31 October 2006
Lodged by ASX Online – 75 pages
The Manager
Company Announcement Office
Australian Stock Exchange Ltd
Level 4, 20 Bridge Street
Sydney NSW 2000
ANNUAL REPORT
Please find attached a copy of the 2006 Annual Report for TZ Limited which was
posted to all shareholders today.
====================================
Media Enquiries
John Wilson
TZI COO
jkw@tz.net
+1 312 464 1500 x12 (Chicago)
Investor Enquiries
John Falconer
Company Secretary
j.falconer@tz.net
+61 411 420 720
Sydney (Registered Office)
Level 12, 92 Pitt St
Sydney NSW 2000 AUSTRALIA
Chicago (Operational Headquarters)
350 N LaSalle, Suite 1100B
Chicago, IL 60610 United States
Web:
Email:
www.tzlimited.com
info@tzlimited.com
Ph:
Fax:
+612 9223 8044
+612 9223 8820
Ph:
Fax:
+1 312 464 1500
+1 312 464 1540
06 annual report
contents
2 highlights
4 ceo’s report
6 operations
8 catalyst for change
10 hold the course
12 platforms for growth
14 building our intellectual capital
16 production focus
18 growth in services
21 financials
highlights
With just over two years from listing on the Australian Stock Exchange and
with the first full year headquartered in the U.S. behind us, by any measure,
substantial growth and progress has been made toward our objective of creating
a globally recognised industry standard based on our proprietary inventions and
to building a company capable of sustained growth and value creation.
2004
Financials
YEJ 04 revenue: $1.19M
YEJ 04 net assets: $27.9M
Market capitalisation: $54.5M
Shares on issue: 128.4M
Infrastructure
10 employees
Australian-based operation
Sydney office
2
2006
Financials
YEJ 06 revenue: $30.5M
YEJ 06 net assets: $48.0M
Market capitalisation: $67.8M
Shares on issue: 157.2M
$30.5M
YEJ REVENUE
Infrastructure
Over 160 employees
U.S.-based operations
Office locations:
• Chicago and Lincolnshire (IL)
• Boston (MA)
• Plymouth (MN)
• Austin (TX)
• Coral Springs (FL)
• Oxford (UK)
• Lviv (Ukraine)
160+
EMPLOYEES
IP & Technology
19 patent families
Research in SMA actuation
Development programs:
• Fastening mechanisms
• Embedded electronics
IP & Technology
55 patent families – over 80 inventions
Full product development capability
Testing and validation capability
Recognised leader in SMA actuation
Established technology portfolio in:
• Devices and actuation
• Embedded electronics and sensing
• Communications protocol
• Proprietary operating software
80+
IN VE NTIONS
Commercialisation
Intelligent Fastening (IFT):
• Option agreement with TFS
• Auto/aerospace application concepts
• About ten IFT customer engagements
• No IFT related sales
FutureWall™ licenses:
• Australia
• Hong Kong
Commercialisation
Intelligent Fastening (IFT):
• License agreement with TFS
• Three fastener families in production
• Over 100 IFT customer engagements
• $1.4M in IFT related sales
FutureWall™ licenses:
• Australia
• Hong Kong
• UK
• New Zealand
Other licenses:
• Two licenses (pet care industry)
100+
IFT CUSTOMER
ENGAGEM ENTS
Customers
Strategic relationships:
• Textron Fastening Systems
• Alcoa Extrusions
Customers
Relationships with market leading
companies across electronics, medical,
consumer products, defence, aerospace,
automotive and industrial segments
“We view TZ as a
catalyst, providing
insights into the
latest advances
in technology”
FRANCO LODATO
VP, DESIGN EXPLORATION & DEVELOPMENT
ceo’s report
“In perspective of the challenges overcome,
technology advancements made, the refocus
of our commercialisation partner and the
relationships formed during the course of the
year, the Directors believe the Company is well
positioned and on steady course to achieve
its goals.”
4
In two years, we have progressed breakthrough ideas
and concepts to commercial reality by inventing,
designing, testing, manufacturing and selling a whole
new class of devices – devices that blend advanced
mechanical engineering, smart materials actuation and
the power of software and electronics. No devices like
these have existed before and they have been broadly
recognised for their potential to dramatically change the
way objects are designed, assembled and serviced.
The past 12 months has had its challenges. Last
September, Textron Inc., our key licensee and
commercialisation partner, signalled to the market
its intention to sell its $2B fastening business.
This was an unplanned development that,
depending on the intentions of the new owners, had
the potential to both negatively and positively impact
TZ. The Directors consequently put in place plans to
mitigate adverse effects and to capitalise on opportunities
that might emerge from the Textron decision. These
included leading a bid and undertaking due diligence
processes to purchase TFS in association with one of the
world’s largest financial institutions as equity partner.
TZ’s bid advanced to the final round and the Company
acquired insights into the process and its participants
that it otherwise would not have gained. It also obtained
exposure to potential partners and financial backers that
will be valuable to TZ’s future endeavours. Although the
Directors believed that outright or majority ownership
of TFS would burden TZ with leveraged debt and other
liabilities that could distract the Company from the
primary goals of the business, staying in the process
to its conclusion allowed us to keep our options open –
a decision that we believed to be the strategically correct
course of action.
Secondly, the Company needed to plan for the worst.
A new TFS owner with little interest in our technology
or who was unprepared to accept the license obligations
would have set us back two years. To mitigate the risk,
we needed to be able to manufacture intelligent fastening
devices should we have had to go it alone. This involved
significant production engineering, establishing and
training a manufacturing partner in Asia, producing
the injection mould tooling for three fastener types
and developing test and verification methods for
volume manufacturing.
“The relationship between Textron Fastening Systems and TZ is strong, as evidenced by Intevia®
proprietary systems and products introduced into global markets, we have complete faith in this
technology and its potential to unlock value for Textron Fastening Systems, its customers and,
ultimately, for Platinum Equity as owner of the business.”
Mark Barnhill, SVP and Principal, Platinum Equity
The execution of these plans required substantial
However, due to subsequent amendments to the
management time and turned attention away from the
agreement, external advisors recommended the revenue
core business. It also incurred significant unbudgeted
be taken up during the term rather than in the 2006 year.
expense. It was, however, the appropriate course of action
This deferment did have a negative effect on our 2006
and the Directors believe benefits will still result from
financial result. It is, however, indeed positive that this
these activities and the relationships formed during the
substantial transaction was completed and the Company
TFS divestiture process.
will derive benefit from it in the future. It is unfortunate
that the timing casts a shadow over what has otherwise
Platinum Equity is the progressive new owner of TFS and
been, in light of its challenges, a solid year’s performance
under its direction we anticipate a concentrated initiative
to accelerate Intevia® sales volume. We understand this
initiative to be an integral part of their TFS growth plans.
when taken into account with the unbudgeted one-time
costs incurred pursuing the TFS acquisition and related
activities.
There were also significant technology hurdles to
overcome. Conventional fasteners are typically not
That is behind us. We go into the 2007-year with
increased engineering capability focused on the
designed to be used thousands of times. Once a product
development plan. We have an Asian manufacturing
is made, it may be disassembled for service just a few
times. The three Intevia® fastener families in production
have a design requirement to operate hundreds of
thousands of times, as required by the aerospace industry
capability in place with three commercial fasteners in
production and two more families ready to go. We booked
approximately $1.4 million of Intevia® revenue in the
past year. Our key partner is re-energised. PDT continues
for its secure latching, access panel attachment and
to perform well, with its engineers making valuable
interior reconfiguration applications. Also, the fasteners
contributions to our development programs. And, our
have to be designed for volume production with low
other intellectual property areas are on track to contribute
variability in performance. Enormous amounts of testing,
income this year.
production engineering and validation work went into
overcoming these challenges and setting up the Asian-
On behalf of my co-Directors, our thanks and appreciation
based manufacturing capability. Achieving all of this in
go to our dedicated management staff and their respective
a very short timeframe is a great credit and testament
teams who have performed tirelessly to overcome the
to the dedication, competency and skill of our technical
challenges presented to them during the past year.
and engineering teams. Because of this work, we now
To our shareholders, we appreciate and thank you for
have the ability to cost effectively mass produce fasteners
your patience and ongoing support. It has kept the wind
to meet very demanding applications – well beyond
in our sails as we navigated through a difficult course.
anything previously contemplated. It is TFS’ responsibility
to undertake large-scale manufacturing; however, it is
of strategic significance that we have established this
capability within the Company.
The business plan anticipated the sale of additional
Futurewall™ licenses in the last quarter of the financial
year. In June, we reached agreement with the Australian
licensee on expansion of its territories and other terms.
Chris Kelliher
Executive Director, TZ Limited
Chief Executive Officer, TZ Group
Maximum Force Motor
Intelligent Actuation
6
operations overview
888
OPERATIONS | 2006 ANNUAL REPORT
catalysts for change
In early September 2005, Textron Inc.
announced that it would review strategies
to improve TFS’ business performance and
as such, was considering selling certain or
all of TFS assets based on that strategic
review. This consideration became
a reality in early December when Textron
announced that it had commenced a
marketing process to sell the business
as a whole.
On balance, the acquisition of TFS by Platinum Equity
in August 2006 represents a positive outcome for the
Company. Platinum’s portfolio holding and interest in
software, information technology and telecommunications
businesses should provide a very supportive environment
for the development of the business relationship between
TZ and Acument Global Technologies (the new TFS)
and to Intevia® commercialisation growth generally.
Intevia® features predominantly in Acument Global
Technologies’ new brand architecture. TZ management’s
intense networking and collaboration with U.S. financial
institutions over the course of the TFS divestiture
has provided a foundation for strong relationships
with significant parties in the financial community.
The increased awareness and profile of TZ among the
top U.S. investment firms has generated interest in the
Company and to its future plans for a NASDAQ listing.
10
hold the course
Despite the significant distraction on TFS Executives with the divestiture and the
constraints on resource allocation and planned investment, positive progress continued
to be made in support of Intevia® commercialisation. Revenue from the TFS relationship
exceeded expectations, fuelled primarily through funded application engineering
programs and prototype development. Royalties on sales did not materialise this year
due to delays in customer programs but are anticipated in the 2007 year.
TFS recognised that to expand focus and to better
manage Intevia® commercialisation efforts across other
targeted industry sectors such as automotive, industrial,
electronics and security, the Intevia® operation would
be better served as an independent business unit under
the direct control of corporate business development
and strategy, as opposed to incubation within the TFS
Aerospace Business. In October 2005, TFS recruited
Mr. Steve Brown, a strategic marketing professional
with over 17 years experience developing and
launching new product initiatives to the major
automotive OEMs, to direct the commercial effort and
implement an independent Intevia® business unit.
Mr. Brown introduced a new approach to Intevia®
sales – one based on market focused segmentation
and value-based management principles.
To provide structure to opportunity identification and
harvesting, TZ and TFS commissioned a three-day
Opportunity Discovery workshop in late January 2006
with SRI Consulting-Business Intelligence (SRIC-BI), a
spin-off consulting business from the former Stanford
Research Institute. The workshop brought TFS, TZ and
PDT resources together with SRIC-BI representatives and
specific industry experts to help identify and evaluate
opportunities for Intevia® application outside of the
aerospace, defence and automotive sectors, which had
been the primary focus for Intevia® commercialisation.
Over 200 ideas were generated in new sectors of interest
including security, construction, electronics and the
medical device industry. Following a structured filtering
process, 77 application opportunities were identified as
highly prospective. Of these, 30 applications progressed
through a robust analysis process to validate market
potential and to define clear go-to-market strategies.
Based on analysis of these initial applications, revenue
models were generated by TFS to better quantify
the business opportunity and support investment
and resource decision-making. The opportunity pool
reinforced the significant sales potential of Intevia®.
Over the year, more than 100 prospects were
approached in the targeted segments of aerospace,
defence, automotive, industrial, medical and rail. Many
of these engagements are progressing through the
application discovery phase where market needs and
solution benefits are aligned to create a compelling
value based Intevia® product offering. To date, the
aerospace and defence segments continue to be the
lead adopters, although the lengthy adoption cycles
resulting from the technology having to be designed
into the next product platform means a post-2009
market introduction. TFS is ramping activity in other
industry segments that offer shorter lead times to
market and opportunities for retrofitted solutions.
In early January, following months of discussion, TZ
and TFS agreed to progress the commercial production
of three industrial strength intelligent fastener families
for introduction to the market as part of the Intevia®
Evaluation Kit (E-Kit). TFS agreed to contribute
approximately A$1,100,000 to the program, funding TZ
to undertake the design and engineering of the devices
and to pioneer production management in Asia.
The E-Kit, planned for full commercial launch in late
2006, will showcase the capability of these devices,
provide users with the tools to explore the full
functionality of Intevia® intelligent fastening solutions and
demonstrate the remote communications and networking
capability of TZ’s device control operating system (TZ-OS).
TFS has communicated an objective over the next
12 months to fully develop its Intevia® business unit
and better leverage the competencies of TZ. They
plan to embark on a strong marketing and media
promotion behind the E-Kit introduction to maximise
technology awareness, ramp application potential
and increase the rate of adoption of the technology.
OPERATIONS | 2006 ANNUAL REPORT
111111
Intevia® Evaluation Kit
PDA-driven application software
12
platforms for growth
The uncertainty surrounding the TFS
divestiture prompted the Company to
accelerate commercialisation efforts across
its core IP breadth. While the Company’s
main focus has been on IFT and building
the TFS and Textron relationship, the
Company does carry a substantial portfolio
of valuable intellectual property on which
to build similar license relationships and
strategic development partnerships.
On Board Technology™
The Company’s On Board Technology™ portfolio
comprises the building blocks to empower everyday
objects with embedded intelligence. IFT represents only
one embodiment of the many variations, adaptations
and possibilities. Extension of the IP and technology
platform into other devices such as actuators, closures,
valves and packaging will provide enormous opportunities
for licensing revenue and application growth at a scale
equivalent to IFT. To this end, management is pursuing
licensing discussions with several market leading
companies in the area of intelligent actuation, intelligent
closures and intelligent valves.
The Company 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 U.S. is an example of focused
collaboration to design and develop an intelligent product
for the residential housing market enabled by
TZ’s embedded technologies.
platforms for growth
OPERATIONS | 2006 ANNUAL REPORT
FutureWall™ Technology
The FutureWall™ technology is an innovative new
approach to the concept of demountable partitions.
As an interior building platform, it not only provides a
fully flexible partitioning solution, but adds significant
value by providing a platform for the integration of
storage systems, furniture and quality finishes.
Following several months of negotiation, TZ finalised
the sale of a FutureWall™ technology license to
TechBuilt Interiors Pty Limited, the existing Australian
FutureWall™ licensee, extending the term of the existing
license in Australia and expanding the licensed territory
to include New Zealand and the United Kingdom.
The A$3M royalty bearing license deal, effective
from 28th June, represented a major step forward
in the Company’s efforts to further capitalise on the
success of the FutureWall™ IP and technology since
its introduction some three years ago. TechBuilt
Interiors has a five-year FutureWall™ target to
develop and capture a large percentage of the office,
hotel and retail market in Australia, giving it clear
leadership in flexible interior space solutions.
Currently, the major Australian law offices and financial
services firms are among the principal users of the
FutureWall™ system. Other installations include an
8,000-square-metre fit-out for UNISYS and approximately
10,000-square-metre fit-out for NICTA (National
Information and Communication Technology Australia).
TZ has plans to continue to develop and exploit the
FutureWall™ technology and build on the track
record of successful installations in Australia. Plans
include the integration of Intevia® devices into the
FutureWall™ system to revolutionise installation
and demounting processes. This plan will help the
FutureWall™ system to take a quantum leap forward
in benefit to customers over competing alternatives.
TZ is also progressing discussions with interested
third parties in Asia for the establishment of a joint
venture to exploit the large regional Asian interior
fit-out market opportunity. Discussions also continue
with a number of prospective U.S. licensees.
FUTUREWALL™ BUILDING PLATFORM
Kemp Strang Law Offices
Sydney, Australia
1
building our intellectual capital
TZ On Board™
Proprietary Microprocessors
OPERATIONS | 2006 ANNUAL REPORT
A year of invention, the IP portfolio grew with 11 new patent application families
bringing the total number of patents owned by the Company to 55 patent families.
These patent families represent around 80 unique and novel inventions across
the technology breadth of the Company.
The IP portfolio has been rationalised into four categories:
Core IP, Application IP, Licensable IP and Group IP.
The latter two categories reflect external business
initiatives and new internal innovations respectively.
Core IP comprises patent families that directly relate
to the field of On Board Technology™. Technology Plan
activity this year led to six new patents lodged covering
innovations in device technology and actuation concepts.
Of the 25 patents in varying stages of prosecution, 13
applications are currently in national phase examination;
seven are in the PCT international phase; and five
are provisional applications. One patent family titled
“Internal Jigging” was granted in the U.S. in May 2006.
1
Application IP relates to patents generated from the
collaborative efforts of TZ and TFS and are owned by
TFS as part of the license agreement. This portfolio
currently comprises 15 patent families of which ten are
in PCT international phase and five are in provisional
applications. For practical reasons, TZ manages these
families on behalf of TFS and works with their IP
resources to rationalise and make prosecution decisions.
Licensable IP comprises six patent families; two are in
national phase; one is in PCT international phase and
three applications are pending in the provisional phase.
This year, the FutureWall™ “Building Elements” patent
was granted in the U.S. and Australia bringing the total
number of FutureWall™ Patent and Design Registrations
to nine grants.
Group IP is a category of patents generated by employees
that do not directly relate to core activities but offer
potential for licensing revenue. Five new applications
were lodged this year bringing the category portfolio to
eight patent families. Of these, three patent applications
have been licensed under royalty bearing agreements to
major companies in the juvenile product and pet care
markets who are obligated to develop and market the
finished products.
TZ is also exploring opportunities to capture
complementary third party IP that may offer significant
strategic value when bundled with the Company’s
proprietary IP portfolio. There is an active program under
way looking at IP portfolios and technologies that may be
targets for acquisition or licensing.
With the continued growth of the Company’s IP portfolio,
the need for effective patent portfolio management has
been addressed with the successful implementation of a
Web-based IP management system. A year in the making,
the system will help to reduce prosecution costs and the
dependency on external consultants while providing
time-savings and a robust auditable system.
production focus
16
Intevia® Evaluation Kits
Production line assembly
Intevia® Evaluation Kits
Ready for launch
OPERATIONS | 2006 ANNUAL REPORT
By far, the focus of the year’s Technology Plan has been the progressive
development, testing and transition to production of five intelligent fastener
families and the associated electronic platforms and software operating systems.
The technology team has successfully taken IFT into full-
scale volume production in cost-effective manufacturing
centres in Asia. The In-line, Radial and Ring fasteners are
now being manufactured in quantity, along with wireless
control key fob, communications interface and Bluetooth®
linked PDA based software. The establishing of plastics
injection moulding and metal die-casting facilities in
China with electronics manufacturing and unit assembly
in Malaysia has proven that intelligent fasteners can be
manufactured in volume to meet application cost targets.
To enable a wide range of intelligent fastening
applications to be addressed from the fastener family
platform, a program of developing modular adaptations
has been undertaken. This program allows a proven and
validated mechanism core to be coupled with modular
adaptors to suit particular physical, environmental and
network interface environments. This approach has
allowed very rapid response to satisfying customer needs
and has led to the harvesting of a number of substantial
application opportunities.
Establishing volume manufacture has been a significant
technical challenge, requiring rapid expansion of
technical team resources and competencies. The
expanded U.S.-based production development team
has made extensive use of the Company’s engineering
resources, leveraging group capabilities in the U.S. and
in Ukraine. With tooling development and manufacturing
resources in the U.S. and China, our technical and
manufacturing activities are truly global.
In addition to fastener development, the year has seen
the design, development and manufacture of the Intevia®
Evaluation Kit (E-Kit) which provides fastener mounting,
powering, network interconnect and control facilities in
a form suitable for use at customer demonstrations, trade
shows and for technology evaluation purposes. Advanced
concepts such as sensing, auxiliary control and PDA
network interfacing via Bluetooth® can be demonstrated
using the kit. Later this year, advanced users will be able
to have their kits upgraded to an enhanced Developers
Kit configuration, allowing them to program complete
Intevia® application solutions.
In parallel with the production engineering of the
first three families of fasteners, TZ’s technical
development program has continued to produce new
intelligent fastener families. A low-cost morphing
Beam fastening device has been developed, tested and
successfully demonstrated to customers with positive
response. The device is likely to enter volume production
in the coming year depending on application demand.
A new high-strength fastener family, denoted the Strip
fastening device, has also been designed and will be taken
to production readiness.
During the year, the technology team also focused on the
development of Intelligent Actuators. These new devices
build off the existing enabling technology platforms, but
in their own right, represent a strong licensable IP and
technology package for 2007. Linear, quarter-turn and
continuous rotary actuator designs along with working
prototypes have been developed and are anticipated
to move into production designs in the coming year.
Relationships are being formed with a number of
technology and smart materials providers to strengthen
the actuator technology portfolio.
Having laid the foundations, the Company is primed to
accelerate its technology development and manufacturing
program to support business opportunities. Several
new intelligent fastener families and modular variants
of existing fasteners are planned to enter volume
production. A number of additional fastener and
actuator families will also be developed. New sources of
smart materials will be established, alternative smart
material actuation will be explored and the Company
is anticipating establishing supply of specialised high-
temperature Shape Memory Alloy.
Another key development scheduled for 2007 is
the incorporation of embedded electronics and
TZ’s operating system into an Application Specific
Integrated Circuit (ASIC). Development of the ASIC
will represent another major achievement and step
forward in making embedded intelligence a viable
and cost-effective reality and in expanding the
functional possibilities of On Board Technology™.
17
growth in services
18
The acquisition of PDT in March 2005
and the agreed earn-out provision
ensured strong motivation for PDT to
meet its US$3.0m EBITDA objectives for
the 2005 calendar year.
PDT delivered on its revenue and profitability promises,
expanding its customer and revenue base in two
strategically important business sectors: medical and
military. Medical revenues increased significantly as the
business continued to build a strong backlog of medical
device development programs. Revenues from military-
related programs have also expanded and are expected
to more than triple in the coming years. To fuel further
growth, PDT will become International Traffic in Arms
Regulations (ITAR) registered and compliant, which
will not only create further opportunities to secure
military engineering contracts, but will also support
Intevia® defence applications opportunities as well.
PDT continued to expand its geographic reach by
acquiring a small design and engineering business
in Austin, Texas. This year, expansion plans include
potential acquisitions on the U.S. East and West coasts
as well as building an Asian hub, most likely in Hong
Kong. Existing branches in Florida, Minnesota, Ukraine
and the UK all continued to build their businesses
with expanded service offerings. The UK office grew
substantially this year and has become a hub for TZ
and Intevia® opportunities into Europe. The highly
professional but lower labour rate of the Ukrainian
operation continues to be a key competitive advantage,
giving the business a unique ability to provide round-the-
clock client services while keeping rates competitive and
profits strong. Securing training visas for 14 Ukrainian
engineers will expedite training cycles at U.S. facilities.
Other major accomplishments this year include
development of a new 18-member electrical engineering
and software group and the hiring of a new Global
Sourcing Manager to provide the group and our
customers broader offshore sourcing capability.
On another business front, several new product
ideas developed by PDT’s internal innovation think
tank generated licensing opportunities with leading
manufacturers in the juvenile product and pet
care markets. These opportunities promise to add
additional sources of revenue in the coming year.
In addition to growth from new business initiatives,
PDT foresees a strong pipeline of continuing business
with current customers in the consumer products, health
care and hi-tech sectors. These relationships will continue
to fuel service revenues and will open new opportunities
for the application of TZ’s unique technology.
OPERATIONS | 2006 ANNUAL REPORT
LEFT
Magnetically driven
lancing devices,
a PDT innovation
RIGHT
PDT engineering
excellence
19
“Platinum Equity firmly
believes that advanced
technology products
are vital to the future of
the fastening industry,
and in particular, to our
Textron Fastening
Systems business.
This advanced
technology is
exemplified by Intevia®
Intelligent Fastening
Solutions, which TFS
is developing in
collaboration with TZ.
Mark Barnhill
SVP and Principal
Platinum Equity
20
Platinum + Acument:
Little things. Big difference.
Fasteners are an essential part of everything from
MP3 players to the space shuttle. When Textron
decided to divest its Fastening Systems division,
they were looking for a partner who could manage
this complex global business. They found us,
Platinum Equity.
The $1.8 billion company, being rebranded
as Acument Global Technologies, manufactures
and sources mission-critical fasteners for the
automotive, aerospace, electronics, construction
and industrial markets.
Its brands—Camcar, Cherry, Intevia, Avdel, and
Elco, among many others–hold well-established
positions in important fastening markets and
serve blue-chip manufacturers around the world.
We’ll bolster their positions and enhance the
value of Acument through our unique M&A&O®
approach, which will focus on both organic
initiatives and follow-on acquisitions.
This cornerstone acquisition, purchased
in August 2006, is our largest and our most
complex to date. It also marks our first
acquisition in the industrial fastener market.
We’re always looking for partners who pursue
value as aggressively as we do.
Considering a divestiture?
Make Platinum Equity part of your plans.
www.platinumequity.com
Platinum Equity placed this
advertisement in the Financial
Times in early October 2006
to announce its acquisition
and rebranding of TFS
©Copyright 2006 Platinum Equity Advisors, LLC. All rights reserved. “Mergers. Acquisitions. Operations.” is a service mark and M&A&O is a registered service mark of Platinum Equity, LLC
and the trademarks or service marks of Platinum’s associated companies appearing herein are the property of those companies. It is not our intention to claim as our own any third party
trademark that may appear in this material.
FINANCIALS | 2006 ANNUAL REPORT
22
directors’ report
28
income statement
29
balance sheet
30
statement of changes in equity
32
cash flow statement
33
notes to the financial statements
62
directors’ declaration
63
independent audit report
65
corporate governance
68
additional stock exchange information
71
directory
21
directors’ report
The Directors of TZ Limited (TZL) present their report together with the financial reports of the parent entity and its controlled
entities for the financial year ended 30 June 2006.
Directors
The details of Directors of the Company during the year and to the date of this report are:
A. Leibowitz
Chairman (Resigned 7 July 2006)
C. Kelliher
Executive Director
J. Falconer
Non-Executive Director & Company Secretary
M. Otten
Non-Executive Director (Appointed 7 July 2006)
Operating Results
The operating profit after income tax for the year ended 30 June 2006 for the consolidated entity was $592,308
(2005: $4,089,910).
Review of Operations
The Company faced significant challenges during the year when its key commercialisation partner, Textron Fastening Systems
(TFS) was offered for sale by its parent, Textron Inc. Given the broad range of possible outcomes from the divestiture and the
consequential impact on the Company’s growth plans, revenue targets and ability to continue to commercialise Intelligent
Fastening Technology (IFT), the Directors and management of TZL put in place initiatives to ensure that the Company was in a
position to respond positively to the divestiture. With the primary objective of controlling the Company’s business destiny and
ensuring that the commercialisation initiatives for IFT would not be diminished by new ownership, the TZ Board resolved that
TZ Limited should mount a credible bid for the TFS assets.
22
The Directors and management of the Company worked hard to establish appropriate partnerships and engage in strategies for
a range of possible outcomes and ownership scenarios. These activities included the establishing of a partnership with one of the
world’s largest banking groups as an equity partner in the bid for TFS, as well as developing other strategic relationships to deliver
the primary objective, without the Company taking on excessive liability and debt exposure.
The sales process was a significant distraction for the management teams of TZL and TFS, which temporarily slowed the rate of
commercialisation of IFT. Also the Company did incur significant unbudgeted expense in executing these defensive strategies.
However, the Directors believe significant value will accrue in the near future to the Company based on those initiatives.
The Company’s financial performance was impacted by these unplanned events and unbudgeted expenditures. Additionally, the
recent decision, based on advice from external accountants, to defer FutureWall™ licence revenue has resulted in a lower than
expected EBITDA result. If these factors are taken into consideration, the Company’s relative performance was more in line with
expectations.
The Directors believe the new ownership structure of TFS, in combination with the relationships and alliances formed during the
divestiture process, place it well to achieve its objectives and growth aspirations.
Principal Activities
The principal activities of the consolidated entity during the financial year were:
• The development and licensing of intellectual property particularly, Intelligent Fastening, Assembly Enabling and FutureWall™
technologies through Telezygology, Inc.
• Providing a full service capability in product development, engineering services, injection moulding tooling and small production
run manufacturing through PDT. Additionally, a significant electronic and software engineering capability has been established.
The majority of the operations of the consolidated entity are based in Illinois, USA.
FINANCIALS | 2006 ANNUAL REPORT
directors' report
Significant Changes in State of Affairs
During the year, the Company issued 9,480,592 shares for $3,268,539 pursuant to the conversion of outstanding options.
In March 2006, the Company acquired the business of Mqube Design for a total consideration of $164,000 which included
a cash component of $45,000 and the issue of 175,482 fully paid ordinary shares.
Likely Developments
The particular information required by s299(1) of the Corporations Act (2002) has not been included in this report, as the inclusion
of such information is likely to result in unreasonable prejudice to the Company.
Dividends
No dividend has been paid or declared since the commencement of the financial year. The Directors do not recommend the
payment of a dividend.
Directors’ Skills, Experience and Expertise
Mr. Chris Kelliher
Executive Director of TZ Limited and TZ Group Chief Executive Officer
Mr. Kelliher’s role is to oversee the Company’s operations and lead its strategic growth initiatives.
Mr. Kelliher has over 19 years experience managing technology based companies ranging from start up ventures to subsidiaries
of large multinational companies. He was appointed Managing Director of Microsoft South Pacific Region in 1996 after three years
as Managing Director of Microsoft’s Australian subsidiary. Prior to this, he spent three years as the founding Managing Director of
Microsoft in New Zealand. Before this, he held senior management positions with Digital Equipment Corporation and Philips.
Mr. Kelliher is also Director of Mainland Air Services Ltd, a New Zealand based air transport and training company.
23
As at the date of this report, Mr. Kelliher had the following interest in securities in the Company:
Interest in shares
Interest in options
2,065,175
1,000,000
Mr. John Falconer
Non-Executive Director and Company Secretary
Mr. Falconer is a Fellow of the Institute of Chartered Accountants in Australia and an Associate of the Securities Institute of
Australia. He is the principal of Carbone Falconer & Co., a small firm of Chartered Accounts in Sydney providing specialist services
to private and public company clients. He is a Director of Kingsgate Consolidated Limited, the Company Secretary of Tri Origin
Minerals Limited, and formally a director of Taragon Property Fund – all ASX-listed entities.
As at the date of this report, Mr. Falconer had the following interest in securities in the Company:
Interest in shares
1,976,365
Interest in options
Nil
Mr. Michael Otten
Non-Executive Director
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 Executive Director of Pod TV, Australia’s leading developer of retail television networks.
As at the date of this report, Mr. Otten had the following interest in securities in the Company:
Interest in shares
193,197
Interest in options
Nil
Mr. Anthony Leibowitz (resigned 7 July 2006)
directors' report
Directors’ Meetings
The number of Directors’ meetings and number of meetings attended by each of the Directors of the Company during the financial
year were:
No. of Meetings Held
No. of Meetings Attended
A. Leibowitz
C. Kelliher
J. Falconer
M. Otten
4
4
4
-
4
4
4
-
Other matters were dealt with during the year by way of circular resolutions signed by all Directors.
Directors’ and Executive Officers’ Remuneration Report
The Company’s policy for determining the nature and amount of emoluments of Board Members and Senior Executives of the
Company is as follows:
Directors’ fees are paid to Non-Executive Directors as approved from time to time by shareholders. The last increase was
approved by shareholders at the General Meeting held 15 July 2004 and allowed for a fixed sum not exceeding $250,000.
Emoluments paid to Senior Executives of the Company are determined by the Chief Executive Officer and the Board of Directors.
The broad remuneration policy is to ensure the remuneration package properly reflects the person’s duties and responsibilities and
that remuneration is competitive in attracting, retaining and motivating people of the highest quality.
Details of the nature and amount of each major element of the emoluments of each Director of the Company and the consolidated
entity are:
Short-term
Employee Benefits
Share-based
Payment
Role
Salary & Fees
Non-cash
Benefit
Options
Total
24
Parent Entity
A. Leibowitz
Non-Executive Chairman
J. Falconer
Non-Executive Director
M. Otten
Non-Executive Director
126,000
60,000
-
-
-
-
Economic Entity Executive Directors and Executive Officers
C. Kelliher
Executive Director and TZ Group
Chief Executive Officer
614,044
8,715
J. Wilson
TZI Chief Operating Officer
469,462
19,901
D. Rudduck
TZI Chief Technology Officer
418,925
19,901
M. Schwartz
PDT President and
Chief Executive Officer
351,406
17,398
R. Wiltgen
PDT Chief Administration Officer
345,779
14,243
PDT General Manager Tooling
345,779
26,598
D. May
Total
-
-
-
-
-
-
-
-
-
126,000
60,000
-
622,759
489,363
438,826
368,804
360,022
372,377
2,731,395
106,756
2,838,151
FINANCIALS | 2006 ANNUAL REPORT
directors' report
Directors’ Benefits
Particulars of Directors’ benefits are disclosed in Note 15.
Indemnification and Insurance of Directors and Officers
The parent entity has not taken out an insurance policy indemnifying Directors and Officers for the financial year nor has the
Company provided any indemnification during the year.
Significant After Balance Date Events
On the 4 August 2006, the Company issued 5,569,887 fully paid ordinary shares at an issue price of 58.5 cents per share as final
settlement of the consideration for the purchase of PDT entered into in March 2005 (refer to note 17(c)).
On the 4 August 2006, the Company issued 3,473,419 fully paid ordinary shares on the exercise of 2,982,250 at 34 cents
per share and 491,169 at 40 cents per share.
On the 17 August 2006, the Company issued 470,139 fully paid ordinary shares at an exercise price of 40 cents per share.
On the 25 August 2006, the Company issued 2,652,112 fully paid ordinary shares on the exercise of 1,491,125 at 27 cents per
share, 803,506 at 40 cents per share and 357,481 at 34 cents per share.
On the 1 September 2006, the Company issued 6,437,862 fully paid ordinary shares on the exercise of 6,352,581 at 34 cents
per share and 85,281 at 40 cents per share.
No other matters or circumstances have arisen since the end of the financial year that significantly affected or may significantly
affect the operations of the economic entity, the results of those operations or the state of affairs of the economic entity in future
financial years.
25
Share Options
(i) No options were granted over unissued shares or interests during or since the end of the financial year by the Company to
Directors as part of their remuneration
(ii) At the date of this report, options over unissued shares or interests of the Company are as follows:
Expiry Date
Issue Price Of Shares
Number Under Option
26 March 2007
31 December 2006
31 December 2007
$0.45
$0.75
$1.00
2,000,000
1,000,000
1,000,000
Complete details of the above options are in Note 15 to the financial statements.
directors' report
Environmental Issues
The consolidated entity’s operations are not regulated by any significant environmental regulation under a law of the
Commonwealth or of a State or Territory.
Corporate Governance
The Directors are responsible for the corporate governance practices of the Company. The main corporate governance practices
that were in operation during the financial year are set out in the Corporate Governance section of this financial statement.
Proceedings on Behalf of Company
No person has applied for leave of Court to bring proceedings on behalf of the Company or intervene in any proceedings to which
the Company is a party for the purpose of taking responsibility on behalf of the Company for all or any part of those proceedings.
The Company was not a party to any such proceedings during the year.
Auditor’s Independence Declaration
The Company’s independent auditor has provided an independence declaration for the year ended 30 June 2006. A copy of the
declaration is attached to and forms part of the Directors’ report.
Signed in Sydney, Australia this 30th day of September 2006 in accordance with a resolution of the Board of Directors.
26
J. Falconer
Non-Executive Director and Company Secretary
auditor’s independence declaration to the directors of tz limited
FINANCIALS | 2006 ANNUAL REPORT
In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence
to the Directors of TZ Limited.
As auditor of the financial statements of TZ Limited for the financial year ended 30 June 2006, I declare that to the best of my
knowledge and belief, there have been no contraventions of:
(i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
(ii) any applicable code of professional conduct in relation to the audit.
Yours faithfully,
Taylor & Co.
Stephen Taylor
29th September 2006
Sydney, Australia
27
income statement
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2006
Consolidated Entity
Parent Entity
2
2
2
Revenue
Cost of sales
Gross profit
Other income
Employee related expenses
Occupancy expenses
Communications expenses
Depreciation
Amortisation of intangibles
Note
2006
$
2005
$
30,547,698
18,218,464
(18,924,803)
(6,147,119)
11,622,895
12,071,345
2006
2005
$
-
-
-
$
-
-
-
254,416
225,442
854,978
133,799
(3,924,710)
(2,751,351)
(267,004)
(374,852)
(132,406)
(298,048)
-
-
(316,302)
(181,304)
(37,834)
(20,928)
(1,066,388)
(420,957)
(1,057,663)
(318,460)
-
-
-
-
Professional and corporate services
(2,401,493)
(1,194,445)
(402,823)
(361,368)
Travel and accommodation
Write-off intercompany debts
28
Finance cost
Other expenses
Profit/(Loss) before income tax expense
Income tax expense (benefit)
Profit/(Loss) after income tax expense
Profit/(Loss) from extraordinary items after
related income tax expense
Net profit/(loss)
Net profit/(loss) attributable to outside
equity interests
Net profit/(loss) attributable to members
of the parent entity
Total changes in equity other than those resulting
from transactions with owners as owners
Basic earnings per share (cents)
Diluted earning per share (cents)
3
4
14
13
21
21
(1,058,628)
(1,204,134)
(208,979)
(270,351)
-
-
(451,382)
-
(195,852)
(79,215)
(626)
(2,029)
(1,157,335)
(800,550)
(118,016)
(29,827)
566,534
5,048,323
(631,686)
(925,556)
(25,774)
210,608
-
-
592,308
4,837,715
(631,686)
(925,556)
-
-
-
-
592,308
4,837,715
(631,686)
(925,556)
-
-
-
-
592,308
4,837,715
(631,686)
(925,556)
592,308
4,837,715
(631,686)
(925,556)
0.40
0.35
3.33
2.91
The accompanying notes form part of these financial statements.
FINANCIALS | 2006 ANNUAL REPORT
balance sheet
AS AT 30 JUNE 2006
Current assets
Consolidated Entity
Parent Entity
Note
2006
$
2005
$
2006
$
2005
$
Cash and cash equivalents
17
3,403,156
5,613,544
1,002,405
1,161,631
Trade and other receivables
Work in process
Total current assets
Non-current assets
Trade and other receivables
Financials assets
Property, plant and equipment
Intangibles assets
Deferred tax assets
5
6
5
7
8
9
10,974,950
9,161,456
4,117,713
4,991,174
700,456
423,812
-
-
15,078,562
15,198,812
5,120,118
6,152,805
-
-
-
-
2,931,714
2,385,760
37,555,919
33,203,229
4,266,725
4,171,410
39,698,304
32,006,795
470,343
136,025
-
-
-
-
-
-
Total non-current assets
44,435,372
36,314,230
40,487,633
35,588,989
Total assets
59,513,934
51,513,042
45,607,751
41,741,794
29
5,479,615
5,632,499
4,156,601
2,355,949
875,244
736,735
129,191
424,475
-
-
-
-
7,091,594
6,186,165
4,156,601
2,355,949
Current liabilities
Trade and other payables
Short-term provisions
Short-term borrowing
Total current liabilities
Non-current liabilities
Trade and other payables
Long-term borrowing
Deferred tax liabilities
10
11
12
10
12
-
-
4,097,165
2,028,010
281,170
9,858
-
-
-
-
695,948
-
-
695,948
Total non-current liabilities
4,378,335
2,037,868
Total liabilities
Net assets
Equity
Issued capital
Reserves
Accumulated losses
Parent interest
Minority equity interest
Total equity
11,469,929
8,224,033
4,156,601
3,051,897
48,044,005
43,289,009
41,451,150
38,689,897
13
14
67,780,998
64,398,396
67,780,998
64,398,396
1,103,289
323,203
78,000
67,663
(20,840,283)
(21,432,590)
(26,407,848)
(25,776,162)
48,044,005
43,289,009
41,451,150
38,689,897
-
-
-
-
48,044,005
43,289,009
41,451,150
38,689,897
The accompanying notes form part of these financial statements.
statement of changes in equity
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2006
Consolidated Entity
Share
Capital
Reserves
Note
Ordinary
Equity-
based
Payment
Foreign Cur-
rency Trans-
lation
Accumulated
Losses
Balance at 1 July 2004
Shares issued during the period
Share issue cost
Share-based payment
Adjustment from translation of foreign
controlled entities
Profit attributable to members
of parent entity
$
54,565,803
10,540,000
(707,407)
$
-
-
-
-
-
-
67,663
-
-
$
Total
$
(26,270,305)
28,295,453
-
-
-
-
10,540,000
(707,407)
67,663
255,540
$
-
-
-
-
255,540
-
4,837,715
4,837,715
Sub-total
64,398,396
67,663
255,540
(21,432,590)
43,289,009
30
Dividends paid or provided for
-
-
-
-
-
Balance at 30 June 2005
64,398,396
67,663
255,540
(21,432,590)
43,289,009
Balance at 1 July 2005
64,398,396
67,663
255,540
(21,432,590)
43,289,009
Shares issued during the period
Share issue cost
Adjustment from translation of foreign
controlled entities
Share-based payment
Profit attributable to members of
parent entity
3,384,237
(1,635)
-
-
-
-
-
-
10,337
-
-
-
769,749
-
-
-
-
-
-
592,308
3,384,237
(1,635)
769,749
10,337
592,308
Sub-total
67,780,998
78,000
1,025,289
(20,840,282)
48,044,005
Dividends paid or provided for
-
-
-
-
-
Balance at 30 June 2006
67,780,998
78,000
1,025,289
(20,840,282)
48,044,005
The accompanying notes form part of these financial statements.
FINANCIALS | 2006 ANNUAL REPORT
statement of changes in equity
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2006
Parent Entity
Share
Capital
Reserves
Note
Ordinary
Equity-
based
Payment
Foreign
Currency
Translation
Accumulated
Losses
$
$
Total
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(24,850,606)
29,715,197
-
-
-
10,540,000
(707,407)
67,663
(925,556)
(925,556)
(25,776,162)
38,689,87
-
-
31
(25,776,162)
38,689,897
(25,776,162)
38,689,897
-
-
-
3,384,237
(1,635)
10,337
(631,686)
(631,686)
(26,407,848)
41,451,150
-
-
(26,407,848)
41,451,150
Balance at 1 July 2004
Shares issued during the period
Share issue cost
Share-based payment
Profit attributable to members
of parent entity
$
54,565,803
10,540,000
(707,407)
$
-
-
-
-
-
67,663
-
Sub-total
64,398,396
67,663
Dividends paid or provided for
-
-
Balance at 30 June 2005
64,398,396
67,663
Balance at 1 July 2005
64,398,396
67,663
Shares issued during the period
Share issue cost
Share-based payment
Profit attributable to members of
parent entity
3,384,237
(1,635)
-
-
-
-
10,337
-
Sub-total
67,780,998
78,000
Dividends paid or provided for
-
-
Balance at 30 June 2006
67,780,998
78,000
The accompanying notes form part of these financial statements.
cashflow statement
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2006
Consolidated Entity
Parent Entity
Note
2006
$
2005
$
2006
$
2005
$
Cash Flows From Operating Activities
Receipts from customers
29,290,513
18,311,805
-
-
Payments to suppliers and employees
(28,437,351)
(12,152,189)
(1,037,373)
(1,068,425)
Interest received
Interest paid
Income tax paid
Other income
218,169
(210,070)
311,136
(79,216)
(188,849)
(163,370)
-
3,975
122,782
227,583
(626)
(2,029)
-
-
-
-
Net cash provided by (used in) operating activities
17(b)
672,412
6,232,141
(915,217)
(842,871)
Cash Flows From Investing Activities
Proceeds from sale of investment securities
-
10
Payment for plant and equipment
(1,029,335)
(291,524)
-
-
10
-
Acquisition cost for controlled entity
(112,881)
(479,774)
(112,881)
(479,774)
Acquisition for controlled entity
Escrowed deposit
17(c)
17(c)
(1,583,168)
(6,563,400)
(1,294,027
(6,563,400)
-
(5,287,185)
-
-
(5,287,185)
-
32
Payments for research and development
(4,769,780)
(2,955,132)
Repayment of loan from controlled entity
Loan to controlled entity
Loans to other person
Loans repaid other person
Aggregated cash flow from acquired entity
-
-
-
-
-
-
-
633,190
5,612,772
(1,630,526)
-
(34,609)
162,000
49,831
-
-
-
(16,460)
162,000
-
Net cash provided by (used in) investing activities
(7,495,164)
(15,399,783)
(2,404,244)
(6,572,037)
Cash Flows From Financing Activities
Share Issues
Share Issue costs
Repayment of borrowing
Repayment of lease obligation
Proceeds from line of credit borrowing
Proceeds from notes payables
3,161,871
8,077,629
3,161,871
8,077,629
(1,636)
(707,406)
(1,636)
(707,406)
(904,459)
(121,458)
930,944
1,462,912
-
-
-
-
-
-
-
-
-
-
-
-
Net cash provided by financing activities
4,528,174
7,370,223
3,160,235
7,370,223
Net increase/(decrease) in cash held
(2,294,578)
(1,797,419)
(159,226)
(44,685)
Cash at beginning of year
17(a)
5,613,544
7,410,963
1,161,631
1,206,316
Effects of exchange rate fluctuations on the bal-
ances of cash held in foreign currencies
84,190
-
-
-
Cash at end of year
17(a)
3,403,156
5,613,544
1,002,405
1,161,631
The accompanying notes form part of these financial statements.
FINANCIALS | 2006 ANNUAL REPORT
notes to the financial statements
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2006
1. SUMMARY OF ACCOUNTING POLICIES
Statement of Compliance
The financial report is a general purpose financial report which has been prepared in accordance with the Corporation Act 2001,
Accounting Standards and Urgent Issues Group Interpretations and complies with other requirements of the law. Accounting
Standards include Australian equivalents to International Financial Reporting Standards (‘A-IFRS’). Compliance with the A-IFRS
ensures that the consolidated financial statements and notes of the consolidated entity comply with International Financial Report-
ing Standards (‘IFRS’).
The financial statements were authorised for issue by the Directors on 29th September 2006.
Basis of Preparation
The financial report has been prepared on the basis of historical cost, except for the revaluation of certain financial instruments.
Cost is based on the fair values of the consolidation given in exchange for assets.
In the application of A-IFRS, Management is required to make judgments, estimates and assumptions about carrying values of
assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on
historical experience and various other factors that are believed to be reasonable under the circumstance, the results of which
form the basis of making judgements. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised
in the period in which the estimates are revised if the revision affects only that period, or in the period of the revision and future
periods if the revision affects both current and future periods.
Judgments made by management in the application of A-IFRS that have significant effects on the financial statements and esti-
mates with a significant risk of material adjustments in the next year are disclosed, where applicable, in the relevant notes to the
financial statements.
33
Accounting policies are selected and applied in a manner which ensures that the resulting financial information satisfies the con-
cepts of relevance and reliability, thereby ensuring that the substance of the underlying transactions or other events is reported.
The Company changed its accounting policies on 1 July 2005 to comply with A-IFRS. The transition to A-IFRS is accounted for in
accordance with Accounting Standard AASB 1 ‘First-time Adoption of Australian Equivalents to International Financial Reporting
Standards’ with 1 July 2004 as the date of transition. An explanation of how the transition from superseded policies to A-IFRS has
affected the Company’s financial position, financial performance and cash flows is discussed in note 24.
The accounting policies set out below have been applied in preparing the financial statements for the year ended 30 June 2006,
the comparative information presented in these financial statements for the year ended 30 June 2005 and in the preparation of the
opening A-IFRS balance sheet at 1 July 2004 (as disclosed in note 24), the Company’s date of transition.
The following significant accounting policies have been adopted in the preparation and presentation of the financial report:
(a) Principles of consolidation
The consolidated financial statements comprise the financial statements of TZ Limited and all its controlled entities (refer to note 7)
other than CAP Asia Pacific Pte Ltd in which the Company currently holds a 25% interest. The consolidated entity currently has no
direct involvements in its Asian operations, has no Board representation and has no commitments to provide future funding. This
investment currently is carried forward at a nil value.
The Directors believe, as they are in no position to exert any significant influence over the operations of the Company and
its indirect investments in CED Hong Kong Limited and CED Philippines Inc., that they have been excluded from the principles
of consolidation.
Entities have been consolidated in the financial statements from the date that control exists. All intercompany balances
and transactions between entities in the consolidated entity, including any unrealised profits or losses, have been eliminated
on consolidation.
Outside equity interest comprises the aggregate of the equity of controlled entities, other than that held either directly or indirectly
by the parent entity, after making adjustments for unrealised profits and losses of controlled entities and other adjustments neces-
sary to comply with Accounting Standards.
The Directors consider that the net revenues and expenses omitted from the financials report are not significant.
notes to the financial statements
(b) Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, cash in banks and investments in money market instruments with less than
14 days to maturity, net of outstanding bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities in the
balance sheet.
(c) Investments
Investments are recognised in the financial statements at cost.
(d) Property, plant and equipment
Property, plant and equipment is included at cost less, where applicable, any accumulated depreciation or amortisation.
The carrying amount of property, plant and equipment is reviewed annually by Directors to ensure it does not exceed the recover-
able amount.
The depreciation rates used for each class of asset are as follows:
• Office furniture and equipment 13% - 50%
• Leasehold improvement 30%
• Motor vehicle 37% - 50%
• Plant and equipment 20% - 25%
The depreciable amount of all fixed assets is depreciated on a straight line basis over their estimated useful lives commencing
from the time the asset is held ready for use.
34
(e) Receivables and payables
Trade accounts receivable, amounts due from related parties and other receivables represent the principal amounts due at bal-
ance date plus accrued interest less, where applicable, any provisions for Impaired accounts.
Accounts payable represent the principal amounts outstanding at balance date plus, where applicable, any accrued interest.
(f) Employee entitlements
The provisions for employee entitlements to wages, salaries and annual leave represent the amount which the consolidated entity
has a present obligation to pay resulting from employees’ services provided up to balance date. The provision has been calcu-
lated at nominal amounts and includes related on-costs.
The liability for employee entitlements to long service leave represents the present value of the estimated future cash outflows to
be made by the employer resulting from employees’ services provided up to the balance date.
(g) Income tax
The consolidated entity adopts the liability method of tax-effect accounting whereby the income tax expense for the period is
based on the operating result after adjusting for items which, as a result of their treatment under income tax legislation, create
permanent differences between that result and the taxable income or loss.
Timing differences, which arise due to the different accounting periods in which items of revenue and expense are included in the
determination of operating result, income tax and taxable income are brought to account as either provision for deferred income
tax, or an asset described as future income tax benefit at the rate of income tax applicable to the period in which the benefit will
be received, or the liability will become payable.
Future income tax benefits are not brought to account unless realisation of the asset is assured beyond reasonable doubt. Future
income tax benefits in relation to tax losses are not brought to account unless there is virtual certainty of realisation of the benefit.
The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse
change will occur in income taxation legislation and the anticipation that the consolidated entity will derive sufficient future as-
sessable income and comply with the conditions of deductibility imposed by the law to permit a future income tax benefit to be
realised.
FINANCIALS | 2006 ANNUAL REPORT
notes to the financial statements
(h) Leases
Lease payments under operating leases, where substantially all the risks and benefits remain with the lessor, are charged as ex-
penses in the period in which they are incurred.
Where assets are acquired by means of finance leases, the present value of minimum lease payments is established as an asset
at the beginning of the lease term and amortised on a straight line basis over the expected economic life. A corresponding liability
is also established and each lease payment is allocated between such liability and interest expense.
(i) Foreign currency transactions and balances
Transactions in foreign currencies are initially measured and brought to account at the rate of exchange in effect at the date of
each transaction. Exchange differences relating to monetary items are brought to account in the balance sheet in the financial
year in which the exchange rates change as exchange gains or losses.
(j) Revenue recognition
(i) Sales revenue
Sales revenue comprises revenue earned from the provision of products or services to entities outside
the consolidated entity.
(ii) Other revenue - direct cost recovery
Direct cost recovery revenue comprises revenue earned from the provision of services, the costs of which are directly
recoverable from the client as they are incurred.
(iii) Interest revenue
Interest revenue is recognised as it accrues.
(iv) Royalty revenue
Royalty revenue is recognised as it accrues.
(k) Goods and services tax
35
Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except:
(i) where the amount of GST incurred is not recoverable from the taxation authority, it is recognised as part of the cost of
acquisition of an asset or as part of an item of expense; or
(ii) for receivables and payables which are recognised inclusive of GST.
The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables.
Cash flows are included in the cash flow statement on a gross basis. The GST component of cash flows arising from investing and
financing activities which is recoverable from, or payable to, the taxation authority is classified as operating cash flows.
(l) Share-based payments
Equity-settled share-based payments granted after 7 November 2002 that were unvested as of 1 January 2005 are measured at
fair value at the date of grant. Fair value is measured by use of a binomial model. The expected life used in the model has been
adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioural con-
siderations.
notes to the financial statements
The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over
the vesting period, based on the consolidated entity’s estimate of shares that will eventually vest.
(m) Earnings per share
(i) Basic earnings per share
Basic earnings per share is determined by dividing the operating profit/(loss) after income tax by the weighted average
number of ordinary shares outstanding during the financial year.
(ii) Diluted earnings per share
Diluted earnings per share adjusts the figures used in determining earnings per share by taking into account amounts
unpaid on ordinary shares and any reduction in earnings per share that will probably arise from the exercise of options
outstanding during the financial year.
(n) Impairment of assets
Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are
subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds
its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the
purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows
(cash generating units).
(o) Intangible assets
36
(i) Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the group’s share of the net identifiable
assets of the acquired subsidiary/associate at the date of acquisition. Goodwill on the acquisition of subsidiaries is included
in intangible assets. Goodwill on the acquisition of associates is included in investments in associates. Goodwill acquired
in business combinations is not amortised. Instead, goodwill is tested for impairment annually, or more frequently if events
or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses.
Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.
Goodwill is allocated to cash-generating units for the purpose of impairment testing. Each of those cash-generating units
represents the group’s investment in each region of operation by each primary reporting segment.
(ii) Trademarks and licences
Trademarks and licences have an Indefinite useful life and are carried at cost less any impaired losses.
(iii) Research and development
Research expenditure is expensed as incurred.
An intangible asset arising from development expenditure is only recognised when all recognition criteria can be demonstrat-
ed. The recognition criteria for development activity are:
• the technical feasibility of completing the intangible asset so that it will be available for use or sale;
• the intention to complete the intangible asset and use or sell it;
• the ability to use or sell the intangible asset;
• whether the intangible asset will generate probable future economic benefits. Among other things, the Company can
demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself or, if it to be
used internally, the usefulness of the intangible asset;
• the availability of adequate technical, financial and other resources to complete the development and to use or sell the
intangible asset; and
• the ability to measure reliably the expenditure attributable to the intangible asset during its development.
FINANCIALS | 2006 ANNUAL REPORT
notes to the financial statements
Development costs are carried at cost less accumulated amortisation and impaired losses. Where recognition criteria are not met,
development costs are recognised in the income statement as incurred.
A summary of the amortisation policies applied to the consolidated entities intangible assets is as follows:
Patents and Licences
Development Cost
Useful lives
Indefinite
Finite
Method used
Not depreciated or revalued
20 year – straight line
Internally generated / Acquired
Acquired
Internally generated
Impairment test / Recoverable amount
testing
Annually and where an indicator of
impairment exists
Amortisation method reviewed at each
reporting period and reviewed at each
reporting period for indicator of
impairment
(p) Financial instruments issued by the company
(i) Debt and equity instruments
Debt and equity instruments are classified as either liabilities or as equity in accordance with the substance of the contrac-
tual arrangement.
37
(ii) Transaction costs on the issue of equity instruments
Transaction costs arising on the issue of equity instruments are recognised directly in equity as a reduction of the proceeds
of the equity instruments to which the costs relate. Transaction costs are the costs that are incurred directly in connection
with the issue of those equity instruments and which would not have been incurred had those instruments not been issued.
(iii) Interest and dividends
Interest and dividends are classified as expenses or as distributions of profit consistent with the balance sheet classification
of the related debt or equity instruments or component parts of compound instruments.
notes to the financial statements
Consolidated
Parent Entity
2. REVENUES FROM OPERATIONS
2006
$
2005
$
Sales revenue
30,547,698
18,218,464
Cost of goods sold
(18,924,803)
6,147,119
2006
2005
$
-
-
$
-
-
Other revenue
Interest
Write-off intercompany debts
Sundry revenue items
Total other revenue
254,416
215,026
-
-
-
10,416
145,479
695,948
-
133,799
-
-
254,416
225,442
854,978
133,799
3. PROFIT/(LOSS) FROM OPERATION
Profit/Loss from continuing activities includes:
Net losses on disposals of property, plant & equipment
-
21,609
Amortisation of non-current assets:
Intellectual property
38
Depreciation
Bad and doubtful debts expense
1,066,388
318,460
1,057,663
-
420,957
193,811
-
-
-
-
-
-
-
-
-
-
4. INCOME TAX
The amount provided in respect of income tax differs from
the amount prima facie payable on the operating result.
The difference is reconciled as follows:
Prima facie income tax on the operating result before
income tax at 30% (2005: 30%)
Tax effect of permanent differences:
Amortisation of Intangibles
Other non-allowable expenses
Write-off intercompany debts
177,692
1,451,315
(189,506)
(257,368)
319,916
95,538
-
-
-
-
-
-
73,298
-
-
-
Future income tax benefit not brought to account
(523,382)
(1,336,245)
116,208
257,368
Income tax expense/(credit) attributable to result
(25,774)
210,608
-
-
The potential future income tax benefit arising from tax
losses has not been recognised as an asset because
recovery of tax losses is not virtually certain.
4,095,617
4,618,999
2,103,370
1,987,162
The taxation benefits of tax losses and timing differences not brought to account will only be obtained if:
• assessable income is derived of a nature and of amount sufficient to enable the benefit from the
deductions to be realised;
• conditions for deductibility imposed by the law are complied with; and
• no changes in tax legislation adversely affect the realisation of the benefit from the deductions.
FINANCIALS | 2006 ANNUAL REPORT
notes to the financial statements
5. RECEIVABLES
Current
Trade debtors
Sundry debtors
Sub-total
Consolidated
Parent Entity
Note
2006
$
2005
$
5,809,184
3,912,079
2006
2005
$
-
$
-
5,094,913
5,144,694
4,117,713
4,976,174
10,904,097
9,056,773
4,117,713
4,976,174
Other debtors and prepayments
70,853
104,683
-
15,000
10,974,950
9,161,456
4,117,713
4,991,174
Non-current
Amounts receivable from:
Controlled entities
6. WORK IN PROCESS
-
-
-
-
2,931,714
2,385,760
2,931,714
2,385,760
Uncompleted/Unbilled jobs - at cost
700,456
423,812
-
-
39
notes to the financial statements
7. INVESTMENTS
Shares in controlled entities -
at cost note 7(a)
Shares - other – unquoted at cost
(a) Controlled Entities
Consolidated
Parent Entity
Note
2006
2005
$
-
-
-
$
-
-
-
2006
$
2005
$
37,555,919
33,203,229
-
-
37,555,919
33,203,229
Country of Incorporation % Owned
2006
2005
PARENT ENTITY
TZ Limited
SUBSIDIARIES OF TZ LIMITED
Telezygology, Inc.
PDT Holdings, Inc.
Product Development Technologies, Inc.
40
PDT Tooling, Inc.
PDT Southeast Limited Liability Company (LLC)*
CJSC PDT Ukraine
CED Membership Services Pty Ltd (ii)
The Presidential Card Pty Ltd (ii)
CUC Australasia Pty Ltd (ii)
CED Online Pty Ltd (ii)
Golf Partners Australia Pty Ltd (ii)
Golf Partners International Pty Ltd (ii)
CED Asia Pacific Pte Ltd
CED Hong Kong Limited (i)
CED Philippines Inc. (i)
Australia
USA
USA
USA
USA
USA
Ukraine
Australia
Australia
Australia
Australia
Australia
Australia
Singapore
Hong Kong
Philippines
100 .00
100.00
100.00
100 .00
100.00
90 .00
0.00
0 .00
0 .00
0.00
0 .00
0 .00
5 .00
6.25
6.25
100.00
100.00
100.00
100.00
100.00
90.00
100.00
100.00
100.00
100.00
100.00
100.00
25.00
6.25
6.25
(i) Owned by CED Asia Pacific Pte Ltd (the 6.25% represents TZ Limited indirect interest).
(ii) The investment in the dormant Companies was voluntarily deregistered on the 4 April 2006.
*An LLC is treated as a partnership for U.S. purposes
FINANCIALS | 2006 ANNUAL REPORT
Consolidated
Parent Entity
2006
$
2005
$
2006
$
2005
$
notes to the financial statements
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment
Cost
Accumulated depreciation
5,776,191
4,564,885
(1,509,466)
(393,475)
Total property, plant and equipment
4,266,725
4,171,410
MOVEMENTS DURING THE YEAR:
Office furniture and equipment
Beginning of year
Additions
Disposals
Depreciation expense
1,338,797
90,997
663,801
1,420,694
-
(21,609)
(579,881)
(151,285)
Net foreign currency adjustment on translation
3,851
-
End of year
1,426,568
1,338,797
Leasehold improvements
Beginning of year
Additions
Depreciation expense
Net foreign currency adjustment on translation
End of year
Motor vehicle
Beginning of year
Additions
Depreciation expense
Net foreign currency adjustment on translation
End of year
Plant and equipment
Beginning of year
Additions
Depreciation expense
508,453
78,826
(118,497)
22,221
-
540,218
(31,765)
-
491,003
508,453
137,142
-
(35,285)
3,141
-
148,002
(10,860)
-
104,998
137,142
2,187,018
-
348,704
2,282,106
(357,844)
(95,088)
Net foreign currency adjustment on translation
66,278
-
End of year
2,244,156
2,187,018
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
41
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
notes to the financial statements
9. INTANGIBLES
Goodwill on consolidation
Intellectual property
Trademarks
Total intangibles
MOVEMENTS DURING THE YEAR:
Goodwill on consolidation
42
Beginning of year
Additions
End of year
Intellectual property
Beginning of year
Additions
Amortisation expense
End of year
Trademarks
Beginning of year
Additions
End of year
10. PAYABLES
Current
Trade creditors
Consolidated
Parent Entity
2005
$
2004
$
2005
$
2004
$
22,679,131
18,608,927
15,374,642
11,795,854
1,644,531
1,602,014
39,698,304
32,006,795
18,608,927
15,517,807
4,070,204
3,091,120
22,679,131
18,608,927
11,795,854
4,775,230
4,645,176
7,339,081
(1,066,388)
(318,457)
15,374,642
11,795,854
1,602,014
29,577
42,517
1,572,437
1,644,531
1,602,014
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,797,871
2,333,010
38,710
73,181
Contingent liability – refer to note 17
-
2,231,556
-
-
Sundry creditors
Total current payables
Non-current
Amounts payable to:
Controlled entities
Included in the above are aggregate amounts payable
to controlled entities and are non-interest bearing
(2005: non-interest bearing)
2,762,574
1,067,933
4,117,891
2,282,768
5,560,445
5,632,499
4,156,601
2,355,949
-
-
-
-
-
-
695,948
695,948
notes to the financial statements
11. PROVISIONS
Current
Employee entitlements
Aggregate employee entitlements
12. INTEREST BEARING LIABILITIES
Current
Bank loans - secured
Non-current
Bank loans - secured
The bank loans are secured by a mortgage over the as-
sets of PDT Inc. group assets.
13. ISSUED CAPITAL
Issued and paid up capital
157,212,045 (2005: 147,512,100)
fully paid ordinary shares
MOVEMENTS DURING THE YEAR:
FINANCIALS | 2006 ANNUAL REPORT
Consolidated
Parent Entity
2006
$
2005
$
2006
$
2005
$
875,244
875,244
129,191
129,191
736,735
424,475
4,097,165
2,028,010
-
-
-
-
-
-
-
-
67,274,015
64,398,396
67,274,015
64,398,396
43
Opening balance
64,398,396
54,565,803
64,398,396
54,565,803
Shares issued during the year
120,000 on the 3 August 2005
1,230,189 on the 19 January 2006
144,650 on the 20 February 2006
175,482 on the 10 March 2006
4,903,503 on the 4 April 2006
100,000 on the 21 April 2006
2,982,250 on the 30 May 2006
43,871 on the 28 June 2006
6,000,000 on the 16 July 2004
13,076,923 on the 12 December 2004
Share issue costs
Closing balance
48,000
418,264
53,381
114,063
1,672,873
40,000
1,013,965
23,690
-
-
-
-
-
-
-
-
48,000
418,264
53,381
114,063
1,672,873
40,000
1,013,965
23,690
-
-
-
-
-
-
-
-
-
-
2,040,000
8,500,000
-
-
2,040,000
8,500,000
(1,636)
(707,407)
(1,636)
(707,407)
67,780,998
64,398,396
67,780,998
64,398,396
notes to the financial statements
13. ISSUED CAPITAL (cont.)
Opening balance
3 August 2005
19 January 2006
20 February 2006
10 March 2006
4 April 2006
21 April 2006
30 May 2006
28 June 2006
16 July 2004
12 December 2004
Closing balance
(i) Share unquoted options
44
Opening balance
Options issued:
16 July 2004*
20 January 2005
Options exercised:
3 August 2005
19 January 2006
20 February 2006
4 April 2006
21 April 2006
30 May 2006
Closing balance
Consolidated
Parent Equity
2006
No.
2005
No.
2006
No.
2005
No.
147,512,100
128,435,177
147,512,100
128,435,177
120,000
1,230,189
144,650
175,482
4,903,503
100,000
2,982,250
43,871
-
-
-
-
-
-
-
-
120,000
1,230,189
144,650
175,482
4,903,503
100,000
2,982,250
43,871
-
-
-
-
-
-
-
-
-
-
6,000,000
13,076,923
157,212,045
147,512,100
-
-
-
6,000,000
13,076,923
147,512,100
23,533,768
19,893,499
23,533,768
19,893,499
-
-
2,000,000
1,640,269
-
-
2,000,000
1,640,269
(120,000)
(1,230,189)
(144,650)
(4,903,503)
(100,000)
(2,982,250)
-
-
-
-
-
-
(120,000)
(1,230,189)
(144,650)
(4,903,503)
(100,000)
(2,982,250)
-
-
-
-
-
-
14,053,176
23,533,768
14,053,176
23,533,768
(ii) Employee Share Option Plan
No shares have been issued by virtue of an exercise of an option during the year or to the date of this report.
*The Company issued 2,000,000 options to acquire shares in the Company as per voted on in the general meeting of
shareholders held on the 14 July 2005 to the Company Directors Mr. Chris Kelliher and Mr. Anthony Leibowitz by way of
two tranches. The first tranche vested on the 31 December 2004 with an exercisable price of $0.75 and the second
tranche on 31 December 2005 with an exercisable price of $1.00. The options will expire on 31 December 2006 and
31 December 2007 respectively.
notes to the financial statements
FINANCIALS | 2006 ANNUAL REPORT
Consolidated
Parent Entity
2006
2005
$
-
67,663
67,663
-
-
-
-
67,663
67,663
45
14. RESERVES
2006
$
2005
$
Foreign currency translation reserve
1,025,289
255,540
Share based payment reserve
78,000
67,663
Total reserves
1,103,289
323,203
MOVEMENTS DURING THE YEAR:
Foreign currency translation reserve
Opening balance
Adjustment arising from the translation of foreign
controlled entities’ financial statements
255,540
-
769,749
255,540
Closing balance
1,025,289
255,540
$
-
78,000
78,000
-
-
-
Share-based payment reserve
Opening balance
Share based payment
Closing balance
67,663
10,337
78,000
-
67,663
67,663
67,663
10,337
78,000
15. KEY MANAGEMENT PERSONNEL COMPENSATION
(a) Names and positions held of consolidated entity and parent entity key management personnel in
office at any time during the financial year are:
Directors
Anthony Leibowitz
Chairman – Non-Executive Director (resigned 7 July 2006)
Chris Kelliher
CEO TZ Group – Executive Director
John Falconer
Non-Executive Director
Michael Otten
Non-Executive Director (appointed 7 July 2006)
Specified Executives
John Wilson
TZ Inc. Chief Operating Officer
Dickory Rudduck
TZ Inc. Chief Technology Officer
Mark Schwartz
PDT Inc. President and CEO
Ray Wiltgen
David May
PDT Inc. Chief Administration Officer
PDT Inc. General Manager Tooling
notes to the financial statements
15. KEY MANAGEMENT PERSONNEL COMPENSATION (cont.)
(b) Directors’ remuneration
Short-term
Employee Benefits
Share-based
Payment
Salary & Fees
Non-cash Benefit
Options
Total
126,000
614,044
60,000
-
800,044
120,000
473,891
60,000
653,891
-
8,715
-
-
8,715
-
-
-
-
-
-
-
-
-
39,000
39,000
-
78,000
126,000
622,759
60,000
-
808,759
159,000
512,891
60,000
731,891
2006
A. Leibowitz
C. Kelliher
J. Falconer
M. Otten
Total
2005
A. Leibowitz
C. Kelliher
J. Falconer
Total
46
(c) Specified Executives’ remuneration
Short-term
Employee Benefits
Share-based
Payment
Salary & Fees
Superannuation
Contribution
Non-cash
Benefit
Options
Total
469,462
418,925
351,406
345,779
345,779
1,931,351
-
-
-
-
-
-
19,901
19,901
17,398
14,243
26,598
98,041
-
-
-
-
-
-
489,363
438,826
368,804
360,022
372,377
2,029,392
2006
J. Wilson
D. Rudduck
M. Schwartz
R. Wiltgen
D. May
Total
notes to the financial statements
FINANCIALS | 2006 ANNUAL REPORT
Short-term
Employee Benefits
Share-based
Payment
Salary, Fees &
Commissions
Superannuation
Contribution
Non-cash
Benefit
Options
Total
385,131
307,992
103,855
103,855
103,855
103,855
9,000
9,000
7,184
7,184
-
-
-
-
-
-
-
-
1,108,543
18,000
14,368
-
-
-
-
-
-
-
401,315
324,176
103,855
103,855
103,855
103,855
1,140,911
2005
J. Wilson**
D. Rudduck**
M. Schwartz
R. Wiltgen
S. Semenik
D. May
Total
** Each of these executives resigned as directors of the Parent Entity on the 15 July 2004.
(d) Options and rights holdings
Number of options held by Directors and specified Executives
Directors
A. Leibowitz
C. Kelliher
J. Falconer
M. Otten
Total
Balance 01/07/05
Remuneration Net Change Other
Balance 30/06/06
47
Granted as
1,000,000
4,727,812
1,388,182
-
7,115,994
-
-
-
-
-
-
-
-
-
-
1,000,000
4,727,812
1,388,182
-
7,115,994
Specified Executives
Balance 01/07/05
Remuneration Net Change Other
Balance 30/06/06
Granted as
J. Wilson
D. Rudduck
M. Schwartz
R. Wiltgen
D. May
Total
1,491,125
1,491,125
-
-
-
2,982,250
-
-
-
-
-
-
-
-
-
-
-
-
1,491,125
1,491,125
-
-
-
2,982,250
notes to the financial statements
15. KEY MANAGEMENT PERSONNEL COMPENSATION (cont.)
(e) Shareholdings
Number of shares held by Directors and specified Executives
Directors
A. Leibowitz
C. Kelliher
J. Falconer
Total
Balance 01/07/05
Remuneration Net Change Other
Balance 30/06/06
Granted as
1,493,748
1,416,569
1,388,182
4,298,499
-
-
-
-
1,120,967
-
-
1,120,967
2,614,715
1,416,569
1,388,182
5,419,466
Specified Executives
Balance 01/07/05
Remuneration Net Change Other
Balance 30/06/06
Granted as
J. Wilson
D. Rudduck
M. Schwartz
R. Wiltgen
D. May
Total
48
4,832,004
7,976,189
-
-
-
12,808,193
-
-
-
-
-
-
-
-
-
-
-
-
4,832,004
7,976,189
-
-
-
12,808,193
(f) Remuneration practices
The Company’s policy for determining the nature and amounts of emoluments of Directors and Senior Executives of the Company
is as follows;
The remuneration structure for executive officers, including Executive Directors, is based on a number of factors, including the
length of service, particular experience of the individual concerned, and overall performance of the Company. The contracts for
service between the Company and specified Directors and Executives are on a continuing basis the terms of which are not
expected to change in the immediate future. Upon retirement, specified Directors and Executives are paid employee benefit
entitlements accrued to date of retirement.
Executive Directors and Senior Executives may receive bonuses based on the achievement of specific performance hurdles.
There is no separate profit share plan.
The constitution provides that the remuneration of Non-Executive Directors will not be more than the aggregate fixed sum
determined by a general meeting of shareholders. The aggregate remuneration has been set at the last general meeting of
shareholders held on the 15 July 2004 in the amount of $250,000 per annum.
FINANCIALS | 2006 ANNUAL REPORT
Consolidated
Parent Entity
2006
2005
$
-
-
$
-
-
2006
$
2005
$
1,630,526
7,754,927
633,190
13,340,549
notes to the financial statements
16. RELATED PARTY TRANSACTIONS
(a) Controlled entities
Loan to controlled entities – non-current
Loan repaid from controlled entities – non-current
These loans are interest free.
There are no fixed terms of repayment.
(b) Transaction with Directors
Mr. J. Falconer, being a director of Dunbar Associates Pty Ltd, provides corporate services to the Company and charged for its
service at normal commercial rates which amounted to $142,454 (2005: $67,245).
17. NOTES TO THE CASH FLOW STATEMENT
(a) Reconciliation of cash
For the purpose of the cash flow statement, cash includes:
Cash at bank and on hand
Deposit on call
3,403,156
5,349,625
1,002,405
1,161,631
-
263,919
-
-
3,403,156
5,613,544
1,002,405
1,161,631
49
(b) Reconciliation of cash flow from operations
with operating result after income tax
Operating profit/(loss) after income tax
592,308
4,837,715
(631,686)
(925,556)
Non-cash flows in operating profit/(loss)
Net intercompany debts written-off (benefit)
Depreciation
Amortisation of intangibles
Unrealised exchange loss (gain)
Share based payments
Employee entitlements
Doubtful debts
Changes in assets and liabilities
(Increase)/Decrease in trade debtors
-
(244,807)
1,057,663
1,066,388
14,218
10,337
746,053
310,607
318,460
(4,114)
67,663
56,056
-
340,891
(2,567,667)
202,466
-
-
-
10,337
-
-
-
-
-
-
-
67,663
(15,685)
-
-
(Increase)/Decrease in prepayments and other debtors
(Increase)/Decrease in work in process
(782,729)
(276,644)
13,044
(14,590)
198,355
581,682
-
-
(Decrease)/Increase in creditors and accruals
812,485
(492,329)
(34,471)
(167,648)
Cash flows provided by/(used in) operations
672,412
6,232,141
(915,217)
(842,871)
notes to the financial statements
17. NOTES TO THE CASH FLOW STATEMENT (cont.)
(c) Acquisition of entities
During the year, 100% of the controlled entity
PDT Holdings, Inc. was acquired.
Details of this transaction are:
Purchase consideration (i)
Cash consideration
Amount due under contact of sale - cash
Amount due under contact of sale - shares
Cash outflow/inflow
Assets and liabilities held at acquisition date:
50
Cash
Receivable
Property, plant and equipment
Work in process
Intangibles
Payables
Interest bearing liabilities
Goodwill on consolidation
Consolidated
Parent Entity
2006
$
2005
$
2006
$
2005
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
12,211,207
6,563,400
3,416,251
2,231,556
12,211,207
47,835
4,262,434
3,930,372
976,619
6,027,540
(4,767,954)
(2,453,280)
8,023,566
4,187,641
12,211,207
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
12,211,207
6,563,400
3,416,251
2,231,556
12,211,207
-
-
-
-
-
-
-
-
-
-
(i) On the 11 March 2004, the Company finalised an agreement to purchase all the shares in PDT Holdings, Inc. for a cash and
share consideration of USD$12 million on a going concern basis. The full purchase price is only payable on PDT achieving its
2005 forecasted EBITDA figure of USD$3 million.
FINANCIALS | 2006 ANNUAL REPORT
notes to the financial statements
Under the sale agreement, the Company is required to pay the following consideration:
• USD$5 million in cash on the signing of the contract.
• A further USD$1 million in cash and current held in an escrow account until after the preparation of audited consolidated
financial statements as at 31 December 2004.
• The remaining USD$6 million will be paid by a way of USD$3 million in cash current held in escrow and USD$3 million shares
in TZ Limited with an ascribed value of USD$1.00 per TZ limited share on achieving its 2005 forecasted EBITDA figure.
As at 30 June 2005, the Company had estimated that under current trading activities PDT might not achieve its estimated EBITDA
forecasts under the agreement and therefore only estimated the full purchase consideration of USD$9.6 million.
During the course of the financial year, PDT achieved EBITDA forecasts as detail in the purchase agreement and as at 30 June
2006 the Company has provided for the full purchase price of USD$12 million. After balance date, the Company issued 5,569,887
ordinary full paid share at an issue price of 58.5 cents per each share as part of it final price consideration as detailed above. The
goodwill on consolidation after applying the full price paid at 30 June 2006 amounted to AUD$7,242,153.
(d) Non cash financing and investing activities
Shares Issued
16 July 2004, the Company issued 6,000,000 ordinary shares as approved in the general meeting of shareholders
held 15 July 2004 to the Company’s former Director for services provided in the Company’s recent restructure and capital
raising under the prospectus issued in March 2004.
10 March 2006, the Company issued 175,482 ordinary shares in the Company at an issue price of 65 cents per
share as part consideration for the purchase of the business Mqube Design from MQBD LLC.
28 June 2006, the Company issued 43,871 ordinary shares in the Company at an issue price of 54 cents per
share as the final consideration of its acquisition of the Mqube Design from MQBD LLC after certain performance criteria
were reached.
51
18. SEGMENT INFORMATION
Segment Revenues
Engineering and design
Investments
Total of all segments
Unallocated
Consolidated
2006
$
2005
$
30,547,698
18,222,578
254,416
215,026
30,802,114
18,437,604
-
6,302
30,802,114
18,443,906
(i) All sales were to customers outside the consolidated entity
notes to the financial statements
18. SEGMENT INFORMATION (cont.)
Segment Results
Engineering and design
Investments
Total of all segments
Eliminations
Unallocated
Profit before income tax expense
Income tax expense/(benefit)
Profit after related income tax expense
Extraordinary items
Net profit
2006
$
2005
$
1,102,834
5,152,612
(536,300)
(857,893)
566,534
4,294,719
-
-
566,534
(25,774)
592,308
-
-
(1,201)
4,293,518
210,608
4,082,910
-
592,308
4,082,910
52
Segment Assets and Liabilities
Engineering and design
Investments
Total of all segments
Unallocated
Consolidated
Segment Assets
Liabilities
2006
$
2005
$
2006
$
2005
$
54,393,816
43,566,770
11,380,008
5,992,477
5,120,117
6,674,831
89,921
2,231,556
59,513,933
50,241,601
11,469,929
8,224,033
-
61,028
-
-
59,513,933
50,302,629
11,469,929
8,224,033
The consolidated entity’s predominant activities is the licensing of its patented intellectual property and operating software, as well
as providing application engineering and technology development services to manufacturers in the automotive, aerospace and
construction industries.
The Company operates its engineering and design division predominantly in the USA, while maintaining a presence in the UK and
the Ukraine. The Company operates these geographical locations with the USA operation and are not significant enough to be
reported separately. The Company investments division is predominantly in Australia.
FINANCIALS | 2006 ANNUAL REPORT
notes to the financial statements
19. FINANCIAL INSTRUMENTS
(a) Interest rate risk exposure
The Company is exposed to interest rate risk through primary financial assets and financial liabilities. The table on the following
pages summarises the interest rate risk for the Company, together with the effective weighted average interest rate for each class
of financial assets and liabilities.
53
notes to the financial statements
19. FINANCIAL INSTRUMENTS (cont.)
Weighted Average
Interest Rates
Floating
Interest Rate
$
Fixed Interest
Maturing in
1 Year or Less
$
2006
2005
2006
2005
2006
2005
2006
2006
2006
Financial assets
Cash
Receivables
Total financial assets
Financial liabilities
Bank loan
54
Bills/Installment notes
Lease liabilities
Trade and sundry creditors
4.55
-
8.25
7.67
7.15
-
3.50
2.54
6.25
7.50
7.15
-
3,403,156
5,610,488
-
1,834,468
3,403,156
7,444,956
1,886,024
1,476,760
-
-
-
-
-
-
-
-
-
-
615,307
-
-
-
-
-
43,166
162,411
-
-
Fixed Interest
Maturing in
Over 1 to 5 Years
$
2005
Non-interest
Bearing
$
2005
Total
$
2005
3,056
3,403,156
5,613,544
10,974,952
7,326,988
10,974,952
9,161,456
10,974,952
7,330,044
14,378,108
14,775,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,289,406
975,725
2,904,713
975,725
-
-
-
1,886,024
1,476,760
43,166
162,411
5,479,614
5,469,088
5,479,614
5,469,088
Total financial liabilities
1,886,024
1,476,765
658,476
162,411
2,289,406
975,715
5,479,614
5,469,088
10,313,517
8,083,984
Net financial assets
1,517,132
5,968,191
(658,476)
(162,411)
(2,289,406)
(975,715)
5,495,338
1,860,956
4,064,591
6,691,016
notes to the financial statements
FINANCIALS | 2006 ANNUAL REPORT
19. FINANCIAL INSTRUMENTS (cont.)
Weighted Average
Interest Rates
Floating
Interest Rate
$
Fixed Interest
Maturing in
1 Year or Less
$
Fixed Interest
Maturing in
Over 1 to 5 Years
$
Non-interest
Bearing
$
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
2006
Total
$
2005
Total financial assets
3,403,156
7,444,956
Financial assets
Cash
Receivables
Financial liabilities
Bank loan
Bills/Installment notes
Lease liabilities
Trade and sundry creditors
4.55
-
8.25
7.67
7.15
-
3.50
2.54
6.25
7.50
7.15
-
3,403,156
5,610,488
-
1,834,468
-
-
-
-
-
-
-
-
-
-
-
1,886,024
1,476,760
-
-
-
-
-
-
43,166
162,411
-
-
-
-
-
-
-
-
615,307
2,289,406
975,725
-
-
-
-
-
3,056
3,403,156
5,613,544
10,974,952
7,326,988
10,974,952
9,161,456
10,974,952
7,330,044
14,378,108
14,775,000
-
-
-
-
-
-
1,886,024
1,476,760
2,904,713
975,725
55
43,166
162,411
5,479,614
5,469,088
5,479,614
5,469,088
Total financial liabilities
1,886,024
1,476,765
658,476
162,411
2,289,406
975,715
5,479,614
5,469,088
10,313,517
8,083,984
Net financial assets
1,517,132
5,968,191
(658,476)
(162,411)
(2,289,406)
(975,715)
5,495,338
1,860,956
4,064,591
6,691,016
notes to the financial statements
19. FINANCIAL INSTRUMENTS (cont.)
Reconciliation of net financial assets to net assets
Net financial assets above
Non-financial assets and liabilities
2006
$
2005
$
4,064,591
6,690,016
Work in process
700,456
423,812
Property, plant and equipment
4,266,725
4,171,410
Intangibles
Deferred tax assets
39,698,304
32,006,795
470,343
136,025
Provision for employee entitlements
(875,244)
(129,191)
Deferred tax liabilities
(281,170)
(9,858)
Net assets per statement of financial position
48,044,005
43,289,009
(b) Net fair values of financial assets and liabilities
(i) The net fair values of cash and cash equivalents and non-interest bearing monetary financial assets and liabilities
approximate their carrying values as disclosed in the statement of financial position and the notes to the financial
56
statements.
(ii) The carrying amounts and estimated net fair values of equity investments approximate their carrying values as
disclosed in the statement of financial position and the notes to the financial statements.
(c) Credit risk exposure
The maximum exposure to credit risk excluding the value of any collateral or other security at balance date to recognised financial
assets is the carrying amount, net of any provision for doubtful debts, as disclosed in the statement of financial position and notes
to the financial statements.
The Company does not have any material credit risk exposure to any single debtor or group of debtors under financial instruments
entered into by the Company.
Receivables due from major debtors are not normally secured by collateral, however the credit worthiness of debtors is monitored.
20. COMMITMENTS FOR EXPENDITURE
Operating Lease Commitments Payable
Not later than one year
Later than one year but not later than five years
Later than five years
Consolidated
Parent Entity
2006
2005
2006
2005
$
$
844,305
617,809
622,947
1,123,797
-
-
1,467,253
1,741,606
$
-
-
-
-
$
-
-
-
-
notes to the financial statements
21. EARNINGS PER SHARE
Basic earnings per share (cents per share)
Diluted earnings per share (cents per share)
FINANCIALS | 2006 ANNUAL REPORT
Consolidated Entity
Consolidated Entity
2006
0.40
0.35
2005
3.33
2.89
Weighted average number of ordinary shares on issue used in
the calculation of basic earnings per share
149,713,775
145,414,867
Weighted average number of options outstanding
17,238,592
20,617,015
Weighted average number of ordinary shares outstanding used in
calculation of dilutive earnings per share
166,952,367
166,031,882
Earning used in the calculation of basic and dilutive earnings per share
592,308
4,837,715
22. EVENTS SUBSEQUENT TO REPORTING DATE
On the 4 August 2006, the Company issued 5,569,887 fully paid ordinary shares at an issue price of 58.5 cents per share
as final settlement of the consideration for the purchase of PDT entered into in March 2005 (refer to Note 17(c).
On the 4 August 2006, the Company issued 3,473,419 fully paid ordinary shares on the exercise of 2,982,250 at 34 cents
per share and 491,169 at 40 cents per share.
57
On the 17 August 2006, the Company issued 470,139 fully paid ordinary shares at an exercise price of 40 cents per share.
On the 25 August 2006, the Company issued 2,652,112 fully paid ordinary shares on the exercise of 1,491,125 at 27 cents
per share, 803,506 at 40 cents per share and 357,481 at 34 cents per share.
On the 1 September 2006, the Company issued 6,437,862 fully paid ordinary shares on the exercise of 6,352,581
at 34 cents per share and 85,281 at 40 cents per share.
No other matter or circumstance has arisen since the end of the financial year which has not been dealt with in the financial
statements that has significantly affected or may significantly effect:
(i) the operations of the Company;
(ii) the results of those operations; or
(iii) the state of affairs of the Company.
23. AUDITOR’S REMUNERATION
Consolidated
Parent Entity
2006
2005
2006
2005
$
$
$
$
Auditors of the parent entity – Taylor & Co.
45,200
49,455
45,200
49,455
Other services from auditors of the parent entity
Other auditors
-
-
-
-
Other services from other auditors
130,869
84,382
-
-
-
-
-
-
The auditors received no other fees or benefits.
notes to the financial statements
24. EXPLANATION TO TRANSITION TO AUSTRALIAN EQUIVALENTS OF IFRSS
Reconciliation of equity reported under previous Australian Generally Accepted Accounting Principles (AGAAP) to equity under
Australian equivalents to IFRSs (AIFRS) as referred to in Note 1(a).
Effect of A-IFRS on the balance sheet as at 1 July 2004.
Note
A GAAP Actual*
A-IFRS Impact
Current assets
Cash and cash equivalent
Trade and other receivables
Total current assets
Non-current assets
Investment
Property, plant & equipment
Intangibles
58
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Provisions
Total current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Accumulated losses
Total equity
b
a
e
$
7,410,963
3,295,161
10,706,124
10
90,997
19,934,669
20,025,676
30,731,800
2,751,113
73,135
2,824,248
2,824,248
$
-
-
-
-
-
387,945
387,945
387,945
-
-
-
-
A-IFRS
$
7,410,963
3,295,161
10,706,124
10
90,997
20,322,614
20,413,621
31,119,745
2,751,113
73,135
2,824,248
2,824,248
27,907,552
387,945
28,295,497
54,565,803
-
(26,658,251)
27,907,552
-
-
387,945
387,945
54,565,803
-
(26,270,306)
27,907,552
*Reported financial position for the financial year ended 30 June 2004 under previous Australian GAAP.
FINANCIALS | 2006 ANNUAL REPORT
notes to the financial statements
Effect of A-IFRS on the balance sheet as at 30 June 2005.
Note
A GAAP Actual*
A-IFRS Impact
Current assets
Cash and cash equivalent
Trade and other receivables
Work in process
Total current assets
Non-current assets
$
5,613,544
9,161,456
423,812
15,198,812
Property, plant & equipment
4,171,410
$
-
-
-
-
-
A-IFRS
$
5,613,544
9,161,456
423,812
15,198,812
4,171,410
Intangibles
Deferred tax assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Provisions
Interest-bearing liabilities
Total current liabilities
Non-current liabilities
Interest-bearing liabilities
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Accumulated losses
Total equity
b
30,796,382
1,210,414
32,006,796
136,025
35,103,817
50,302,629
-
136,025
1,210,414
1,210,414
36,314,231
51,513,043
5,632,499
129,191
424,475
6,186,165
2,028,010
9,858
2,037,868
8,224,033
59
-
-
-
-
-
-
-
-
5,632,499
129,191
424,475
6,186,165
2,028,010
9,858
2,037,686
8,224,033
42,078,596
1,210,414
43,289,010
a
e
64,398,396
255,540
-
64,398,396
67,663
323,203
(22,575,340)
1,142,781
(21,432,559)
42,078,596
1,210,414
43,289,010
*Reported financial position for the financial year ended 30 June 2004 under previous Australian GAAP.
notes to the financial statements
24. EXPLANATION TO TRANSITION TO AUSTRALIAN EQUIVALENTS OF IFRSS (cont.)
Effect of A-IFRS on the income statement for the financial year ended 30 June 2005.
Revenue
Cost of sales
Gross profit/(loss)
Other revenue
Employee related expenses
Occupancy expenses
Communications expenses
Depreciation
Amortisation of intangibles
60
Professional and corporate service
Travel and accommodation
Foreign exchange losses
Interest paid
Other expenses
Profit before income tax expense
Income tax expense
Profit for the period
Profit attributable to members of
the parent entity
Note
A GAAP Actual*
A-IFRS Impact
$
18,218,464
(6,147,119)
12,071,345
225,442
$
-
-
-
-
A-IFRS
$
18,218,464
(6,147,119)
12,071,345
225,442
a
b
(2,683,690)
(67,663)
(2,751,353)
(2,98,048)
(181,304)
(420,957)
(1,140,928)
(1,194,445)
(1,204,134)
-
(79,215)
(800,548)
4,293,518
210,608
4,082,910
-
-
-
822,468
-
-
-
-
-
(298,048)
(181,304)
(420,957)
(318,460)
(1,194,445)
(1,204,134)
-
(79,215)
(800,548)
754,805
5,048,323
-
210,608
754,805
4,837,715
4,082,910
754,805
4,837,715
* Reported in the statement of financial performance for the financial year ended 30 June 2005 under previous Australian GAAP.
Effect of A-IFRS on the cash flow statement for the financial year ended 30 June 2005.
There are no material differences between the cash flow statement presented under A-IFRS and the cash flow statement
presented under the superseded policies.
FINANCIALS | 2006 ANNUAL REPORT
notes to the financial statements
Notes to the reconciliations of income and equity
(a) Share-based payments
For financial year ended 30 June 2005, share-based payments of $67,663 (included in ‘employee benefit expenses’) which were
not recognised under the superseded policies were recognised under A-IFRS, with a corresponding increase in the employee
equity-settled benefits reserve.
(b) Goodwill on consolidation
Under AASB 3: Business Combinations, goodwill is capitalised to the balance sheet and subjected to an annual impairment test.
Amortisation of goodwill is prohibited. However, goodwill was amortised under the superseded policies on a straight-line basis
over a period of 20 years. The Director has reviewed the goodwill on consolidation and has determined that the original amount
has not been impaired and therefore the previously amortised amount of $387,945 and $822,469 will be reversed resulting in a
corresponding decrease of $387,945 and $822,469 in accumulated losses at 30 June 2004 and 30 June 2005 respectively.
(c) Impairment of assets
AASB 136 Impairment of assets – assets held by the Company are required to be tested for impairment in the event that any
indicators of impairment are present. Impairment of assets has been reviewed at 1 July 2004 and 30 June 2005 and there is
considered to be no impact.
(d) Income tax
The Company currently recognises deferred taxes by accounting for the differences between accounting profits and taxable
income, which gives rise to ‘permanent’ and ‘timing’ differences. Pursuant to AASB 112 Income Taxes, deferred taxes are meas-
ured by reference to the temporary differences determined as the difference between the carrying amount and the tax base of
assets and liabilities recognised in the statement of financial position.
The controlling Company has carried forward tax losses which have not been recognised as deferred tax assets as they do not
satisfy the ‘virtually certain’ criteria of current Australian Generally Accepted Accounting Principles (GAAP). Pursuant to AASB
112, tax losses may be more readily recognised as deferred tax assets as the ‘probable’ recognition criteria is less stringent than
the ‘virtually certain’ test of Australian GAAP. However, these have not been brought to account as recovery is not considered to
meet the probable test at this time.
61
(e) Accumulated losses
The effect of the above adjustments on retained earnings is as follows:
Expensing share-based payments
Write-back of goodwill amortisation
Total adjustment to retained earnings
Note
a
b
1 July 2004
$
30 June 2005
$
-
(67,663)
387,945
1,210,414
387,945
1,142,751
directors’ declaration
The Directors of TZ Limited declare that:
1. The financial statements and associated notes of the company and of the economic entity for the financial year
ended 30 June 2006:
(a) are in accordance with the Corporations Act 2001;
(b) comply with Accounting Standards and the Corporations Act 2001; and
(c) give a true and fair view of the Company’s and consolidated entity’s financial position as at 30 June 2006 and the per-
formance for the year ended on that date;
2.
The Chief Executive Officer and Chief Finance Officer have each declared that:
(a)
the financial records of the Company for the financial year have been properly maintained in accordance with section
286 of the Corporations Act 2001;
(b)
the financial statements and notes for the financial year comply with the Accounting Standards; and
(c)
the financial statements and notes for the financial year give a true and fair view.
3. In the Directors’ opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when
they become due and payable.
This declaration is made in accordance with a resolution of the Board of Directors.
62
J. Falconer
Non-Executive Director and Company Secretary
Dated this 30th day of September 2006
Sydney, Australia
FINANCIALS | 2006 ANNUAL REPORT
independent audit report to the members of tz limited
Scope
The financial report and Directors’ responsibility
The financial report comprises the statement of financial position, statement of financial performance, statement of cash flows,
accompanying notes to the financial statements and the Directors’ declaration for TZ Limited (the Company) and the consolidated
entity for the year ended 30 June 2006. The consolidated entity comprises both the company and the entities it controlled during
the year.
The Directors of the Company are responsible for preparing a financial report that gives a true and fair view of the financial
position and performance of the Company and the consolidated entity and that complies with accounting standards in Australia
in accordance with the Corporations Act 2001. This includes responsibility for the maintenance of adequate accounting records
and internal controls that are designed to prevent and detect fraud and error and for the accounting policies and accounting
estimates inherent in the financial report.
Audit approach
We conducted an independent audit of the financial report in order to express an opinion on it to the members of the Company.
Our audit was conducted in accordance with Australia Auditing Standards in order to provide reasonable assurance as to whether
the report is free of material misstatement. The nature of an audit is influenced by factors such as the use of professional
judgment selective testing the inherent limitations of internal control, and the availability of persuasive rather than conclusive
evidence. Therefore an audit cannot guarantee that all material misstatements have been detected.
We performed procedures to assess whether in all material respects the financial report presents fairly in accordance with the
Corporations Act 2001, including compliance with Accounting Standards in Australia and other mandatory financial reporting
requirements in Australia, a view which is consistent with our understanding of the company’s and the consolidated entities
financial position and their performance as represented by the results of their operations and cash flows.
We formed our audit opinion on the basis of these procedures which included:
63
•
•
examining on a test basis information to provide evidence supporting the amounts and disclosures in the financial report;
and
assessing the appropriateness of the accounting procedures and disclosures used and reasonableness of significant
accounting estimates made by the directors.
While we considered the effectiveness of management’s internal controls over financial reporting when determining the nature and
extent of our procedures, our audit was not designed to provide assurances on internal controls.
We performed procedures to assess whether the substance of business transactions was accurately reflected in the financial
report. These and our other procedures did not include consideration or judgment of the appropriateness or reasonableness of
the business plans or strategies adopted by the directors and management of the company.
Independence
In conducting our audit, we followed applicable independence requirements of Australian professional ethical pronouncements
and the Corporations Act 2001.
In accordance with ASIC Class Order 05/83, we declare to the best of our knowledge and belief that the auditor’s independence
declaration set out on page 5 of the financial report has not changed as at the date of providing our audit opinion.
independent audit report to the members of tz limited
Audit Opinion
In our opinion, the financial report of TZ Limited is in accordance with:
(a) the Corporations Act 2001 including:
(i) giving a true and fair view of the financial position of TZ Limited and the consolidated entity at 30 June 2006
and of their performance for the year ended on that date; and
(ii) complying with Accounting Standards in Australia and the Corporations Regulations 2001; and
(b) other mandatory financial reporting requirements in Australia.
Taylor & Co.
Stephen Taylor
30th September 2006
Sydney, Australia
64
FINANCIALS | 2006 ANNUAL REPORT
corporate governance
The Board has formally reviewed the ASX Corporate Governance Council paper entitled ‘Principles of Good Corporate
Governance and Best Practice Recommendations’ which was published in March 2003. The Company is a small company
and accordingly the Directors consider that many of the corporate governance guidelines intended to apply to larger
companies are not practical.
The Company’s position on those recommendations is set out below;
Principle 1: Lay solid foundations for management and oversight
Role of the Board
The Board’s primary responsibility is to oversee the Company’s business activities and management for the benefit of
shareholders which it accomplishes by:
• establishing corporate governance, and ethical, business standards;
• setting objectives, goals and strategic direction with a view to maximise shareholder value;
• approving and monitoring budgets and major investments;
• ensuring adequate internal controls exist and are appropriately monitored;
• ensuring significant business risks are identified and appropriately managed;
• appointing the CEO and monitoring the CEO’s performance;
The Board has delegated responsibilities and authorities to management to enable management to conduct the Company’s
day-to-day activities. Matters which are not covered by these delegations, such as approvals which exceed certain limits,
require Board approval.
Apart from the statements on responsibility, the Company has not formalised the functions reserved to the Board and those del-
egated to management for the reasons noted above.
65
Principle 2: Structure the board to add value
The composition of this Board is determined using the following principles:
• The Chairman should be a Non-Executive Director.
• The Board should comprise a majority of Non-Executive Directors.
• Directors appointed by the Board are subject to election by shareholders at the following annual general meeting and
thereafter directors are subject to re-election at least every three years.
The names of the Directors in office at the date of this report, the date they were appointed, their status as Non-Executive,
Executive or Independent Directors, whether they are retiring by rotation and seeking re-election by shareholders at the 2006
Annual General Meeting, are set out in the table below:
Director
Appointed
Non-Executive
Independent
Retiring
at 2006 AGM
Seeking
Re-election
at 2006 AGM
Chris Kelliher
11 December 2003
No
Not Applicable
Not Applicable
Not Applicable
John Falconer
6 February 2004
Michael Otten
7 July 2006
Yes
Yes
No
No
No
No
Yes
Yes
The main areas of divergence with recommended principles are:
• The Chairman is not independent, however he is separate from the Chief Executive.
• The Company does not have a formally constituted Audit Committee, Board Nominations Committee or
Remuneration Committee.
• The majority of Directors are not independent.
Each Director of the Company has the right to seek independent professional advice at the expense of the Company.
corporate governance
Principle 3: Promote ethical and responsible decisions-making
The Company does not have a formal code of conduct reflecting the Company’s small size and the close interaction of the small
number of individuals throughout the organisation. However, the Directors are aware of their legal responsibilities and adhere to
the following policy.
The Directors will not deal in Company shares:
• Except between three and 30 days after either the release of the Company’s half year and annual results to the Australian
Stock Exchange, the annual general meeting or any major announcement.
• Whilst in possession of price sensitive information.
In accordance with the Corporations Act 2001 and the Listing Rules of the Australian Stock Exchange, directors advise the ASX of
any transactions conducted by them in shares in the Company.
Principle 4: Safeguard integrity in financial reporting
The Company Secretary is responsible for producing the financial results and has stated in writing to the other members of the
Board that the Company’s consolidated year end financial statements present a true and fair view in all material respects and are
in accordance with relevant accounting standards.
The Company and its Directors are aware of continuous disclosure requirements under the Listing Rules and Corporations Act
and operate in an environment where strong emphasis is placed on full and appropriate disclosure. The Company does not have
formal written policies regarding disclosure, but uses strong informal systems underpinned by experienced individuals.
Principle 5: Respects the rights of shareholders
The Company does not have a communications strategy to promote effective communication with shareholders as it believes this
is excessive for small companies. The Company maintains a website which is used in conjunction with timely announcements to
the ASX to ensure shareholders are kept fully informed.
66
The Company also aims to ensure that the shareholders are informed of all major developments through:
• Despatch of the annual and half yearly financial reports.
• Despatch of all notices of meetings of shareholders.
• Submitting to a vote of shareholders proposed major changes in the consolidated entity which may impact
on share ownership rights.
The Board encourages full participation of shareholders at the annual general meeting to ensure high level of accountability and
identification of the consolidated entity’s strategic goals. Important issues are presented to the shareholders as single resolutions.
The Company requests the external auditor to attend the general meeting.
Principle 6: Recognise and manage risk
The Company is a small company and does not believe that there is significant need for formal policies on risk oversights and
management. However, the Board considers risk exposure and management as a standing agenda item at board meetings.
Risk management arrangements are the responsibility of the Board of Directors.
Principle 7: Encourage enhanced performance
The Company does not have a remuneration committee.
There has been no formal performance evaluation of the Board during the past financial year.
FINANCIALS | 2006 ANNUAL REPORT
corporate governance
Principle 8: Remunerate fairly and responsibly
There are no formal remuneration policies maintained by the Company. Details of the Company’s policy for determining the nature
and amount of emoluments of Board members and Senior Executives of the Company are contained in the Directors’ report.
In accordance with Corporations Act requirements, the Company discloses the fees or salaries paid to all Directors, and Executive
Officers of the Company.
Principle 9: Recognise the legitimate interests of stakeholders
The Company does not have a formal Code of Conduct to guide compliance with legal and other obligations. This reflects the
Company’s size which makes its legal compliance a less onerous task than with larger companies.
The Board of Directors continues to review the situation to determine the most appropriate and effective operational procedures.
67
stock exchange information
Statement of Quoted Securities as at 29 September 2006
•
•
•
There are 1,616 shareholders holding a total of 168,317,803 ordinary fully paid shares.
The 20 largest shareholders between them hold 51.86% of the total shares on issue.
Voting rights are that on a show of hands each member present in person or by proxy or attorney or representative shall have
one vote and upon a poll every member so present shall have one vote for every fully paid share held and for each partly paid
share held shall have a fraction of a vote pro rata to the amount paid up on each partly paid share relative to its issue price.
Distribution of Quoted Shares and Options as at 29 September 2006
Shares
Range
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 - and over
Number of Holders
122
374
321
594
205
Total Holders
1,616
There were 93 shareholders whose total holding had a market value of less than $500 at 31 August 2006.
68
Substantial Shareholdings as at 29 September 2006
There are no substantial shareholders who have notified the Company that pursuant to the provisions of section 671B of the
Corporations Act 2001 that they are substantial shareholders.
Directors’ Shareholdings
As at 29 September 2006, Directors of the Company held a relevant interest in the following securities on issue by the Company.
Director
C. Kelliher
J. Falconer
M. Otten
Ordinary Shares
Unquoted Options
2,065,175
1,976,364
193,197
1,000,000
Nil
Nil
On-market Buy-backs
There is no on-market buy back currently in place.
FINANCIALS | 2006 ANNUAL REPORT
69
stock exchange information
Top 20 Holders of Ordinary Shares at 29 September 2006
Shareholder Name
Number of Shares
% of Total
Citicorp Nominees Pty Limited
ANZ Nominees Limited
National Nominees Limited
23,255,152
18,048,071
6,159,251
Lippo Securities Nominees (BVI) Ltd
6,135,000
Tematec International Pty Ltd
Mainland Air Services Limited
4,316,053
3,913,781
Westpac Custodian Nominees Limited
3,430,681
Best Start Services Ltd
Davambros Pty Ltd
Luik Holding Pty Ltd
3,238,300
2,491,125
2,483,893
Merrill Lynch (Australia) Nominees Pty Ltd
2,240,890
World Capital Holding Limited
Profit Pearl Holding Ltd
Mr. Dave May
Mr. Scott Semenik
Mr. Ray Wiltgen
1,681,136
1,564,915
1,255,080
1,255.080
1,255,080
JFT Nominees Pty Ltd
1,216,209
Canonbar Investments Pty Ltd
Moggs Creek Pty Ltd
Mr. Howard Todd Horberg
Total held by top 20 holders
of ordinary shares
1,205,000
1,131,481
1,000,000
87,276,178
13.82
10.72
3.66
3.64
2.56
2.33
2.04
1.92
1.48
1.48
1.33
1.00
0.93
0.75
0.75
0.75
0.72
0.72
0.67
0.59
51.89
Note the above list does not identify related party holdings. Readers should have regards to substantial shareholders
notices and directors declarations.
stock exchange information
Voting Rights
All shares have equal voting rights.
Notice of Correction to the Unaudited Preliminary Final Report Lodged on 13 September 2006
The Directors advise that there is a difference of $1,322,000 between the net profit for the year as disclosed in the attached
audited accounts of $592,000 and the net profit for the year as disclosed in the preliminary final report released to the market
on 13 September 2006 of $1,914,000. The difference is principally due to the write back of accrued FutureWall™ income included
in the preliminary final report.
This income was accrued in management accounts and then included in the consolidated result for the year. The original income
accrual was calculated with the knowledge that a FutureWall™ licensing agreement with provision for fixed fees from the licensee
in future years had further requirements that had to be met. After further consultation with outside accountants, it was agreed that
all the revenue would be recognised in future years due to the fact the agreement has some requirements which should be met in
future years. The FutureWall™ agreement is the subject of a separate announcement to the market.
As detailed in the FutureWall™ announcement, the Directors believe that substantial revenues will flow to the Company over the
next 3 to 5 years, and the revenue may be recognised for financial accounting purposes in the 2006/2007 year if all the agreement
requirements are met.
Other differences related to additional capitalised development costs which were identified after consultation with outside
accountants.
The comments in the preliminary final report on the 2006 revenues did not incorporate the above details.
70
FINANCIALS | 2006 ANNUAL REPORT
71
directory
Directors
C. Kelliher
J. Falconer
M. Otten
Company Secretary
J. Falconer
Registered Office
Level 12, 92 Pitt Street
Sydney NSW 2000
Telephone +61 2 9223 8044
+61 2 9223 8820
Fax
Email: info@tzlimited.com
Bankers
National Australia Bank Limited
Auditors
Taylor & Co.
Chartered Accountants
Level 6,179 Elizabeth Street
Sydney NSW 2000
Solicitors
Kemp Strang Lawyers
55 Hunter Street
Sydney NSW 2000
Share Registry
Computershare Investor Services Pty Limited
452 Johnston Street
Abbotsford VIC 3067
Telephone +61 3 9415 5000
+61 3 9473 2500
Fax
Stock Exchange
Australian Stock Exchange Code: TZL
72
©2006 TZ Limited
FutureWall™, On Board Technology™ and TZ On Board™ are trademarks of Telezygology, Inc.
Intevia® is a trademark of Acument Intellectual Properties, LLC.
Bluetooth® is a registered trademark of Bluetooth, SIG, Inc.
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Sydney (Registered Office)
Level 12, 92 Pitt Street
Sydney NSW 2000
Australia
Chicago (Operational Headquarters)
350 N. LaSalle Street
Suite 1100B
Chicago, IL 60610
United States
www.tzlimited.com