of this Motion the Company is
expecting the S-1 to be effective in the next 30 days. Additionally, once the S-1 is effective, the
Company will have an equity line to be implemented where it can sell up to $10,000,000 worth of
securities to them to fund the operations. This will not come in one lump sum and its dependent
upon the trading volume of the stock as too how much the Company can put to them at any one time.
Going back to the requirement for the audited financials, this is what put the Company on the back
foot for the 2023 harvest season. The Company expected the audit to be completed in 60-90 days,
along with the filing and effectiveness of the S-1 coming shortly after that, which would have given
the Company the cash and access to the markets it needed to fund the operations. However, the audit
took 6 months, and the S-1 timing of its initial filing coincided with the need to include another
quarter of reviewed financials. So, this impacted the ability of the Company to have consistent cash
flow for the harvest season last year and as a result, it produced much less that it had originally
anticipated. In 2023, it produced 140,000 lbs. that has resulted in $100,000 in revenue and another
$285,000 in receivables. The Company has collected on itsfactoring arrangement which has allowed
it to get its programs started for 2024. In addition to the collection of AR, the Company was in line
to receive the $250,000 from the effectiveness of the S-1, however, its current investor has advised
that prior funding agreements outside of its contractual SPA have eliminated their desire to fund the
last $250,000. This was a major blow to the Company as it was relying on this to continue its 7
stocking plans. The Company had the ability to utilize the ELOC with GHS, however, the lack of
funding makes it almost impossible to properly market and sell the Company story, to gain new
investors and shareholders and to be able to take advantage of the ELOC.
14. Due to the issue with GHS not fulfilling their contractual obligation post S-1
Effectiveness, the Company had to search for additional capital, which took over 3 months to find.
The Company was able to secure an investment of $285,000 from a private lender in late May.
Those funds were used to pay the Company’s auditor, filing fees, accounting fees, legal work,
payroll, and to keep the brood stock alive. Due to being SEC Reporting, the Company hasto keep up
with its year end and quarterly filings in order to be able to stay on the OTC Pink markets and have
itsstock quoted. The Company has been unable to secure additional funding beyond that so itsfocus
now is on keeping its brood stock (genetics) alive and focusing on the sale of those animals to West
and Sons, pending approval of this Motion.
15. For the last 4 months the Company has been negotiating with a company to sell the
assets of the Debtor. The original letter of intent was for $11,000,000 and as it has worked towards
closing the deal, the Company has had to amend the amounts due to the loss of its main asset, the
land in which the farm operates on that was the subject of the Deed. King’s Aqua Culture, LLC
posted to foreclose on the land in November, 2024, however, the Debtor was able to negotiate an
additional 30 days, in the hope that it could complete the assetsale and be able to pay King’s in full.
As part of this extension, King’s requested the Debtor sign the Deed that gave him the rights to the
land on December 1, 2024. On December 2, 2024, King’s filed the Deed of record. That resulted in
the Debtor not only losing the asset but having to amend the agreement with the buyer for a total
now of $4,000,000. This is for the genetics, intellectual property, and remaining personal property.
The Debtor is now ready to close on the sale with the buyer, but they have asked for an extended 7
funding time in order to line up the financing. The Company expects the process to take roughly 45
business days from the date of closure. The key to that deal is the keeping the brood stock and
shrimp alive, otherwise there are very few assets or interest for its buyer to consummate the deal. In
order to keep the animals alive, the Debtor and it representatives and employees will need access to
the property and specifically the hatchery and maturation facilities, something that the current
landowner has refused to allow. The Debtor has not been provided any eviction notices to date and
until appropriate proceedings have been properly initiated and until such occurs the Debtor asserts
that it is imperative that it be able to care for and maintain the brood stock to ensure the growth and
development of the shrimps. If not, the value of the Debtor’s remaining assets will be entirely lost.
16. Thus, in order to ensure the Debtor’s continued access to its brood stock and be able
to care for and feed the shrimp in order to continue the growth and development of the shrimp, the
Debtor has sought bankruptcy relief.
V.
UNIQUE ISSUES CONCERNING SECURED DEBT, EMPLOYEES,
CASH COLLATERAL, EXECUTORY CONTRACTS
17. On October 24, 2024, a formerly secured creditor, King’s Aqua Farm, LLC (“King’s),
obtained a Deed in Lieu of Foreclosure (“Deed”) on approximately 1,880 acres comprising most of
the Debtor’s real property assets, but leaving in place the majority of its personal property assets
located on a 5-acre tract out of the property covered by the Deed that consists of machinery and
equipment worth almost $1 million and live shrimp and brood stock having a value of $4 million.
After the Deed was filed of record on December 2, 2024, thereby extinguishing the amount owing by
the Debtor to King’s, the principal of King’s started taking actions which if successful would result
in the loss of the shrimp and brood stock. These statements and threats culminated in the Debtor
seeking bankruptcy relief. On December 17, 2024, the Debtor filed an Emergency Motion For 7
Authority to Obtain Post-Petition Financing Pursuant to the Provisions of 11 U.S.C. § 364(d) (the
“Emergency Motion”) seeking emergency consideration because it needed funds for the care and
feeding of shrimp and continued operations associated with the cultivation of shrimp at its property
in Rio Hondo, Texas. The Company needed to immediately iobtain funds to pay for labor, purchase
needed supplies for the care and maintenance for preservation of the shrimp and pay for the various
utilities necessary for the maintenance and care of the brood stock. Obtaining the relief sought in the
Motion was critical, and time was of the essence. The operations to be financed by the credit sought
in the Motion were important to the success of the reorganization and there was a serious risk of
immediate and irreparable harm to the estate unless the relief requested was granted.
18. At the time of filing of the Emergency Motion the Debtor had in its possession
personal property consisting of an inventory of supplies, parts and machinery and equipment having
an approximate value of $1 million, along with an inventory of shrimp and brood stock having an
approximate value of $4 million. All these assets are located on 1,880 acres of real property located
near to Rio Hondo, Texas. The United States Small Business Administration (“SBA”) and Liquid
Capital Exchange, Inc. (“Liquid Capital”) hold pre-petition liens against the Debtor’s personal
property assetsto secure the repayment of loansin a total sum of approximately $253,000. Thus, the
SBA and Liquid Capital have collateral having an estimated value of $5 million compared to loans
secured by the collateral of less than $300,000 – resulting in an equity cushion for adequate
protection of more than $4,500,000.
19. Since the Debtor did not have an operating line of credit from a traditional lender it
sought authority to obtain alternative financing from Smith & Sons Seafood, Inc. in Darien, Georgia
(“Smith”). Smith entered a pre-petition contract of sale with the Debtor to purchase the live shrimp
and brood stock for the total purchase price of $4,000,000. Smith is in the process of getting its terest holder and Manager of the Debtor, to loan the Debtor
$15,000.00 prior to the filing of the bankruptcy for the Debtor to use as operating funds. Since the
bankruptcy case had to be filed on an emergency basis and the Debtor did not have funds available
to pay a retainer to its legal counsel, Mullin Hoard & Brown, L.L.P., for legalservices needed to file
the bankruptcy case, Mr. Granda, has agreed to loan the Debtor an additional $25,000 to pay the
retainer to Mullin Hoard & Brown, L.L.P, conditioned upon his obtaining a co-equal first priority
lien against the same collateral granted to Smith for the both the $15,000 loaned pre-petition along
with the additional $25,000 necessary for the retainer. Therefore, to induce Mr. Granda to provide
the funds to the Debtor, it requested authority under the provisions of section 364(d) to allow such
debt as an administrative priority under the provisions of 11 U.S.C. section 503(b)(1) and give Mr.
Granda a co-equal first lien security interest in the Debtor’s personal property with Smith. The funds
being held in the Trust account of Mullin Hoard & Brown, L.L.P., will not be applied to any legal
fees and expenses for services rendered until this loan is approved by the Court and any legal fees
and expenses of Mullin, Hoard & Brown are approved for payment by the Bankruptcy Court. 7
21. Due to the short notice to creditors and parties in interest the Debtor sought authority
to borrow only $60,000.00 to cover its expenses for the next thirty (30) days needed to pay payroll,
purchase feed stocks for the shrimp and brood stock, pay for supplies, utilities and other operating
expenses as reflected on the budget attached as Exhibit “A” to the Emergency Motion.
22. On December 20, 2024, the Court entered an Order Granting Debtor’s Emergency
Motion for Authority To Obtain Post-Petition Financing Pursuant to the Provisions of 11 U.S.C. §
364(d) [Dkt. #18]. The Order granted Debtor authority to borrow an initial $60,000.00 to cover
expenses for the next thirty (30) days and ordered that the Order be noticed out to creditors and
parties in interest pursuant to Bankruptcy Rule 4001, and a hearing on continued authority to borrow
the balance of the funds was set for January 23, 2025, at 2:00 p.m.
VI.
EFFORTS TO ACHIEVE CONSENSUAL PLAN OF REORGANIZATION
23. Since the Petition Date counsel for the Debtor and counsel for King’s Aqua Culture,
LLC, the current title holder of the 1,880 acres of land upon which the shrimp farm is located, have
consulted about a deadline for possession of the land to either be returned to the title holder as well
as the amount of adequate protection to be paid during the period while possession is retained by the
Debtor. Furthermore, negotiations involving the possible “package sale” of the 1,880 acres of real
property and the shrimp brood stock and accompanying equipment for their care and maintenance
are ongoing. As a package the land, shrimp brood stock, and equipment could have a value as high
as $11 million which would pay all creditors – including King’s – in full. Preliminary talks with a
private investor are promising and an initial investment payment toward the consummation of such a
package sale has been made. Thus, the Debtor believes it has made significant progress since the
filing of the case toward a consensual plan of reorganization. VII.
PRELIMINARY PLAN FRAMEWORK
24. The Debtor’s Plan will be one that will liquidate its assets in an orderly fashion. The
Debtor already has a contract of sale with Smith and Sons, Inc. out of Georgia which is a competing
shrimp farm. The purchase price is for $4 million including an approximate .25-acre tract along the
Colorado Aroyo. The Plan will distribute these proceedsin accordance with the priorities established
in the Bankruptcy Code. Also, any fraudulent conveyances or preferences will be pursued for the
benefit of the creditors. The Debtor anticipates filing the proposed plan of reorganization containing
these provisions by the deadline of March 13, 2025. If a “package sale” of the 1,880 acres of real
estate, and the shrimp brood stock and accompanying equipment can be arranged all creditors would
be satisfied in full upon the consummation of the sale. POST PETITION OPERATIONS AND REVENUE
25. No operations to produce additional shrimp or market the shrimp currently owned
have been undertaken since the Petition Date in light of the pending sale of the shrimp brood stock
and accompanying equipment to Smith & Sons for the total sales price of $4 million. However, some
discussions have been undertaken that would include a sale of the 1,880 acres where the title is held
by King’s Aqua Culture to be included in the transaction. These negotiations are ongoing. 7
IX.
STATUS OF ANY LITIGATION PENDING IN OR OUTSIDE OF THIS COURT
26. There are currently two pending lawsuits involving the Debtor:
a. King’s Aqua Farm, LLC v. Trans American Aquaculture, LLC; Case No.
2023-DCL-0623 pending in the 138th District Court of Cameron County,
Texas.
Status: This case is currently stayed by the filing of the bankruptcy.
b. Pico Propane Operating, LLC v. Trans American Aquaculture, LLC; Case
No. 2023-CI-19215 pending in the 150th District Court of Bexar, Texas.
Status: This case is currently stayed by the filing of the bankruptcy.
X.
TYPES AND ADEQUACY OF INSURANCE COVERAGE
27. The insurance policies covering the equipment and other assets expired prior to the
filing of the bankruptcy case. Management of the Debtor has reached out to its insurance agent in an
effort to obtain replacement insurance. There is no available insurance coverage for the shrimp brood
stock. Obtaining liability insurance in this remote location has also been a challenge, but
management is working with insurance brokerage to find coverage. A report on the success of these
efforts can hopefully be provided to the Court at the status hearing.
XI.
COMPLIANCE WITH REQUESTS FROM THE U.S. TRUSTEE FOR INFORMATION INCLUDING, BUT
NOT LIMITED TO REQUESTS MADE IN THE INITIAL DEBTOR INTERVIEW
28. Prior to the Initial Debtor Interview (“IDI”), the Debtor provided copies of most of
the requested documents to the U.S. Trustee. The IDI was held on January 7, 2025, and during the
meeting the Trustee requested that the Debtor provide additional documents reflecting insurance
coverage, opening of the Debtor’s DIP depository accounts, and a report on the status of the
preparation and filing of the 2023 IRS Form 1120. As of the filing of this Report, two days after the IDI, the Debtor is working to get the additional requested information to the Trustee and plans to
have this information provided to the Trustee prior to the Status Conference on January 23, 2025.
XII.
CONCLUSION
The Debtor submits this Subchapter V Status Report to the Court, the Trustee, and its
creditors in compliance with § 1188(c) of the Bankruptcy Code. The Debtor believes it will be able
to formulate a plan within the required ninety (90) day-time frame which will provide the highest
possible payout to its creditors.
R
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