TIDMXGT TIDMXGTU
RNS Number : 1425T
xG Technology Inc.
15 November 2013
November 15, 2013
xG Technology, Inc.
("xG", "xG Technology" or the "Company")
Quarterly Report for the Quarter ended September 30, 2013
xG Technology, a developer of wireless communications and
spectrum sharing technologies, announces its quarterly results for
the three months ended September 30, 2013 and the nine months ended
September 30, 2013. These results are set out in a 10-Q filing, as
set out below, which has been prepared in accordance with U.S. GAAP
and filed with the U.S. Securities and Exchange Commission.
END
Contacts
xG Technology, Inc. www.xgtechnology.com
John Coleman, Chief Executive Officer +1 212 651 4219
Roger Branton, Chief Financial Officer +1 212 651 4219
James Woodyatt, Investor Relations +1 954 572 0395
Allenby Capital Limited www.allenbycapital.com
(Nominated Adviser and Joint Broker)
Nick Naylor +44 20 3328 5656
Mark Connelly +44 20 3328 5656
First Columbus LLP (Joint Broker) www.first-columbus.com
Chris Crawford +44 20 3002 2070
Fusion PR (Media and Analyst Relations) www.fusionpr.com
David Worthington +1 212 651 4200
LHA (Investor Relations) www.lhai.com
Jody Burfening/Carolyn Capaccio +1 (212) 838-3777
ABOUT XG TECHNOLOGY
xG Technology develops a broad portfolio of intellectual
property to make wireless networks more intelligent, accessible,
affordable and reliable. The company has created xMax, a patented
all-IP cognitive radio technology that enables spectrum sharing.
xMax can solve the crisis facing the wireless industry caused by
data-hungry devices and applications that are straining network
capacity. It eliminates the need to acquire scarce and expensive
licensed spectrum, thus lowering the total cost of ownership for
wireless broadband access. xG's goal is to help wireless broadband
network operators make more efficient use of their spectrum
allocations and to create new opportunities for innovation in
unlicensed spectrum. The xMax cognitive radio system incorporates
advanced optimizing technologies that include spectrum sharing,
interference mitigation and self-organizing networks. xG offers
solutions for numerous industries worldwide, including urban and
rural wireless broadband, utilities, defense, emergency response
and public safety.
Based in Sarasota, Florida, xG has over 60 U.S. and over 130
international patents and pending patent applications, and its
technology is available for licensing in both domestic and foreign
markets. xG is a publicly traded company listed on the NASDAQ
Capital Market and on the London Stock Exchange's Alternative
Investment Market (AIM). On the NASDAQ, xG common stock is traded
under the symbol XGTI and xG warrants are traded under the symbol
XGTIW. On the AIM, xG's unrestricted shares trade under the stock
symbol XGTU.L and xG's restricted 'Reg S' shares trade under the
stock symbol XGT.L.
For more information, please visit www.xgtechnology.com .
Cautionary Statement Regarding Forward Looking Statements
Statements contained herein that are not based upon current or
historical fact are forward-looking in nature and constitute
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934. Such forward-looking statements reflect the Company's
expectations about its future operating results, performance and
opportunities that involve substantial risks and uncertainties.
These statements include but are not limited to statements
regarding the intended terms of the offering, closing of the
offering and use of any proceeds from the offering. When used
herein, the words "anticipate," "believe," "estimate," "upcoming,"
"plan," "target", "intend" and "expect" and similar expressions, as
they relate to xG Technology, Inc., its subsidiaries, or its
management, are intended to identify such forward-looking
statements. These forward-looking statements are based on
information currently available to the Company and are subject to a
number of risks, uncertainties, and other factors that could cause
the Company's actual results, performance, prospects, and
opportunities to differ materially from those expressed in, or
implied by, these forward-looking statements.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington , D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2013
or
.. TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________to
_______________.
Commission File Number: 333-187094
xG Technology, Inc.
(Exact name of registrant as specified in its charter)
Delaware 20-585-6795
-------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or No.)
organization)
240 S. Pineapple Avenue, Suite 701
Sarasota , FL 34236
(Address of principal executive offices) (Zip Code)
(941) 953-9035
(Registrant's telephone number, including area code)
n/a
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past
90 days. Yes x No ..
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (--232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the
registrant was
required to submit and post such files). Yes x No ..
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company. See the definitions of "large
accelerated filer," "accelerated filer" and "smaller reporting
company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer .. Accelerated filer
..
Non-accelerated filer .. (Do not check if a smaller Smaller reporting
reporting company) company x
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes ..No x
The number of shares of the Registrant's common stock
outstanding as of November 13, 2013 is 12,645,138.
xG TECHNOLOGY, INC.
QUARTERLY REPORT ON FORM 10-Q
For the quarter ended September 30, 2013
Page
Number
-------
PART I: FINANCIAL INFORMATION 1
Item 1. Financial Statements 1
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 17
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 24
Item 4. Controls and Procedures 24
PART II. OTHER INFORMATION 25
Item 1. Legal Proceedings 25
Item 1A. Risk Factors 25
Item 2. Unregistered Sales of Equity Securities and Use
of Proceeds 25
Item 3. Defaults Upon Senior Securities 25
Item 4. Mine Safety Disclosures 25
Item 5. Other Information 25
Item 6. Exhibits 26
SIGNATURES 27
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Index to Financial Statements
Unaudited Condensed Balance Sheets as of September 30,
2013 and December 31, 2012 2
Unaudited Condensed Statements of Operations for the three
and nine months ended September 30, 2013 and 2012 3
Unaudited Condensed Statements of Cash Flows for the nine
months ended September 30, 2013 and 2012 4
Notes to Condensed Financial Statements 5
The Company's unaudited condensed financial statements for the
nine months ended September 30, 2013 and for comparable periods in
the prior year are included below. The financial statements should
be read in conjunction with the notes to financial statements that
follow.
1
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xG TECHNOLOGY, INC.
UNAUDITED CONDENSED BALANCE SHEETS
(IN THOUSANDS EXCEPT PER SHARE DATA)
September 30, December 31,
2013 2012
--------------- --------------
ASSETS
Current assets
Cash $ 2,558 $ 271
Inventory 1,038 -
Prepaid expenses and other current assets 30 16
----------- ----------
Total current assets 3,626 287
Property and equipment, net 1,569 1,725
Intangible assets, net 19,022 17,608
----------- ----------
Total assets $ 24,217 $ 19,620
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable $ 978 $ 655
Accrued expenses 1,195 754
Accrued bonuses 2,633 2,633
Accrued interest and fees to related parties 87 1,169
Due to related party 1,326 1,098
Convertible notes payable to related party - 17,198
----------- ----------
Total current liabilities 6,219 23,507
----------- ----------
Convertible notes payable to related party 2,000 2,000
----------- ----------
Total liabilities 8,219 25,507
----------- ----------
Commitments
Stockholders' equity (deficit)
Series A Convertible Preferred Stock - $0.01
par value per share:
10,000,000 and 25,000,000 shares authorized,
none issued or
outstanding as of September 30, 2013 and
December 31, 2012 - -
Common stock - $0.00001 par value, 300,000,000
and 250,000,000 shares
authorized at September 30, 2013 and December
31, 2012, respectively;
12,647,281 and 6,041,946 shares issued
at September 30, 2013 and
December 31, 2012, respectively - * - *
Additional paid in capital 163,809 118,247
Accumulated deficit (147,789) (124,112)
Treasury stock, at cost - 2,284 shares at
September 30, 2013 and
December 31, 2012, respectively (22) (22)
----------- ----------
Total stockholders' equity (deficit) 15,998 (5,887)
----------- ----------
Total liabilities and stockholders' equity
(deficit) $ 24,217 $ 19,620
=========== ==========
* Less than $1
The accompanying notes are an integral part of these
statements.
2
Table of Contents
xG TECHNOLOGY, INC.
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT NET LOSS PER SHARE DATA)
For the Three Months For the Nine Months
Ended Ended
September 30, September 30,
2013 2012 2013 2012
------------- --------- ------------- --------
Revenue $ 33 $ - $ 33 $ -
Cost of revenue and operating
expenses
Cost of components and
personnel 1 - 1 -
General and administrative
expenses 1,936 1,269 4,442 3,909
Development 1,776 1,164 4,775 3,063
Stock based compensation 201 151 537 259
Amortization and depreciation 442 513 1,312 1,540
--------- -------- --------- -------
Total cost of revenue
and operating expenses 4,356 3,097 11,067 8,771
--------- -------- --------- -------
Loss from operations (4,323) (3,097) (11,034) (8,771)
--------- -------- --------- -------
Other
Inducement expense (391) - (391) -
Interest expense, net (1,146) (152) (2,184) (346)
Other expense (10,068) - (10,068) -
--------- -------- --------- -------
Total other income (expense) (11,605) (152) (12,643) (346)
--------- -------- --------- -------
Loss before income tax
provision (15,928) (3,249) (23,677) (9,117)
Income tax provision - - - -
--------- -------- --------- -------
Net loss $ (15,928) $ (3,249) $ (23,677) $(9,117)
========= ======== ========= =======
Basic and diluted net
loss per share $ (1.70) $ (0.54) $ (3.11) $ (1.51)
Weighted average number
of shares outstanding
basic and diluted 9,365 6,035 7,623 6,028
The accompanying notes are an integral part of these
statements.
3
Table of Contents
xG TECHNOLOGY, INC.
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Nine Months Ended September
30,
-------------------------------
2013 2012
----------------- ------------
Cash flows from operating activities
Net loss $ (23,677) $ (9,117)
Adjustments to reconcile net loss
to net cash used in operating activities
Stock based compensation 537 259
Share-based consulting and other
services 35 158
Depreciation and amortization 1,312 1,540
Accretion of financing instruments 176 -
Amounts paid by affiliate on behalf
of xG - 1,339
Inducement expense 391 -
Other expense 10,068 -
Non-cash interest expense 601 -
Changes in assets and liabilities
Inventory (1,038) -
Other current assets (340) 12
Accounts payable 323 87
Accrued expenses 223 141
Accrued interest and fees 1,907 717
Due to related party 1,241 631
------------- -----------
Net cash used in operating activities (8,241) (4,233)
------------- -----------
Cash flows from investing activities
Capital expenditures for property
and equipment (110) (297)
Capitalization of intangible assets (2,459) (3,377)
------------- -----------
Net cash used in investing activities (2,569) (3,674)
------------- -----------
Cash flows from financing activities
Proceeds from convertible notes payable
to related party 450 7,526
Proceeds from convertible bridge
loan payable ($2,727 to related party) 4,994 -
Repayment of convertible bridge loan
payable (125) -
Purchase of treasury stock (12)
Proceeds from exercise of options - 6
Proceeds from issuance of common
stock 7,778 400
------------- -----------
Net cash provided by financing activities 13,097 7,920
------------- -----------
Net increase in cash 2,287 13
------------- -----------
Cash, beginning of period 271 133
------------- -----------
Cash, end of period $ 2,558 $ 146
============= ===========
Supplemental cash flow disclosures
of investing and financing activities
Conversion of notes payable $ 15,000 $ -
Conversion of convertible bridge
loan payable including interest and
fees 9,023 -
Interest and fees refinanced under
the bridge loan 5,408 -
Due to related party refinanced under
the bridge loan 1,393 -
Related Party amount refinanced under
the bridge loan 1,013 -
Stock issued as payment for interest
on convertible notes 90 90
The accompanying notes are an integral part of these
statements.
4
Table of Contents
xG TECHNOLOGY, INC.
NOTES TO THE FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2013 AND DECEMBER 31, 2012 AND FOR THE
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2013 AND
2012
(Unaudited)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Description of Business
xG Technology, Inc. (the "Company") is a Delaware corporation
that has developed a broad portfolio of innovative intellectual
property that we believe will enhance wireless communications. The
Company's intellectual property is embedded in proprietary software
algorithms designed to offer cognitive interference mitigation and
spectrum access solutions to organizations in a wide variety of
industries, including national defense and rural broadband, which
represent the primary vertical markets that the Company is
initially targeting.
Basis of Presentation
The accompanying unaudited financial statements were prepared
using generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and
Regulation S-X. Accordingly, these financial statements do not
include all information or notes required by generally accepted
accounting principles for annual financial statements and should be
read together with the 2012 Financial Statements as filed on the
Company's recent Registration Statement on Form S-1, declared
effective by the U.S. Securities and Exchange Commission on July
18, 2013.
The preparation of financial statements in conformity with these
accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements; and the reported amounts of
expenses during the reported period. Ultimate results could differ
from the estimates of management.
In the opinion of management, the unaudited financial statements
included herein contain all adjustments necessary to present fairly
the Company's financial position as of September 30, 2013 and the
results of its operations and cash flows for the three and nine
months ended September 30, 2013 and 2012. Such adjustments are of a
normal recurring nature. The results of operations for the three
and nine months ended September 30, 2013 may not be indicative of
results for the full year.
Cash and Cash Equivalents
The Company considers all highly liquid instruments, with an
initial maturity of three months or less to be cash equivalents.
Cash and cash equivalents are stated at costs and consist of bank
deposits.
Revenue Recognition
Revenues from installation, management and consulting,
time-and-materials service contracts is recognized at the time the
service is performed. License revenue is recognized over the period
of the term of the license.
Property and Equipment
Property, plant, and equipment are presented at cost at the date
of acquisition. Depreciation is computed using the straight-line
method over estimated useful asset lives, which range from three to
seven years commencing the month following the purchase.
5
Table of Contents
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
The cost of maintenance and repairs is charged to expense in the
period incurred. Expenditures that increase the useful lives of
assets are capitalized and depreciated over the remaining useful
lives of the assets. When items are retired or disposed of, the
cost and accumulated depreciation are removed from the accounts and
any gain or loss is included in operations.
Inventory
Inventories are valued at the lower of cost or net realizable
value determined on first-in-first out ("FIFO") basis. Net
realizable value represents the estimated selling price less all
estimated costs of completion and costs to be incurred in
marketing, selling and distribution. Costs in inventory are
comprised of direct materials. The Company maintains a reserve for
obsolescence and slow moving, defective or obsolete items as deemed
necessary.
Long-Lived Assets
The Company's long-lived assets are reviewed for impairment in
accordance with the guidance of ASC 360-10, " Property, Plant, and
Equipment ", whenever events or changes in circumstances indicate
that the carrying amount of the asset may not be recoverable.
Recoverability of an asset to be held and used is measured by a
comparison of the carrying amount of an asset to the future
undiscounted cash flows expected to be generated by the asset. If
such asset is considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount
of the asset exceeds its fair value. During the nine months ended
September 30, 2013, no impairment losses were identified or
recorded.
Income Taxes
Income taxes are accounted for under the asset and liability
method as stipulated by ASC 740, "Accounting for Income Taxes" .
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carry
forwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered
or settled. Under ASC 740, the effect on deferred tax assets and
liabilities or a change in tax rate is recognized in operations in
the period that includes the enactment date. Deferred tax assets
are reduced to estimated amounts to be realized by the use of the
valuation allowance. A valuation allowance is applied when in
management's view it is more likely than not (50%) that such
deferred tax will not be utilized.
ASC 740 provides interpretative guidance for the financial
statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. In the unlikely event that an
uncertain tax position exists in which the Company could incur
income taxes, the Company would evaluate whether there is a
probability that the uncertain tax position taken would be
sustained upon examination by the taxing authorities. A liability
for uncertain tax positions would then be recorded if the Company
determined it is more likely than not that a position would not be
sustained upon examination or if a payment would have to be made to
a taxing authority and the amount is reasonably estimable.
As of September 30, 2013, the Company does not believe any
uncertain tax positions exist that would result in the Company
having a liability to the taxing authorities. The Company's policy
is to classify interest and penalties related to unrecognized tax
benefits, if and when required, as part of interest expense and
general and administrative expense, respectively, in the
consolidated statement of operations. The Company's tax returns for
the years ended 2010 through 2012 are subject to examination by the
federal and state tax authorities.
6
Table of Contents
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
Fair Value Measurements
The Company follows the provisions of ASC 820, " Fair Value
Measurements and Disclosures. " ASC 820 defines fair value,
establishes a framework for measuring fair value under generally
accepted accounting principles and enhances disclosures about fair
value measurements.
Fair value is defined as the price that would be received to
sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date.
Valuation techniques used to measure fair value, must maximize the
use of observable inputs and minimize the use of unobservable
inputs.
This standard describes a fair value hierarchy based on three
levels of inputs, of which the first two are considered observable
and the last unobservable, that may be used to measure fair value.
The Company's assessment of the significance of a particular input
to the fair value measurements requires judgment, and may affect
the valuation of the assets and liabilities being measured and
their placement within the fair value hierarchy.
-- Level 1 - Quoted prices in active markets for identical
assets or liabilities.
-- Level 2 - Inputs other than Level 1 that are observable,
either directly or indirectly, such as quoted prices for similar
assets or liabilities; quoted prices in markets that are not
active; or other inputs that are observable or can be corroborated
by observable market data for substantially the full term of the
assets or liabilities.
-- Level 3 - Unobservable inputs that are supported by little or
no market activity and that are significant to the fair value of
the assets or liabilities.
Financial Instruments
The Company's short-term financial instruments consist primarily
of cash, inventory, accounts payable and accrued expenses. The
carrying amount of debt, approximates fair value because current
interest rates available to the Company for debt with similar terms
and maturities are substantially the same. The other aforementioned
financial instruments approximate fair value due to their
short-term maturities.
Accounting for Stock-based Compensation
The Company follows ASC 718, " Compensation - Stock Compensation
", in accounting for its stock based compensation. This standard
states that compensation cost is measured at the grant date based
on the value of the award and is recognized over the service
period, which is usually the vesting period.
The Company accounts for transactions in which services are
received in exchange for equity instruments based on the fair value
of such services received from non-employees, in accordance with
ASC 505-50 " Equity Based Payments to Non-employees ".
7
Table of Contents
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
Concentration of Risk
The Company does not have any off-balance-sheet concentrations
of credit risk. The Company expects cash to be the single asset
most likely to subject the Company to concentration of credit risk.
The Company's policy is to maintain its cash with high credit
quality financial institutions to limit its risk of loss
exposure.
As of September 30, 2013, the Company maintained its cash in two
financial institutions. During the year, the Company had cash
balances in excess of the Federally insured limits of $250,000. The
funds are on deposit with Wells Fargo Bank, N.A. Consequently, the
Company does not believe that there is a significant risk having
these balances in one financial institution. The Company has not
experienced any losses in its bank accounts through September 30,
2013.
Intangible Assets
Software costs incurred in the research and development of
software for sale to others as a separate product or embedded in a
product and sold as part of the product as a whole are charged to
expense until technological feasibility is established. Once
established, software costs are capitalized and recorded as an
intangible asset. The capitalized costs are amortized on a
straight-line basis over five years, beginning when the products
are offered for sale.
Management is required to use its judgment in determining
whether capitalized software costs meet the criteria for immediate
expense or capitalization, in accordance with Generally Accepted
Accounting Principles ("GAAP"). The unamortized capitalized costs
of a computer software product are compared to the net realizable
value of that product and any excess is written-off.
The Company's proprietary software solutions operate in a fast
changing industry that may generate unknown methods of detecting
and monitoring disturbances that could render our technology
inferior, resulting in the Company's results of operations being
materially adversely affected. The Company does, however, closely
monitor trends and changes in technology and customer demand that
could adversely impact its competitiveness and overall success. It
is reasonably possible that those estimates of anticipated future
gross revenues, the remaining estimated economic life of the
product, or both will be reduced significantly in the near term due
to competitive pressures. As a result, the carrying amount of the
capitalized software costs for our products may be reduced
materially in the near term.
Costs incurred for product enhancements are charged to expense
as research and development until the technological feasibility of
the enhancement has been established. These enhancements are
amortized on a straight line basis over the useful life of the
product enhancement which is currently estimated to be five years
beginning when the enhancements are integrated into the products
that are offered for sale.
The Company's software is inherently complex and may contain
defects and errors that are only detectable when the products are
in use. Such defects or errors could have a serious impact on our
end customers, which could damage our reputation, harm our customer
relationships and expose us to liability. Defects in our software
could adversely affect our ability and that of our customers to
ship products on a timely basis as well as customer or licensee
demand for our products. Any such delays or declines in demand
could reduce our revenues and harm our ability to achieve or
sustain desired levels of profitability. The Company and their
customers may also experience component or software failures or
defects that could require significant product recalls, rework
and/or repairs that are not covered by warranty reserves. The
Company has entered into certain customer agreements that contain
conditions including but not limited to Federal Communications
Commission ("FCC") authorization of our products. On September 5,
2013, the xMod went through additional FCC required testing,
receiving certification. We received FCC equipment authorization
for the xVM on September 24, 2013. The xVM is a vehicular mounted
xMod. On September 26, 2013, the Company received a FCC grant of
certification for the xAP. This completes all required FCC testing
needed for xMax cognitive radio products. The Company's
intellectual property is embedded in proprietary software
algorithms that offer cognitive spectrum access and interference
mitigation solutions.
Patents and licenses are measured initially at purchase cost and
are amortized on a straight line basis over their useful lives
which range between 18.5 to 20 years.
8
Table of Contents
NOTE 2 - GOING CONCERN
The financial statements have been prepared in conformity with
generally accepted accounting principles which contemplate
continuation of the Company as a going concern. As of September 30,
2013, the Company had negative working capital of approximately $
2,593,000 and an accumulated deficit of approximately $ 147,789,000
. This and other factors raise substantial doubt about the
Company's ability to continue as a going concern.
On July 24, 2013, the Company closed its initial public offering
for net proceeds to the Company after deducting underwriter
discounts and offering expenses of $ 6,750,673 . On August 19,
2013, the Company closed an over-allotment option for net proceeds
to the Company, after deducting underwriter discounts, of $
1,027,349 . The Company believes that additional funding will be
required to finance operations over the next twelve months in order
to continue developing our product portfolio and commercialize our
products for sale. As of September 30, 2013, the Company has a
total backlog of $ 35,400,000 . On September 26, 2013, the company
received the last remaining FCC testing needed for xMax cognitive
radio products to be available for sale. The Company currently
estimates that it will begin to fulfill orders associated with its
backlog in the fourth quarter of 2013. The ability of the Company
to continue as a going concern is dependent upon its ability to
raise additional capital and to fulfill its existing backlog. The
financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the
amount and classification of liabilities that might result should
the Company be unable to continue as a going concern .
NOTE 3 - INVENTORY
Inventories included in the accompanying condensed balance sheet
are stated at the lower of cost or market as summarized below:
September 30, December 31,
------------- ------------
2013 2012
------------- ------------
Raw materials consisting of purchased
parts, components and supplies $ 933,000 $ -
Finished goods 105,000 -
------------- ------------
Total Inventory $ 1,038,000 $ -
============= ============
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
September 30, December 31,
Useful Life 2013 2012
------------ ------------- ------------
Cost:
Furniture and equipment 3 - 7 years $ 2,080,000 $ 1,970,000
Hardware 4 - 5 years 2,486,000 2,486,000
------------- ------------
4,566,000 4,456,000
------------- ------------
Accumulated depreciation: (2,997,000) (2,731,000)
------------- ------------
Property and equipment,
net $ 1,569,000 $ 1,725,000
============= ============
Depreciation expense amounted to approximately $ 266,000 and $
490,000 for the nine months ended September 30, 2013 and 2012,
respectively.
9
Table of Contents
NOTE 5 - INTANGIBLE ASSETS
Intangible assets consist of the following:
Software Development
Costs Patents & Licenses Total
------------------------- ------------------------- ------------
Costs A.A. Cost A.A.
----------- ------------ ----------- ------------
Balance as of
December 31,
2012 $12,226,000 $(1,261,000) $12,272,000 $(5,629,000) $ 17,608,000
Additions 2,417,000 - 42,000 - 2,459,000
Impairments - - - - -
Amortization - (580,000) - (465,000) (1,045,000)
---------- ----------- ---------- ----------- -----------
Balance as of
September 30,
2013 $14,643,000 $(1,841,000) $12,314,000 $(6,094,000) $ 19,022,000
---------- ----------- ---------- ----------- -----------
Software Development Costs
On September 26, 2013, the Company received the last remaining
certification from the FCC needed for the xMax cognitive radio
products. The xMax cognitive radio products include the xAP, xMod,
xVM and xMSC. Beginning on September 30, 2013, Management
determined that the xMax cognitive radio products were available
for sale and these products will be amortized on a straight line
basis over an estimated life of five years. Also included in
capitalized software is $ 3.9 million of software development costs
related to the BSN 250 base station and the TX70 handset which
allowed the Company to offer for sale its voice and spectrum access
solutions during 2011 as evidenced by the sales to the U.S.
Army.
During the nine months ended September 30, 2013 and 2012, the
Company recognized amortization of software development costs
available for sale of $ 0.6 million and $ 0.5 million,
respectively.
Patents & Licenses
At September 30, 2013 the Company has capitalized a total of $
12.3 million of patents & licenses. Included in the capitalized
costs is $ 12.0 million of costs associated with patents and
licenses that have been filed. Also included in the capitalized
costs is $ 0.3 million of costs associated with provisional patents
and pending applications which have not yet been filed.
The Company amortizes patents and licenses that have been filed
over their useful lives which range between 18.5 to 20 years. The
costs of provisional patents and pending applications is not
amortized until the patent is filed and is reviewed each reporting
period to determine if it is likely that the patent will be
successfully filed. The Company recognized $ 0.5 million of
amortization expense related to patents and licenses for the nine
months ended September 30, 2013 and 2012.
Estimated amortization expense for the twelve-month periods
ended September 30 as follows:
2014 $ 3,581,000
2015 3,581,000
2016 3,450,000
2017 2,795,000
2018 and thereafter 5,366,000
----------
$18,773,000
NOTE 6 - CONVERTIBLE NOTES PAYABLE
May 2011 Convertible Note
On May 19, 2011, the Company entered into a convertible
promissory note (the "May 2011 Convertible Note") whereby the
Company borrowed principal advances in the amount of up to $ 15
million with MB Technology Holdings, LLC ("MBTH") (subject to
increase by mutual agreement). The loan was payable on final
maturity, May 19, 2016 , or earlier demand, and was convertible, at
MBTH's option, into shares of the Company at a price of $ 26.25 per
share. Interest was payable semi-annually in cash or shares, at the
Company's option, at the rate of 8 % per year. Additionally, a
facility fee of 2 % was payable by the Company at maturity. The
loan facility was secured against substantially all of the assets
of the Company.
As of December 31, 2012, the Company had drawn down $ 17.2
million of principal balance under the May 2011 Convertible Note.
The Company drew down an additional $ 450,000 on the May 2011
Convertible Note with MBTH from January 1, 2013 through January 16,
2013 to finance operating activities of the Company. As of December
31, 2012 the Company had accrued interest and fees under the May
2011 Convertible Note of $ 1.1 million and the Company accrued
additional interest and fees of $ 266,000 from January 1, 2013
through January 16, 2013.
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NOTE 6 - CONVERTIBLE NOTES PAYABLE (continued)
On January 16, 2013, the Company entered into several agreements
as part of negotiations to induce MBTH to convert $ 15.0 million of
the principal balance under the May 2011 Convertible Loan. As part
of these negotiations, the Company entered into Amendment Number 1
to the May 2011 Convertible Loan Facility whereby the Company
modified the conversion price on the May 2011 Convertible Loan from
$26.25 to $13.30 (the "Modified Strike Price"). In addition, the
Company agreed to issue MBTH 142,857 common shares upon the
exercise in full of MBTH's conversion rights, termination of the
May 2011 Shareholder Loan and the discharge of all MBTH's
collateral over the Company's assets .
The Company agreed to modify the exercise price on two options
representing 571,428 underlying common shares granted to MBTH under
the February 2011 Convertible Loan from $17.50 with respect to an
option for 285,714 underlying shares and $35.00 with respect to an
option for 285,714 common shares to the Modified Strike Price of
$13.30. The Company also agreed to compensate MBTH for funding and
other costs assumed by MBTH by issuing MBTH 16,474 common shares at
the Modified Strike Price for the difference between the interest
rate of 8% that the Company owed to MBTH under the May 2011
Convertible Loan and the interest rate of 9.5% that MBTH pays to
investors for monies raised by MBTH.
The Company agreed to grant MBTH a warrant to subscribe for
42,857 common shares (the "42,857 Warrant") with an exercise price
of $0.35 per share. The 42,857 Warrant is contingent upon
shareholders of MBTH electing to exercise a warrant issued to them
by MBTH (the "MBTH Warrant") in xG Technology, Inc. common shares.
If the MBTH shareholder elect not to exercise the MBTH Warrant or
they elect to exercise a portion or all of the MBTH Warrant into
shares of MBTH, a proportionate number of common shares under the
42,857 Warrant will be issued to MBTH.
The Company agreed to award MBTH an option for 142,857 common
shares with an exercise price equal to $8.75 per share.
On January 16, 2013, in consideration of the terms above, MBTH
gave the Company notice to its intention to exercise the conversion
rights on the 2011 Convertible Loan. On March 26, 2013, the Company
issued 1,127,819 common shares to MBTH in consideration of the
conversion rights under the May 2011 Convertible Note to convert
the principal balance of $ 15.0 million principal balance into
common shares at $13.30 per share, and 142,857 common shares were
issued for the discharge of MBTH's collateral over the Company's
assets. The additional consideration described above was considered
an induced conversion of the 2011 Convertible Loan. The Company
recorded debt inducement for the differential in the value of
securities issued to the debt holder under the original terms
compared to the value of securities issued to the debt holder under
the amended terms. Additionally, the modification of options were
accounted for as debt inducement based upon the valuation of the
option immediately prior to the amendment compared to the value of
the option with the amended terms. As a result of the modified
terms, the Company recorded debt inducement of $ 14.1 million
during the nine months ended September 30, 2013. The inducement was
recorded as a reduction to additional paid in capital as MBTH is a
related party.
The Company agreed to award MBTH a 3 % cash success fee if MBTH
arranges additional financing for the Company by a third party
(other than the Bridge Loan as defined below) or arranges a merger,
consolidation or sale by the Company of substantially all of the
assets to a third party.
Bridge Loan
Under a subscription agreement and convertible promissory note
(the "Bridge Loan") between the Company and MBTH dated January 16,
2013, MBTH committed to advance to the Company $ 5 million as part
of a new convertible bridge loan for up to an aggregate of $ 10
million. The Bridge Loan was issued to refinance principal advances
under the May 2011 Convertible Loan in excess of $ 15 million, all
accrued interest and fees under the May 2011 Convertible Loan and
for general corporate purposes including; additional working
capital and product development. On January 16, 2013, the Company
refinanced principal of $ 2,648,000 and accrued interest of fees of
$ 1,393,000 under the May 2011 Convertible Note for a beginning
principal balance of $ 4,041,000 under the Bridge Loan.
The Bridge Loan is for a term of one year and is convertible, at
each loan note holder's option, into common shares at any time
prior to final maturity at $ 5.225 (95% of $ 5.50 , the price of
the Company's initial public offering completed on July 24, 2013).
Interest is payable at 20 % per annum, semi-annually in cash or
shares, at the option of each loan note holder. The Bridge Loan may
be prepaid by the Company in whole (or in part), subject to payment
of a minimum of six months' interest if prepaid within the first
six months. The Company may redeem 50 % of the Bridge Loan without
prepayment penalty by forcing a conversion into shares, provided
that the shares are marginable and freely tradable on a liquid
exchange, and provided further that, if such forced conversion is
effected within six months from the date of the Bridge Loan, then
the Company shall pay six month's interest on the unpaid and
unconverted principal balance of the Bridge Loan immediately before
such forced conversion (such interest being payable in cash or
shares, at the option of each loan note holder).
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NOTE 6 - CONVERTIBLE NOTES PAYABLE (continued)
For every $350 of principal amount of Bridge Loan advanced by
MBTH, the loan note holder will be issued one warrant to subscribe
one share at a subscription price of $0.35 per share. The warrants
are exercisable for a period of five years from issuance. We agreed
to pay an origination fee of 5% to note holders. We drew down an
additional $ 80,000 on the Bridge Loan with MBTH and $ 690,000 with
the other non-related investors from July 1, 2013 through July 18,
2013 to finance our operating activities for a total of $ 6,768,000
with MBTH and $ 2,267,300 with the other investors. Additionally,
we accrued additional interest and fees of $ 475,000 from July 1,
2013 through July 18, 2013.
On July 18, 2013, we exercised our right to force a conversion
of 50 % of the then outstanding principal balance under the Bridge
Loan Agreement and received notification of intent to convert the
remaining 49 % of the principal balance under the Bridge Loan and
all accrued interest and fees from MBTH and other non-related
investors that investors holding a total principal balance under
the Bridge Loan of $ 8,910,000 and accrued interest and fees of
approximately $ 1,355,000 .
On August 7, 2013, we repaid $ 125,000 to a non-related investor
for investment into the Bridge Loan.
On August 22, 2013, we refinanced approximately $ 1,013,000 of
liabilities previously paid by MBTH during 2013 on our behalf
through the Bridge Loan and incurred an origination fee of
approximately $ 50,000 . We received notification from MBTH of its
intent to convert the principal balance and accrued fees and
interest of $ 101,000 .
On August 22, 2013, we issued 2,187,529 common shares for the
conversion of the balance of approximately $ 11,429,000 in
principal and accrued interest and fees at a price per share of $
5.225 . Because the Bridge Loan was convertible into new shares at
95 % of the price of any future equity financing, the Company
recorded a charge of $ 0.6 million in interest expense during the
three months September 30, 2013, due to the difference between the
IPO price of $ 5.50 and $ 5.225 . Additionally, we issued warrants
to purchase 1,093,778 underlying shares as additional consideration
to the investors who exercised their conversion option. The
warrants vested immediately and are exercisable into common shares
at an exercise price of $ 6.87 per share and have a term of five
years from the date of issuance. The Bridge Loan balance and
accrued interest and fees were $ 0 as of September 30, 2013.
On August 22, 2013, the Company recorded an inducement charge of
$ 1.8 million for the additional warrants to purchase 1,093,778
underlying shares as additional consideration to the investors who
exercised their conversion option. The issuance of the warrants is
considered an inducement to convert the Bridge Loan balance as the
warrants were issued in addition to the common shares contractually
required by the Bridge Loan Agreement. The charge was calculated
using the fair market value of the warrant. As a result, the
Company recorded during the three months ended September 30, 2013,
an inducement expense of $ 0.4 million for 237,173 warrants given
to non-related parties and a an inducement of $ 1.4 million to
additional paid in capital for 856,605 warrants given to related
parties.
Treco
On October 6, 2011, the Company entered into a convertible
promissory note (the "$2 million Convertible Note") in favor of
Treco International, S.A. ("Treco"), a related party, as part of
the settlement compensation to Treco for terminating the
infrastructure agreement. The $ 2 million Convertible Note is
payable on final maturity, October 6, 2018 and is convertible, at
Treco's option, into common shares of the Company at a price of $
35.00 per share. Interest at the rate of 9 % per year is payable
semi-annually in cash or shares, at the Company's option. As of
September 30, 2013, $2 million of principal balance was outstanding
under the $2 million Convertible Note. The accrued interest at
September 30, 2013 was $ 87,000 and is reflected in the balance
sheet as accrued interest and fees to related parties. On May 7,
2013, we issued 6,923 shares in repayment of $90,000 of
interest.
NOTE 7 - COMMITMENTS
The Company's office rental, deployment sites and warehouse
facilities expenses aggregated approximately $ 218,000 and $
207,000 of which approximately $ 74,000 and $ 119,000 was
capitalized during the nine months ended September 30, 2013 and
2012, respectively. The leases will expire on different dates from
2014 through 2016 . Total minimum future annual rentals, exclusive
of real estate taxes and related costs, are approximately as
follows:
Twelve Months Ended September 30,
----------------------------------
2014 $307,000
2015 309,000
2016 201,000
-------
$817,000
=======
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NOTE 8 - RELATED PARTY TRANSACTIONS
MBTH
As of September 30, 2013 MBTH owned approximately 48.98 % of the
Company's outstanding shares, which represents a controlling
interest. The Company has entered into convertible notes with MBTH
refer to Note 6 - Convertible Notes Payable.
Effective July 1, 2011, by agreement of a committee of the
Directors who did not own interests in MBTH, the Company entered
into an arrangement with MBTH whereby MBTH assumed certain
liabilities of the Company including certain payroll, management
fees and other operating costs in the amount of $ 250,000 per month
for a period of twelve months. In consideration for this agreement,
the Company issued MBTH 342,857 shares on June 23, 2011 at a price
of $ 8.75 per share for proceeds of $ 3 million. On July 1, 2012
the agreement with MBTH to assume liabilities of the Company
expired. Subsequent to the assumption of liability agreement and
through September 30, 2013, MBTH paid additional liabilities on
behalf of the Company amounting to $ 2.3 million. From January 1,
2013 through September 30, 2013, MBTH paid additional liabilities
on the behalf of the Company of approximately $ 1,916,000, the
Company repaid MBTH $ 675,000 for liabilities previously paid by
MBTH, and the Company refinanced $ 1,013,000 of liabilities
previously paid by MBTH into the Bridge Loan (see Note 6 -
Convertible Notes Payable) for a net increase in the related party
liability of $ 228,000 . The due to related party balance was $
1,326,000 as of September 30, 2013.
On September 30, 2013, the independent directors of the Company
authorized a onetime agreement, whereby we issued to MBTH 1,599,453
shares of our common stock and a warrant to purchase 1,363,636
shares of our common stock at an exercise price of $ 6.87 per share
for the difference in price between the shares issued to them in
March 2013 at a price of $ 13.30 per share in exchange for the
conversion of its 2011 Convertible Note and the $ 5.50 purchase
price for shares sold in our initial public offering in July 2013.
Additionally, the Modified Strike Price, agreed upon between the
Company and MBTH in January 2013, of $ 13.30 per share for the two
options representing 571,428 underlying shares granted to MBTH in
February 2011 has been lowered to $5.50. See Note 10 - Equity.
Mooers Branton & Co. Incorporated
On March 2, 2006, the Company entered into a management
agreement (the "Management Agreement") with Mooers Branton &
Co. Incorporated ("MBC"), a Florida corporation, pursuant to which
MBC agreed to provide certain management and financial services to
the Company for a monthly fee of $ 80,000. The Management Agreement
was effective January 1, 2006. The Company incurred fees related to
the Management Agreement of $ 720,000 for the nine months ended
September 30, 2013 and 2012. MBC is beneficially controlled and
operated by Rick Mooers and Roger Branton, a director and the Chief
Financial Officer, respectively, of the Company.
Treco
See Note 6 - Convertible Notes Payable.
NOTE 9 - CONTINGENCIES
The Company is subject, from time to time, to claims by third
parties under various legal theories. The defense of such claims,
or any adverse outcome relating to any such claims, could have a
material adverse effect on the Company's liquidity, financial
condition and cash flows. As of September 30, 2013, the Company did
not have any legal actions pending.
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NOTE 10 - EQUITY
Initial Public Offering
On July 24, 2013, the Company closed its initial public offering
of 1,337,792 shares of common stock, par value $ 0.00001 per share,
and 668,896 warrants to purchase 668,896 shares of common stock, at
a purchase price to the public of $ 5.50 per share and $ 0.01 per
warrant, for net proceeds to the Company, after deducting
underwriter discounts and offering expenses, of $ 6,750,673 . The
warrant is to purchase 1 share of our common stock and will have an
exercise price of $ 6.87 per share. The warrants are exercisable
immediately and will expire five years from the date of issuance.
The Company intends to use the offering for working capital and
general corporate purposes. Feltl and Company and Aegis Capital
Corp acted as joint underwriters for the offering.
Over-allotment Option
On August 19, 2013, the underwriters exercised in full their
over-allotment option to purchase an additional 200,668 shares of
common stock and 100,334 warrants to purchase 100,334 shares of
common stock with an exercise price of $ 6.87 , at a purchase price
to the public of $ 5.50 per share and $ 0.01 per warrant, for net
proceeds to the Company, after deducting underwriter discounts, of
$ 1,027,349 .
Issuance of Shares and Warrants to MBTH
On September 30, 2013, disinterested directors of the Company
authorized a onetime agreement, whereby we issued to MBTH 1,599,453
shares of our common stock and a warrant to purchase 1,363,636
shares of our common stock at an exercise price of $ 6.87 per share
for the difference in price between the shares issued to them in
March 2013 at a price of $ 13.30 per share in exchange for the
conversion of its 2011 Convertible Note and the $ 5.50 purchase
price for shares sold in our initial public offering in July 2013.
Additionally, the Modified Strike Price, agreed upon between the
Company and MBTH in January 2013, of $13.30 per share for the two
options representing 571,428 underlying shares granted to MBTH in
February 2011 has been lowered to $5.50. In connection with the
onetime agreement, we recorded a total of $ 10.1 million to Other
expense, of which, $ 7.8 million was the fair market value of the
1,599,453 shares of common stock issued to MBTH; $ 1.8 million was
the fair market value of the warrants to purchase 1,363,636 shares
of common stock which were issued to MBTH; and $ 0.5 million was
the change in the fair market value immediately before and after
the modification of the stock price for options with 571,428
underlying shares.
Warrants and Options
The Company has issued warrants and options outside of the
equity incentive plans. A summary of the warrant and option
activity is as follows:
Number of Warrants
and Options (in Weighted Average
Shares) Exercise Price
------------------- ------------------
Outstanding January 1, 2013 594,285 $ 25.90
Granted 3,481,221 6.81
Exercised - -
Forfeited or Expired - -
------------------ -------------
Outstanding, September 30,
2013 4,075,506 6.69
================== =============
Exercisable, September 30,
2013 4,075,506 $ 6.69
================== =============
The modification of the existing options with MBTH (refer to
Note 6 - Convertible Notes Payable) was considered an induced
conversion. The Company calculated the value of the options
immediately prior to the amendment compared to the value of the
option with the amended terms. The Company used the following
assumptions in the Black Scholes Model to calculate the fair value
of the warrants:
January 16, 2013
--------------------------------------
Original Terms Amended Terms
----------------- ---------------
Exercise price $ 17.50 $35.00 $ 13.30
Volatility 140% 140%
Risk-free interest rate 0.27% 0.27%
Expected dividend yield 0% 0%
Expected term (years) 3 3
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NOTE 10 - EQUITY (continued)
The Company agreed to award MBTH an option for 142,857 common
shares with an exercise price equal to $ 8.75 per share. The
warrants are exercisable for a period of five years from issuance
and are fully vested on the date of issuance. The Company used the
following assumptions in the Black Scholes model to calculate the
fair value of the warrants:
January 16,
2013
--------------
Exercise price $ 8.75
Volatility 139.9 %
Risk-free interest rate 0.75 %
Expected dividend yield 0 %
Expected term (years) 5
The Company agreed to award MBTH an option for 42,857 common
shares with an exercise price equal to $ 0.35 per share. The
warrants are exercisable for a period of five years from issuance
and are fully vested on the date of issuance. The Company used the
following assumptions in the Black Scholes model to calculate the
fair value of the warrants:
January 16,
2013
-------------
Exercise price $ 0.35
Volatility 137.7%
Risk-free interest rate 0.88%
Expected dividend yield 0%
Expected term (years) 5.00
The Company agreed to modify the exercise price on two options
representing 571,428 underlying common shares granted to MBTH under
the February 2011 Convertible Loan from $13.30 to the Modified
Strike Price of $5.50. The Company calculated the value of the
options immediately prior to the amendment compared to the value of
the option with the amended terms.
September 30, 2013
--------------------
Exercise price $ 5.50
Volatility 109.8%
Risk-free interest rate 0.13%
Expected dividend yield 0%
Expected term (years) 5.00
The risk-free rate is based on the rate for the U.S. Treasury
note over the expected term of the warrants. The expected term is
the full term of the warrant. Expected volatility is based on the
average of the weekly share price changes over the shorter of the
expected term or the period from the placement on AIM to the date
of the grant.
For every $ 350 of principal amount of Bridge Loan advanced by a
loan note holder, the loan note holder was issued a warrant for one
underlying share with an exercise price of $ 0.35 per share. The
warrants for 28,727 underlying shares are exercisable for a period
of five years from issue and are fully vested on the date of
issuance. The warrants were issued in connection with the Bridge
Loan and were recorded as a debt discount of $ 401,000 against the
Bridge Loan. The Company used the following weighted average
assumptions in the Black Scholes model to calculate the fair value
of the warrants:
Nine Months Ended
September 30,
2013
-------------------
Exercise price $ 0.35
Volatility 104.4%
Risk-free interest rate 0.68%
Expected dividend yield 0%
Expected term (years) 5.00
The Company agreed to award MBTH a warrant to purchase 1,363,636
shares of our common stock with an exercise price equal to $6.87
per share. The warrants are exercisable for a period of five years
from issuance and are fully vested on the date of issuance. The
Company used the trading price to calculate the fair value of the
warrants.
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NOTE 11 - SUBSEQUENT EVENTS
Completion of Sale
On October 16, 2013, we completed the first delivery of our xMax
comprehensive cognitive radio system, shipping equipment required
to fulfill the $ 155,000 purchase order that was received from
rural broadband provider Walnut Hill Telephone Company on November
26, 2012. Larry Townes is Chairman of Townes Tele-Communications,
Inc., the parent company of Walnut Hill Telephone Company. Given
that Larry Townes is a director of xG Technology, the sale of
equipment to Walnut Hill Telephone Company is considered to be a
related party transaction.
Bridge Financing
On October 22, 2013, we entered into a term sheet with a private
investor (the "Investor") for the purchase of convertible
promissory notes (the "Notes") for a minimum amount of $ 1.5
million and a maximum amount of $ 3 million (the "Bridge
Financing"). The Notes will mature 12 months from the execution
date and will have an interest rate of 12 %.The Notes will be
convertible into shares of our common stock at the lower of $ 5.50
or, in the event we complete a qualified offering, at 85 % of the
price of such offering. We may redeem the outstanding principal and
interest at 130 %. In the event we complete a qualified offering,
we will retire 50 % of the then principal outstanding.
The Notes are subject to the completion of a definitive
agreement (the "Definitive Agreement") which will include customary
closing conditions and other customary provisions including event
of defaults and anti-dilution rights. Should we fail to enter into
a Definitive Agreement because we chose alternative financing, we
will pay the Investor $ 50,000 as a breakup fee.
Aegis Capital Corp. is the Placement Agent for the Financing and
will receive a cash commission of 8 % of the funds raised.
Pricing of Public Offering
On November 12, 2013, the Company entered into an underwriting
agreement (the "Underwriting Agreement") with Aegis Capital Corp.
and Feltl and Company (the "Underwriters"), pursuant to which the
Company agreed to sell, and the Underwriters agreed to purchase for
resale to the public (the "Offering"), subject to the terms and
conditions expressed therein, an aggregate 5,715,000 shares of
common stock, par value $ 0.00001 per share (the "Shares"), at a
price to the public of $ 1.75 per share, for an aggregate of
approximately $ 10,000,000 in gross proceeds less underwriting
discounts and commissions. In addition, the Company granted the
Underwriters a 45-day option to purchase up to an additional
856,428 Shares to cover over-allotments, if any.
The Company expects the Offering to close on or about November
18, 2013, subject to the satisfaction of customary closing
conditions. The Underwriting Agreement provides that the Company
will indemnify the Underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, as amended,
or to reimburse the Underwriters for payments that the Underwriters
may be required to make because of such liabilities.
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Table of Contents
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Cautionary Notice Regarding Forward Looking Statements
The information contained in Item 2 contains forward-looking
statements within the meaning of Section 27A of the Securities Act
of 1933, as amended, (the "Securities Act") and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
Actual results may materially differ from those projected in the
forward-looking statements as a result of certain risks and
uncertainties set forth in this report. Although management
believes that the assumptions made and expectations reflected in
the forward-looking statements are reasonable, there is no
assurance that the underlying assumptions will, in fact, prove to
be correct or that actual results will not be different from
expectations expressed in this report.
This filing contains a number of forward-looking statements
which reflect management's current views and expectations with
respect to our business, strategies, products, future results and
events, and financial performance. All statements made in this
filing other than statements of historical fact, including
statements addressing operating performance, events, or
developments which management expects or anticipates will or may
occur in the future, including statements related to distributor
channels, volume growth, revenues, profitability, new products,
adequacy of funds from operations, statements expressing general
optimism about future operating results, and non-historical
information, are forward looking statements. In particular, the
words "believe," "expect," "intend," "anticipate," "estimate,"
"may," variations of such words, and similar expressions identify
forward-looking statements, but are not the exclusive means of
identifying such statements, and their absence does not mean that
the statement is not forward-looking. These forward-looking
statements are subject to certain risks and uncertainties,
including those discussed below. Our actual results, performance or
achievements could differ materially from historical results as
well as those expressed in, anticipated, or implied by these
forward-looking statements. We do not undertake any obligation to
revise these forward-looking statements to reflect any future
events or circumstances.
Readers should not place undue reliance on these forward-looking
statements, which are based on management's current expectations
and projections about future events, are not guarantees of future
performance, are subject to risks, uncertainties and assumptions
(including those described below), and apply only as of the date of
this filing. Our actual results, performance or achievements could
differ materially from the results expressed in, or implied by,
these forward-looking statements. Factors which could cause or
contribute to such differences include, but are not limited to, the
risks to be discussed in our initial Registration Statement on Form
S-1, declared effective by the Securities and Exchange Commission
on July 18, 2013 ("Form S-1"), and in the press releases and other
communications to shareholders issued by us from time to time which
attempt to advise interested parties of the risks and factors which
may affect our business. We undertake no obligation to publicly
update or revise any forward-looking statements, whether as a
result of new information, future events, or otherwise.
The share numbers in the following discussion reflect a 1-for-25
reverse stock split that we effected March 24, 2013 as well as the
1-for-1.4 reverse stock split that we effected March 28, 2013.
Overview
xG Technology, Inc. ("xG", the "Company", "we", "our", "us") has
developed a broad portfolio of innovative intellectual property
that we believe will enhance wireless communications. Our
intellectual property is embedded in proprietary software
algorithms that offer cognitive interference mitigation and
spectrum access solutions.
Our strategy is initially to commercialize our intellectual
property portfolio by developing and selling network equipment
using our proprietary software algorithms to offer cognitive
interference mitigation and spectrum access solutions. In the
future, our strategy is for our intellectual property to be
embedded by partners in a semiconductor chip that could be sold to
third party equipment manufacturers and inserted in their devices
and to license our intellectual property to other customers in
vertical markets world-wide. Our technology roadmap currently
projects this transition to begin in 2015.
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Table of Contents
The implementation of our cognitive radio intellectual property
is xMax(R). We believe the xMax(R) system, represents the only
commercially available cognitive radio network system that is
designed to include interference mitigation by spatial processing.
xMax(R) implements our proprietary interference mitigation software
that can increase capacity on already crowded airwaves by improving
interference tolerance, enabling the delivery of a comparatively
high Quality of Service where other technologies would not be able
to cope with the interference.
We believe that the xMax(R) system will also, when in a future
development operating on more than one radio channel, deliver
dynamic spectrum access by scanning and finding unused or underused
frequencies (unlicensed as well as licensed) and dynamically tuning
to them, significantly increasing their usable capacity.
Our system is frequency agnostic although currently designed to
operate within the 902 - 928 MHz license-free band. xMax(R) is
intended to serve as a mobile voice over internet protocol ("VoIP")
and broadband data system that utilizes an end-to-end Internet
Protocol ("IP") system architecture. The xMax(R) product and
service suite includes a line of access points, network bridges,
mobile switching centers, network management systems, deployment
tools, and customer support. The xMax(R) system will allow mobile
operators to utilize free, unlicensed 902 - 928 MHz ISM band
spectrum (which spectrum is available in most of the Americas)
instead of purchasing scarce expensive licensed spectrum. Our
xMax(R) system will also enable enterprises to set up a mobile
communications network in an expeditious and cost effective manner.
In addition, we believe that our xMax(R) cognitive radio technology
can also be used to provide additional capacity to licensed
spectrum by identifying and utilizing unused bandwidth within the
licensed spectrum.
Plan of Operations
We are executing on our sales and marketing strategy and have
entered into agreements both direct with end-customers as well as
with indirect channel network partners. These customer engagements
primarily relate to two of our target markets in rural
telecommunications and defense. Together, they comprise commitments
to purchase xMax(R) cognitive radio networking equipment,
engineering services and other hardware worth approximately $35.4
million.
As of September 30, 2013, the new product line that can handle
both voice and data services became available. These new products
are called xAP (base station), xMod and xVM. The latter two are
able to communicate to any commercial off the shelf device.
18
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Results of Operations
Comparison for the three and nine months ended September 30,
2013 and 2012
Revenues
Revenues for the three and nine months ended September 30, 2013,
were $33,000 and $33,000, respectively, representing an increase of
$33,000 and $33,000, respectively, from $0 and $0 in the
corresponding periods in 2012. The revenue of $33,000 resulted from
a service based consulting agreement with one of our customers
during the three months ended September 30, 2013.
Cost of Revenue and Operating Expenses
Cost of Components and Personnel
Cost of components and personnel for the three and nine months
ended September 30, 2013, were $1,000 and $1,000, representing an
increase of $1,000 and $1,000, respectively, from $0 and $0 in the
corresponding periods in 2012. Cost of components and personnel of
$1,000 is based on the cost of the time allocated towards the
consulting agreement during the three months ended September 30,
2013.
General and Administrative Expenses
General and administrative expenses are the expenses of
operating the business on a daily basis and include salary and
benefit expenses and payroll taxes, as well as the costs of trade
shows, marketing programs, promotional materials, professional
services, facilities, general liability insurance, and travel. For
the three and nine months ended September 30, 2013, the Company
incurred aggregate expense of $1.9 million and $4.4 million,
respectively, compared to $1.3 million and $3.9 million,
respectively, for the three and nine months ended September 30,
2012, representing an increase of $0.6 million or 53% for the three
months and an increase of $0.5 million or 14% for the nine months.
The increase is due to an increase in consulting fees associated
with the Company's listing on NASDAQ.
Development Expenses
Development expenses consist primarily of salary and benefit
expenses and payroll taxes, as well as costs for prototypes,
facilities and travel. Development expenses increased $0.6 million,
or 53%, from $1.2 million in the three months ended September 30,
2012 to $1.8 million in the three months ended September 30, 2013.
Development expenses increased $1.7 million or 56%, from $3.1
million in the nine months ended September 30, 2012 to $4.8 million
in the nine months ended September 30, 2013. The increases are due
to additional costs related to producing and testing equipment as
the Company's products became available for sale on September 30,
2013.
Stock Based Compensation
Stock based compensation increased $0.05 million, from $0.15
million in the three months ended September 30, 2012 to $0.2
million in the three months ended September 30, 2013. Stock based
compensation increased $0.28 million, from $0.26 million in the
nine months ended September 30, 2012 to $0.54 million in the nine
months ended September 30, 2013. The increase arose from the
increase in the number of employees and directors of the Company
who received option grants in fiscal 2013.
Amortization and Depreciation
Amortization and depreciation expenses decreased $0.1 million,
or 14%, from $0.5 million in the three months ended September 30,
2012 to $0.4 million in the three months ended September 30, 2013,
and $0.2 million, or 15% from $1.5 million in the nine months ended
September 30, 2012 to $1.3 million in the nine months ended
September 30, 2013. The decrease was primarily due to the decrease
in the depreciation of our property and equipment as a portion of
our assets became fully depreciated during 2013.
Other
Inducement expense for the three months ended September 30, 2013
was $0.4 million compared to $0.0 million for the three months
ended September 30, 2012, an increase of $0.4 million. Inducement
expense for the nine months ended September 30, 2013 was $0.4
million compared to $0.0 million for the nine months ended
September 30, 2012, an increase of $0.4 million. The increase was
due to the warrants given to non-related parties in relation with
the conversion of the Bridge Loan.
Interest expense for the three months ended September 30, 2013
was $1.1 million compared to $0.2 million for the three months
ended September 30, 2012, an increase of $0.9 million or 654%.
Interest expense for the nine months ended September 30, 2013 was
$2.2 million compared to $0.3 million for the nine months ended
September 30, 2012, an increase of $1.9 million or 531%. The
increase was due to the higher interest and fees incurred on the
Bridge Loan for 2013 compared to the May 2011 Convertible note in
2012; the fee was amortized over a shorter period of one year based
on the contractual obligation of the Bridge Loan; $0.4 million from
the accretion of the debt discount recorded as interest expense;
and $0.6 million in interest expense resulted from the Bridge Loan
being convertible into new shares at 95% of the price of any future
equity financing due to the difference between the IPO price of
$5.50 and $5.225 in 2013.
19
Table of Contents
Other expense for the three and nine months ended September 30,
2013, was $10.1 million and $10.1 million, respectively,
representing an increase of $10.1 million and $10.1 million,
respectively, from $0 and $0 in the corresponding periods in 2012.
The increase of $10.1 million is a result of the independent
directors of the Company authorizing a onetime agreement on
September30, 2013, whereby we issued to MBTH 1,599,453 shares of
our common stock and a warrant to purchase 1,363,636 shares of our
common stock at an exercise price of $6.87 per share for the
difference in price between the shares issued to them in March 2013
at a price of $13.30 per share in exchange for the conversion of
its 2011 Convertible Note and the $5.50 purchase price for shares
sold in our initial public offering in July 2013. Additionally, the
Modified Strike Price, agreed upon between the Company and MBTH in
January 2013, of $13.30 per share for the two options representing
571,428 underlying shares granted to MBTH in February 2011 has been
lowered to $5.50.
Net Loss
For the three months and nine months ended September 30, 2013,
the Company had a net loss of $15.9 million and $23.7 million,
respectively, as compared to a net loss of $3.2 million and $9.1
million for the three and nine months ended September 30, 2012, or
an increase of $12.7 million and $14.6 million, respectively. The
increase in net loss is due mainly to the increase in development
expenses, interest expenses and other expenses discussed above.
Liquidity and Capital Resources
Our operations primarily have been funded through cash generated
by financing. During the first nine months 2013, the Company relied
upon additional investment through proceeds from the IPO, Bridge
Loan and convertible notes payable.
To date, we have financed our operations primarily through the
sale of equity and convertible debt. As of September 30, 2013, the
Company has negative working capital of approximately $2.6 million
and $2.6 million of cash and cash equivalents.
We have incurred net losses of $15.9 million and $3.3 million in
the three months ended September 30, 2013 and 2012, respectively.
Additionally, we have incurred negative operating cash flows
including cash used in operations of $8.2 million and $4.2 million
in the nine months ended September 30, 2013 and 2012,
respectively.
Our future capital requirements may vary materially from those
currently planned and will depend on many factors, including our
rate of revenue growth, the timing and extent of spending to
support development efforts, the timing of new product
introductions, market acceptance of our products and overall
economic conditions. The Company does not currently have sufficient
capital in order to achieve cash flow breakeven. Therefore, the
Company is actively evaluating various alternatives of financing in
order to obtain additional capital to allow the Company to deliver
its products and fulfill its current backlog.
Please see Note 11 - Subsequent Events in our financial
statements for a discussion of our recent activities related to our
efforts to raise additional capital subsequent to September 30,
2013.
Initial Public Offering
On July 24, 2013, the Company closed its initial public offering
of 1,337,792 shares of common stock, par value $0.00001 per share,
and 668,896 warrants to purchase 668,896 shares of common stock, at
a purchase price to the public of $5.50 per share and $0.01 per
warrant, for net proceeds to the Company, after deducting
underwriter discounts and offering expenses, of $6,750,673. The
warrant is to purchase 1 share of our common stock and will have an
exercise price of $6.87 per share. The warrants are exercisable
immediately and will expire five years from the date of issuance.
The Company intends to use the offering for working capital and
general corporate purposes. Feltl and Company and Aegis Capital
Corp acted as joint underwriters for the offering.
Over-allotment Option
On August 19, 2013, the underwriters exercised in full their
over-allotment option to purchase an additional 200,668 shares of
common stock and 100,334 warrants to purchase 100,334 shares of
common stock with an exercise price of $6.87, at a purchase price
to the public of $5.50 per share and $0.01 per warrant, for net
proceeds to the Company, after deducting underwriter discounts, of
$1,027,349.
Bridge Loan
On August 7, 2013, the Company repaid $125,000 to a non-related
investor for investment into the Bridge Loan.
During the first nine months of 2013, the Company drew down $5.0
million under the Bridge Loan. On August 22, 2013, the Company
refinanced approximately $1,013,000 of liabilities previously paid
by MBTH during 2013 on behalf of the Company through the Bridge
Loan and incurred an origination fee of approximately $50,000. The
Company received notification from MBTH of its intent to convert
the principal balance and accrued fees.
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Table of Contents
On August 22, 2013, the Company issued 2,187,529 common shares
for the conversion of the balance of approximately $11,429,000 in
principal and accrued interest and fees at a price per share of
$5.225. Because the Bridge Loan was convertible into new shares at
95% of the price of any future equity financing, the Company
recorded a charge of $0.6 million in interest expense during the
three months September 30, 2013, due to the difference between the
IPO price of $5.50 and $5.225. Additionally, the Company issued
warrants to purchase 1,093,778 underlying shares as additional
consideration to the investors who exercised their conversion
option. The warrants vested immediately and are exercisable into
common shares at an exercise price of $6.87 and have a term of five
years from the date of issuance. The issuance of the warrants is
considered an inducement to convert the Bridge Loan balance as the
warrants were issued in addition to the common shares contractually
required by the Bridge Loan Agreement. The Bridge Loan balance and
accrued interest and fees was $0 as of September 30, 2013.
Convertible Notes Payable
During the first nine months of 2013, the Company drew down
$450,000 under the convertible notes payable to related party,
compared to $7.5 million during the first nine months of 2012.
21
Table of Contents
Cash Flows
The following table sets forth the major components of our
statements of cash flows data for the periods presented.
For the Nine Month Period Ended
(In Thousands)
September September
30, 30,
2013 2012
----------- -----------
Cash flows used in Operations $ (8,241) $ (4,233)
Investing Activities $ (2,569) $ (3,674)
Financing Activities $ 13,097 $ 7,920
Cash at end of period $ 2,558 $ 146
Operating Activities
Net cash used in operating activities for the nine months ended
September 30, 2013 totaled $8.2 million as compared to $4.3 million
for the nine months ended September 30, 2012. The cash used in
operating activities consisted principally of the net loss from
operations.
Investing Activities
Net cash used in investing activities for the nine months ended
September 30, 2013 was $2.6 million as compared to $3.7 million for
the nine months ended September 30, 2012. The represents capital
expenditures primarily associated with the investment in product
and technology development and our patent portfolio.
Financing Activities
Our net cash provided by financing activities for the nine
months ended September 30, 2013 was $13.1 million as compared to
$7.9 million for the nine months ended September 30, 2012, which
primarily consisted of proceeds from further advances under
convertible promissory notes issued by the Company and proceeds
from issuance of common stock. The Company raised $7.8 million
through the IPO and IPO over allotment, drew down $5.0 million
under the Bridge Loan and $0.5 million under the convertible notes
payable to related party during the first nine months of 2013. Also
MBTH converted their promissory note of $15 million and issued
additional proceeds of $5.4 million under the Bridge Loan during
the first nine months of 2013.
22
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Off-Balance Sheet Arrangements
We do not currently have any off-balance sheet arrangements that
have or are reasonably likely to have a current or future effect on
our financial condition, changes in financial condition, revenues
or expenses, results of operations, liquidity, capital expenditures
or capital resources that are material to our stockholders.
Our Company has not entered into any transaction, agreement or
other contractual arrangement with an entity unconsolidated with us
under which we have:
o an obligation under a guarantee contract, although we do have
obligations under certain sales arrangements including purchase
obligations to vendors;
o a retained or contingent interest in assets transferred to
the unconsolidated entity or similar arrangement that serves
as credit, liquidity or market risk support to such entity
for such assets;
o any obligation, including a contingent obligation, under a
contract that would be accounted for as a derivative instrument;
or
o any obligation, including a contingent obligation, arising
out of a variable interest in an unconsolidated entity that
is held by us and material to us where such entity provides
financing, liquidity, market risk or credit risk support to,
or engages in leasing, hedging or research and development
services with us.
23
Table of Contents
Item 3. Quantitative and Qualitative Disclosures About Market
Risk.
As a smaller reporting company, as defined in Rule 12b-2 of the
Exchange Act, we are not required to provide the information
required by this Item.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed
to ensure that material information required to be disclosed in our
periodic reports filed under the Exchange Act is recorded,
processed, summarized, and reported within the time periods
specified in the SEC's rules and forms and to ensure that such
information is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer
as appropriate, to allow timely decisions regarding required
disclosure. Our management, including our Chief Executive Officer
(Principal Executive Officer) and Chief Financial Officer
(Principal Financial Officer), does not expect that our disclosure
controls and procedures will prevent all errors and all fraud. A
control system, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a
control system must reflect the fact that there are resource
constraints and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any,
within our Company have been detected. These inherent limitations
include, but are not limited to, the realities that judgments in
decision-making can be faulty and that breakdowns can occur because
of simple error or mistake. Additionally, controls can be
circumvented by the individual acts of some persons, by collusion
of two or more people, or by management override of the control.
The design of any system of controls also is based in part upon
certain assumptions about the likelihood of future events and there
can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions. Over time,
controls may become inadequate because of changes in conditions, or
the degree of compliance with the policies or procedures may
deteriorate. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud
may occur and not be detected.
During the quarter ended September 30, 2013, we carried out an
evaluation, under the supervision and with the participation of our
management, including the principal executive officer and the
principal financial officer, of the effectiveness of the design and
operation of our disclosure controls and procedures, as defined in
Rule 13(a)-15(e) under the Exchange Act. Based on this evaluation,
because of the identification of a control deficiency described
below, management concluded that as of September 30, 2013, our
disclosure controls and procedures were not effective.
In conjunction with our recent initial public offering in the
United States, which occurred in our current quarter, we recently
switched over from financial reporting in IFRS to U.S. generally
accepted accounting principles. Our management has previously
identified a control deficiency regarding inadequate accounting
resources due to the need to hire accounting personnel with the
requisite knowledge of U.S. generally accepted accounting
principles. While we have now hired a financial controller to
support the accounting personnel, the financial controller began
with less than one month before the end of the quarter ended
September 30, 2013 and had limited involvement with the disclosure
controls and procedures for this quarter. The accounting department
is now in the process of cross training, putting in place
additional accounting policies and controls to resolve the issues
previously described.
Management believes that the hiring of that additional person
who has the technical expertise and knowledge with the non-routine
or technical issues we have previously encountered will result in
both proper recording of these transactions and a more
knowledgeable finance department as a whole. The accounting staff
are providing the cross training needed to support us if personnel
turn over issues within the department occur. We believe this will
greatly decrease any control and procedure issues we may encounter
in the future.
Changes in Internal Controls
During the fiscal quarter ended September 30, 2013, there have
been no changes in our internal control over financial reporting
that have materially affected or are reasonably likely to
materially affect our internal control over financial
reporting.
24
Table of Contents
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we are a party to litigation and subject to
claims incident to the ordinary course of business. Future
litigation may be necessary to defend ourselves and our customers
by determining the scope, enforceability and validity of third
party proprietary rights or to establish our proprietary
rights.
As of September 30, 2013, we do not have any litigation matters
pending.
Item 1A. Risk Factors.
As a smaller reporting company, as defined in Rule 12b-2 of the
Exchange Act, we are not required to provide the information
required by this Item.
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds.
Unregistered Sales of Securities
On August 22, 2013, the Company issued 2,187,529 common shares
for the conversion of the balance of approximately $11,429,000 in
principal and accrued interest and fees at a price per share of
$5.225. Additionally, the Company issued warrants to purchase
1,093,778 underlying shares as additional consideration to the
investors who exercised their conversion option. The warrants
vested immediately and are exercisable into common shares at an
exercise price of $6.87 and have a term of five years from the date
of issuance.
On September 30, 2013, the disinterested directors of the
Company authorized a onetime agreement, whereby we issued to MBTH
1,599,453 shares of our common stock and a warrant to purchase
1,363,636 shares of our common stock at an exercise price of $6.87
per share for the difference in price between the shares issued to
them in March 2013 at a price of $13.30 per share in exchange for
the conversion of its 2011 Convertible Note and the $5.50 purchase
price for shares sold in our initial public offering in July 2013.
Additionally, the Modified Strike Price, agreed upon between the
Company and MBTH in January 2013, of $13.30 per share for the two
options representing 571,428 underlying shares granted to MBTH in
February 2011 was lowered to $5.50.
The above issuances were made in reliance upon exemptions from
registration pursuant to Section 4(a)(2) under the Securities Act
of 1933 and/or Rule 506 promulgated under Regulation D there under.
The holders of the above securities are accredited investors as
defined in Rule 501 of Regulation D promulgated under the
Securities Act of 1933.
Use of Proceeds
On July 24, 2013, we completed our initial public offering,
pursuant to a Registration Statement on Form S-1 under the
Securities Act of 1933, as amended (File No. 333-187094) (the
"Registration Statement") that was declared effective by the
Securities and Exchange Commission on July 18, 2013. Under the
Registration Statement, we registered the offering and sale of
1,337,792 shares of common stock, par value $0.00001 per share, and
668,896 warrants to purchase 668,896 shares of common stock, at a
purchase price to the public of $5.50 per share and $0.01 per
warrant, for net proceeds to the Company, after deducting
underwriter discounts and offering expenses, of $6,750,673. On
August 19, 2013, the underwriters exercised in full their
over-allotment option to purchase an additional 200,668 shares of
common stock and 100,334 warrants to purchase 100,334 shares of
common stock with an exercise price of $6.87, at a purchase price
to the public of $5.50 per share and $0.01 per warrant, for net
proceeds to the Company, after deducting underwriter discounts, of
$1,027,349. Feltl and Company and Aegis Capital Corp acted as joint
underwriters for the offering.
No payments for our expenses were made directly or indirectly to
(i) any of our directors, officers or their associates, (ii) any
person(s) owning 10% or more of any class of our equity securities
or (iii) any of our affiliates with the funds raised in the
offering, which funds we have not yet officially accepted or used
to date.
There has been no material change in the planned use of proceeds
from our offering as described in our final prospectus filed with
the SEC pursuant to Rule 424(b).
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
There have been no material changes to the procedures by which
security holders may recommend nominees to our Board of
Directors.
25
Table of Contents
Item 6. Exhibits
Exhibit
Number Description
--------- ------------------------------------------------------
31.1 Certification of Principal Executive Officer, pursuant
to 18 U.S.C. Section 1350 as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Principal Financial Officer, pursuant
to 18 U.S.C. Section 1350 as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Principal Executive Officer, pursuant
to 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Principal Financial Officer, pursuant
to 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS * XBRL Instance Document
101.SCH * XBRL Taxonomy Schema
101.CAL * XBRL Taxonomy Calculation Linkbase
101.DEF * XBRL Taxonomy Definition Linkbase
101.LAB * XBRL Taxonomy Label Linkbase
101.PRE * XBRL Taxonomy Presentation Linkbase
In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2
are being furnished and not filed.
* XBRL (Extensible Business Reporting Language) information is
furnished and not filed or a part of a registration statement or
prospectus for purposes of Sections 11 or 12 of the Securities Act
of 1933, as amended, is deemed not filed for purposes of Section 18
of the Securities Exchange Act of 1934, as amended, and otherwise
is not subject to liability under these sections.
26
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
xG TECHNOLOGY, INC.
Date: November 14, 2013 By: /s/ John C. Coleman
-------------------------
John C. Coleman
Chief Executive Officer
(Duly Authorized Officer
and Principal Executive
Officer)
Date: November 14, 2013 By: /s/ Roger G. Branton
-------------------------
Roger G. Branton
Chief Financial Officer
(Duly Authorized Officer
and Principal Financial
Officer)
27
Table of Contents
EXHIBIT INDEX
Exhibit
Number Description
--------- ------------------------------------------------------
31.1 Certification of Principal Executive Officer, pursuant
to 18 U.S.C. Section 1350 as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Principal Financial Officer, pursuant
to 18 U.S.C. Section 1350 as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Principal Executive Officer, pursuant
to 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Principal Financial Officer, pursuant
to 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS * XBRL Instance Document
101.SCH * XBRL Taxonomy Schema
101.CAL * XBRL Taxonomy Calculation Linkbase
101.DEF * XBRL Taxonomy Definition Linkbase
101.LAB * XBRL Taxonomy Label Linkbase
101.PRE * XBRL Taxonomy Presentation Linkbase
In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2
are being furnished and not filed.
* XBRL (Extensible Business Reporting Language) information is
furnished and not filed or a part of a registration statement or
prospectus for purposes of Sections 11 or 12 of the Securities Act
of 1933, as amended, is deemed not filed for purposes of Section 18
of the Securities Exchange Act of 1934, as amended, and otherwise
is not subject to liability under these sections.
28
Exhibit 31.1
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, John C. Coleman, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of xG
Technology, Inc. (the "registrant"):
2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in
all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant's other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13-a13a-15(f) and 15d-15(f)) for the
registrant and have:
a) Designed such disclosure controls and procedures or caused
such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this report is being prepared;
b) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures; and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures as of the end of the period covered by this report based
on such evaluation; and
d) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: November 14 , 2013 /s/ John C. Coleman
---------------------
John C. Coleman
Chief Executive
Officer
(Principal Executive
Officer)
Exhibit 31.2
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Roger G. Branton, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of xG
Technology, Inc. (the "registrant"):
2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in
all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant's other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13-a13a-15(f) and 15d-15(f)) for the
registrant and have:
a) Designed such disclosure controls and procedures or caused
such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this report is being prepared;
b) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures; and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures as of the end of the period covered by this report based
on such evaluation; and
d) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: November 14 , 2013 /s/ Roger G. Branton
---------------------
Roger G. Branton
Chief Financial
Officer
(Principal Financial
Officer)
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U. S. C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of xG Technology, Inc.
(the "Company") on Form 10-Q for the period ended September 30,
2013 (the "Report"), I, John C. Coleman, Chief Executive Officer of
the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002,
that:
1. The Report fully complies with the requirements of Section
13(a) or 15(d), as applicable, of the Securities Exchange Act of
1934; and
2. The information contained in the Report fairly presents, in
all material respects, the financial condition and results of
operations of the Company.
Date: November 14 , 2013 /s/ John C. Coleman
---------------------
John C. Coleman
Chief Executive
Officer
(Principal Executive
Officer)
A signed original of this written statement required by Section
906, or other document authenticating, acknowledging, or otherwise
adopting the signature that appears in typed from within the
electronic version of this written statement has been provided to
the Company and will be retained by the Company and furnished to
the Securities and Exchange Commission or its staff upon
request.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U. S. C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of xG Technology, Inc.
(the "Company") on Form 10-Q for the period ended September 30,
2013 (the "Report"), I, Roger G. Branton, Chief Financial Officer
of the Company, hereby certify pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to section 906 of the Sarbanes-Oxley Act of
2002, that:
1. The Report fully complies with the requirements of Section
13(a) or 15(d), as applicable, of the Securities Exchange Act of
1934; and
2. The information contained in the Report fairly presents, in
all material respects, the financial condition and results of
operations of the Company.
Date: November 14 , 2013 /s/ Roger G. Branton
---------------------
Roger G. Branton
Chief Financial
Officer
(Principal Financial
Officer)
A signed original of this written statement required by Section
906, or other document authenticating, acknowledging, or otherwise
adopting the signature that appears in typed from within the
electronic version of this written statement has been provided to
the Company and will be retained by the Company and furnished to
the Securities and Exchange Commission or its staff upon
request.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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