An Open Letter to xG Technology
Dear xG Technology ($XTGI),
Let me get the facts right. You announce that you’ve got a nice order for $300k, and your stock gets a nice rally. Then, you do a 10 to 1 reverse stock split a month ago so you can avoid a delisting by Nasdaq when your stock was under a one dollar. Then, shares lose about 30% in this dangerous death spiral play, but you put out some press and your stock rallies 100% on big volume, then you announce a $2.5m shelf offering back at one dollar, which puts you back in danger of delisting with the exchange. Now, your stock is down 60% today, skewering every shareholder, including yourselves and the management team. So…WTF are you doing?
Your common shares were trading $5.50 on May 4th, and today they are 90 cents. So…WTF are you thinking? I hope you have good internal counsel, because you are gonna have some very angry shareholders after creating this volatility in 2015, with shares now down 82% for the year.
This tells me that you do not intend to be public very long, and whatever deal you did for this shelf offering must have a recovery component to it that allows the buyers to have coverage somewhere other than the stock. And by the way…whomever the CFO is, they should be fired.
Shares are down 68% today, as speculators and anyone who participated in the offering sold stock. I mean, what did you expect to happen? This is totally perplexing, and frankly, if I were a common shareholder, I would be pissed!
What did xG Technology do, Exactly?
xG Technology, a developer of patented wireless communications and spectrum sharing technologies, announced today the pricing of a public offering of (i) 2,550,000 Class A Units, at a price of $1.00 per Class A Unit, each of which consists of one share of its common stock and 0.5 of a Series A Warrant to purchase one share of its common stock at an exercise price of $1.00 per warrant. The company expects to receive approximately $5,000,000 in gross proceeds before underwriting discounts and commissions, and offering expenses payable by the company.
xG Technology develops communications technologies for wireless networks worldwide. 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 various industries, including national defense and rural broadband. The company sells its intellectual property and the equipment directly, as well as through an indirect channel network. xG Technology, Inc. was founded in 2002, and is headquartered in Sarasota, Florida.
Anyhow, if you’re still there, xG Technology, let me just say, I have no clue what you guys are doing tweaking common shareholders the way you are and creating undue volatility. It seems like you have a good product in a growing industry, but again…WTF? I don't understand why you are willing to bankrupt the company and send shares back down to where they came from before you did the reverse 10-1 split. Then again, anyone who knows stock splitting knows that a reverse split is a true sign of desperation, and eventually, the shares go to zero.
Or, the company goes private. And another thing…when media calls to ask questions, it's better not to rebuff them - because the story comes out anyway. This is the reason they created Sarbanes Oxley – to protect common shareholders post-Enron. You can fool some of the people some of the time – but you can't fool all of the people all of the time.
Steve Kanaval is the author of the upcoming Equities.com's Small-Cap Throwdown, a premium newsletter designed to help investors identify the best small-cap stocks to add to your portfolio and trading ideas to profit off them. The first issue pits the hottest beverage small-cap stocks against each other to find a winner. Sign-up here for a free issue today!
DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer