Company Overview
| Company Name |
XG TECHNOLOGY, INC. |
| Company Address |
240 S. PINEAPPLE AVENUE
SUITE 701
SARASOTA, FL 34236 |
| Company Phone |
941 953 9035 |
| Company Website |
www.xgtechnology.com |
| CEO |
John C. Coleman |
| Employees (as of 4/1/2013) |
65 |
| State of Inc |
DE |
| Fiscal Year End |
12/31 |
| Status |
Filed (3/7/2013) |
| Proposed Symbol |
XGTI |
| Exchange |
Nasdaq SmallCap Market |
| Share Price |
-- |
| Shares Offered |
-- |
| Offer Amount |
$15,000,000.00 |
| Total Expenses |
$4,892.00 |
| Shares Over Alloted |
-- |
| Shareholder Shares Offered |
-- |
| Shares Outstanding |
-- |
| Lockup Period (days) |
180 |
| Lockup Expiration |
-- |
| Quiet Period Expiration |
-- |
| CIK |
0001565228 |
We estimate that the net proceeds from the sale of common stock offered by us
will be approximately $ million, based upon an assumed public offering price
of $ per share, the midpoint of the price range set forth on the cover page of
this prospectus, and after deducting underwriting discounts and commissions and
estimated offering expenses payable by us. If the underwriters’ over-allotment
option to purchase additional shares in this offering is exercised in full, we
estimate that our net proceeds will be approximately $ million, after
deducting underwriting discounts and commissions and estimated offering expenses
payable by us.
The principal purposes of this offering are to increase our capitalization and
financial flexibility, and increase our visibility in the marketplace. As of the
date of this prospectus, we cannot specify with certainty all of the particular
uses for the net proceeds of this offering. However, we currently intend to use
the net proceeds to us from this offering, together with existing cash,
primarily for general corporate purposes, including working capital, product
development, marketing activities, expanding our internal sales organization and
further developing sales channels, funding the set-up of contract manufacturing
production lines, and other capital expenditures and repaying certain
indebtedness. We may also use a portion of the net proceeds for the acquisition
of, or investment in, businesses, products, technologies or other assets that
complement our business, although we have no present commitments or agreements
to enter into any material acquisitions or investments. We will have broad
discretion over the uses of the net proceeds in this offering. Pending these
uses, we intend to invest the net proceeds from this offering in short-term,
investment-grade interest-bearing securities such as money market funds,
certificates of deposit, commercial paper and guaranteed obligations of the U.S.
government.
The wireless technology sector is intensely competitive and is rapidly evolving.
Several vendors have researched and experimented with cognitive radios. This
research predominately falls under the traditional industry defined use of a
cognitive radio where cognitive capabilities are restricted to dynamic spectrum
access (“DSA”) within the radio device. However, we believe that only a few
vendors are undertaking development across all the key elements of cognitive
technology: spectrum sensing, spectrum management, spectrum mobility, spectrum
sharing, and spatial processing.
As an example, both Spectrum Bridge and Microsoft have developed a database
approach to frequency reuse. This method was developed specifically to enable
unlicensed broadband systems to coexist with existing TV transmitters in the TV
White Spaces band.
We not only face competition from other companies developing cognitive radio
solutions but we are also competing for sales to end-user customers with
companies offering solutions utilizing other technologies for access to licensed
and unlicensed spectrum, such as LTE and Wi-Fi.
In the cognitive radio market, our competitors include, Neul Ltd., Shared
Spectrum Corporation and Adaptrum.
End-customers in the rural broadband market are being offered a choice of
solutions based on alternative technologies, such as LTE and Wi-Fi. Global
communications networking equipment vendors such as Ericsson, Huawei,
Alcatel-Lucent and others are actively selling and deploying LTE and, to a
lesser extent, WiMax equipment with rural telecommunications operators that own,
or can lease, appropriate licensed spectrum frequencies. We also face
competition for equipment sales with Ruckus Wireless, Ubiquiti Networks and
Cambium Networks, which have also targeted markets for communications systems
around the world similar to our target markets. Although these companies are
vastly larger than we are, with significantly greater resources, we believe that
we or our channel partners will need to convince end users to consider our
offerings as a viable alternative to these larger companies if we are to
succeed.
It is not uncommon for a single rural operator to deploy a mix of technologies
(such as LTE and Wi-Fi) to address differing applications, spectrum holdings and
economics across their market areas. As new technologies are introduced and
spectrum availability and costs increase, we anticipate that rural
telecommunications operators will continue to deploy a growing range of
innovative solutions that deliver voice and data communications to their
customers.
The main vendor in the public safety market is Motorola Solutions, which is a
global player that holds a highly dominant market share in the U.S. of over 80%
in public safety and government wireless networks.
In the defense market, there are several large and significant companies that
provide wireless communications systems to U.S. and international military
agencies, including Harris Corporation, ITT Industries, Raytheon, Boeing, Thales
Communications and Lockheed Martin. It is common for one competitor to be a
subcontractor to another competitor who is the prime contractor and vice versa
as programs of record ramp up and ramp down over time.
A number of our current or potential competitors have long operating histories,
significant brand recognition, large customer bases and significantly greater
financial, technical, sales, marketing and other resources than we do. As an
emerging technology company, our brand is not as well known as incumbents in
those markets. Potential customers may prefer to purchase from their existing
suppliers rather than a new supplier, regardless of product performance or
features.
Company Description
xG Technology, Inc. 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.
We have
generated material revenues in 2008 and 2009 attributed to the Company’s
BSN250 voice-only product line. Upon the introduction of various smartphones in
2007 (and later) which could handle both voice and data, the Company made the
decision it was necessary to enhance its voice-only product line to include data
services. Beginning in July 2009, the Company focused on enhancing its BSN250
and TX70 product line for data services and we delivered such a system to the US
Army in 2011. The US Army subsequently requested our BSN250 should integrate
with commercial off the shelf (COTS) smartphones. In 2013, the Company will
introduce a new product line that can handle both voice and data services. These
new products are called xAP (base station) and the xMod which is able to
communicate to any COTS device. We have generated significant net losses for the
past several years and we expect to continue to realize net losses for the
immediate future. We estimate that we will begin to generate revenues again
sufficient to cover the cost of our operations once our new voice and data
products are delivered to customers in the second half of 2013.
Our Company was founded on the premise that the wireless communications industry
is facing a spectrum crisis as demand for flexible, affordable voice and data
access rapidly grows. We have developed frequency-agnostic cognitive radio
solutions to address this increasing demand by eliminating the need to acquire
scarce and expensive licensed radio spectrum and thus ideally lowering the total
cost of ownership for wireless broadband access. With such fast growing demand
straining network capacity, our intellectual property is also designed to help
wireless broadband network operators make more efficient use of existing
spectrum allocations. We are targeting numerous industries world-wide, such as
telecommunications, cable, defense, and public safety, and markets ranging from
rural to urban areas and expeditionary deployments.
The implementation of our cognitive radio intellectual property is xMax®. We
believe the xMax® system, represents the only commercially available cognitive
radio network system that is designed to include interference mitigation by
spatial processing. xMax® 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® 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 Ris 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® 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® 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® 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® cognitive radio technology can also be used to provide additional
capacity to licensed spectrum by identifying and utilizing unused bandwidth with
in the licensed spectrum.
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 Rcognitive radio networking equipment, engineering
services and other hardware worth approximately $33.0 million.
As at April 1, 2013, 62.83% of the shares of our common stock are owned by MBTH.
MBTH was co-founded in 2010 by Rick Mooers, Roger Branton and George Schmitt in
order to invest in, and provide expertise and guidance to, and other support to
xG Technology. Richard Mooers, Roger Branton, and George Schmitt are directors
of MBTH as well as directors of the Company. MBMG, a merchant bank owned by
family entities or trusts related to Richard Mooers and Roger Branton, has a
74.46 percentage interest in MBTH as of April 1, 2013. George Schmitt has a
direct 6.11% ownership interest in MBTH as of April 1, 2013 and has been granted
an option to purchase MBTH shares sufficient to give him an additional 5% of the
equity ownership of MBTH shares and its subsidiaries. Since its foundation, MBTH
has provided xG Technology with significant financial and other support to us,
including indebtedness under the promissory note issued by us to MBTH pursuant
to a subscription agreement between us and MBTH dated January 16, 2013
(together, the “Bridge Loan”) standing at the date of this document at $6.2
million. In addition, after joining MBTH, George Schmitt, CEO of MBTH, became
one of our directors and has agreed to become our Executive Chairman upon this
registration statement becoming effective and Larry Townes, another director of
MBTH, has also agreed to become one of our directors upon this registration
statement becoming effective.
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The Company was organized as a limited liability company under the laws of the
State of Delaware on August 26, 2002 under the name JTS Acquisitions, LLC. On
March 21, 2003, we changed our name to xG Technology, LLC. Pursuant to a
certificate of conversion and a certificate of incorporation filed with the
State of Delaware on November 8, 2006, xG Technology, LLC converted to a
Delaware corporation under the name xG Technology, Inc. Our executive offices
are located at 240 S. Pineapple Avenue, Suite 701, Sarasota, FL 34236, and our
telephone number is (941) 953-9035. Our website address is www.xgtechnology.com.