RNS Number : 6273E
xG Technology Inc.
30 September 2008
FOR IMMEDIATE RELEASE 30 September 2008
xG Technology, Inc.
INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2008
xG Technology Inc, ("xG" or "Company", LSE-AIM: XGT) the US-based, AIM-listed
communications technology business, today announces its
unaudited half year results for the six months ended 30 June 2008.
Key points:
* cash and cash equivalents at 30 June 2008 of US$22,878,000;
* sales of US$7,500,000;
* operating profit (before interest and share based payments) of US$2,907,000 for the
period;
* profit of US$46,000 for the period;
* continued development of the TX-60 handset;
* transition to the BSN-250 base station series;
* release of the xDrive coverage area mapping kit;
* refinement of the xMax network architecture;
* further technology enhancements supporting the xG mobile VoIP application;
* additional patent filing activity, bringing the patent portfolio to 9 granted and 35
pending applications and invention
disclosures (12 specific to the xG VoIP service); and
* appointment of ING Bank, N.V. as Nominated Adviser and Financial Adviser to the
Company.
Following the end of the period, the Company was delighted to announce the receipt of an
order for 1,000 of its BSN-250 base stations
for a total order value of US$75,000,000. The order also included an option for the delivery
of a further 4,000 base stations, having an
additional order value of US$300,000,000. It should also be noted that since 30 June 2008, xG
has collected cash of more than US$6,000,000
on orders of base stations.
On the Company's outlook, Richard Mooers, Chairman and Chief Executive Officer, stated:
"The progress made during the first half of 2008 illustrates that xG remains firmly on
course towards achieving its strategic
objectives. In the near term, the upcoming launch of our BSN-250 base station and TX-60
handset will showcase the inherent advantages of
xG's proprietary physical layer technology. This is expected to herald significant changes in
the building of broadband wireless networks,
leading to growing numbers of xMax-branded mobile and fixed VoIP and broadband deployments. I
look forward to reporting to xG shareholders
as we make further progress toward our goals."
CONTACTS
xG Technology, Inc. www.xgtechnology.com
Richard Mooers, Chairman and Chief Executive Officer +44 20-7367-8888
Roger Branton, Chief Operating Officer and Chief +44 20-7367-8888
Financial Officer
Christopher Price, Director of Communications +44 78-5247-9043
Jonas Krepp, Director of Investor Relations +44 78-2744-4634
Bankside Consultants +44 20-7367-8888
Steve Liebmann or Simon Bloomfield
Relige, Hichens Harrison PLC +44 20-7588-5171
Daniel Briggs
Daniel Stewart & Company PLC +44 20-7776-6550
Simon Starr
ING Bank N.V., London Branch (Nominated Adviser) +44 20-7767-1000
Xavier Moreels or Francis Moore
ABOUT XG TECHNOLOGY
Based in Florida, USA, xG Technology, Inc. has developed innovative, patented wireless
communications technologies which offer the
potential to significantly reduce the required capital investment and operating costs of
wireless voice and data communications services.Its mobile VoIP (Voice over Internet Protocol) base station and handset product line - branded
as xMax - is intended for use by regional
carriers (internet service providers, competitive local exchange carriers and entrepreneurial
parties) which seek to deliver mobile Internet
Protocol voice and data services directly to consumers without using the incumbent circuit
switched or coaxial cable networks. The xMax
system provides an extended range of operation and is expected to provide superior handset
battery performance. Planned future releases of
the xMax product line include integrated video and data applications.
COPIES OF ANNOUNCEMENT
Copies of this announcement will be available from the Company's website
(www.xgtechnology.com) and from the offices of its Nominated
Adviser, ING Bank N.V., London Branch, 60 London Wall, London EC2M 5TQ. CHAIRMAN AND CHIEF
EXECUTIVE OFFICER'S STATEMENT
OVERVIEW
The focus of xG Technology, Inc. ("xG" or "Company") during the six month period ending 30
June 2008 has continued to be the production
and delivery of products for the xMax mobile VoIP service. This service, the Company's first
vertical application using its PHY and MAC
layer patents including its proprietary Flash Signal, is on target to be deployed through
regional service providers across the US, with the
aim of establishing a national brand presence.
Under the support of the newly-designated xMax Authorized Carrier Partner Program, service
providers have a unique opportunity to become
competitive facilities-based communications carriers, as xG provides them with an
incumbent-free, all-IP network solution using the
license-free ISM band spectrum. This represents a compelling technology-driven business case
for carriers and was a key factor in the
increase in new partners and market opportunities that xG experienced over the first half of
2008.
As a result of advances made in its product and technology development during the interim
period, xG is well positioned to monetize the
considerable opportunities available from its anticipated fixed, low-price, unlimited calling
service. In rolling out this service with the
new BSN-250 base station and TX-60 handset, the Company is expected to enter the market with a
solid product offering from the outset,
coupled with a demonstrable roadmap to future 4G applications and devices with its own
patented battery solution.
In the first half of this year, there were a number of announcements from wireless
carriers about the future migration of their networks
to 4G-level standards. This process is expected to be characterized by large costs and long
deployment cycles. In today's challenging
capital markets, financing such expensive endeavours has become ever more difficult. xG
continues to offer a powerful alternative to this
scenario. The unprecedented economics brought to bear by xG's innovative physical layer
technology are expected to make xMax networks
cheaper to build, quicker to deploy, and easier to maintain than other transmission systems.This high-margin, low-cost model should allow
for impressive savings to be passed on to end-users, which will drive uptake of xMax-branded
products and further spread the adoption of
other products based on xG's superior technology solution.
HIGHLIGHTS FOR THE PERIOD
During the first half of the year, xG took important steps that will enable the Company to
meet its objectives in 2008 and beyond.Significant milestones for the period included:
* transition to the BSN-250 base station series, which will be released concurrently
with the TX-60 handset and will be capable of
supporting advanced services including 4G applications;
* release of the xDrive (which utilizes the TX-110) and the BSN-200 base station,
which allows for fast and efficient mapping of
xMax mobile VoIP cell coverage areas;
* additional refinement of the xMax network architecture to allow deployment of a
high-availability and modular regional system;
* further technology enhancements made in support of the mobile VoIP application,
including enhancements made to the xG-developed
protocols (air-interface and MAC), as well as other network-related extensions that will
enable increased performance and capacity;
* increased interest in the xMax service from rural and regional service providers, as
a result of expanded marketing initiatives to
attract new business;
* implementation of the xMax Authorized Carrier Partner Program, which provides a
comprehensive template for carriers doing business
with xG;
* Cambridge Consultants, Ltd. ("CCL") continued development of the TX-60 handset.Building on their successful concept development
phase, CCL was contracted to provide turnkey development, including industrial, electronic and
mechanical design, and user interface
software, of the xMax mobile handset;
* additional patent filing activity, enhancing the Company's portfolio of intellectual
property. The patent portfolio now includes 9
patents granted, and 35 pending applications and invention disclosures. Twelve of these are
specific to the Company's VoIP service; and
* appointment of ING Bank, N.V. as Nominated Adviser and Financial Adviser to the
Company.
FINANCIAL REVIEW
Building on a strong first quarter, xG recorded sales of US$7,500,000 for the six months
ending 30 June 2008 (US$250,000 for the same
period last year). This represents an increasing demand for xG's products as carriers are
anxious to get exclusivity of their desired
territories. As operations have increased in order to further the Company's objectives,
operating expenses have risen to US$7,285,000,
compared to US$6,093,000 during the same period last year. Of this amount, US$3,246,000
related to non-cash stock-based compensation costs
(US$3,786,000 for the same period last year). The Company had a net profit of US$46,000 for
the period (compared to a net loss of
US$5,574,000 in the same period last year).
xG's revenue policy is to recognize sales of goods as those goods are delivered and title
has passed. Sales are measured at the fair
value of the consideration received or receivable. Given the time frames involved in
completely designing, implementing, and deploying RF
networks, as well as the current credit market conditions, xG has made the decision to offer
extended payment terms on purchases made during
the period by its carriers. In this time of unprecedented turbulence in the capital markets,
this should allow our carriers substantial
flexibility with regard to financing their operations, further allowing them the opportunity
to adequately develop their infrastructures
prior to product launch. As the Company believes this will result in stronger partners who
will be better positioned to insure a successful
commercial rollout of xMax services, it feels strongly that this best balances short-term cash
collections with long-term shareholder
value.
The Company is currently in discussions with various lessors and infrastructure partners
that could allow us to help our customers meet
their needs in this market environment while also providing cash flow to the Company through
purchases of base stations. While the Company
feels confident in the strength of our carriers, it has taken steps to protect itself in the
event any of its carriers prove unable to abide
by the terms of their business agreements with xG. One of the steps available to the Company
to enforce the carriers' legally binding
obligations is to automatically reclaim the carriers' exclusive territories and equipment,
which thus become available for resale to another
partner.
During the period, the Company continued to invest in the product development, marketing,
and technology sides of the business in
preparation for full network launch. This was reflected in US$3,977,000 of cash used for
operating activities as well as US$6,672,000 of
cash used in investing activities. The Company had cash inflows of US$809,000 from option
exercises. The net cash decrease for the period
was US$9,840,000, while the Company ended the period with a strong cash and cash equivalents
position of US$22,878,000.
OUTLOOK
The progress made during the first half of 2008 illustrates that xG remains firmly on
course towards achieving its strategic objectives.In the near term, the upcoming launch of our BSN-250 base station and TX-60 handset will
showcase the inherent advantages of xG's
proprietary physical layer technology. This is expected to herald significant changes in the
building of broadband wireless networks,
leading to growing numbers of xMax-branded mobile and fixed VoIP and broadband deployments.
Following the end of the period, the Company was delighted to announce the receipt of an
order for 1,000 of its BSN-250 base stations
for a total order value of US$75,000,000. The order also included an option for the delivery
of a further 4,000 base stations, having an
additional order value of US$300,000,000. Initial deliveries of the base stations are
expected during the closing months of 2008 with the
majority of the 1,000 base stations order being completed during 2009. This order brings the
Company's ambition of delivering the world's
first mobile voice and text service over the internet a significant step closer. It should
also be noted that since 30 June 2008, xG has
collected cash of more than US$6,000,000 on orders of base stations.
By leveraging its technical and business accomplishments realized to date, xG anticipates
building a healthy revenue stream from its
share of xMax network traffic revenue in the US over the short to medium term. In addition to
enhancing the Company's financial base, this
proving of concept within our first vertical market will help create additional opportunities
for xG's physical layer technology in wireless
and wireline applications both domestically and abroad.
Seizing these opportunities should enable xG to deliver unmatched value for the consumers
of its products as well as its business
partners, and in doing so, is expected to maximize value for its shareholders.
I look forward to reporting to xG shareholders as we make further progress toward our
goals.
RICHARD MOOERS
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
29 September 2008
INDEPENDENT REVIEW REPORT
TO THE SHAREHOLDERS OF XG TECHNOLOGY, INC.
INTRODUCTION
We have been engaged by the Company to review the condensed set of financial statements in
the half-yearly financial report for the six
months ended 30 June 2008 which comprises the Income Statement, Balance Sheet, the Cash Flow
Statement, the Statement of Changes in Equity
and the related notes. We have read the other information contained in the half-yearly
financial report and considered whether it contains
any apparent misstatements or material inconsistencies with the information in the condensed
set of financial statements.
DIRECTORS' RESPONSIBILITIES
The half-yearly financial report is the responsibility of, and has been approved by, the
Directors. As disclosed in note 1, the annual
financial statements of the Company are prepared in accordance with IFRS as adopted by the
European Union. The condensed set of financial
statements included in this half-yearly financial report has been prepared in accordance with
International Accounting Standard 34 "Interim
Financial Reporting" as adopted by the European Union.
OUR RESPONSIBILITY
Our responsibility is to express to the Company a conclusion on the condensed set of
financial statements in the half-yearly financial
report based on our review.
SCOPE OF REVIEW
We conducted our review in accordance with International Standard on Review Engagements
(UK and Ireland) 2410, "Review of Interim
Financial Information Performed by the Independent Firm of the Entity" issued by the Auditing
Practices Board for use in the United Kingdom.A review of interim financial information consists of making enquiries, primarily of persons
responsible for financial and accounting
matters, and applying analytical and other review procedures. A review is substantially less
in scope than an audit conducted in accordance
with International Standards on Auditing (UK and Ireland) and consequently does not enable us
to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly, we do not
express an audit opinion.
CONCLUSION
Based on our review, nothing has come to our attention that causes us to believe that the
condensed set of financial statements in the
half-yearly financial report for the six months ended 30 June 2008 is not prepared, in all
material respects, in accordance with
International Accounting Standard 34 as adopted by the European Union.
CHANTREY VELLACOTT DFK LLP
London
29 September 2008
INCOME STATEMENT
FOR THE SIX MONTHS ENDED 30 JUNE 2008
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2008 2007 2007
(unaudited) (unaudited) (audited)
US$'000 US$'000 US$'000
Revenue 7,500 250 250
Cost of sales (554) (13) (14)
Gross profit 6,946 237 236
Administrative expenses (4,039) (2,307) (6,446)
Operating Profit (Loss) before 2,907 (2,070) (6,210)
interest and share based payments
Interest receivable and similar income 385 282 1,256
Profit (Loss) before share based 3,292 (1,788) (4,954)
payments
Share based payments (3,246) (3,786) (7,061)
Profit (Loss) for the period 46 (5,574) (12,015)
Profit (Loss) per share
Basic and diluted US$0.00 (US$0.04) (US$0.10)
BALANCE SHEET
AS AT 30 JUNE 2008
30 June 30 June 31 December
2008 2007 2007
(unaudited) (unaudited) (audited)
US$'000 US$'000 US$'000
Assets
Non-current assets
Intangible fixed assets 28,503 17,021 21,692
Fixtures and equipment 640 95 546
29,143 17,116 22,238
Current assets
Trade receivables and other current 7,156 3,335 374
assets
Inventory 3,605 - 2,132
Cash and cash equivalents 22,878 41,807 32,718
33,639 45,142 35,224
Total assets 62,782 62,258 57,462
Current liabilities
Trade payables and other current (2,881) (3,301) (1,662)
liabilities
Net assets 59,901 58,957 55,800
Shareholders' equity
Share capital 1,317 1,290 1,290
Share premium account 66,703 65,404 65,462
Preferred equity 2,000 2,000 2,000
Other reserve 18,935 13,312 16,385
Accumulated losses (29,054) (23,049) (29,337)
Total equity 59,901 58,957 55,800
Approved by the Board of Directors on 29 September 2008.
Signed on behalf of the board of directors:
ROGER BRANTON
CHIEF OPERATING OFFICER AND CHIEF FINANCIAL OFFICER
STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED 30 JUNE 2008
Share Share Preferred Other Retained
capital premium equity reserves losses Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Balance at 31 December 2006 1,224 29,363 - 9,526 (17,475) 22,638
(audited)
Loss for the period - - - - (5,574) (5,574)
Issue of preferred equity - (1,975) 40,000 - - 38,025
including issue costs
Conversion of preferred equity 66 37,934 (38,000) - - -
Exercise of options - 70 - - - 70
Issue of shares for services - 12 - - - 12
Share-based transactions - - - 3,786 - 3,786
Balance at 30 June 2007 1,290 65,404 2,000 13,312 (23,049) 58,957
(unaudited)
Loss for the period - - - - (6,441) (6,441)
Exercise of options - 58 - (49) - 9
Share-based transactions - - - 3,122 153 3,275
Balance at 31 December 2007 1,290 65,462 2,000 16,385 (29,337) 55,800
(audited)
Profit for the period - - - - 46 46
Exercise of options 27 1241 - (459) - 809
Share-based transactions - - - 3,009 237 3,246
Balance at 30 June 2008 1,317 66,703 2,000 18,935 (29,054) 59,901
(unaudited)
Other reserves consist of the cumulative amount attributable to share based transactions.
CASH FLOW STATEMENT
FOR THE SIX MONTHS ENDED 30 JUNE 2008
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2008 2007 2007
(unaudited) (unaudited) (audited)
US$'000 US$'000 US$'000
Cash flows from operating activities
Profit (Loss) for the period 46 (5,574) (12,015)
Interest received (385) (282) (1,256)
Depreciation 71 36 66
Amortisation 81 18 45
Change in inventory (1,473) - (2,132)
Issue of shares for services - 12 12
Share based payments:
Employees 3,065 3,546 6,581
Non-employees 181 240 480
Operating cash flows before movement 1,586 (2,004) (8,219)
in working capital
(Increase) in trade receivables and (6,782) (3,256) (295)
other current assets
Increase in trade payables and other 1,219 2,529 890
current liabilities
Net cash used in operating activities (3,977) (2,731) (7,624)
Investing activities
Interest received 385 282 1,256
Purchase of fixtures and equipment (165) (57) (537)
Purchase of intangible assets (6,892) (1,798) (6,497)
Net cash used in investment activities (6,672) (1,573) (5,778)
Financing activities
Issue of capital (net of issue costs) 809 70 79
Issue of preferred equity (net of - 38,025 38,025
issue costs)
Net cash inflow from financing 809 38,095 38,104
activities
Net (decrease)/ increase in cash and (9,840) 33,791 24,702
cash equivalents
Cash and cash equivalents at beginning 32,718 8,016 8,016
of period
Cash and cash equivalents at end of 22,878 41,807 32,718
period
NOTES TO THE INTERIM REPORT
FOR THE SIX MONTHS ENDED 30 JUNE 2008
1. Basis of presentation
The interim report has been prepared using accounting policies consistent with
International Accounting Standard 34, 'Interim Financial
Reporting'.
2. Key sources of estimation uncertainty
The key assumptions concerning the future and other sources of estimation uncertainty at
the balance sheet date, that have a significant
risk of causing a material adjustment to the carrying amounts of assets and liabilities within
the next financial year, are as follows:
Provisions
Throughout the year, management considers the carrying value of both debtors and inventory
balances. Provisions against both balances
are made on the basis of past losses, current trading patterns and anticipated future events.
3. Significant accounting policies
The interim report has been prepared on the historical cost basis.
The same accounting policies, presentation and methods of computation are followed in this
interim report as were applied in the
preparation of the Company's financial statements for the year ended 31 December 2007, except
for the additional accounting policies that
are to be reflected in the next annual financial statements as follows:
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost comprises
direct materials, direct labour costs and an
attributable proportion of manufacturing overheads based on normal levels of activity that
have been incurred in bringing the inventories to
their present location and condition. Net realisable value represents the estimated selling
price less all estimated costs of completion and
costs to be incurred in marketing, selling and distribution. Provision is made for obsolete,
slow moving or defective items where
applicable.
Trade receivables
Trade receivables are measured at initial recognition at fair value. Appropriate
allowances for estimated irrecoverable amounts are
recognised in profit or loss when there is objective evidence that the asset is impaired. The
allowance recognised is measured as the
difference between the asset's carrying amount and the present value of estimated future cash
flows discounted at the effective interest
rate computed at initial recognition.
4. EARNINGS per share
The calculations of the basic and diluted profit/(loss) per share are based on the
following data:
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2008 2007 2007
(unaudited) (unaudited) (audited)
US$'000 US$'000 US$'000
Profit (Loss) for the period
Profit (Loss) for the purpose of basic 46 (5,574) (12,015)
and diluted loss per share
Number of shares
Weighted average number of common 129,925,276 124,098,469 126,224,240
shares in issue during the period
There were no dilutive instruments in existence over the period.
5. Intangible assets
During the period the Company has spent approximately US$6.9 million on the continued
development of the Company's proprietary
technologies for use in wired and wireless communications.
6. Share Capital
Issued and fully paid 30 June 30 June 31 December
2008 2007 2007
No. No. No.
Called up, allotted and fully paid
Common shares of US$0.01 each 131,698,234 128,995,963 129,033,000
7. Related party transactions
MOOERS BRANTON & CO., INCORPORATED
The Company incurred management fees of US$480,000 to Mooers Branton & Co. Incorporated
("MBC"), for the six month period ended 30 June
2008, of which US$60,000 was outstanding at 30 June 2008. MBC agreed to provide certain
management and financial services to the Company for
a monthly fee of US$80,000. MBC is beneficially controlled and operated by two of the
Company's Directors.
Pursuant to the Management Agreement, MBC provides services to the Company, which include,
but are not limited to, financial advice,
strategic and financial planning, capital structure analysis and planning, and business
development. In addition, the Company will be
provided certain office facilities, telephone and back-office administration as well as the
services of a full-time office manager and
administrator with other part-time assistance from time to time.
WENNBERG INDUSTRIES AB
The Company incurred consultants' fees of US$15,000 to Wennberg Industries AB for the six
month period ended 30 June 2008, of which
US$6,000 was outstanding at 30 June 2008. Wennberg Industries AB is wholly owned by Mats
Wennberg, a Director of the Company.
This information is provided by RNS
The company news service from the London Stock Exchange
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