Kazz Industries, Inc. (“KAZ” on ASE)
2307 Highway 93 South Kalispell, Montana 59901
Phone: (406) 755 - 2111 Fax: (406) 755 - 6021
This newly-listed company will begin selling its full line of snowboards throughout the U.S. & Canada this winter !!
Kazz Industries has developed state-of-the-art snowsport products with cutting-end technology, including the Vector goggles, which feature a heads-up display of time, speed, temperature, slope and direction !
COMPANY PROFILE & PRODUCT LINE
Kazz Industries, Inc. (“KAZ” on ASE) of Kalispell, Montana is currently engaged in the business of designing, manufacturing and marketing a complete line of snow sports products.
The company has developed a revolutionary line of snowboards, goggles, ski poles and bindings that utilize electronic devices, incorporate state of the art technology and represent quantum advances beyond any products offered by KAZ's competitors.
Beginning this winter, Kazz Industries will introduce its complete line of snowboards throughout the United States and Canada. Although its line of snowboards cover the complete range of prices and abilities, much of the company sales and marketing efforts are focused on getting product into nationwide retail outlets such as Target, Wal-Mart, Sports Authority, Gart Sports, etc.
We believe that KAZ is on track with this strategy, and will be successful in tapping into the vast numbers of people interested in snowboarding, but who have been turned off by the high prices of equipment. With the snowboarding industry anticipated to double in size over the next three years (to US$2 billion), a high volume, high margin producer like KAZ should do very, very well.
What other products does KAZ have in the pipeline?
Scheduled for introduction during the 2000 / 2001 winter season, KAZ's Talon motor-driven, retractable ski poles will be a premium product with no competition. These ski poles will be constructed of aircraft grade aluminum for lightness and strength, and carry a one year warranty. Using a 5 volt electric motor powered by a rechargeable NiCad (housed in the handle), the poles will retract from full length to 14” in less than 5 seconds! Beta tests have proven that the Talon poles can operate at up to –400 C.
Kazz Industries is also developing the Synergy line of downhill ski bindings, which will be the first electronically-controlled bindings. Scheduled for introduction in 2002, the Synergy bindings will have all of the safety features of conventional bindings with the addition of an easy-to-use, electronically controlled and ergonomically-friendly entrance and exit mechanism. KAZ will be competing with the leading ski binding manufacturers (Marker, Salomon, Tyrolia and Look), who offer bindings with manual step-in / step-out heel pieces.
We also suspect that there will be spin-offs of the pixel technology developed for the Vector goggles (more on these later!), possibly merging this technology with the thermoplastic snowboard lines. This could allow KAZ to produce a translucent snowboard with moving graphics; the moving graphics would be achieved by the use of a pictorial graphics card embedded in a sealed, waterproof port. Consumers would have the ability to purchase a variety of affordable graphic cards, creating a continuous, high-volume revenue source.
There's also a recent announcement that following a successful site inspection, Kazz Industries has received certification from the U.S. Government. No contracts (yet !), but certainly a strong vote of confidence in Kazz Industries' manufacturing facilities, quality control, and operating expertise!.
Recently, KAZ has entered into two major sales / marketing agreements for its products. In May, Kazz Industries entered into an agreement with Sports SuperStore OnLine (SSOL) to market KAZ's Infinity line of snowboards. SSOL pioneered sports e-commerce in 1996, and has become one of the premiere retailers on AOL (over 17 million registered users).
On July 12th, KAZ announced that it had entered into a test marketing agreement with FAO Schwartz, one of the world's premiere toy stores. Beginning this fall (at its flagship store in New York City), FAO Schwartz will feature two KAZ products: a toy snowboard called the “Color Me”, and, from Identity (a subsidiary of KAZ), the world's first translucent snowboard – the “Clone”. We believe that after a reasonable test period (about 3 months), FAO Schwartz will order enough KAZ snowboards to fill all of its 38 stores nationwide.
The KAZ thread on SI can be accessed at: www3.techstocks.com
THE VECTOR HEADS-UP DISPLAY GOGGLES
Kazz Industries' Vector goggles are, quite simply, a “company-maker” product.
Scheduled for introduction during the 2000 / 2001 ski season, the Vector goggles will feature an
electronically-controlled “heads-up” display (across the top of the lenses) similar to the visor display of jet fighter pilots! Users will have instant access to a variety of information such as the outside temperature, distance, time, speed, digital compass and pitch of terrain. KAZ's proprietary pixel display technology will allow users to darken, lighten or change the color of the goggle lens as ambient light conditions change, while a coating of indium tin oxide will prevent fogging.
Undoubtedly, viewing the speed and time of one's descent down a mountain will be a definite attraction, not only to the expanding snowboard industry, but to the ski industry as well. This product should have a strong introduction, and produce some very impressive sales figures next year!
We fully expect to see Kazz Industries market variations of the Vector ski goggles to a number of other sports. A version for skydivers might display rate of descent, direction and altitude; another model for scuba divers could show depth and tank pressure. There are a lot of different sports where this technology could be applied, and, over the longer term, we see these Vector “heads-up display” goggles as the core business of the company.
The Vector goggles will be unlike anything else on the market, and, at an estimated retail price of US$300, we expect that they will be actively sought out by participants in many other sports. What little competition KAZ is likely to experience will be from exotic European imports and high end products of the major North American manufacturers (Smith, Carrera and Oakley) - but no one has anything like the Vector !!
CAPITAL STRUCTURE & TRADING RANGE (as of July 22, 1999)
Issued & Outstanding (fully-diluted): ~ 8.1 million shares
Est'd Float: ~ 1 million shares
1999 Trading Range: Cdn$0.25 (low) by Cdn$2.05 (high)
Current Bid & Ask: Cdn$1.96 by Cdn$2.00
Last Trade (July 22, 1999): Cdn$2.00
PRO FORMAS INDICATE A STRONG COMPANY WITH A BRIGHT FUTURE
Founded in 1994, Kazz Industries reported total revenues of about US$1 million in 1998, its first year of test marketing and limited sales of beta products. For the current fiscal year, KAZ projects total sales of about US$2.4 million and net earnings (before taxes) of about US$200,000.
With the planned North American roll-out of its full line of snowboards this coming winter and a full-press marketing / sales campaign, the company's pro forma financials project a big increase in sales (US$10.05 million) in FY 2000, and significant pre-tax income (est'd @ US$3.49 million or US$0.43 / share).
Projections for FY 2001 look even better, based on the introduction of the Vector goggles and Talon ski poles during the 2000 / 2001 winter season; KAZ is projecting sales of over US$23 million, and estimated pre-tax earnings of US$7.29 million (US$0.90 / share).
Bear in mind that these figures are just for the current line of snow sports products - there are rumors of some major acquisitions in the works, and any deals that might be done would add to these already impressive earnings figures!
So, what might be a reasonable target price for KAZ, based on the company's estimated pre-tax earnings for FY 2000 and 2001?
Well, at a conservative 10x multiple and the current number of shares outstanding, you could make a good case for KAZ shares being valued at US$4 to US$4.50 next year, rising to US$9 the following year.
Actually, the appropriate multiple for KAZ could be much higher than 10.
Kazz Industries has a revolutionary mix of products. We believe that the Vector goggles are going to take the industry by storm and allow KAZ share to command premium valuations in FY 2000 and FY 2001. As the company achieves full production of its complete line of snow sport products, the ultimate equity valuation multiple awarded to KAZ shares might be on the order of 15x to 20x earnings.
In any event, we believe that the current US$ share price reflects less than a 3x multiple on estimated FY 2000 pre-tax earnings (about 1x estimated FY 2001 earnings), and, as earnings are reported, it would be reasonable to expect the share price to move into higher (sustained) trading ranges.
WHY YOU SHOULD CONSIDER ADDING KAZ TO YOUR PORTFOLIO !!
Kazz Industries has a great future, and strong potential for significant capital appreciation over the next six to twelve months. The company's shares offer investors an opportunity to participate in the initial stages of a new, high growth industry - snowboarding.
Snowboarding is rapidly becoming a big business. Last year, 30+ manufacturers sold over one million boards at an average price of US$260. According to Snow Sports Industries America, snowboarding is expected to double in size (to US$2 billion) over the next three years. There are over five million snowboarders in the United States; last winter, over 1,000,000 people snowboarded for the first time.
Kazz Industries is well positioned to take advantage of the coming growth in snowboarding. The company has introduced several strong products, such as the "Color Me" snowboards, the only board that allows children to color and create their own designs. Then there's the "Gorilla" snowboard, which is an injection-molded board with metal edges and simple, attractive graphics geared to the beginner aged 10 and up. In fact, most of Kazz's snowboards are injection-molded, which allows for greater flexibility for the rider and is more cost-effective for the company to manufacture than the traditional method.
More importantly, the company offers snowboards in all the price classes. For years, those interested in snowboarding were turned off by the price of a new board (about US$300). As a result, many potential customers were stalled in their attempts to try this new sport.
Though the money from the boards is huge, the heads-up display Vector goggles are a “company-maker” product that will drive the growth of Kazz Industries for many years to come. Over the next two years, KAZ will also be introducing two other revolutionary products: the Talon line of motorized, retractable ski poles, and the Synergy electronically-controlled ski bindings. Each of these products represent major technological advances, and not one of Kazz Industries competitors have anything like them available for many years to come!
On the corporate side, the share structure is solid, with a float of about one million. Most of the 8.1 million shares (fully-diluted) are owned by officers and directors, and are restricted from trading for three to five years. There's also a very healthy treasury, with plenty of working capital for launching the new products.
Longer term, as the Vector goggles, Synergy bindings and Talon ski poles are brought to market, KAZ's sales and revenues will expand significantly. By 2001, the company estimates sales of over US$23 million and pre-tax earnings of US$0.90/share. With these numbers, we would expect to see KAZ qualify for a full TSE or NASDAQ listing, with commensurately higher multiples (P/E ratios of 15x to 20x).
We view Kazz Industries as a STRONG BUY at current prices, with excellent potential for significant capital appreciation over both the immediate and longer term.
For more information, please contact:
Investor Relations @ (405) 755 - 2111
E-mail: kazz@digisys.net
DISCLAIMER
Patagonia Capital Corp. (“Patagonia Capital”) is not a Registered Investment Advisor or a Broker / Dealer. Patagonia Capital has independently prepared this report, drawing upon a range of public news and information sources. This report reflects opinions from Kazz Industries Inc. (the “Company”). Readers are advised that this report is issued solely for information purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy. The opinions and analysis included herein are based on sources believed to be reliable and in good faith but no representation or warranty, expressed or implied, is made as to their accuracy, completeness or correctness. This information is not intended to be used as the sole basis of any investment decisions, nor should it be construed as advice designed to meet the investment needs of any particular investor. The foregoing discussion contains forward-looking statements that are based on current expectations and differences can be expected. The information contained herein has been provided by the Company to Patagonia Capital for information purposes only; in addition, the information contained in this report is not intended to be a complete discussion of information regarding some of the current and/or intended business activities of the Company. Readers are urged to consult with independent financial advisors with respect to an investment in the shares mentioned herein. Investors should review a complete information package on the Company which should include, but not be limited to, the Company's annual report, quarterly report, press releases, as well as all regulatory filings. All information contained in this report should be independently verified with the Company mentioned herein. Any opinions expressed in this report are statements of judgment as of the date of publication (22 July 1999) and are subject to change without further notice, and may not necessarily be reprinted in future publications or elsewhere. Neither Patagonia Capital nor its officers, directors, partners or employees / consultants accept no liability whatsoever for any direct or consequential loss arising from any use of this report or its contents. In order to be in full compliance with the Securities Act of 1933, Section 17(b), Patagonia Capital advises the readers of this document that it has received a fee of 2,000 free-trading common shares of Kazz Industries from Kazz Industries as compensation for its efforts in researching, writing and presenting the information contained herein. Prior to Patagonia Capital issuing this report, the Company reviewed and approved the contents hereof. Patagonia Capital, its officers, directors, partners and employees / consultants may profit in the event the shares of the Company increase in value. These positions may be liquidated from time to time even after Patagonia Capital, its officers, directors, partners and employees / consultants have made positive comments on the Company. THE READER SHOULD VERIFY ALL CLAIMS AND DO THEIR OWN DUE DILIGENCE BEFORE INVESTING IN ANY SECURITIES MENTIONED. INVESTING IN SECURITIES IS SPECULATIVE AND CARRIES A HIGH DEGREE OF RISK. We encourage U.S. readers to review the investing information available with the Securities and Exchange Commission ("SEC") at sec.gov and/or the National Association of Securities Dealers ("NASD") at nasdr.com The NASD has published information on how to invest carefully at its website. A complete listing of Kazz Industries' public filing's with the Alberta Stock Exchange (including news releases and financial statements) can be viewed at the SEDAR web site, located at sedar.com.
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