Three years after its much-ballyhooed bail on Minnesota for the promise of easier corporate welfare in South Dakota, Minnesota shrimp farming corporation Tru Shrimp still hasn’t started building its shrimp vats in Madison, South Dakota. Evidently unable to raise enough money from private local investors, Tru Shrimp filed papers Tuesday with the Securities and Exchange Commission to launch an initial public offering of stock under the NasDAQ ticker symbol BTRU. But this SEC prospectus reports huge debt and a looming collapse this year that one meager IPO may not avert.
Tru Shrimp’s January 18 S-1 filing shows that, despite South Dakota’s much-ballyhooed “strongest economy in America,” Tru Shrimp’s owners still haven’t moved homes or headquarters from Minnesota to South Dakota, and they are still getting their fancy financial lawyering done by Twin Cities lawyers instead of trying to Discover the Unexpected genius barristers on Main Street Madison. The prospectus does not indicate how many shares Tru Shrimp plans to offer or at what price Tru Shrimp will offer them. But they don’t anticipate selling a lot of stock: on page 16, the prospectus says this initial public offering won’t cover the $75 million to $80 million that may be needed to build the Madison Bay Harbor. Tru Shrimp only anticipates selling enough stock to “finalize engineering of Madison Bay harbor and fund our operating expenses for the next 12 months.”
The company states that it has so far “focused nearly exclusively on research and development and now intend[s] to commercialize our technology platform.” The prospectus says that the research and development stage has consumed “approximately $70 million of cash”, with $11 million spent on the Balaton Bay Reef pilot production facility. Tru Shrimp says it made its first commercial sale of shrimp to a Minneapolis distributor in September 2019. Tru Shrimp idled production due to the coronavirus pandemic and did not resume production until last summer.
The prospectus claims that in ten cohorts of shrimp grown in Balaton since July 2021, the company has been able to grow 30 times as many shrimp per cubic meter of water and push them to grow twice as fast as the top 10% performing shrimp pond farms in Ecuador. Tru Shrimp also claims it is harvesting heavier shrimp (average terminal harvest weight of 32.53 g versus top Ecuadorian ponds’ 21.38 g) and seeing more of those fatter shrimp survive to harvest (up 70.3% in the Balaton pond versus 55%–60% in Ecuador’s best facilities.
Tru Shrimp is trying to generate investor enthusiasm by talking about working on a deal to supply Gordon Food Service. Tru Shrimp tells the SEC that deal has been in the works since a letter of intent signed in December 2020. Tru Shrimp says there’s plenty of market for its product: “According to the National Fisheries Institute, the average American consumes 4.7 pounds of shrimp annually, which is 2 times the consumption rate of tuna and 1.5 times that of salmon, the next two most highly consumed seafood species, confirming that shrimp is by far America’s favorite seafood.” Tru Shrimp estimates its Madison facility can add 790,000 pounds of shrimp to our national annual consumption of 1.7 billion pounds of shrimp (90% of which is currently imported), sell their shrimp for $15.73 a pound, and thus make $12.4 million a year. Tru Shrimp hopes to make another $3.0 million a year on pet food made from 450,000 pounds of shrimp head waste. But its biggest money will come from chitosan, a biopolymer from crustacean exoskeletons that can be used for biomedical and pharmaceutical applications. Tru Shrimp says it can grind down the stuff we and Fido don’t eat to get about 6,200 pounds of chitosan each year—about 2.8 million grams, which selling for $7.50 gram would bring in $21 million a year.
Tru Shrimp says it has spent about $4 million on design an engineering for the Madison facility. Tru Shrimp estimates actually building the Madison plant will cost $75 million to $80 million, “but we have not yet obtained bids to confirm our estimates.” Tru Shrimp speaks of breaking ground this year, but they offer no completion or operation date for the Madison plant, although the company previously cited 18 to 24 months as the time from breaking ground to putting shrimp on barbies. But give us $90 million in investment, Tru Shrimp say, and with chitosan and edibles for man and beast generating $36.4 million a year and an estimated operating income target of 45%, they can make the investment pay off in less than five years. Tru Shrimp also says that in ten years, they “anticipate” building two more “harbors” that would quadruple their total production.
Alas, Tru Shrimp is more underwater than its pilot shrimp. It reports to the SEC revenues of $111,000 in 2019 and $9,000 in 2020 and net losses of $9.2 million in 2019 and $7.4 million in 2020. For the first three quarters of 2021, Tru Shrimp reports $4,000 in revenue and net loss of $8.0 million.
Tru Shrimp has received more money in coronavirus relief money than it has made through sales. In April 2020, The company got $483,000 in CARES Act Paycheck Protection Program loans, $436,573 was forgiven. In January 2021, Tru Shrimp drew another $436,638 from the PPP, which stands as long-term debt on the Tru Shrimp ledger.
In each listed year, Tru Shrimp has spent more on general and administrative expenses (primarily salaries for seven execs and administrative workers) than on research and development (including pay for four scientists and ten technicians in Balaton). In the first nine months of 2021, Tru Shrimp cut research and development expenses 47% from the comparable period in 2020 but cut general and administrative expenses only 6%.
As of September 30, 2021, Tru Shrimp tells the SEC its accumulated deficit was $41.47 million. At that time, the company “had approximately $15.1 million of indebtedness.” The two biggest chunks of that debt are a $6.0-million loan from Eagle Energy and the $6.5 million loan from Madison’s Lake Area Improvement Corporation that includes the state’s bait money (and those figures are just the principal; as of September 30, 2021, the convertible note due to LAIC was up to $6.83 million). LAIC had already extended the maturity date on that loan to December 27, 2021. (That’s also the expiration date on Tru Shrimp’s option to buy 43 acres from the city for $10K per acre in cash or $15K per acre in common stock.) Tru Shrimp tells the SEC it is seeking another extension from the LAIC; if that fails and they default, they’ll also default on the Eagle Energy loan, and Eagle Energy would likely want blood, or at least some capital assets to hock. “Any of these events,” says Tru Shrimp calmly, “would have a material adverse impact on out business and operations.”
Tru Shrimp tells the SEC that they will run out of operating capital by this fall. If folks don’t buy Tru Shrimp stock, “We will need to generate additional funds through financings, sales of our products, government grants, loans, or from other sources or transactions.” Note the term buried in the middle of that sentence: government grants. Imagine how well that would go over if they made that ask when they run out of money in September, right in the middle of election season. Should we keep an eye on the Governor’s Office of Economic Development to see if they slip a little spare federal coronavirus relief money out the side door right now to forestall Tru Shrimp’s bankruptcy until after November 8?
If I’m reading the prospectus correctly, Tru Shrimp is telling the Securities and Exchange Commission that, as things stand, three years after getting a big loan from South Dakota and doing nothing concrete with it, the company has less than a year to live. South Dakota’s gamble hasn’t paid off yet, and now Tru Shrimp is an even bigger gamble for investors who might consider jumping on an eventual IPO that, far from providing the funds necessary to start building, shrimping, and turning profits, may only pay off the engineers and forestall bankruptcy by a few more months.