Cell-Loc Location Technologies Inc.
TSX VENTURE : LTI

Cell-Loc Location Technologies Inc.

November 29, 2006 20:53 ET

Cell-Loc Location Technologies Inc. Reports September 30 Results

CALGARY, ALBERTA--(CCNMatthews - Nov. 29, 2006) - Cell-Loc Location Technologies Inc. (TSX VENTURE:LTI):

Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's discussion and analysis (MD&A) of Cell-Loc Location Technologies Inc. (the "Company" or "CLTI") for the period ended September 30, 2006 contains forward-looking statements that are not historical in nature and involve risks and uncertainties. Forward-looking statements are not guarantees as to the Company's future results since there are inherent difficulties in predicting future results. Accordingly, actual results could differ from those expressed or implied in the forward-looking statements.

Corporate Strategy

The Company is the developer of a family of network-based wireless location products that enable location-based services. The Company has deployed and is operating networks in Calgary and Saskatoon, Canada and Sao Paulo, Brazil. In addition, it has licensed territories for the remainder of Alberta, Vancouver, BC and Austin, TX and has granted an option to license the Phoenix, AZ territory. The Company maintains an equity interest in each of these geographic territories.

CLTI has commercial operations in Sao Paulo, Brazil through its subsidiary X3 Telecomunicacoes e Equipamentos ("X3"). The Company plans to enhance revenue opportunities in the stolen vehicle market in Sao Paulo beyond its initial contract with Itau Seguros S.A. ("Itau Seguros"), the insurance subsidiary of Banco Itau. Additional vertical markets such as fleet tracking and telemetry will also be developed utilizing the existing network. CLTI believes that the revenue growth that it will develop in Sao Paulo will demonstrate the compelling business model that its technology's capabilities provide. In addition to the opportunities in the Sao Paulo market, the Company plans to use its success in Brazil to showcase its technology and the potential for its use on a global scale.

CLTI's strategy is to focus on a large scale roll-out of its technology through qualifying counterparties for licensing geographic territories or vertical market opportunities and through partnering with parties on a joint venture basis. CLTI is currently entertaining discussions with other international companies with interest in utilizing the Company's intellectual property on a global basis. The Company is currently discussing such opportunities with parties in a number of geographic locations. During the quarter, the Company announced that it had entered into a Memorandum of Understanding ("MOU") with LG CNS Ltd. ("LG"), a subsidiary of LG Corp. of Seoul, South Korea. The MOU provides that CLTI and LG intend to negotiate the terms of an arrangement pursuant to which LG will have the exclusive entitlement to the use of CLTI technology in the Republic of South Korea and includes all applications of the technology.

Sao Paulo Network

The Company has entered into a five-year agreement with Itau Seguros to provide location services to assist in the recovery of stolen vehicles. This agreement will provide the Company guaranteed minimum annual revenue of US $4,200,000 (plus call centre and installation cost billing) in the stolen vehicle market during its first two years.

To date, X3 has installed approximately 9,000 beacons in customer vehicles (5,134 during the quarter). The Company has increased its installation capacity to 4,000 vehicles per month in order to handle expected increases in volume of customers from Itau Seguros. To date, use of CLTI's technology has resulted in the recovery of 41 stolen vehicles for Itau Seguros' customers.

Additional opportunities exist in the aftermarket for stolen vehicle monitoring, fleet tracking, people tracking, telemetry and asset monitoring. The Company believes that Brazilian market demand will expand quickly given the demand for security and the competitive price structure. With the network deployment completed and the network operating costs established, additional revenues are expected to provide very high margin returns.

Other Networks

With the completion of the Brazilian network, the Company plans to implement network upgrades in the Calgary and Saskatoon networks. In addition, CLTI plans to provide its low cost beacon through its subsidiary, X3, to its other networks, thereby producing a more competitive business model.

General Presentation

During the three and nine months ending September 30, 2006 the Company incurred a net loss of $1,146,000 and $2,684,000 compared to the prior year net loss of $1,025,000 and $2,359,000, respectively.

Overview

Revenue

The Company recorded revenue of $471,000 from Beacon installations and service in Brazil during the quarter. The amount actually billed to customers was approximately $540,000 but the annual revenue from the beacon service component of the billing is deferred and recognized proportionately throughout the year.

Operations

Operations expenses for the nine-month period of $1,086,000 resulted from operating the Calgary network ($193,000), the Saskatoon network ($27,000), and the Sao Paulo network ($866,000).

General and Administrative

Expenses for general and administrative costs for the nine-month period were $2,267,000. The expenses were incurred to operate and staff the corporate office ($2,023,000) and to operate the office in Sao Paulo ($244,000).

Liquidity and Capital Resources

The Company had a cash balance of $1,778,000 at September 30, 2006. The Company's monthly use of cash continues to be scrutinized to ensure optimal use of cash resources. CLTI has continued to raise necessary funds through private placements of equity and raised additional private placement financing of $3,438,000 in the quarter ended September 30, 2006. Funds from these financings will be used to fund ongoing operations and business development.

Business Risks and Prospects

The Company is actively negotiating commercial contracts.

The Company's ability to continue to generate revenue and achieve 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 partners, technology risks, the ability to fund continued network deployment and operations, general economic conditions and regulatory requirements.

The market for location-based services is just beginning to develop and is subject to rapid technological change. The Company's business plan is focused on attracting and contracting other entities to apply its technology in city, regional or national networks. These third parties will be required to operate the project and invest funds in the infrastructure, working capital and staff to develop the potential of their contracted area. The Company's continuing research, development and testing may cause significant strain on the Company's management, technical, financial and other resources.

To remain competitive the Company must be able to keep pace with the technological developments and change its product lines to meet new demands. The Company will depend on designing and developing products that have not been commercially tested to achieve much of its future growth.

The wireless location solution that the Company plans to offer is an emerging technology, and the application of existing, proposed or future regulation to the Company's offering cannot be reliably determined at this stage of development.

The Company's ability to continue ongoing operations is dependent upon contracting parties to license the Company's technology and then implementing a commercialized service business. 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 technology;

- the ability to enter into license agreements to deploy and operate the Company's proprietary wireless location network technology;

- the degree of competition encountered by the Company; and

- the Company's ability to manage growth.


Consolidated Financial Statements of


CELL-LOC LOCATION TECHNOLOGIES INC.


For the period ended September 30, 2006


Unaudited Interim Consolidated Financial Statements

In accordance with National Instrument 51-102 released by the Canadian Securities Administrators, the Company discloses that its auditors, KPMG LLP, have not reviewed the unaudited interim consolidated financial statements for the three and nine-month periods ended September 30, 2006.

Notice to the Reader of the Interim Consolidated Financial Statements

The interim consolidated financial statements of Cell-Loc Location Technologies Inc., consisting of the consolidated balance sheet, the consolidated statement of operations and deficit, and the consolidated statement of cash flows for the three and nine month periods ended September 30, 2006 are the responsibility of the Company's management. The interim consolidated financial statements have been prepared by management and include the appropriate accounting principles, judgments and estimates necessary to prepare these interim consolidated financial statements in accordance with Canadian generally accepted accounting principles. In addition, these interim consolidated financial statements have been reviewed and have been approved by the Company's Audit Committee and Board of Directors.



Sheldon Reid Dave Guebert
President & Chief Executive Officer VP Finance & Chief Financial Officer
Cell-Loc Location Technologies Inc. Cell-Loc Location Technologies Inc.

November 29, 2006



CELL-LOC LOCATION TECHNOLOGIES INC.

Consolidated Balance Sheet

September 30, December 31,
(in thousands of dollars) 2006 2005
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(unaudited)
Assets

Current Assets:
Cash and cash equivalents $ 1,778 $ 420
Restricted cash 77 77
Accounts receivable 280 58
Deposits and Advances 713 802
Inventory 177 -
Other current assets 308 234
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3,333 1,591
Network assets 9,026 7,804

Capital assets 320 311

Intellectual property and other intangible assets 186 223
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$ 12,865 $ 9,929
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Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable and accrued liabilities $ 537 $ 991

Deferred revenue 80 3

Government assistance 508 508

Shareholders' equity:
Share capital (note 3 (b)) 20,142 14,634
Contributed surplus 975 486
Deficit (9,377) (6,693)
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11,740 8,427
Future operations (note 2)
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$ 12,865 $ 9,929
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See accompanying notes to interim consolidated financial statements.

CELL-LOC LOCATION TECHNOLOGIES INC.

Consolidated Statement of Operations

For the three-month and nine-month periods ended September 30, 2006,
with comparatives for the three-month and nine-month periods ended
September 30, 2005

----------------------------------------------- ---------------------------
----------------------------------------------- ---------------------------
Three months ended Nine months ended
(in thousands of September 30, September 30,
dollars except -------------------------- ---------------------------
per share data) 2006 2005 2006 2005
----------------------------------------------- ---------------------------
----------------------------------------------- ---------------------------
(unaudited) (unaudited) (unaudited) (unaudited)


Revenues $ 471 $ 38 $ 993 $ 40

Operating expenses:
Operations 893 108 1,086 246
General and
administrative 648 809 2,267 1,912
Marketing and
business
development 8 47 23 94
Foreign exchange (172) 22 (59) (85)
Depreciation and
amortization 238 78 363 233
----------------------------------------------- ---------------------------

Total operating
expenses 1,615 1,064 3,680 2,400
----------------------------------------------- ---------------------------
Loss from operations (1,144) (1,026) (2,687) (2,360)
Less:
Interest expense 1 - - 1
Interest income (4) (1) (3) (2)
Other 5 - - -
----------------------------------------------- ---------------------------
Net loss $ (1,146) $ (1,025) $ (2,684) $ (2,359)
----------------------------------------------- ---------------------------
----------------------------------------------- ---------------------------
Net loss per share $ (0.01) $ (0.02) $ (0.03) $ (0.05)
----------------------------------------------- ---------------------------
----------------------------------------------- ---------------------------
Weighted average
number of shares
outstanding:
Basic and Diluted 97,494,699 62,574,143 92,074,890 50,074,203
Shares issued and
outstanding 110,104,421 68,271,113 110,104,421 68,271,113

Consolidated Statement of Deficit

(in thousands of dollars)
----------------------------------------------- ---------------------------
----------------------------------------------- ---------------------------

Deficit, beginning
of the period $ (8,231) $ (4,425) $ (6,693) $ (3,091)
Net loss for the
period (1,146) (1,025) (2,684) (2,359)
----------------------------------------------- ---------------------------
Deficit, end of
period $ (9,377) $ (5,450) $ (9,377) $ (5,450)
----------------------------------------------- ---------------------------
----------------------------------------------- ---------------------------

See accompanying notes to interim consolidated financial statements.


CELL-LOC LOCATION TECHNOLOGIES INC.

Consolidated Statement of Cash Flows

For the three-month and nine-month periods ended September 30, 2006,
with comparatives For the three-month and nine-month periods ended
September 30, 2005

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Three months ended Nine months ended
September 30, September 30,
(in thousands ------------------------------------------------------
of dollars) 2006 2005 2006 2005
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

Cash provided by
(used in):

Operating:
Net loss for the
period $ (1,146) $ (1,025) $ (2,684) $ (2,359)

Items not affecting
cash:
Deferred revenue 68 (1) 77 2
Depreciation and
amortization 238 78 363 233
Unrealized foreign
exchange - - - (118)
Stock based
compensation
(note 3(c)) 139 100 489 247
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(701) (848) (1,755) (1,995)
Changes in non-cash
working capital: (420) 1,106 (838) 83
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(1,121) 258 (2,593) (1,912)
Financing:
Issue of common stock,
net of issue costs 3,438 - 5,508 4,471
Shareholder loans (130) - - -
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3,308 - 5,508 4,471
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Investing:
Network assets and
capital assets (477) (741) (1,557) (1,782)
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(477) (741) (1,557) (1,782)
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(Decrease) Increase in
Cash 1,710 (483) 1,358 777
Cash and equivalents,
beginning of period 68 1,681 420 421
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Cash and equivalents,
end of period $ 1,778 $ 1,198 $ 1,778 $ 1,198
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See accompanying notes to interim consolidated financial statements.

CELL-LOC LOCATION TECHNOLOGIES INC.

Notes to Interim Consolidated Financial Statements
Periods ended September 30, 2006
(In thousands of dollars except per share data)
(unaudited)


1. Basis of presentation

The accompanying unaudited interim consolidated financial statements for Cell-Loc Location Technologies Inc. (the "Company") have been prepared in accordance with Canadian generally accepted accounting principles for interim consolidated financial statements. These financial statements follow the same accounting policies and methods of applications as the most recent annual consolidated financial statements dated December 31, 2005. As the interim consolidated financial statements do not contain all the disclosure required in annual financial statements, they should be read in conjunction with the Company's December 31, 2005 audited annual consolidated financial statements.

2. Future operations

These financial statements have been prepared on the basis of accounting principles applicable to a going concern, which assumes that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its obligations in the normal course of operations. The Company's ability to maintain its current level of operations is dependent on its ability to generate sufficient cash to fund its strategic business plan. The Company continues to expend significant funds and has utilized its working capital in the deployment of wireless location networks. At September 30, 2006 CLTI had cash of $1,778 and a working capital balance of $2,796.

Management and the Board of Directors continue to develop plans to maintain the current level of operations past the current fiscal year and believe that the going concern assumption is appropriate for these financial statements. The recoverability of the Company's investment in its network and capital assets is dependent upon the generation of cash flow from sales of the Company's technology products.

The occurrence and timing of future sales of the Company products or technology licenses remains uncertain. There is no assurance that the Company will be able to achieve operating profitability, generate positive cash flow or obtain sufficient financing to fund operations while operating improvements are implemented. These statements have been prepared on the basis that the Company will continue to realize its assets and discharge its obligations in the ordinary course of business and do not reflect adjustments and reclassifications of balance sheet items that might otherwise be necessary if the going-concern assumption was not valid.

3. Share capital

(a) Authorized: Unlimited number common shares

(b) Issued and outstanding:



---------------------------------------------------------------------------
Common shares Amount
---------------------------------------------------------------------------
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Outstanding at December 31, 2005 83,003,813 $ 14,634
Issued for cash 27,100,608 5,847
Issuance costs (339)
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Outstanding at September 30, 2006 110,104,421 $ 20,142
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During the first quarter, the Company closed non-brokered private placement equity issues of 8,413,000 units of capital of the corporation for gross proceeds of approximately $2,101 at a price of 25 cents per unit. Each unit consists of one common share and one half of one common share purchase warrant. Each warrant entitles the owner to acquire one common share at an exercise price of 40 cents per common share any time before the 24 month anniversary of the closing.

During the third quarter, the Company closed a non-brokered private placement equity issue of 3,525,000 units of capital of the corporation for gross proceeds of approximately $705 at a price of 20 cents per unit. Each unit consists of one common share and one half of one common share purchase warrant. Each warrant entitles the owner to acquire one common share at an exercise price of 30 cents per common share any time before the 24 month anniversary of the closing.

During the third quarter, the Company closed a brokered private placement equity issue of 15,000,000 units of capital of the corporation for gross proceeds of $3,000 at a price of 20 cents per unit. Each unit consists of one common share and one common share purchase warrant. Each warrant entitles the owner to acquire one common share at an exercise price of 28 cents per common share any time before the 24 month anniversary of the closing.

During the year, share purchase warrants were exercised resulting in the issuance of 162,608 common shares for gross proceeds of $41.

(c) Stock option plan:

During the quarter, the Company granted 1,230,440 options to employees and consultants with exercise prices of 19.5 cents to 23 cents of which 1/3 were vested on the grant date and the remaining vesting equally at the end of one and two years of service. The exercise price was based upon the market price prevailing at the stock option grant date. The fair value of the options using a volatility of 136% was 11.8 cents to 15.6 cents for the vesting periods. During the quarter 44,000 options expired with an exercise price from 60 cents/option.



A summary of outstanding options is shown below:
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Options Outstanding
---------------------------------------------------------------------------
Weighted
average
Number remaining Weighted
outstanding at contractual average
Range of exercise September 30, life exercise
price outstanding 2006 (months) price
---------------------------------------------------------------------------
$ 0.12 $ 0.30 5,972,837 44 $ 0.208
0.32 0.53 2,250,439 48 0.329
1.55 1.60 200,000 9 1.575
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$ 0.12 $ 1.60 8,423,276 45 $ 0.273
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Options exercisable Compensation
---------------------------------------------------------------------------
Weighted
Number average
exercisable at exercise September 30, September 30,
September 30, 2006 price 2006 2005
---------------------------------------------------------------------------
2,683,864 $ 0.212 $ 489 $ 247
911,114 0.343
200,000 1.575
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3,794,978 $ 0.316 $ 489 $ 247
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(d) Share purchase warrants:

A summary of outstanding warrants are shown below:

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---------------------------------------------------------------------------
Weighted
Number average
outstanding at remaining Weighted
Year of Range of exercise September 30, life average
Expiry price outstanding 2006 (months) exercise price
---------------------------------------------------------------------------
---------------------------------------------------------------------------
2006 $ 0.22 $ 2.32 10,933,349 2.0 $ 0.246
2007 0.20 1.91 8,840,200 14.1 0.309
2008 0.30 0.40 5,969,000 18.3 0.370
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$ 0.20 $ 2.32 25,742,549 9.9 $ 0.297
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Contact Information

  • Cell-Loc Location Technologies Inc.
    Dave Guebert
    VP Finance & Chief Financial Officer
    (403) 569-5796
    Website: www.cell-loc.com