Shareholders aren’t the only ones losing patience with Cell-Loc Inc., a cellphone tracking company awash in a sea of red ink.
“I’m perplexed,” Dean Kim, analyst with Acumen Capital Finance Partners Ltd., said after the beleaguered Calgary company announced a loss of $11.4 million for its latest quarter.
Cell-Loc says it is poised to tap into a market with massive potential with its wireless-location technology, but Kim says there isn’t enough clarity in the business plan.
“They reported no revenue,” said the Calgary analyst, “and they’re building this network in Austin (Texas), yet I have no sense of what they are going to commercialize or what products and services they’re striving to sell. They’re talking about it religiously, yet it seems like they don’t even know what their market is. It’s kind of frightening.”
Asked about the market for Cell-Loc’s technologies, chief operating officer John Krpan had a prompt response: “That’s a no-brainer. It’s commercially ready now. We have a long list of people prepared to sign up.”
Krpan cites third-party statistics that peg the location-services market at $7-$20 billion US in North America, adding that the most lucrative revenue potential is in business-to-business.
He says sources of revenue would be generated from such areas as asset tracking, fleet tracking and tracking stolen property. He projects Cell-Loc will achieve revenue this year of “millions of dollars — two, three, four, five million.”
But many investors have bailed in recent months. With the latest financials, they lopped another 10 per cent off the share price — to $2.60 on the Toronto Stock Exchange. That represents a 97-per-cent crash from a high of $80 a year ago during the height of techmania.
“They’re going to have to deliver this year or they’re not going to get a second chance,” said Kim.
But Krpan reiterated Cell-Loc is expecting to sign up clients soon. “We’re shaping agreements with a number of people and I’d be shocked if we didn’t make a good number of agreements over the year. We expect it to happen relatively soon.
“As leaders (in tracking technology), and assuming we’ll continue to be leaders, an assumption we are making, it’s not hard to see Cell-Loc’s potential revenue.”
Cell-Loc secured its short-term future in January by raising $25.1 million through a syndicate of underwriters. “I give them kudos for that,” said Kim. According to analyst Barry Richards of CIBC World Markets, which participated in the January financing, Cell-Loc’s partnership with Nortel Networks in a joint trial to test voice-activated, wireless location-sensitive service holds the key to the company’s viability.
“Cell-Loc has some irons in the fire and that (Nortel partnership) is the hottest iron,” said Richards. “Nortel is the key going forward. The trial with Nortel could be extended into something else or it could become a different type of arrangement that’s a huge opportunity for them.”
Asked if Nortel may be involved in helping finance the rollout of a planned 42-city location-services network that has been suspended as part of cost-cutting measures, Krpan replied: “That’s speculation. Is it possible? Yeah.”
Krpan stresses that Cell-Loc’s business plan hasn’t changed.
“Only the timing has changed,” he said of the firm, which now has 80 employees after cutting a third of its workforce. “We’re leaner and more operationally focused.”
Cell-Loc’s losses included $3.5 million in restructuring costs. Its biggest operating expense in the latest quarter was building its network in Austin, the testing ground for the technology.
CIBC rates Cell-Loc as a speculative buy. “I think that’s appropriate,” said Richards. “But certainly, with other telecom issues, this (stock) could get pushed down even further. It’s a wait-and-see story. It’s a great technology story in an interesting market that could be a monumental market.”
