North American Technologies Group, Inc. (NasdaqSC: NATK)

Dear Readers,

As much as we abhor the use of trite phrases, we’re going to use one anyway as today the train may indeed be leaving the station. Our feature, a Nasdaq listed company, has a product that offers relief to the environment and investment opportunity simultaneously.

The train connection? This company is selling an innovative new railroad tie to massive buyers like Union Pacific Railroads; stronger, longer lasting and without the dangerous wastes of wood ties and their chemical components.
 

Company Overview

North American Technologies Group (NasdaqSC: NATK) manufactures and markets the patented “TieTek™” line of products, which offers the enormous railroad industry a direct substitute for the traditional wood crossties but with substantially longer life and significant environmental advantages.

Proven via successful testing at a number of U.S. railroads and independent labs, the company is already under contract to provide these innovative ties to rail juggernaut, Union Pacific (NYSE: UNP), the largest railroad in North America, covering 23 states across two-thirds of the United States. 

The Product: TieTek

Chemically treated wooden ties presently hold a commanding share of the crossties market, but TieTek’s crossties advantages and important environmental benefits should help enable them to make rapid market inroads, according to one analyst.  In addition, their use by Union Pacific bodes well for the conversion of those skeptical of their practical application.

An Environmentally Friendly Business

NATK uses recycled raw materials in its manufacturing of TieTek™ ties. By using these difficult to manufacture products, tons of would-be wastes are diverted from landfills to a productive, “clean” use.  Wooden ties require the harvesting of trees and are generally treated with toxic preservatives.  TieTek crossties are patented and have additional patents pending in both the U.S. and other countries.

Characteristics of a desirable crosstie include ability to hold the rails in place, support the rails, uniformly distribute the load, cushion the impact of the wheels on the rails, hold the fasteners in place, resist wear and weathering, and low cost.  The railroads employ sophisticated standards and tests in evaluating competing crossties.

Here is a comparison of crossties as published in a Research Report by Analyst William J. Ritger of The Research Works, Inc. Click here for the full research report. 

A $2.5 Billion Market

Railroad crossties are used to secure a railroad track’s steel rails at a fixed distance apart and help to distribute the load.  A large and stable market exists for railroad crossties, largely as replacements for existing ties that have worn out.  Worldwide demand for railroad crossties is estimated to be more than 75 million crossties costing more than $2.5 billion annually.  In the U.S. alone, some 16 million wood ties are replaced each year – representing an estimated $560 million market opportunity.

      

NATK has sold its patented TieTek™ ties worldwide and is establishing international licensing agreements that will extend its market reach to virtually any location worldwide. Four Class I railroads have bought TieTek ties, including a six year, one million unit order from Union Pacific Railroad Company valued at more than $55 million (click here for the related news release).  Ties have also been sold to Regional Lines, Short Lines and several Transit systems.

NATK’s market development strategy is to build on its existing relationship with Union Pacific and grow sales to other Class I railroads.  Additionally, the strategy is to build a high-margin specialty business with custom ties for Transit lines while employing a license-based international business strategy.

Initial marketing efforts are now paying off and plans are under way to quickly ramp up production to meet expected demand.  The Company has received a very large order from Union Pacific Railroad Company, and its marketing efforts are ongoing.  Management is targeting licensees to address foreign market potential as well.  The Company expects its operations to turn significantly profitable in 2004, with substantial margin improvement in subsequent years.
 

Selected Financial Data

Sales (9 mos ending 9/30/02): $1,004,262
Net Loss (9 mos ending 9/30/02): $ 925,531
Total Stockholders Equity: $5,018,595 (as of 9/30/02)
Total Assets: $5,711,514 (as of 9/30/02)
Total Liabilities: $692,919 (as of 9/30/02)

Total shares outstanding: 38.9 million
Approximate market capitalization: $30 million
Approximate public float: 10 million shares

On January 23, 2003, management announced that it had raised $2.4 million in convertible debt and equity.  The funding includes $2 million from Avalanche Resources, Ltd. (the Company's largest shareholder) and an additional $400,000 in equity from existing and new shareholders.  Click here for the related news release

For SEC filings on NATK click here
For recent news on NATK click here
For recent financial highlights click here

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