Corporate Highlights
CellocateTM Network Financing Contracts Restructuring INTERIM MANAGEMENT DISCUSSION AND ANALYSIS
During the quarter ended September 30, 2001 the Company incurred a loss of $3.3 million. The decrease from the loss of $3.8 million for the three months ended June 30, 2001 and from the loss of $6.9 million for the same period in 2000 is the result of a continued focus on core competencies and projects, business restructuring programs and concentrated efforts to reduce costs and limit capital and discretionary expenditures. The Company used $2.8 million for operations this quarter, compared to $3.2 million for the quarter ended June 30, 2001 and $6.7 million for the same quarter last year. Network and capital expenditures for the quarter decreased 57 percent to $0.042 million from $0.097 million for the previous quarter and $14 million for the quarter ended September 30, 2000.
The Company's combined cash operating and capital costs in the quarter were $2.8 million which is a 16 percent decrease from $3.3 million for the quarter ended June 30, 2001 and a 87 percent reduction from $21 million for the quarter ended September 30, 2000.
Management remains committed to ensuring that cash resources are dedicated to the primary objectives of the company - critical project research and development, business development, reduced discretionary expenditures and economies of scale for operations. During the quarter, costs decreased in all areas with the exception of research and development.
Operations:
Operations expenses were reduced to $1.3 million in the quarter from $1.4 million in the previous quarter and $1.7 million for the quarter ended September 30, 2000. The operational expenses have remained relatively constant since the prior quarter as efficiencies for network operation and deployment activities have been achieved. As additional deployment activity is minimal at this time, tower lease, telecommunications and power costs will remain stable until any change occurs in the number of deployed towers and/or cities that networks are deployed in.
Marketing and Business Development:
As Cell-Loc continues to evolve from a research and development company to a revenue generating company, more effort and expense will be required for business development related expenses. The small increase to $0.182 million for the quarter from $0.174 million in the previous quarter is a direct result of the exposure required to continue to generate interest in the company, the product and negotiate revenue deals. These types of expenses have decreased significantly from the expenses incurred during the same quarter the previous year of $2.5 million when Cell-Loc was aggressively participating in tradeshows, advertising, promotion and had increased staff levels.
General and Administrative:
A continued focus on cost reduction resulted in an 18 percent decrease from $0.872 million to $0.713 million in general and administrative expenditures. The decrease for the quarter is largely due to staff reductions and related office and facility costs. The Company continues to focus on reducing office equipment, communication, facility, outsourcing and discretionary expenses. The restructuring programs undertaken in the past year account for the decreased expenses from $1.2 million during the same period in 2000.
Research and Development:
Research and development expenses for the quarter were $0.620 million compared to $1.0 million for the quarter ended June 30, 2001 and $1.5 million for the three months ended September 30, 2000. As Cell Loc technology is continuing to be upgraded and further developed, expenditures for research and development will be ongoing. The focus on core projects has limited the type of expenditures that are incurred and is reflected in the 60 percent reduction in research and development expenses from the same quarter the previous year.
Subsequent to the Quarter
The company received $1.5 million in revenue from a license agreement (the "Agreement") with IQ2 Communications (the "Licensee") to issue a license to exploit its technology in the city of Calgary with the ability to elect further territories upon additional payment of fees. At the Licensee's election, they will be granted first right of opportunity to acquire additional interests in the Calgary and a select number of other North American markets upon the payment to Cell-Loc of sums up to $5.3 million. Please see the Notes to Consolidated Financial Statements for additional details of the "Agreement."
The receipt of the funds from the above mentioned agreement will increase the Company's cash and cash equivalents which were $2.0 million at September 30, 2001 compared to $3.6 million at June 30, 2001. The working capital position of $0.3 million at June 30, 2001 decreased to a working capital deficit of $1.518 million for the quarter ended September 30, 2001.
The Company appointed Sheldon Reid to the position of executive vice president of corporate and business development. Cell-Loc president and CEO, Dr. Fattouche was quoted saying that, "In selecting Sheldon, Cell-Loc will benefit from his many years of experience in management and as a lead negotiator of corporate transactions."
At the time of this quarterly release, the preliminary prospectus for an equity line of credit to be drawn over a period of two years as announced on May 24, 2001 continues to be subject to final regulatory review and approval.
Business Risks and Prospects
The wireless location industry along with all other industries witnessed a global economic downturn. While the tragic events of September 11, 2001 introduced further uncertainty into the markets, we believe that those events have created a renewed interest in location tracking. Cell-Loc's proven wireless location technology addresses the demand in relation to several location-based issues.
The acceptance of our technology by customers has been slower than planned or predicted. Independent market opportunity forecasts for wireless location services predicted to be in the billions have not yet begun to materialize. The resources required to continue research and product development, deploy networks and market our product offerings may cause strain on the Company's management, technical, financial and other resources.
The Company's ability to continue ongoing operations is dependent upon obtaining financing and revenue to expand its network, while developing and commercializing its business and services to the point that it achieves profitable operations and positive cash flows on a commercial scale. The Company's ability to generate net income and positive cash flow in the future is dependent upon various factors, including the level of market acceptance of its services, the degree of competition encountered by the Company, the cost of acquiring new customers, technology risks, the ability to fund continued network deployment and operations, general economic conditions and regulatory requirements.
About Cell-Loc Inc. About Times Three Inc. Forward Looking Statements: This news release contains certain forward-looking statements. All statements, other than statements of historical fact, included herein, are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements. Forward-looking statements are based on the estimates and opinions of management on the date the statements are made, and Cell-Loc does not undertake an obligation to update forward-looking statements should conditions or management's estimates or opinions change.
Note to Editors: Cell-Loc, Cellocate, Cellocate System, Cellocate Beacon, TimesThree and LocationBroker are trademarks of Cell-Loc Inc.
The Toronto Stock Exchange has neither approved nor disapproved the information contained herein.
CONFERENCE CALL Dial In Numbers
SIMULCAST Cell-Loc contact:
Tammy Yamkowy
In July 2001 the Company completed a demonstration of location-based messaging in the U.S., delivering emergency alert messages to groups of cellular handsets in targeted geographical locations in Austin, Texas. The Company was invited to participate in this demonstration by the Cellular Emergency Alert Services Association (CEASA). The demonstration used the Company's Austin Cellocate network
In July 2001 the Company completed a private placement of 588,235 units, each unit consisting of one common share and one common share purchase warrant at a price of $1.70 per unit for aggregate net proceeds of $1 million less costs. Each purchase warrant entitles the holder to acquire one common share at a price of $2.04 at any time prior to July 10, 2003.
In August 2001 the Company signed its first commercial fleet tracking contract with Calgary-based Carz4free.com Inc., a mobile advertising company. The customer has successfully used the service on the Company's Calgary Cellocate network and the contract will now be assigned to the joint venture company formed as part of a license and joint venture agreement entered into subsequent to the quarter.
In response to continued economic slowdown, the Company implemented a restructuring plan in September which further defined core projects and streamlined budget and labor requirements. In order to pro-actively link the Company's core competencies with existing markets, the Company reduced its full time staff by 44 percent to approximately 36 employees. Cancellation of purchase orders for non-core items and projects was also required. The results of the restructuring program are scheduled to be substantially realized in the second quarter of fiscal 2002.
Cell-Loc Inc. (www.cell-loc.com), a leader in the emerging wireless location industry, is the developer of CellocateTM, a family of wireless location products that enable location-based services. Located in Calgary, Alberta, Cell-Loc currently develops, markets and supports its patented wireless location technology in North and South American countries with a view to expanding globally. Cell-Loc is listed on the Toronto Stock Exchange under the trading symbol: "CLQ."
Based in Texas, TimesThree Inc. (www.timesthree.com), wholly owned by Cell-Loc Inc., is designed to enable location-sensitive services such as L411, fleet tracking, asset tracking, child/senior find and pet tracking.
On Friday, November 30, 2001, at 8:30 am MT, a conference call and simulcast will be held. Dr. Michel Fattouche, president & CEO, and Sheldon Reid, executive vice president, corporate and business development will report on the quarter and answer questions.
Calgary: 403.705.2795
Toronto: 416.646.3096
Toll-Free: 1.866.246.6373
Details will be posted on the Cell-Loc website.
Manager, Public Relations
Phone: (403) 569-5748
Toll Free: 1-877-569-5700
tyamkowy@cell-loc.com