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TZ Ltd.
Robert S. Stoklosa
TZ
Industry: Electronics & Engineering
Recent Price: $4.50
52-week Price Range: $0.48 - $6.45
Target Price (12 Months): $10.00
Avg. Daily Vol. (3 mo.): 149,128
Fiscal Year Ending: June
Year EPS P/E REVS PSR
2005 N/A - - - - - - - - - - - -
2006 A $1.13 4.0 $20.78 8.4
2007 A $-25.30 - - - $15.86 11.0
2008 N/A - - - - - - - - - - - -
2009 N/A - - - - - - - - - - - -
Balance Sheet Data (mil) 06/30/07
Cash Equivalent: $7.6
Working Capital: $14.6
Long-Term Liability: $22.0
Shareholder's Equity: $55.4
Ownership and Valuation (mil)
Shares Outstanding: 38.73
Inside Ownership: 55.00%
Institutional Ownership: 30.00%
Equity Market Value: $174.3
Current Rating History
Date Assigned: 10/18/2007
Price at Rating: $4.50
Original Price Target: N/A
Time Frame: 12 Months
Notes on Quantitative Data
In Australian dollars. EPS for continuing operations.
Rating: Buy
10/18/2007
Initiating Coverage of TZ, Limited, With a Buy Rating. Anticipate Start of Strong Growth in the Novel Intelligent Fastener
Market
We initiate research coverage on TZ, Limited (TZ), with this research note with a Buy rating. TZ is the market leader in intelligent
fasteners - the integration of intelligence and software control into everyday objects to enable new levels of functionality. It has
created this novel space by adding security functions to fasteners in ways not previously considered. TZ has only recently
received initial purchase orders from its first customers in what will be a large and high growth marketplace.
TZ is an Australian company listed on the Australian exchange (TZL) in the process of moving its headquarters to the US
(Chicago, IL). It will prepare to list on NASDAQ next year. TZ is organized as two groups: Telezygology, Inc (TZI), and the PDT
Group (PDT). TZI is further broken into two groups: Intevia, and Future Wall.
* Intevia develops and manufactures a variety of novel intelligent proprietary fasteners that combine sensors, semiconductors,
actuators, and software into secure, yet visually appealing, fastening mechanisms. A typical application may be a locked door to a
storage area - large or small. The fastening latches and locking mechanisms of the door can be hidden from view and access to
the storage space, the 'key', controlled only by a custom tuned radio (RFID) device. Such fasteners are highly secure, and are
under consideration for mass deployment by the aerospace, defense, marine, automobile, and security industries.
* Future Wall designs and manufactures and sells modular office walls that incorporate Intevia intelligent fasteners. The panels
are modular, and use no conventional fasteners (eg: screws, nuts, bolts, or clips) for assembly. The Future Wall installation
process provides substantial savings in both installation time and material.
* The PDT Group is one of the premiere engineering and quality design firms in the US. It focuses on high value added markets in
mechanical, industrial, and process engineering. Revenues develop from billable hours spent on design projects which have
ranged from the design of Motorola and Qualcomm handsets to Bosch electric handsaws. TZ has both repositioned and
restructured PDT's operations during 2007 to target higher operating margins.
Business.
Our attention immediately focuses on Intevia. Telezygology is the science of remote fastening. The term collectively describes
enabling technology that allows one to control fasteners at a distance without tools, and without physical contact. Telezygology is
reputedly traced to experiments at the Massachusetts Institute of Technology some 50 years ago, but TZ is the first to
commercialize it.
Intevia employs a shape changing material, nitinol, a nickel-titanium alloy, as the core of its actuating device. When an electrical
current is applied to a small strip of nitinol, the material heats and deforms. The deformation causes enough movement to trigger
an actuating device, which, for example, unlocks and opens a door. The 'key' for this lock is a RFID signaling device. Within the
locking mechanism, a RFID receiver passes the signal to an ASIC which generates a precise and measured amount of current to
a nitinol strip. Reactance causes the strip to heat, deform, cause a latching mechanism to open, and voila - access to the space.
Since the RFID signal can penetrate solid objects, no external lock, door handle, or hinges need be visible. Intevia has expended
substantial development and testing time to determine the exact amount and duration of current to apply in the system.
The Intevia process is superior to the old solenoid-coupled-to-a-linear motor method. With an energy density 1000x greater than
the solenoid method, the Intevia intelligent fastener provides faster response, draws less current, produces less heat, generates
less electromagnetic interference, and saves considerable space. The absence of a visible door handle and lock has great design
and security appeal.
The potential market for intelligent fasteners is large: $50 billion, according to market researcher Freslonia Group. Intevia is first to
this novel market, and has both intellectual property protection as well as substantial development experience in working with
nitinol. The company has just announced initial orders from customers: first tier aerospace (Boeing), automotive, and defense
(BAE) companies. While some specific applications remain unannounced, it is not difficult to visualize cabin doors, coat lockers,
and perhaps tray tables on airplanes; and electronic entertainment housings, glove boxes, and even doors on automobiles that
can benefit from such intelligent fasteners. As an example of ease of installation, and therefore, cost savings: consider that a
radio/CD player in a Mercedes takes 5 hours to replace, a similar radio locked into place with an intelligent fastener takes only
minute to replace. One can extrapolate to a wide variety of marine, medical, and commercial applications.
Financials
TZ reported its fiscal 2007 year ending in June, 30, 2007, on October 1, 2007. As an Australian company, TZ files financial
reports semi annually. Financial reports are expressed in Australian dollars, and use expense line items somewhat different than
US GAAP. Australian accounting also allow certain items such as development costs, typically expensed in US GAAP treatments,
to be capitalized.
Fiscal 2007 revenues were A$15.8 million, gross margin 22.4%, a net loss of A$10.8 million, and earnings per share from
continuing operations of (A$25.30). The US GAAP format (exchange rate of A$1.2723 per 1US$) was revenues of $12.5 million,
an operating margin of -50.5%, and a net loss of $8.5 million. This compares to the fiscal period a year earlier ending June 30,
2006 in which revenues were A$20.7 million, gross margins 31.9%, and net income of A$592,308. There were 38.7 million
ordinary shares outstanding on June 30, 2007.
The balance sheet showed total assets of A$80.2 million, with A$22.0 million in long term liabilities, and A$55.4 million in equity.
A$7.6 million was in cash, and current assets were A$17.4 million. The year before (June 30, 2006) recoded total assets of
A$59.5 million, long term liabilities of A$4.4 million, and equity of A$48.0 million. Cash was A$3.4 million, and current assets were
A$15.1 million.
Historical financials do not accurately portray TZ's potential as it has invested heavily over the past year to develop product,
restructure its businesses, and prepare to enter a rapid growth phase in the intelligent fastener market. The company also had a
5/1 reverse stock split in April, 2007. The quality represented by its first customers provides strong proof of concept, and may
explain the rise in stock price in September.
Summary
We believe that TZ provides investors with an early entrance to the new, large, and rapidly growing market of intelligent fasteners.
Intelligent fasteners have clear advantages over existing products and methods, and superior product attributes. The security
aspect is very compelling. TZ has established undisputed leadership in the market. The company is migrating from the
development stage to the customer acquisition stage rapidly, and has announced its inital purchase orders from first tier customers
in the aerospace and automotive manufacturers only in the last few months. We anticipate TZ to benefit from strong revenue
growth as it develops this fledgling market. Finally, after restructure and repositioning, improved financials from PDT will contribute
to profitability.
Current Dutton Associates disclaimer and 17b disclosure information regarding TZ Ltd.
Information, opinions or recommendations contained in Dutton Associates' research reports or research notes are
submitted solely for advisory and information purposes. The information used and statements of fact made have been
obtained from sources considered reliable but we neither guarantee nor represent the completeness or accuracy. Such
information and the opinions expressed are subject to change without notice. A Dutton Associates research report or note
is not intended as an offering or a solicitation of an offer to buy or sell the securities mentioned or discussed. Neither the
Firm, its principals, nor the assigned analysts own or trade shares of any company covered. The Firm does not accept any
equity compensation. Anyone may enroll a company for research coverage, which currently costs US $35,000 prepaid for 4
Research Reports, typically published quarterly, and requisite Research Notes. Dutton Associates received $37,500 from
The Company for 4 Research Reports with coverage commencing on 10/18/2007. Reports are performed on behalf of the
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related to the specific recommendations or views contained in this research report or note.
Dutton Associates. John M. Dutton, President, 4989 Golden Foothill Parkway, Suite 4, El Dorado Hills, CA 95762 Phone
(916) 941-8119, Fax (916) 941-8093.
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