xG Technology Announces Results for the Second Quarter of 2018

SARASOTA, Fla., Aug. 14, 2018 /PRNewswire/ -- xG Technology, Inc. (Nasdaq: XGTI, XGTIW), whose IMT and Vislink brands are recognized as the global leaders in live video communications in the broadcast, law enforcement and defense markets, announced today its results for the second quarter ended June 30, 2018. The Company also announced today that it achieved $7 million in annual savings from cost reduction initiatives implemented in the second quarter of 2018, which is an increase of $2 million over previous guidance. xG will hold a conference call to discuss second quarter results on Wednesday, August 15, 2018 at 5:00 p.m. Eastern Time (details below).

Second Quarter Results

    --  Revenues for the three and six months ended June 30, 2018 were $9.4
        million and $19.1 million compared to $14.2 million and $23.6 million in
        the corresponding periods in 2017.
    --  Gross margins increased to 52.4% of revenue in the second quarter 2018,
        compared to 31.8% of revenue in the second quarter of 2017.
    --  Net loss attributable to common shareholders was $6.4 million, or
        $(0.40) per share in the second quarter of 2018 compared to a net loss
        of $1.0 million, or $(0.09) per share in the second quarter of 2017. Net
        loss attributable to common shareholders was $9.7 million, or $(0.62)
        per share for the six months ended June 30, 2018 compared to net income
        of $7.3 million, or $0.69 per share for the six months ended June 30,
        2017.
    --  EBITDA (earnings before interest, taxes depreciation and amortization)
        was a negative $2.4 million and a negative $3.6 million for the three
        and six months ended June 30, 2018, respectively.
    --  Ended the second quarter 2018 with $2.2 million in cash compared to $2.8
        million at December 31, 2017 and $455,000 at the end of the first
        quarter of 2018.

Taking into account the cost reduction initiatives implemented in the second quarter of 2018, the Company reported the following Non-GAAP Second Quarter Results(1):

    --  Excluding stock option expense, one-time expenses and discontinued
        operations, xG reported an adjusted net loss of $749,000.
    --  Excluding stock option expense, one-time expenses and discontinued
        operations xG reported an adjusted EBITDA loss of $224,000 which
        includes a write-down of $121,000 in non-cash items related to
        inventory.

"This was a transformational quarter," emphasized Roger Branton, CEO and co-founder of xG Technology, "In the second quarter we took decisive steps to stabilize our business. As a result of these actions, and the traction we have established in our core markets, we are well-positioned for future growth. During the quarter, we achieved $7 million in annual cost savings related to discontinued operations, specifically $6.2 million in labor cost savings and $800,000 in non-labor cost savings. We also identified an additional $1.3 million in non-labor cost savings to be realized over the next year, primarily by reducing the footprint of certain facilities. In addition, in the second quarter we raised $4 million in capital and solved some key supply chain challenges. We received significant new orders during the quarter, entered into collaborations with large government agencies, and signed an agreement with Panasonic to integrate our wireless camera control and 4K technology into Panasonic's studio camera line. We will continue to execute on our plan to achieve profitability, while at the same time focus on driving margin expansion and improving our earnings," concluded Mr. Branton.

Second Quarter 2018 Key Business Highlights

    --  Implemented a cost reduction program that resulted in annual cost
        savings of $7 million and identified another $1.3 million to be realized
        over the next year.
    --  Eliminated the routine practice of utilizing shares of the Company's
        common stock for current compensation of employees, significantly
        reducing the amount of shares in the market each month. Going forward,
        the use of shares and derivatives will be tied to and aligned with
        increases in shareholder value.
    --  Received orders valued at over $750,000 for HD (high-definition)
        airborne video downlink system (AVDS) equipment and related services
        from law enforcement agencies located in Virginia, Massachusetts, Oregon
        and California.
    --  Received a $2.3 million contract to supply live video transmission
        equipment to a major professional US sports association, for
        installation in arenas and configured to capture and distribute live
        images of in-game action.
    --  Was awarded a $1.4 million order to supply airborne video downlink
        solutions to the U.S Air Force. The contract calls for the supply of
        transmit and receive systems, ground-based units designed to display
        real-time video imagery taken by aerial assets, related component and
        accessories, and training services.
    --  Announced a partnership with Panasonic to integrate IMT Vislink's
        external wireless solution into Panasonic studio cameras.
    --  Announced a partnership between IMT Vislink and Frontline Communications
        to deploy a customized newsnet® electronic news gathering (ENG) vehicle
        for performing on-site demonstrations at broadcast client locations.
    --  Announced a collaboration between IMT Vislink and K2 Unmanned Systems,
        LLC on the launch of K2's new law enforcement tactical drone. IMT
        Vislink is providing interoperable, encrypted HD video downlink
        technology for use with the system.

Financial Results Conference Call Details

xG management will hold a conference call to discuss its Q2 2018 results and provide a corporate update on Wednesday, August 15, 2018 at 5:00 p.m. Eastern Time. To participate in the conference call, please call 1-844-825-9789 (toll free) or 1-412-317-5169 (international call-in) and ask to join the xG Technology call. The call will also be simultaneously webcast. Listeners can access the webcast live through the Company's website at http://www.xgtechnology.com/about-xg-technology/investor-information/. For those who cannot participate in the call, an audio replay will be made available on xG's website.

¹NON-GAAP FINANCIAL MEASURES

We disclose non-GAAP financial measures as we believe they provide useful information on actual operating performance. Readers are cautioned that non-GAAP financial measures do not have any standardized meaning prescribed by U.S. GAAP and therefore may not be comparable to similar measures presented by other companies.

Non-GAAP gross margin excludes the impact of purchase price amortization on the step up of assets as a result of the bargain purchase gain and the impact of foreign exchange gains or losses.

Non-GAAP income (loss) from operations excludes the impact of purchase price amortization related to the Vislink acquisition, acquisition-related expenses and restructuring expenses.

We use the above-noted non-GAAP financial measures for planning purposes and to allow us to assess the performance of our business before including the impacts of the items noted above as they affect the comparability of our financial results. These non-GAAP measures are reviewed regularly by management and the Board of Directors as part of the ongoing internal assessment of our operating performance. Adjusted EBITDA is defined as net income (loss) plus purchase price amortization, acquisition-related expense, restructuring expense, depreciation and amortization, foreign exchange gains or losses and interest expense.

Adjusted EBITDA is a metric used by investors and analysts for valuation purposes and we believe that it is an important indicator of our operating performance.

About xG Technology, Inc.

Technology's IMT and Vislink brands are recognized as the global leaders in live video communications and are trusted suppliers to tier-1 customers in broadcast/sports/entertainment, and law enforcement/public safety/defense markets. Their products have been engineered to deliver high levels of performance, reliability, build quality, extended operating ranges and compact form factors. In the broadcast, sports and entertainment sectors, IMT and Vislink provide high-definition communication links to reliably capture, transmit and manage live event footage. In the law enforcement, public safety & defense markets, IMT and Vislink provide secure video communications and mission-critical solutions to local, national and international agencies and organizations. More information can be found at www.imt-solutions.com and www.vislink.com.

Based in Sarasota, Florida, xG Technology has over 80 patents and pending patent applications. xG is a publicly traded company listed on the NASDAQ Capital Market (symbol: XGTI) 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.

FOR MORE INFORMATION

xG Technology:
Daniel Carpini
941-953-9035
daniel.carpini@xgtechnology.com

Investor Relations:
John Marco
CORE IR
516-222-2560
johnm@coreir.com


                                                                                                                             xG TECHNOLOGY, INC. AND SUBSIDIARIES


                                                                                                                             CONDENSED CONSOLIDATED BALANCE SHEETS

                                                                                                                             (IN THOUSANDS EXCEPT PER SHARE DATA)


                                                                                                                                                                                                June 30,             December 31,

                                                                                                                                                                                                      2018                    2017
                                                                                                                                                                                                      ----                    ----

                                                                                                                                                                                               (unaudited)

    ASSETS

    Current assets

        Cash                                                                                                                                                                                                  $2,185                   $2,799

        Accounts receivable, net                                                                                                                                                                               5,357                    8,337

        Inventories, net                                                                                                                                                                                      16,016                   14,753

        Prepaid expenses and other current assets                                                                                                                                                                704                      626
                                                                                                                                                                                                                 ---                      ---

        Total current assets                                                                                                                                                                                  24,262                   26,515

        Property and equipment, net                                                                                                                                                                            2,744                    3,237

        Intangible assets, net                                                                                                                                                                                 5,577                    6,894
                                                                                                                                                                                                               -----                    -----

        Total assets                                                                                                                                                                                         $32,583                  $36,646
                                                                                                                                                                                                             =======                  =======

    LIABILITIES AND STOCKHOLDERS' EQUITY

    Current liabilities

        Accounts payable                                                                                                                                                                                      $8,084                  $10,918

        Accrued expenses                                                                                                                                                                                       2,945                    3,150

        Convertible note payable                                                                                                                                                                               2,000                    2,000

        Convertible promissory notes, net of discount of $508 and $0, respectively                                                                                                                             3,492                        -

        Due to related parties                                                                                                                                                                                   691                      998

        Deferred revenue and customer deposits                                                                                                                                                                 1,642                      634

        Obligation under capital leases                                                                                                                                                                           10                       18

        Derivative liabilities                                                                                                                                                                                 2,533                    2,399
                                                                                                                                                                                                               -----                    -----

        Total current liabilities                                                                                                                                                                             21,397                   20,117

        Long-term obligation under capital leases, net of current portion                                                                                                                                         24                       30
                                                                                                                                                                                                                 ---                      ---

        Total liabilities                                                                                                                                                                                     21,421                   20,147
                                                                                                                                                                                                              ------                   ------

    Commitments and contingencies

    Stockholders' equity

    Preferred stock - $0.00001 par value per share:  10,000,000 shares authorized as of June                                                                                                                       -                       -
         30, 2018 and December 31, 2017; 0 shares issued and outstanding as of June 30, 2018
         and December 31, 2017

    Common stock - $0.00001 par value per share, 100,000,000 shares authorized,                                                                                                                                    -                       -
         16,674,874 and 14,897,392 shares issued and 16,674,872 and 14,897,390 outstanding
         as of June 30, 2018 and December 31, 2017, respectively

        Additional paid in capital                                                                                                                                                                           240,220                  235,819

        Accumulated other comprehensive income                                                                                                                                                                   328                      354

        Treasury stock, at cost - 2 shares at June 30, 2018 and December 31, 2017,                                                                                                                              (22)                    (22)
           respectively

        Accumulated deficit                                                                                                                                                                                (229,364)               (219,652)
                                                                                                                                                                                                            --------                 --------

      Total stockholders' equity                                                                                                                                                                              11,162                   16,499
                                                                                                                                                                                                              ------                   ------

    Total liabilities and stockholders' equity                                                                                                                                                               $32,583                  $36,646
                                                                                                                                                                                                             =======                  =======


                                                                                             The accompanying notes are an integral part of these condensed consolidated financial statements.


                                                                                                    xG TECHNOLOGY, INC. AND SUBSIDIARIES

                                                                                        UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

                                                                                                         COMPREHENSIVE (LOSS) INCOME

                                                                                           (IN THOUSANDS EXCEPT NET (LOSS) INCOME PER SHARE DATA)


                                                                                                                  For the Three Months Ended                          For the Six Months Ended
                                                                                                               --------------------------                       ------------------------

                                                                                                                         June 30,                                       June 30,
                                                                                                                         --------                                       --------

                                                                                                                    2018                                2017                        2018              2017
                                                                                                                    ----                                ----                        ----              ----

    Revenue                                                                                                                  $9,424                                 $14,218                       $19,157      $23,553

    Cost of revenue and operating expenses

        Cost of components and personnel                                                                                      4,487                                   9,695                         9,277       15,266

        Inventory valuation adjustments                                                                                         121                                    (23)                          234           76

        General and administrative expenses                                                                                   6,028                                   6,441                        11,860       12,989

        Research and development expenses                                                                                     2,925                                   2,511                         5,367        4,385

        Impairment charge                                                                                                       168                                       -                          168            -

        Amortization and depreciation                                                                                           818                                   1,143                         1,705        2,132
                                                                                                                                ---                                   -----                         -----        -----

        Total cost of revenue and operating expenses                                                                         14,547                                  19,767                        28,611       34,848
                                                                                                                             ------                                  ------                        ------       ------

        Loss from operations                                                                                                (5,123)                                (5,549)                      (9,454)    (11,295)
                                                                                                                             ------                                  ------                        ------      -------

    Other (expense) income

        Changes in fair value of derivative liabilities                                                                         605                                      27                         1,654        (190)

        Gain on bargain purchase                                                                                                  -                                  3,691                             -      15,530

        Gain on debt and payables extinguishments                                                                                 -                                  1,090                             -       3,990

        Other income (expense)                                                                                                   38                                   (253)                           38        (253)

        Interest expense, net                                                                                               (1,903)                                   (47)                      (1,950)       (531)
                                                                                                                             ------                                     ---                        ------         ----

        Total other (expense) income                                                                                        (1,260)                                  4,508                         (258)      18,546

    Net (loss) income                                                                                                      $(6,383)                               $(1,041)                     $(9,712)      $7,251
                                                                                                                            =======                                 =======                       =======       ======


    Basic (loss) earnings per share                                                                                         $(0.40)                                $(0.09)                      $(0.62)       $0.69
                                                                                                                             ======                                  ======                        ======        =====


    Diluted (loss) earnings per share                                                                                       $(0.40)                                $(0.09)                      $(0.62)       $0.69
                                                                                                                             ======                                  ======                        ======        =====


    Weighted average number of shares outstanding:


    Basic                                                                                                                    16,154                                  11,405                        15,555       10,500
                                                                                                                             ======                                  ======                        ======       ======


    Diluted                                                                                                                  16,154                                  11,405                        15,555       10,500
                                                                                                                             ======                                  ======                        ======       ======


    Comprehensive (loss) income:

    Net (loss) income                                                                                                      $(6,383)                               $(1,041)                     $(9,712)      $7,251

    Unrealized (loss) gain on currency translation adjustment                                                                 (109)                                    365                           328          348
                                                                                                                               ----                                     ---                           ---          ---


    Comprehensive (loss) income                                                                                            $(6,492)                                 $(676)                     $(9,384)      $7,599
                                                                                                                            =======                                   =====                       =======       ======


                                                              The accompanying notes are an integral part of these condensed consolidated financial statements.

Reconciliation of GAAP to Non-GAAP Results

Our financial statements are prepared in accordance with US GAAP on a basis consistent for all periods presented. In addition to results reported in accordance with US GAAP, we use non-GAAP financial measures as supplemental indicators of our operating performance. We disclose non-GAAP measures as we believe that these measures provide better information on actual operating results.

Readers are cautioned that non-GAAP financial measures do not have any standardized meaning prescribed by US GAAP and therefore may not be comparable to similar measures presented by other companies.


                                                                    xG TECHNOLOGY, INC.

                                                        RECONCILIATION OF GAAP to NON-GAAP RESULTS

                                                               QUARTER ENDING JUNE 30, 2018


                                                                                                      Stock                                                    Non

                                                                    GAAP                             Option         One-Time           Discontinued          GAAP

    In thousands of US$                                              Q2                             Expense          Expenses            Operations            Q2
    -------------------                                         ---                              -------            --------          ----------             ---

    Revenue                                                                $9,424                                                                     $(26)        $9,398

                    Gross margin                                            52.4%                                                                                  52.3%


    Cost of revenue and operating expenses

        Cost of components and personnel                                    4,487                                                                                   4,487

        Inventory valuation adjustments                                       121                                                                                     121

        General and administrative expenses                                 6,029                             (613)                                   (880)         4,537

        Research and development expenses                                   2,925                           (1,047)                                   (758)         1,120

        Impairment charge                                                     168                                                                     (168)

        Amortization and depreciation                                         817                                 -                -                  (337)           480
                                                                              ---                               ---              ---                   ----            ---

    Total cost of revenue and operating expenses                           14,547                           (1,660)                                 (2,143)        10,745


    Income (loss) from operations                                         (5,123)                            1,660                                    2,117        (1,347)


    Other income (expense)

        Changes in fair value of derivative liabilities                       605                                                                                     605

        Other expense                                                          38                                                                                      38

        Interest expense                                                  (1,903)                                -            1,858                       -          (45)
                                                                           ------                               ---            -----                     ---           ---

    Total other income (expense)                                          (1,260)                                -            1,858                       -           598


    Net income (loss)                                                    $(6,383)                           $1,660            $1,858                  $2,117         $(749)


    EBITDA                                                               $(3,663)                           $1,660                 -                 $1,780         $(224)
                                                                          =======                            ======               ===                 ======          =====


                                                                   xG TECHNOLOGY, INC.

                                                        RECONCILIATION OF GAAP to NON-GAAP RESULTS

                                                             SIX MONTHS ENDING JUNE 30, 2018


                                                                                                    Stock                                                     Non

                                                                  GAAP                             Option         One-Time           Discontinued           GAAP

    In thousands of US$                                            H1                             Expense          Expenses            Operations             H1
    -------------------                                       ---                              -------            --------          ----------               ---

    Revenue                                                             $19,157                                                                    $(427)         $18,730

                    Gross margin                                          51.6%                                                                                    50.9%


    Cost of revenue and operating expenses

        Cost of components and personnel                                  9,277                                                                      (84)           9,193

        Inventory valuation adjustments                                     234                                                                         -             234

        General and administrative expenses                              11,861                           (1,023)             (63)                (1,663)           9,112

        Research and development expenses                                 5,367                           (1,451)                -                (1,759)           2,157

        Impairment charge                                                   168                                 -                -                  (168)               -

        Amortization and depreciation                                     1,704                                 -                -                  (674)           1,030
                                                                          -----                               ---              ---                   ----            -----

    Total cost of revenue and operating expenses                         28,611                           (2,474)             (63)                (4,348)          21,726


    Income (loss) from operations                                       (9,454)                            2,474                63                   3,921          (2,996)


    Other income (expense)

        Changes in fair value of derivative liabilities                   1,654                                                                                     1,654

        Other expense                                                        38                                                                                        38

        Interest expense                                                (1,950)                                -            1,858                       -            (92)
                                                                         ------                               ---            -----                     ---             ---

    Total other income (expense)                                          (258)                                -            1,858                       -           1,600


    Net income (loss)                                                  $(9,712)                           $2,474            $1,921                  $3,921         $(1,396)


    EBITDA                                                             $(6,058)                           $2,474                63                  $3,247           $(274)
                                                                        =======                            ======               ===                  ======            =====

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SOURCE xG Technology, Inc.