Summary
Raising shrimp is a multi-billion dollar business, but bacterial and viral diseases and the build-up of ammonia and nitrate have stymied all sustained attempts at raising shrimp.
These problems have plagued shrimp growing companies to the point of bankruptcy. Any company that solves these problems will benefit from selling into a growing market of eager buyers.
The NaturalShrimp patent of using eletrocoagulation cleaning of the saltwater in their 65,000-gallon, electronically monitored/controlled shrimp raising tanks, showed all pathogens and contaminants completely eliminated.
Now is the time to buy NaturalShrimp as it gets ready to raise shrimp with its industry-changing patented process which will literally bring in increasing millions of dollars yearly.
People are looking for healthier food choices, and they are turning to fish, and crustaceans, such as shrimp, as a healthy protein source. Aqua-farming, raising fish, or crustaceans, in man-made ponds, or giant commercial sized saltwater tanks, can meet this demand. This would be especially lucrative for companies raising shrimp because shrimp can be raised to commercial jumbo size in less than 6 months, and the price of shrimp keeps climbing. But the die-off rate of both fish and crustaceans, due to disease and the build-up of contaminants in the saltwater in which they are being raised, has thwarted companies trying to raise fish or shrimp commercially.
NaturalShrimp (OTCQB:SHMP), working with F&T Water Solutions, spent 18 years developing a unique electrocoagulation system of eliminating bacteria, viruses, and contaminants, such as ammonia, from the water in which shrimp are raised. the first 15 years were for Research and Development, and then the last 3 years were in putting it all together. A final series of increasingly demanding test runs have shown that they have solved all of these problems. Just listing what their company can do, will be meaningless, because this article is intended to give you a deep understanding of what NaturalShrimp has accomplished, compared to its peers, so that YOU will have the knowledge and understanding to decide for yourself if this is one of those rare ONE OF A KIND COMPANIES that have developed a process that will revolutionize their industry.
To understand the paradigm change in the way that NaturalShrimp raises fish and crustaceans requires knowing how they are presently being raised.
Today, Indonesia, India, and Thailand are the world's major shrimp aguaculture producers. Many farmers in these countries have turned to aqua-farming, where they raise shrimp at a density of 150 shrimp per cubic meter of water, which is multiples higher than the density of one shrimp per cubic meter of water in the ocean.
At such a high density of 150 shrimp per cubic meter of water, if a shrimp develops a disease, it will be rapidly transmitted to other nearby shrimp, and by the time any sick or dead shrimp are noticed, the entire batch of shrimp will be infected, and the farmer's loss will be 100%, plus they will have the added cost of cleaning and disinfecting the site.
Even at 150 shrimp per cubic meter of saltwater, it is hard to make a profit when you have to factor in the cost of feed and labor. There is the added problem that even with careful maintenance of the ponds, there is a die-off of 30%-50% of the shrimp.
The large number of shrimp present in the tanks, or ponds, uses up the oxygen in the water, and this contributes to the die-off of the shrimp. Uneaten feed accumulates on the bottom of the ponds and putrefies, contaminating the pond's water. Even the time of the year can affect the shrimp. Cold weather slows shrimp growth, so the best production can only take place in the warmer months of the year.
Some farmers do high-intensity shrimp farming. They use mechanical paddles to aerate the water. The paddles also cause the water to circulate, and this evens out the temperature throughout the pond so that there are no excessively cold or overly hot areas.
In addition to aeration of the pond, they use 'biofloc' management of the pond. In biofloc aqua-farming, they add beneficial microorganisms to the pond, such as specific bacteria, that break down the shrimp excretion, and waste feed, thus minimizing ammonia production. Removing ammonia is critical because it can quickly become lethal to the shrimp and decimate an entire crop overnight. Biofloc also contains bacteria that convert ammonia to nitrate. The combination of breaking down the products that form ammonia, plus breaking down the ammonia itself, greatly reduces the amount of ammonia present in the pond. Even though this helps to eliminate the ammonia, it starts a build-up of harmful levels of nitrate. Excessive nitrate causes the shrimp's shell to soften and leads to increased mortality rates.
Beneficial bacteria that are added to the pond, suppress disease-causing bacteria, and this helps prevent disease outbreaks. Probiotic bacteria that are present in the mixture, colonize the Shrimp's gut and out-compete the harmful bacteria in the shrimp's gut, which improves the health of the shrimp.
As the microorganisms in the pond multiply, they clump together and form floating masses called flocculates throughout the pond, which the shrimp use as a highly nutritious food source. Since the farmers use biological organisms ("bacteria"), which form flocculate masses, this method of growing shrimp is called biofloc aqua-farming.
Because of the circulated oxygen and decreased ammonia, as well as the formation of nutritious flocculate feed, intense biofloc aqua-farming can support densities of up to 500 shrimp in every cubic meter of saltwater. Above that concentration of shrimp, the biofloc can't control the ammonia, and, along with the harmful effects from the nitrate accumulation, any density of shrimp above 500 per cubic meter of saltwater, causes a die-off of the shrimp.
Biofloc can't completely control harmful disease-causing bacteria, and at the high shrimp densities involved in intensive aqua-farming, if a bacterial infection occurs, it will rapidly spread and wipe out the entire shrimp harvest.
Biofloc has one major shortcoming. It has no effect against shrimp viral diseases, such as the highly infectious White Spot virus, which has been devastating aqua-farmed shrimp. ALL aqua-farming companies to date, have had no defense against shrimp viral diseases. SHMP, however, is able to completely eliminate all viral pathogens.
Asian aqua-farmers cannot do anything against viral diseases, but they have been using antibiotics to prevent bacterial outbreaks. Antibiotics that are used in aqua-farming have dangerous side effects. Recent samples of aqua-farm raised shrimp from India and Thailand tested positive for nitrofurazone, an antibiotic that's a known carcinogen. It was present at levels 28 and 29 times higher than those allowed by the FDA. Another antibiotic, chloramphenicol, was detected at levels 150 times the legal limit. It's been banned because of possible severe side effects such as aplastic anemia and leukemia.
Antibiotic raised shrimp are now being banned from being imported to the U.S. and England because its use can cause the development of antibiotic-resistant bacteria. But even though antibiotic-raised shrimp have been banned, because of the huge volume of shrimp imports, only a small percentage of the imported shrimp can be tested.
Asian growers can discontinue the use of antibiotics, but then they will face the prospect of shrimp losses due to bacterial outbreaks. This would decrease the supply of shrimp, and cause the price of shrimp to rise, which would benefit SHMP.
Another problem with imported shrimp is the chemicals that are used prior to shipping them to American and European markets. After being harvested from ponds, or even wild caught, the shrimp are soaked in sodium bisulfite, which slows decomposition, and also slows down melanosis, which causes their shell to blacken.
The shrimp are also treated with sodium tripolyphosphate, a re-hydrating agent. Shrimp are 80 percent water, so they tend to dry out during shipping. Both of these chemicals increase the shrimps' sodium level.
More shoppers, as well as chefs at restaurants, are looking for fresh, non-frozen, chemical free, low sodium foods, and so they will be looking for alternatives to imported shrimp. That will benefit SHMP.
Even using biofloc, aqua-farmers still suffer a 30%-50% shrimp die off, plus there are bacterial, or viral, infections, that wipe out entire harvests, and this can bankrupt the company, or farmer, raising the shrimp. It also makes restaurants, and other buyers, hesitant to form contracts with the sellers, because they are not assured a steady supply of shrimp.
Shrimp die before reaching maturity because of the difficulty of maintaining constant critical levels of oxygen, low levels of ammonia and nitrate, steady, not erratic, adding of feed, and other parameters, any of which would be stressful for the shrimp if not kept within strict limits. The industry standard is a die-off rate of 30% to 50%.
Attempts to grow shrimp by aqua-farming, even biofloc aqua-farming, has resulted in consistent failure over the past 50 years.
The worlds' population is growing. At the start of 2019, it was 7.7 billion and is projected to reach 9.7 billion by 2050. There is going to be a need to find sufficient food to feed that many people. Seafood is increasingly one of the main foods that Europeans and Americans consume. Shrimp is the most widely served seafood in the US, and, in fact, is the most traded seafood in the world.
According to the Food and Agriculture Organization of the United Nations, the number of fish and crustaceans, such as shrimp, in the world's oceans are steadily declining. There is only a finite amount of fish, and shrimp in the oceans and they are being depleted faster than they can be replenished. The amount of ocean-caught seafood leveled off in the 1990s, and the amount of ocean harvested fish has been slowly declining since then.
Aquaculture will increasingly become the way to meet the demand for fish and crustaceans, as long as a way is found to reliably raise seafood by aquaculture.
The rise in fish production since 1990 is primarily thanks to aqua-farming.
Credit: Food and Agriculture Organization (FAO), Image: UN FAO
The demand for fish has been growing, because of their health benefits. But even with aquafarming, the supply of fish and crustaceans is not keeping up with the demand. This has caused a long term rise in the price of fish and crustaceans.
Price of shellfish, including shrimp, climbing the fastest.
Credit: U.S.Bureau of Labor Statistics
But will the price of shrimp keep climbing? In real life, events don't follow a smooth curve. The price of shrimp, for example, will go up one year, and then down another year.
A mathematical formula, called the compound annual growth rate ("CAGR"), showing the mean annual growth rate of a commodity over a specified period of time, can look at the prices of the last 5, to even 10 years, and give a close projected growth rate for the next 5 to 10 years, barring any dramatic changes to what has been taking place.
The CAGR for the price of shrimp, for the projected 10 year period of 2017-2027 is calculated to be a CAGR of 5.6%-5.8%. That indicates that the price of shrimp should increase 5.6%-5.8% yearly for the next 10 years.
It may not seem like there is a large market for shrimp, but it is a multi-billion dollar business. Over 1.4 billion pounds of shrimp are eaten annually in America, and most are imported. According to the National Oceanic Administration Fisheries, the U.S. is only 17th in aquaculture production in the world, so the U.S. has room for a large increase in the number of aqua-farms.
Shrimp must have good water quality for health and growth. Shrimp raised at higher than natural densities, affect the quality of the water they live in. Controlling their environment to maintain optimum conditions, reduces stress levels, improves growth, and reduces the risk of mortality. But controlling the environment in which they are being raised has been difficult to accomplish.
This is where NaturalShrimp (OTCQB:SHMP) comes into play. Using a saltwater solution similar in salinity to ocean water, they started as a high-intensity biofloc shrimp producer but found out that it was not an economical process. After doing research, they formed a joint venture with F&T Water Solutions, a company nationally known for its treatment of industrial wastewater through the use of electrocoagulation.
A major, nationally known electrochemical company like F&T Water Solutions, would not form a joint venture with an unknown company, such as NaturalShrimp, without first doing an in-depth study of the company and its proposed product. That they ended up forming a joint venture with NaturalShrimp speaks volumes about the potential they see in the company.
Electrocoagulation ("EC") consists of pairs of parallel metal plate electrodes submerged in saltwater with a low voltage applied at high current densities. The saltwater in the tank is circulated through the plates and is hydrolyzed into the highly reactive hydroxyl OH? and superoxide hydroperoxyl HO2? radicals which oxidize and destroy 99.99% of the bacteria, and viruses present in the water. When the water is recycled a second time, all of the bacteria and viruses will have been destroyed.
Ammonia, NH3, and nitrate, NO3, are highly stable ions with low potential for precipitation, which makes it difficult to remove them using conventional water treatment methods. Electrocoagulation oxidizes ammonia, NH3, and turns it into nitrogen gas and water so that ammonia is completely removed from the shrimp growing tanks. In addition to removing ammonia, electrocoagulation also removes any NO3 that is present in the water.
Electrocoagulation is able to remove contaminants, such as shrimp feces, and other suspended particles. Total suspended particles over 500 mg/quart can irritate shrimp gills and stress the shrimp. This is a problem for present-day companies that raise shrimp, but not for NaturalShrimp.
Suspended particles are held in suspension by electrical charges. These electric charges are disrupted by the metal plate electrode ionizing field so that the net surface charge of the suspended particles is reduced to a point where the particles, previously kept suspended and separated by electrostatic repulsion, can approach closely enough for van der Waals forces to hold them together. As a result, they form floating masses that are then easily removed and discarded.
The process will even cause emulsified or dissolved contaminants to coalesce and form semisolid masses. These, along with the now floating clusters of polluting particles, are then removed by secondary separation techniques.
The SHMP process continuously circulates clear, pathogen free and contaminate free, ocean equivalent saltwater into the shrimp growing tanks.
Clear solution after suspended particles have been removed.
Credit F&T Water Solution site
It should also be noted, that Mercury and other contaminants found in wild-caught shrimp will NOT be found in NaturalShrimp.
There is no other system in existence that can even approach this ability to produce a clean, clear, pathogen-free environment for growing healthy shrimp. An environment in which the shrimp thrive.
Another way that NaturalShrimp out-competes all other aqua-farming companies, and aqua-farmers, is with their Automated Monitoring and Control System, for dispensing feed to the shrimp, which was developed over a period of several years. Other aquaculture companies manually feed their shrimp, or just use a mechanical machine that dispenses feed every few hours.
Shrimp are different from fish, such as salmon, in that they don’t have a stomach they can fill up. All they have is a very short gut, and so they eat 24/7. This means that manually feeding the shrimp has to be done around the clock, and so it is very labor intensive and expensive.
Having to maneuver around large shrimp growing tanks, in order to ensure that all the shrimp receive proper amounts of feed pellets, would be demanding work. Manually feeding them on a continuous basis, would require 3 shifts of personnel. You would have to pay extra for manning the graveyard shift. You would also have to cover weekends and holidays. If you tried to save money by not feeding continuously, it would negatively impact the shrimp growth rate. If you added an excess of feed to the tank, at the time when you were halting the feedings, so that there would be enough to last until the next feeding, some of the extra feed would sink to the bottom of the tank, where it would putrefy and contaminate the shrimp's environment.
NaturalShrimp instead, is using YSI’s Feed SmartTM feed timer system. The amount of feed it delivers is based on three factors. The first is the number of shrimp with which the tank was stocked. The second factor is their weight, as determined by samples of shrimp removed from the tank throughout the rearing of the shrimp. And as a further refinement of how much feed it delivers, the amount of feed given is also affected by environmental factors such as dissolved oxygen ("DO") and the water's temperature.
Dissolved oxygen, the volume of oxygen contained in water, is the most critical parameter relating to how well shrimp thrive or die. Shrimp thrive in a DO range of 5-12 mg O2 per quart of water. But at 4 mg/Qt, just slightly below the 5 mg level where they thrive, they become stressed, stop feeding, and start dying off.
Temperature also affects the feeding rate. At optimum temperatures, digestion and feed consumption is much faster and higher. For small shrimp of < 5 g, the optimum temperature is 81 °F. For larger-sized shrimp, weighing 12 to 18 grams, the optimum temperature is 86 °F. A difference of only 5 °F. NaturalShrimp plans to sell shrimp with an average weight of 23 grams.
Other shrimp aqua-farms have difficulty staying in these parameters, and they would have great difficulty adjusting the amount of feed given to their shrimp as these parameters change.
NaturalShrimp adjusts these parameters, and feed, automatically.
The NaturalShrimp Automated Monitoring and Control system uses individual tank monitors to control and keep the oxygenation, and temperature of the water within specified parameters. It automatically adjusts the amount of feed, according to the oxygen and temperature monitor readings, as well as the weight and number of the shrimp. This, along with the electrocoagulation cleansing of their ocean equivalent environment, optimizes the growing conditions for the shrimp as they mature to harvest size.
The automated feed system supplies hourly feeding of just the right amount of food pellets so that all of it is eaten. Compared to other systems, it offers superior food conversion.
In a study of aquafarms, comparing manual feeding of shrimp done four times a day, against an automatic feeder done every 2.4 hours (10 times a day). The automatic feeder resulted in significantly faster growth, increased body weight, and yield.
Feedings given even just 2 hours apart results in a length of water exposure to the feed that causes critical nutrients, such as amino acids, to be leached into the water. Within an hour, shrimp feed can lose more than 20% of its protein, about 50% of its carbohydrates and 85 to 95% of its vitamin content. The feed should be consumed within 20 minutes.
SHMP's feeder system adds feed every hour, or even up to every 15 minutes, and bases the amount on the shrimps' weight, as well as the monitored parameters which affect the feeding rate. So it is even more effective, than a plain automatic feeder.
Feed costs are a significant component of the cost of production. By optimizing the feeding process so that only the minimum amount of feed is used, the SHMP process is much more economical than competing methods of aqua-farming.
NaturalShrimp states that, because of the refinements that they have been able to add to their feeding methodology, they have seen improved growth rates over the years, as well as decreased costs.
Credit F&T Water Solution site
The end result of raising their shrimp in a clear, contaminant-free, growing environment, is a sushi grade shrimp which will command premium prices. NaturalShrimp plans to sell and distribute their shrimp production through distributors which have established customers and sufficient capacity to deliver a fresh product within hours following harvest. Part of their customers will be restaurants, and the restaurant's chefs will decide if NaturalShrimp meets their criteria.
NaturalShrimp had chefs taste their product. Having world-renowned chefs give their opinion on the taste of SHMP's shrimp, which are raised in an environment cleaner and fresher than has ever been produced by competing companies, would be an unbiased test to see if raising shrimp in fresher cleaner saltwater makes any difference in the resulting taste of the shrimp.
Chef Michael Scott, trained under Master Chef Shoji Yano in Tokyo, Japan. He is an Award-Winning World Class Master Chef, currently serving as Vice-President of the World Master Chefs Society. He was inducted into the American Academy of Chefs® Honor Society.
He is now the Corporate Executive Chef for Rosewood Ranches Texas, and taste tested SHMP raised shrimp for them. Chef Michael Scott said, "I was really excited about the versatility and the flavor profile of the shrimp, firm but tender. I am very excited about the opportunity of using this superior product again."
NaturalShrimp has its own chef, Douwe Iedema, who trained as a culinary chef in the Netherlands, and received his Master of Arts, Classic French Cuisine, at the Karl Van Erven Private School in the Netherlands. He served as Executive Chef for six years at NATO's Northern Headquarters, Europe. Douwe Iedema stated, "shrimp are sweet, buttery and clean."
What about competition?
NaturalShrimp management has noted that new competitors would need years of research and development to come up with their own proprietary technology for commercially raising shrimp.
What is more likely, is that new startups, as well as already established aqua-farmers, will lease NaturalShrimp's patented process, and add its superior method of raising shrimp to their way of growing shrimp, because it will save them money, and it would be simpler than trying to come up with a competing process, that would have no guarantee of being superior to SHMP's process.
Just how big is the market?
The U.S. population is 325 million. In 2017 the average American ate 4.4 pounds of shrimp a year, which is over 1.4 billion pounds of shrimp. U.S. aquaculture produces 6 percent of that total, which is only 84 million pounds of shrimp. That means that there is a market for at least another 1.32 billion pounds of shrimp, to be targeted by U.S. aqua-farmed shrimp.
Even with eventually 100 facilities scattered throughout the U.S., NaturalShrimp output would barely be a blip on the radar.
So NaturalShrimp doesn't have to worry about competition taking away its share of the market.
NaturalShrimp realizes that many customers are only interested in buying the frozen product. Management recently stated that in the near future, NaturalShrimp will be able to supply today's socially conscious customers with a superior frozen product that is a chemical and antibiotic free, low sodium, Sushi grade alternative to imported frozen shrimp.
NaturalShrimp has patented exclusive rights worldwide to the technology for shrimp production, with the right to other species shared between NaturalShrimp and F&T Water Solutions.
NaturalShrimp plans on establishing joint ventures or licensing, of its system for raising shrimp, as well as the production of a number of fish species, including salmon and also barramundi, a member of the perch family which is especially suited for aquaculture.
The licensing of its patented technology and the formation of joint ventures would be a very lucrative business enterprise.
NaturalShrimp also plans to expand overseas. In 2016 Europe imported 1.2 billion pounds of shrimp. The amount of imported shrimp to Europe grows every year. And not just shrimp, other seafood species are also being consumed in larger numbers.
Atlantic Sapphire is a salmon aqua-farming company located in Denmark and plans to open a facility in Florida. They would be a good candidate for a joint venture.
In relation to barramundi, NaturalShrimp, in conjunction with F&T Water Solutions, has been working with a barramundi aqua-farm that was suffering from too many nitrates in the water, limiting the growth of their crop to no more than 50% survival.
In an ongoing test using SHMP's process, it removed the nitrates that had been plaguing the company. The barramundi company reported that they were very pleased with the results so far, but that they want to remain anonymous while the pilot project is in progress.
Barramundi, a giant perch found in Australia, is new to the U.S. market but is rapidly gaining in popularity. Barramundi can grow to a market size of 1.5 to 2 pounds in less than a year.
Barramundi
Credit: WATERblog National Aquarium
How well is the process working
Tom Untermeyer, Co-Founder and Chief Technology Officer of NaturalShrimp, in talking about the test runs that have been done stated, "The testing we have conducted has gone very well; the electrocoagulation system exceeded technical specs with a greater flow rate and less power consumption, therefore reducing overall projected operating costs."
Test run, lot 180, that finished in early 2019, was the third and final test prior to ramping up production and launching a full-scale rollout of SHMP's aqua-farm process. It was designed to verify that the NaturalShrimp patented method would successfully control water quality parameters over the entire growth period of the shrimp. Lot 180 was conducted using all the latest improvements in design to date. In order to see if the process would work in even the most challenging conditions, the tank was stocked with a greatly increased number of shrimp.
It contained 810 shrimp per cubic meter of salt water, compared to the normal stocking density of 500 shrimp per cubic meter of salt water. The tank was bursting with shrimp, but the innovations incorporated in its design kept the shrimps' ocean equivalent saltwater environment free of ammonia and contaminants.
Additional testing of this batch is still going on, for further refinement of the system, to be used with future batches of shrimp that will be raised. So, at this time, data are lacking to get a definitive survival ratio.
There were no outward signs of stress on the shrimp, such as shrimp swimming patterns or cannibalization, but, there was stress, because the shrimps' growth rate did slow down, and it took over 24 weeks for the shrimp to reach their targeted size.
The normal SHMP stocking density of 500 shrimp per cubic meter ("m³") of salt water produces 6,000 pounds of shrimp a week per 65,000-gallon tank, or 300,000 pounds a year.
A stocking density of 810 shrimp m³ with a 90% survival rate produces 8,500 lbs a week. This high density slows down the growth rate but otherwise causes no problems.
A stocking density of 650 shrimp m³, mid-way between the two, could be sustainable. Further testing would need to be done.
A survival rate of 95% would yield 7,600 lbs a week, or 400,000 lbs of shrimp a year. 100,000 more pounds of shrimp a year, than previously achieved. A survival rate of 90% would yield 7,200 lbs a week, or 374,400 lbs of shrimp a year.
NaaturalShrimp is using electrocoagulation, a method that no one else has ever tried, possibly because it is such an incredibly complex technology. It has taken NaturalShrimp 18 years to perfect the process.
Bill Williams, the chief executive officer of NaturalShrimp, has stated that the SHMP process is a new disruptive technology that can change aquaculture. He has stated that investing in SHMP at this early stage is the same type of investment that was made when computers and cell phones were just ideas. He added that it has that potential; the potential to change the entire aquatic industry. Based on their current projects and pending deals, he expects the company to grow rapidly.
On April 4th, NaturalShrimp announced that it had received two additional 65,000-gallon tanks at their Lacoste, Texas, facility, near San Antonio, and that they would be fitting them with their electrocoagulation and also YSI Feed SmartTM feed timer systems.
Once the tanks are fully installed, which will be some time in May, they will have 18 shrimp growing tanks at the site. They will then stock two tanks with shrimp, which will be sold once they reach maturity in 24 weeks. Further shrimp stocks will be added monthly. The resulting cash flow can be used to buy additional 65,000-gallon shrimp raising tanks. NaturalShrimp has previously stated that when they have a total of 24 tanks, they will start weekly shrimp production.
NaturalShrimp's process will produce shrimp with costs lower than any competitor, and with better profit margins than has ever been achieved before.
All of this sounds good, but when you factor in the costs involved in building the facilities and running the operation, it brings up a question.
Can NaturalShrimp actually make a profit, and if so, how much?
One method, that has become very popular in deciding if a company is financially sound, is the use of EBITDA, Earnings Before Interest, Taxes, Depreciation, and Amortization.
Proponents argue that EBITDA offers a clearer reflection of operations by stripping out expenses that can obscure how the company is really performing.
Taxes are left out, because they can vary, depending on where the facilities are located. Interest is left out, because EBITDA proponents say that it is an arbitrary expense, that it will differ, depending on what type of loans management makes.
But, taxation and interest cannot be ignored.
A company has to pay its government and state taxes and the interest on its loans. These can be a significant part of the cost of running a business, and this is especially true for SHMP. A large part of its revenue will mainly be derived from the sale of shrimp, which will be subjected to federal and state taxes. It will have a federal tax rate of 21% on its cash flow, minus certain costs such as supplies and wages. SHMP will also have significant state taxes. Illinois, where it will be opening its Chicago facility, has a 9.5% state tax rate. New York has a 7.1% state tax rate. For other states in which it may be opening facilities, I used an average state tax rate of 5.9%
Depreciation and amortization are left out because they are also assumed to be arbitrary expenses.
Depreciation is designed to spread out the cost of a business asset, such as machinery, over the useful life of the asset. The IRS says you can't take the expense in the first year. You must 'recover' the cost by taking it as an expense over the several years of the 'useful life' of that asset. As an example, if a machine that you use, cost $100,000 and is expected to last 10 years before needing to be replaced, then each year for the next 10 years, you would charge $10,000 as a depreciation cost for the machine.
Depreciation and amortization are ignored, based on the flawed assumption that these expenses are avoidable. Even though depreciation and amortization are non-cash items, they can't be postponed indefinitely. Equipment inevitably wears out, and funds will be needed to replace or upgrade it. That needs to be taken into account when calculating the funds available to the company.
Using EBITDA results for earnings per share is especially disingenuous. If you use EBITDA figures and say that a company has earnings of $0.15 a share, and use a PE ratio of 30, you would be saying that the share price is worth $4.50 a share. But if its expenses, which EBITDA was ignoring, were $0.13 cents a share, its actual earnings would only be $0.02 a share, and its share price should only be worth $0.60 a share.
I don't use EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) in my calculations.
There is enough information available so that SHMP's revenue and costs for the next five years, and even further, can be calculated. From that information, SHMP's stock price over the next five years can be estimated.
Revenue can be calculated by the pounds of shrimp that will be produced, and the prices that will be received for the shrimp they produce. SHMP will be producing top grade, pristine, jumbo-sized shrimp. Therefore they could receive top dollar for their shrimp. Management stated that buyers for their shrimp will not be a problem, but to be conservative, when calculating the price that they will receive for their shrimp, I used a midway price on the range of prices listed for jumbo shrimp.
Costs can be calculated, such as the specific construction costs for building shrimp raising facilities in Las Vegas, Chicago, and New York. For facilities in other states, I used the average of U.S. construction costs. I added a 3% a year inflation rate when calculating the costs for future years.
Bill Williams, Chief Executive Officer of SHMP, has stated, that if they could find a suitable warehouse in places such as Las Vegas or New York, that they could start raising shrimp as soon as they set up and stocked the grow out tanks. Renting a warehouse would not only save SHMP time and money, but it would also have additional advantages. Instead of building a facility that would be located outside of a city where they wanted to sell their shrimp, a warehouse would be near their markets, reducing shipping costs, including fuel, and the time it takes to get the shrimp to consumers.
To be conservative, instead of decreasing costs by saying that SHMP will rent warehouses as it expands to new cities, I stipulated that at all their sites, SHMP will build the facilities for raising the shrimp and that it will take out bank loans to pay the cost of their construction. Because of the revenue, cash flow, that it will be generating, SHMP should have little difficulty in obtaining bank loans. I included the interest that they would be paying on the loans and the yearly depreciation costs. I added an inflation rate of 3% for each year to the construction rates.
Using the annual 10-K reports going back to 2015, and the most recent quarterly Q-10, I included those costs in the calculations.
Bill Williams has stated that SHMP will be opening new facilities in major cities throughout America. As they gain experience and revenue they will increase the pace of opening new facilities, and by the fifth year, he stated that they will be opening a new facility every month.
One other point. There are giant metropolitan areas, such as the Dallas/Fort-Worth area in Texas, where the two cities have grown so large, that they have merged and formed one giant complex. In such a case, SHMP could build facilities with 36, or more, grow out shrimp tanks, instead of 24. The revenue and profit would be that much greater in such an event.
To be conservative, in the first year, 2020, I based my calculations on SHMP building only one new facility, and that it would be in Las Vegas. I included the costs involved in building the facility, but for revenue, I calculated that it would only have half a year's worth of production. After that, each facility would be counted as having a full year worth of production.
In the second year, 2021 I added two new facilities. 2022: four new facilities, 2023: six new facilities, and also only six new facilities in 2024. I limited the maximum number of new facilities being built per year to six, not one every month because I wanted my revenue calculations to be the reasonable bare minimum that would take place. That way, if the calculations showed that SHMP was making a profit, then there was a greater probability that SHMP will be a viable going concern.
Because the price of shrimp is rising over time, I took that into account. The CAGR calculation indicates that the price of shrimp should rise by 5.6%-5.8% a year. But I calculated the yearly shrimp price rise that they would receive for their shrimp as only 5% a year.
In relation to costs, I used an inflation rate of 3%. Therefore I increased the cost of building a facility, and the cost of feed, etc. by 3% every year.
My calculations are just for the basic selling of shrimp in America.
I didn't include the money they might make from the licensing of their patented process, and from forming joint ventures for other fish species, such as barramundi, or for the revenues that might be generated by expanding their business overseas.
Even though all of these would be lucrative ventures, there is no guarantee that they would take place. If they do, then the SHMP stock prices could be much higher than what I calculated.
Considering the patent protected, industry revolutionary process that SHMP possesses, it would seem that SHMP's share price should be higher than it is. The problem is, that many other companies seemed to be poised to become major players in shrimp aqua-farming, but then they failed, and investors lost their money. This has made people wary of buying shares of companies that say that they can successfully raise shrimp.
However, once people see that NaturalShrimp is able to consistently raise, and sell superior, sushi grade shrimp, the stock price will act accordingly.
Explanation of terms in calculations
Revenue based on a weekly production of 7,200 lbs of shrimp.
E.P.S. (Earnings Per Share) = (Profit divided by the number of shares in the float)
Calculations are based on a float of 291 million shares (The float number may change over time.)
P/E = 30: When a new company is perceived as having years of strong growth ahead of it, it is given a high P/E, such as 30. As the company enters its growth stage, it can maintain a high P/E for many years.
2020 2021 2022 2023 2024
Revenue: million $ 10.50 30.73 62.62 113.40 169.20
Costs: million $ 8.06 16.86 34.63 61.94 89.26
Profit: million $ 2.44 13.87 27.99 51.46 79.94
E.P.S. 0.008 0.048 0.096 0.177 0.275
P/E 30 30 30 30 30
Share price $0.24 $1.44 $2.88 $5.31 $8.25
Source: Author
Risk Factors
NaturalShrimp has not sold any shrimp, so it is unknown what prices they will receive, or if there are sufficient buyers to purchase their weekly shrimp production.
It is possible that competing technologies will be developed that will be superior to the NaturalShrimp process, and give the competing company a competitive edge.
There is no assurance that the price of shrimp will stay in a range that will allow SHMP to make a profit. A sustained decrease in the price of shrimp could threaten the ability of the company to stay in business. For instance, improved delivery technologies and preservation methods may lower the cost of imported shrimp, which could lower the overall price of shrimp.
SHMP has no history of earnings and will be dependent on outside sources of financing. There is no guarantee that they will be able to secure the required money to continue their operations.
Short term
Investing while the price is low before SHMP has sold any shrimp (it will take them 24 weeks to raise a new batch of shrimp), or before it has started licensing its patented process, or forming joint ventures, will mean a possible substantial short term gain if any of these events occur.
Long term
SHMP's process, if it works, will be an industry-changing innovation. Waiting to verify that the process works, such as waiting until the company is raising and selling shrimp at a profit, and that it has buyers for its shrimp, will mean that the stock price will be higher by that time because there will have been verification that the SHMP process works. But even though the stock price will be higher if you wait until there is proof that the SHMP process works, it will still be a great buy because over the years, as SHMP expands its business, SHMP's stock price will move substantially higher.
Only invest money that you can afford to lose. Even though SHMP has great potential, this is a very speculative stock.
Disclosure: I am/we are long SHMP.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I am not a certified accountant or analyst. I based my calculations on examining SHMP's 10-Q and 10-K reports, as well as press releases from the company, and E-mail correspondence with the company.
