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UNIQUE FASTENER TECHNOLOGY ON THE VERGE OF MAJOR COMMERCIAL SUCCESS IN ITS $US50 BILLION MARKET SEGMENT

Author: Jenny Prabhu and Gerald Stanley
Date: 23/06/2007
Publication: Ozequities Newsletter
Subscriptions at www.ozequities.com.au

TZ Ltd was founded in 1998 with its core smart fastener technology invented by Dickory Rudduck, an Australian industrial architect. Based in Chicago since 2003 (the home of the automotive and manufacturing industries in the US), TZ has no competitors - there is nothing else like its systems anywhere in the world.

TZ's intelligent fastening technology is designed around new fastening mechanisms with integrated microprocessors that can be operated remotely from a distance, breaking the need for the physical link between tool and fastener and freeing the fastening process from its historical constraint. 
The fastening mechanisms incorporate “Smart Materials” with actuation through materials that change shape or state when energized.

This reduces the time, labour and therefore cost of the assembly and disassembly process - powerful incentives for their adoption in a global market for fasteners, excluding adhesives and sealants worth over $US50 billion per annum. The company believes it will be able to capture some $US250 million per annum in revenue of this market in the fairly short term and within the next five years has potential for gross revenues of over $US450 million per annum.  

The commercial agreement announced on June 12 with Precilec, which will include TZ's Intevia technology in Precilec's seat actuation systems on aircraft, is a breakthrough by TZ into the aerospace industry. Precilec is part of the Aircraft Systems Segment of The Zodiac Group, a Euro 2.3 billion company and a leader in the field of actuators for commercial aircraft passenger seats.
Earlier, in May this year TZ signed a Letter of Intent with Airbus.

Revenue is likely to ramp up aggressively in the short term. New customers are being signed on, presentations are being made and well received and new products are being launched with widespread industrial applications, apart from aerospace and automotive applications.

While TZ Ltd plans to list on Nasdaq some time in the 2007/08 year, which may be followed by a de listing in Australia, it offers a rare opportunity foro Australian investors to get in on the ground floor of a world beating Australian invention.

What the brokers say

While there is no recent broker's report on TZ, BBY's head analyst Stephen Walsh had visited the company last year and put out a note, but TZ's business model at that time was reliant on Textron Fastening Systems, and (while Textron's involvement was crucial to TZ's having the funds to develop its technology to commercial stage) at that stage TZL received only royalty payments. When Textron Inc decided to divest its Textron Fastening Systems, acquired by Platinum Equity who is now TZ's second largest shareholder, TZ bought Intevia out of Textron Fastening Systems from Platinum Equity's subsidiary Acument, which means that TZ  is now entitled to the full value of its sales.

TZ's CEO David Feber, following an interview in March, was invited by the "Wall Street Reporter" magazine to make a presentation to more than 200 fund managers, analysts and investment bankers representing $US10 billion in investment capital, in New York on June 20.

A significant re-rating for TZ is underway as knowledge of the company and its technology in both its targeted market and the wider investment community expands.

TZ LTD - A SNAPSHOT

TZ Ltd came onto the boards on April 8 2004 following a reverse takeover by CED Australasia Ltd. There were 26.6m shares offered in the prospectus at 45c a share, underwritten to $12 million by Montagu Corporate Pty Ltd.

TZ was founded in 1998 as Telezygology  with its core technology invented by founder Dickory Rudduck, an Australian industrial architect. In 2003 TZ established its US headquarters in Chicago. While the holding company, TZ Ltd is based in Australia and manages the Futurewall (Intanova) business, the rest of TZ's business is conducted through its US subsidiaries, Telezygology Inc and PDT with directors in common for both subsidiaries.

In December 2004 TZL broadened its agreement with Textron Fastening Systems whereby TZL granted Textron an exclusive worldwide licence to commercialise TZL’s intelligent fastening technology for a $US10 million fee.  In August 2006 Textron Inc sold Textron Fastening Systems to Platinum Equity which was renamed Acument Global Technologies.

While Textron's involvement was crucial to TZ's having the funds to develop its technology to commercial stage, under the agreement with Textron, TZL received only royalty payments. When Textron Inc decided to divest its Textron Fastening Systems, acquired by Platinum Equity subsidiary Acument Global Technologies, TZ bought Intevia from Acument for scrip so that TZ  is now entitled to the full value of its sales and Acument became TZ's second largest shareholder.

TZ believes it will be able to capture some $US250 million per annum in revenue in the fairly short term and within the next five years has potential for gross revenues of over $US450 million per annum in its $US50 billion market segment.  

Overview of the TZ technology

TZ's intelligent fastening technology, designed around new fastening mechanisms with integrated microprocessors that can be operated remotely from a distance, breaks the need for the physical link between tool and fastener and frees the fastening process from its historical constraint. 
The fastening mechanisms incorporate “Smart Materials” actuation through materials that change shape or state when energized.

Example:  Nitinol, a shape memory alloy trained to remember its shape after physical change and restore it with a small amount of electrical current. It is 1000 times more energy dense than an electromagnetic solenoid.

Typically wireless communications are used between a software application controlling the assembly logic and the embedded intelligent fasteners.  TZ's proprietary system involves remote activation of the fasteners, integration  of sensors to detect fastener wear and performance and communications capability to report service events to a central database.

This reduces the time, labour and therefore cost of the assembly and disassembly process - powerful incentives for their adoption in a global market for fasteners, excluding adhesives and sealants, worth over $50 billion per annum.

Vehicle manufacturers are increasingly incorporating data networks into the electrical systems of vehicles removing the need for dedicated wires to operate every electrical system and device. The new standard is a two wire network called CANbus which sends signals around the vehicles' various systems and  sub assemblies, overcoming much of the cost, time, design and weight problems of a conventional wiring harness.  This networked environment is ideal for TZ’s intelligent fastening system, which incorporates a CANbus interface and utilizes this in-vehicle network to communicate between the fasteners and the controlling software application.

Intelligent Fasteners can be programmed to detect, analyse and report problems that require service. Also dismantling cars and components for recycling of materials and disposal of hazardous wastes would be made quick and cost effective and according to a programmed sequence.

The TZ technology depends on microchips embedded in the intelligent fasteners, that have secure addresses and respond only to encrypted signals, making them accessible only to designated dealers and technicians - offering security against obstruction or tampering, also an essential requirement for defense applications. Each service procedure could be stored in fastener control software, assuring installation of authorised replacement parts while providing precise service histories and documentation for warranty claims.

The Silicon chips embedded into the fasteners are becoming increasingly inexpensive, so that the TZ fasteners when taken in context of overall cost savings in labour, improvements in security and service procedures are extremely attractive.

While conventional fasteners are typically not designed to be used thousands of times - disassembled for service just a few times during its existence - fasteners for items such as secure latching, access panel attachment and movement of passenger chairs need to operate hundreds of thousands of times. TZ  has the ability to cost effectively mass produce fasteners to meet very demanding applications, well beyond anything previously contemplated. TZ has established this capability within the company. It has an Asian manufacturing capability in place with three commercial fasteners in production and two more families ready to begin.

The company has over 200 patent applications in process in 53 patent families. It employs over 100 highly degreed engineers and is confident both of protecting its IP and maintaining its leadership position in its market. It has over 160 employees in nine international locations.

The divisions

Intevia: Intevia's intelligent fastening technology serves the Aerospace, Defense, Automotive and Marine industries as well as being capable of being used for general industrial purposes.
Intevia was purchased by TZ from Acument Global Technologies Ltd, the renamed Textron Fastening Systems (TFS) business sold by Textron Inc to Platinum Equity which is part of the Zodiac Group, in January this year. The deal was valued at approximately $A24.6 million, paid for in scrip escrowed for 12 months.

Contract with Precilec:
The contract announced on June 12 with Precilec, which will include TZ's Intevia technology in Precilec's seat actuation systems is a breakthrough by TZ into the aerospace industry. Precilec is part of the Aircraft Systems Segment of The Zodiac Group, a Euro 2.3 billion company and a leader in the field of actuators for commercial aircraft passenger seats.

The Intevia technology will be added to the Precilec SeatNet Advanced system which is designed to centralize control and eliminate redundant systems within the seating environment. It also networks the seats to simplify maintenance and service through software control.

Intevia technology allows for lower power consumption, light weight electronic locking and sensing capability as well as feedback through software control.

Letter of Intent signed with Airbus
*TZ's participation in the Aircraft Interiors Expo in May resulted in a Letter of Intent signed with Airbus which outlines participation in the Airbus MTTC (Maintenance Technologies Test Centre) in Hamburg, Germany. The Airbus MTTC is a collaborative showcase for cutting edge technologies in reconfiguration, modularization, networking and innovative maintenance of aircraft.

Product Development Technologies (PDT): was acquired by TZ in March 2005 for a consideration of $US12 million in cash and scrip. PDT is headquartered in Chicago and has 5 international locations. It is a fully integrated product development services company whose capabilities include research, product design,  model making, pre production prototyping, injection moulding tooling and small product run manufacturing. It is ISO 9001 accredited. PDT provides a range of design and engineering services to expand TZL’s current capability.

Intanova: It is an innovative building product technology company offering pre-fabricated, tool-less technology and universal framing platform for pre-finished walls, storefronts, doors, system furniture. Intanova is managed within the Australian holding company.

A demountable office partitioning system called FutureWall which incorporates TZ’s enabling technology, has been licensed to a number of parties.  The Australian licensee has sold almost $7.9 million worth in the first year of licensing.  The company is negotiating licensing agreements with USA and UK based companies. The technology allows for the rapid construction of internal  partitioning walls, which can be recycled and re-configured as a company needs change.

FutureWall offers fast track and simple installation at a price point between drywall partitioning and traditional demountable systems and reduces the costs associated with “churn”.

TZ has continued to invest in development extending the system to include (in addition to demountable walls and partitioning) a glazing system, glass sliding doors, integrated furniture and storage. The work had hardly completed when the Australian Licensee, Techbuilt Interiors began to have good sales interest.

TZ is in the early stages of a US launch for FutureWall and has a good list of interested licensees.
It is talking with Asian office fitout companies. FutureWall is likely to become a profitable high margin global business. In the UK alone, the market for relocatable and operable wall partitioning systems is estimated to be worth around 150 million pounds, not including the drywall or fixed partition market.

On Board Technology - enormous possibilities for future products : The company's On Board Technology portfolio has the building blocks to empower everyday objects with imbedded intelligence. While the company's main focus has been on Intelligent Fastener Technology (IFT), it is only one embodiment of the many variations, adaptations and possibilities. Extension of the IP and technology platforms into other devices such as actuators, closures, valves and packaging will provide enormous opportunities for licensing revenues and application growth at a scale equivalent to IFT. The company is pursuing licensing discussions with several market leading companies in the area of intelligent actuation, intelligent closures and intelligent valves. It is also exploring development partnerships for the creation and commercialisation of other market changing intelligent products. The development relationship with Larson Manufacturing Company of South Dakota, the largest storm door manufacturer in the US, is an example of focused collaboration to design and develop an intelligent product for the residential housing market using TZ's embedded technologies.

TZL Financials

Last Traded price  $2.50
Shares Issued            38.7 mln
Market Cap            $96.7 mln
Year ended June 30, Values in Millions$

* Adjusted for 5 for 1 share consolidation in March 2007
           

* Adjusted for share consolidation

Loan facility available: $4.6 million (as at March 31, 2007)

Directors of TZ Ltd, the holding company based in Australia

Andrew Sigalla, executive director. Andrew has an extensive international experience in capital raising, M&A, IPOs in global markets and corporate advisory. He has played a key role in TZ's history from its inception, with critical contributions made as executive director during the company's initial startup phase, its Australian public listing and continuing strategic acquisitions. Mr Sigalla will continue to play a pivotal role as the company lists on the NASDAQ exchange in 2007.
Mr Sigalla was a director of TZ when the company first listed on the ASX in 2004 and until he was promoted to executive director of TZ in January 2007 he served on the board of the company's Chicago based subsidiary TZ Inc.

John Falconer, TZ Ltd non exec director and company secretary, a Chartered Accountant and the principal of Carbone Falconer & Co in Sydney. He is a director of Kingsgate Consolidated Ltd and company secretary of Tri Origin Minerals Ltd. He has been with TZ since it was founded. 

 Michael Otten, TZ Ltd non exec director, appointed July 7 2006. From 1994 to 1998 Mr Otten was managing director of Singleton Advertising in Melbourne before taking the position of Executive General Manager of Marketing at Crown. He has also run his own marketing consultancy business No Compromises for the past 15 years and is currently developing a number of retail television projects in Asia.

Directors of Telezygology Inc and PDT, the TZ Ltd subsidiaries based in the US

Chris Kelliher, group president of TZ's US subsidiary companies was CEO from 2004 until January this year. Before that Chris was the managing director of Microsoft Australia and New Zealand and Regional Director of the South Pacific Region. He has extensive management, technology, software and organisational experience.

David Feber, Group CEO of TZ's subsidiary companies. David was Vice President, Strategy and Business Development for Acument (formerly Textron Fastening Systems) became CEO of TZL in January 2007, replacing Chris Kelliher who assumed the role of President of TZL on a new three year contract.

Dickory Rudduck, Telezygology CTO. The founder and source behind the philosophy of intelligent fastening technology and its application. Dickory has a successful 20 year industrial architecture background and has been involved in many high profile industrial developments.

Mark Schwartz, PDT CEO. Mark founded PDT in 1995 after holding senior engineering positions for 8 years with Motorola and prior to that Zenith Corporation. Mark and PDT have high profiles in the US Industrial Design community.

John Wilson, Intanova CEO (based in Australia). John has an engineering background with graduate studies in international marketing and innovation management. He has extensive senior executive experience in strategic marketing, general management, product development and technology commercialisation.

Noel Gewarges, Group CFO of TZ's USA subsidiary companies. Noel was for several years Tax Manager at Arthur Anderson. He then started his own accounting and tax advisory business prior to joining TZ.

Major shareholders
*Directors and management 25 pct.
*Acument Global Technologies Inc (a wholly owned subsidiary of Platinum equity) has 10.16 pct of TZ Ltd via placement pursuant to Asset Transfer Agreement. Became substantial on January 23 2007, shares escrowed for 12 months.
*Convertible Note with US based hedge fund DKR Oasis if converted represents a 16 pct shareholding.