The Bunka writeup:
Weather All Man. USA Inc. (WAMC-OTC/BB) Buy
Current US$0.53 ** Buy @ 0.53
Ph. 1-877-233-3131 Fax 604-685-5750 WC:$0.0m
Shares Out: 4,807,000 Fully Diluted: 8,807,000
www.weatherallusa.com
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Introduction.
Those of you who know me know that I have owned and operated a number of businesses during my career. In fact my background led me nearly two years ago to Napier (NIR-T). Napier turned into my biggest winner ever in part because I recognized a revolutionary product in its very early stages.
Weather All Manufacturing USA Inc. (WAMC) may be in a similar position, albeit for an entirely different reason. WAMC does NOT have a revolutionary product that will change the marketplace. What it DOES have is a cutting edge group of products designed to meet the needs of a demonstrably large market. For investors, the "kicker" is easy: awesome leverage in this startup company.
WAMC manufactures specialized, environmentally friendly coatings at its facility outside of Vancouver, BC. These coatings are designed for both new construction and renovation markets in the residential, commercial, and industrial fields. WAMC has, in total, 43 different products it can offer although it is focused on only three or four.
Products.
Typical of these is an elastomeric coating that for all practical purposes looks much like a can of thick paint. Unlike paint, however, this coating is actually nearly 70% solids and stretches even long after it is applied. Now, a thick, stretchy paint may not sound like much to some of you. But consider that the prime markets for this coating are concrete and stucco-clad buildings. Concrete and stucco, of course, often shrink and/or crack. Once they have done so they are no longer waterproof.
My former business used I used elastomeric coatings as part of a standard repair and protection process. Regular paints simply cannot bridge the gap across a crack and even if the could they still could not stretch and flex to accommodate future movement in that crack. Elastomeric coatings are designed for this purpose.
Elastomeric coatings are part of he $6.2 billion US Architectural Coatings industry sector. (Paints and coatings of all types is a $16 billion market.) Unless you have been living in a box you have heard of acid rain and the effects it is causing to the environment. One of the effects of acid rain, especially in North Eastern USA and Central and Eastern Canada, is the damage it causes to structures built with concrete, stucco, and brick.
As acid rain penetrates into concrete it accelerates the corrosion of interior reinforcement steel. The corroding steel further degenerates the concrete structure and, if left unrepaired, can actually lead to total failure of the structure. So not only are elastomeric coatings a necessary part of most new concrete buildings and structures today, they are also the first choice in the refurbishment of existing buildings. Only those products that are both tough and pliable are able to provide a long term solution to this common problem.
On the west coast of North America, particularly in places like Vancouver, Canada; Seattle, and San Francisco; the problem is one of incessant rain. New building techniques concentrated on the use of stucco cladding for residential buildings, which in fact is best used in drier climates. Seattle receives about 3 feet of rain each year; Vancouver about 4 feet of rain each year. In these wet climates the problems are serious and expensive.
Vancouver is dealing with phenomenon known as the "leaky condo" problem. Local, Provincial and even Federal governments are being petitioned to provide assistance. Task force studies have determined that over $1 billion in repairs are urgently required just in the city of Vancouver to solve the problems. After the major structural repairs are carried out nearly all professionals agree that a high quality elastomeric coating must be applied to help prevent recurring problems in the future.
When I was active in this industry, my companies were the largest purchasers in some markets from the world's leading suppliers of similar products. As you might expect I was an important account for these suppliers and they took care of my needs. But never once did I come face to face with a product to compare with one particular product of WAMC's: an elastomeric roof coating.
WAMC has an elastomeric waterproof roof coating that can be applied to metal roofs. If there are similar products to this in the market I simply do not know of them. Is it significant? Think for a moment about the millions - perhaps billions - of people living outside of North America and Europe who live in huts with tin roofs. WAM151 is designed to be applied to concrete and masonry and primed metal or wood. This amazing product can waterproof roofs at low cost for millions of potential consumers who might previously have had no option for a dry roof.
WAMC has already held talks with a representative of the government of Jamaica regarding the widespread use of this product.
Elastomeric coatings are just one of several major product lines. Others include concrete and brick sealers (one of which is environmentally safe to use even for storage tanks for drinking water); degreasers used for building cleaning and maintenance; liquid plastic "paint" for products as diverse as buildings, ships, furniture, and stone; and binders to improve the adhesive and strength characteristics of numerous products in the construction and rehabilitation industries.
An interesting product is WAM43, a concrete sealer and waterproofer. In official tests, after 24 hour exposure to 98 mph wind driven rain, no moisture was observed penetrating the protected concrete. This meets official US Federal specifications.
WAMC products are environmentally friendly in most cases. Traditionally, coatings were manufactured using volatile chemicals. But in the US the Environmental Protection Agency (EPA) has already mandated that all paints and coatings can no longer use Volatile Organic Compounds (VOC's) by the year 2003. WAMC's elastomeric coating contains zero VOC's. Looking ahead we can safely assume that companies whose products contain volatile chemicals are destined for failure.
Management.
President of WAMC is Glenn Collick, who, in the last twenty years, has worked in the construction industry; as a licensed investment broker; and as an advisor in the investment community. He has a thorough understanding of WAMC's basic business and good exposure to the investment world.
David Bruce is GM of operations and holds a BSc and Msc in Engineering. He has 20 years experience in the day to day operations of manufacturing companies in positions such as President and CEO.
Directors include Jeff Eng, an experienced chemical engineer with CXY Chemicals and past Chairman of the Canadian Society for Chemical Engineering.
Risks.
Competitors include companies such as Harris Specialty Chemicals, a large conglomerate that offers a zillion different products and services in dozens of countries. Although large, a company like Harris cannot reasonably be expected to materially benefit from, say, a single $1 million or $2 million customer order. Likewise, investors in huge companies cannot expect the stock price to rise at all after such an order. WAMC is the only public company in this field that I am aware of that will allow investors to meaningfully benefit from their day-to-day business operations.
But the fact remains that competition in these industries is tough. Many of WAMC's competitors are large companies. We can always hope that, should WAMC turn into a success, one or more of these competitors might try to takeover our company. Harris Chemicals, for example, has bought several competitors in recent years.
WAMC is also in need of expansion and operating capital. The company is in discussions now with unnamed sources to arrange a $1 million financing. Should this financing complete the company will be in a good position in the short term to further its business plan. Without financing the company cannot be expected to progress rapidly.
WAMC is a startup company. It effectively has no operating revenue although its predecessor has completed many projects. We have no way of determining its' true "value" via any type of financial statement analysis. The company's potential future success will rest in large degree upon its ability to generate acceptance and use of its products in the professional fields prior to such use by the everyday handyman.
Stock Potential.
There are risks associated with all startup companies, but there is also great potential. Some of my readers made handsome profits on Napier because they were introduced to the story at $0.12 - long before it attracted attention by other analysts and subsequently rocketed to nearly $5.00. The same is true of Argentina Gold which was rated as a "Strong Buy" in May 1998 at $0.60 and subsequently has reached $5.75. The risk associated with early involvement in a spec. company is real - but so is the potential reward.
WAMC offers strong potential gains because the company is small. With only 4.8 million shares outstanding and a public float estimated at under 1.0 million shares, even small pieces of good news should be reflected in stronger stock prices. The President owns 65% of the outstanding stock. Each of the 4 million escrowed shares can only be released one-for-one with each $1.00 in pre tax profit earned. Talk about incentive!
Consider that in the company's business plan it hopes to achieve $1.4 million in 1999 sales and a net profit of $99,000.00 ($0.021 per share). In 2000 it hopes to achieve $3 million in revenue and $662,000 in net profit. ($0.138 per share). In 2001 it is forecasting revenue of $4.4 million and a net profit of $1.2 million ($0.25 per share). Using a P:E multiple of 20 this implies a 1999 stock price of $0.42 per share; a 2000 stock price of $2.76; and a 2001 stock price of $5.00. With a P:E multiple of 30 the corresponding potential stock prices are: 1999 - $0.63; 2000 - $4.14; and 2001 - $7.50.
The company believes that these are extraordinarily conservative projections. For example it had previously received a 500,000 gallon order from a major US retail distributor that it was unable to fill since it represented 2 years of production capability. If that order can be resurrected or another similar order won, then the stock price could rise quickly.
Today's average P:E multiples in the market in general are about 25:1. Thus based on WAMC's revenue estimates its stock could reasonably be expected to trade between $0.42 and $7.50 during the next three years.
Marketing.
WAMC has a simple marketing strategy that could pay big dividends. Its products have already been used on several high-profile commercial and office buildings. Official product testing is an ongoing process and the WAMC products are meeting official requirements. The company has already held meetings with leading engineering firms in an effort to have their products specified for use on publicly tendered projects. WAMC will continue to meet with engineers and architects in various cities as it gains acceptance in these vital professional markets.
The WAMC elastomeric coating is a high quality product with 69% solids content. This means that as it dries and cures on your building wall, 69% of what you have applied to the wall stays there. Many low quality paints and coatings have only 10% - 15% solids contents: with those inexpensive products most of what you are applying is water. The 10-year warranty offered by WAMC should help to attract the professional community.
WAMC has a second major marketing thrust. It intends to deliver the most often chosen product by the do-it-yourself homeowner. WAMC hopes to reach the handyman with distribution through networks such as Home Depot and Eagle Hardware. Such distribution agreements have not yet been made - but if they are we should expect the stock price to react favorably.
WAMC is the first company in the industry of which I am aware that also intends to market and sell its products directly over the Internet. This E-commerce capability at www.weatherallusa.com should be operational soon and will allow customers to easily order the products they need. The company will ship to their door via UPS or other carrier.
The internet approach has a couple of interesting considerations. First is whether consumers will embrace the concept. On-line shopping is growing, by some estimates, by over 20% each quarter. So, even if the total volume is low today it will not be long before this amazing growth curve must be reckoned with. If WAMC can capture a portion of this market before its larger competitors get wind of the idea, so much the better. Secondly, the InterNUT phenomenon in stock investing is alive and well. Investors cannot get enough of certain ".COM" stock stories and drive share prices to unrealistic heights. While I don't for a minute advocate such stock buying, still there remains the possibility that WAMC could find itself swept up in the craze. Such an eventuality would be music to our ears and pocketbooks.
Success in either of these two different marketing channels could be sufficient for the company to meet its sales goals and thus drive the stock higher. Success in both would be outstanding.
The company manufactures its products at a modern facility just outside of Vancouver, Canada. It is generally less costly to manufacture such products in Canada than it is in the US in large part due to currency exchange rates of US$0.65 : CDN$1.00. The most cost effective locations to manufacture similar products for consumption in the US market are Canada and Mexico. WAMC can manufacture up to 281,000 gallons of product per year (at retail prices of up to $45/gallon) without any significant expansion using efficient just-in-time techniques. Single day made to order production cycles will keep inventory costs to a minimum. A planned expansion will increase capacity to 1.4 million gallons per year.
Summary.
WAMC holds the right to manufacture and distribute 44 leading edge products to a large market. Constant demand for these products in certain restoration and repair sectors ensures that, to some degree, WAMC sales are "recession proof". While the small size of the company is a risk, it is also a huge potential benefit since investors can participate in growth that could be reflected in sharply higher stock prices. WAMC is a low cost producer compared to some of its competitors and might also benefit from product sales over the Internet: a marketing channel not exploited by its competitors. This direct sales channel might also result in higher profit margins since distributors are not required. The stock structure is extraordinarily tight and could offer outstanding price appreciation should the company benefit from increasing sales.
(Disclosure: Because of my prior business expertise in this market micro sector, I have agreed to assist WAMC by providing the company with an exhaustive industry and marketing study. WAMC is compensating me for the marketing study with 100,000 shares of common stock.)
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