TIDMXGT TIDMXGTU
RNS Number : 5957N
xG Technology Inc.
10 September 2013
September 10, 2013
xG Technology, Inc.
("xG", "xG Technology" or the "Company")
2013 Interim Report
xG Technology, a developer of wireless communications and
spectrum sharing technologies, announces its interim report for the
quarter and half-year ended June 30, 2013. The report, as set out
below, has been prepared in accordance with U.S. GAAP and filed
with the U.S. Securities and Exchange Commission on Form 10-Q.
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 www.first-columbus.com
Broker)
Chris Crawford +44 20 3002 2070
Fusion PR (Media and Analyst www.fusionpr.com
Relations)
David Worthington +1 212 651 4200
ABOUT XG TECHNOLOGY
xG Technology, Inc. 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 140
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)
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 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 incorporation or (I.R.S. Employer Identification 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 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 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 reporting company) Smaller reporting company
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes No
The number of shares of the Registrant's common stock
outstanding as of August 29, 2013 is 11,045,542.
xG TECHNOLOGY, INC.
QUARTERLY REPORT ON FORM 10-Q
For the quarter ended June 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 16
Item 3. Quantitative and Qualitative Disclosures About Market Risk 21
Item 4. Controls and Procedures 21
PART II. OTHER INFORMATION 22
Item 1. Legal Proceedings 22
Item 1A. Risk Factors 22
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 22
Item 3. Defaults Upon Senior Securities 22
Item 4. Mine Safety Disclosures 22
Item 5. Other Information 22
Item 6. Exhibits 23
SIGNATURES 24
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Index to Financial Statements
Unaudited Condensed Balance Sheets as of June 30, 2013 and December 31, 2012 2
Unaudited Condensed Statements of Operations for the three and six months ended June 30, 2013
and 2012 3
Unaudited Condensed Statements of Cash Flows for the six months ended June 30, 2013 and June
30, 2012 4
Notes to Condensed Financial Statements 5
The Company's unaudited condensed financial statements for the
six months ended June 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.
xG TECHNOLOGY, INC.
UNAUDITED CONDENSED BALANCE SHEETS
(IN THOUSANDS EXCEPT PER SHARE DATA)
June 30, 2013 December 31, 2012
--------------- -------------------
ASSETS
Current assets
Cash $ 25 $ 271
Inventory 453 -
Prepaid expenses and other current assets 640 16
----------- ---------------
Total current assets 1,118 287
Property and equipment, net 1,560 1,725
Intangible assets, net 18,622 17,608
----------- ---------------
Total assets $ 21,300 $ 19,620
=========== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable $ 2,165 $ 655
Accrued expenses 1,170 754
Accrued bonuses 2,633 2,633
Accrued interest and fees 79 -
Accrued interest and fees to related parties 946 1,169
Due to related party 2,316 1,098
Convertible bridge loan payable 1,577 -
Convertible bridge loan payable to related party 6,471 -
Convertible notes payable to related party - 17,198
----------- ---------------
Total current liabilities 17,357 23,507
----------- ---------------
Convertible notes payable to related party 2,000 2,000
----------- ---------------
Total liabilities 19,357 25,507
----------- ---------------
Commitments
Stockholders' equity (deficit)
Series A Convertible Preferred Stock - $0.01 par value per share:
25,000,000 shares authorized, none issued or outstanding as of June 30,
2013 and December
31, 2012 - -
Common stock - $0.00001 par value, 300,000,000 and 250,000,000 shares
authorized at June 30,
2013 and December 31, 2012, respectively; 7,321,836 and 6,041,946
shares issued at June 30,
2013 and December 31, 2012, respectively -* -*
Additional paid in capital 133,828 118,247
Accumulated deficit (131,863) (124,112)
Treasury stock, at cost - 2,284 shares at June 30, 2013 and December
31, 2012, respectively (22) (22)
----------- ---------------
Total stockholders' equity (deficit) 1,943 (5,887)
----------- ---------------
Total liabilities and stockholders' equity (deficit) $ 21,300 $ 19,620
=========== ===============
* Less than $1
The accompanying notes are an integral part of these
statements.
xG TECHNOLOGY, INC.
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT NET LOSS PER SHARE DATA)
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2013 2012 2013 2012
--------------- ----------- -------------- ----------
Revenue $ - $ - $ - $ -
Cost of revenue and operating expenses
General and administrative expenses 1,158 1,395 2,508 2,642
Development 1,352 838 2,999 1,899
Stock based compensation 201 134 336 108
Amortization and depreciation 435 517 870 1,027
----------- ---------- ---------- ---------
Total cost of revenue and operating
expenses 3,146 2,884 6,713 5,676
----------- ---------- ---------- ---------
Loss from operations (3,146) (2,884) (6,713) (5,676)
----------- ---------- ---------- ---------
Other (expense)
Interest expense, net (424) (107) (1,038) (194)
----------- ---------- ---------- ---------
Loss before income tax provision (3,570) (2,991) (7,751) (5,870)
Income tax provision - - - -
----------- ---------- ---------- ---------
Net loss $ (3,570) $ (2,991) $ (7,751) $ (5,870)
=========== ========== ========== =========
Basic and diluted net loss per share $ (0.49) $ (0.50) $ (1.15) $ (0.97)
Weighted average number of shares
outstanding basic and diluted 7,319 6,033 6,723 6,025
The accompanying notes are an integral part of these
statements.
xG TECHNOLOGY, INC.
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Six Months Ended June 30,
-----------------------------
2013 2012
--------------- -----------
Cash flows from operating activities
Net loss $ (7,751) $ (5,870)
Adjustments to reconcile net loss to net cash used in operating activities
Stock based compensation 336 108
Share-based consulting and other services 34 143
Depreciation and amortization 870 1,027
Accretion of financing instruments 119 -
Amounts paid by affiliate on behalf of xG - 1,339
Changes in assets and liabilities
Inventory (453) -
Other current assets (362) 13
Accounts payable 1,510 6
Accrued expenses 168 (21)
Accrued interest and fees ($79 to related party) 1,110 397
Due to related party 1,218 -
----------- ----------
Net cash used in operating activities (3,201) (2,858)
----------- ----------
Cash flows from investing activities
Capital expenditures for property and equipment (12) (214)
Capitalization of intangible assets (1,707) (2,296)
----------- ----------
Net cash used in investing activities (1,719) (2,510)
----------- ----------
Cash flows from financing activities
Proceeds from convertible notes payable to related party 450 5,115
Proceeds from convertible bridge loan payable ($2,747 to related party) 4,224 -
Proceeds from exercise of options - 2
Proceeds from issuance of common stock - 400
----------- ----------
Net cash provided by financing activities 4,674 5,517
Net (decrease) increase in cash (246) 149
----------- ----------
Cash, beginning of period 271 133
----------- ----------
Cash, end of period $ 25 $ 282
=========== ==========
Supplemental cash flow disclosures of investing and financing activities
Conversion of notes payable $ 15,000 $ -
Principal, accrual interest and fees refinanced under the bridge loan 4,041 -
Debt discount recorded on bridge loan 336 -
Stock issued as payment for interest on convertible notes 90 90
The accompanying notes are an integral part of these
statements.
xG TECHNOLOGY, INC.
NOTES TO THE FINANCIAL STATEMENTS
AS OF JUNE 30, 2013 AND DECEMBER 31, 2012 AND FOR THE
THREE MONTHS AND SIX MONTHS ENDED JUNE 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. Our
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 June 30, 2013 and the
results of its operations and cash flows for the three and six
months ended June 30, 2013 and 2012. Such adjustments are of a
normal recurring nature. The results of operations for the three
and six months ended June 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.
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.
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, direct labor and manufacturing
overhead costs. 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 six months ended
June 30, 2013, no impairment losses were identified or
recorded.
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
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 June 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.
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.
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
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".
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 June 30, 2013, the Company maintained its cash in two
financial institutions. The Company's cash balances at June 30,
2013 and December 31, 2012 were fully insured. The Company has not
experienced any losses in its bank accounts through June 30,
2013.
Intangible Assets
Capitalized software costs incurred in the research, design 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 and amortized on a straight-line basis over five years,
beginning when the products are offered for sale or the
enhancements are integrated into the products.
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 technologies 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.
Our 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. We and our 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. The Company is currently pursuing obtaining FCC
authorization on our products. Our 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.
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 June 30,
2013, the Company had negative working capital of approximately
$16,240,000 and an accumulated deficit of approximately
$131,863,000. 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 August 29, 2013, the Company has a total backlog of
$35,400,000. The ability to recognize revenue and ultimately cash
receipts, on the existing backlog is contingent upon, but not
limited to, receiving FCC equipment authorization and acceptable
performance of the delivered equipment and services. The Company
currently estimates that it will begin to fulfill orders associated
with its backlog in the second half 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 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
Useful Life June 30, 2013 December 31, 2012
------------ --------------- -------------------
Cost:
Furniture and equipment 3 - 7 years $ 1,982,000 $ 1,970,000
Hardware 4 - 5 years 2,486,000 2,486,000
4,468,000 4,456,000
----------- ---------------
Accumulated depreciation: (2,908,000) (2,731,000)
----------- ---------------
Property and equipment, net $ 1,560,000 $ 1,725,000
=========== ===============
Depreciation and amortization expense amounted to approximately
$177,000 and $163,000 for the six months ended June 30, 2013 and
2012, respectively.
NOTE 4 - 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 1,698,000 - 8,000 - 1,707,000
Impairments - - - - -
Amortization - (383,000) - (310,000) (693,000)
------------ ----------- ---------- ---------- ----------
Balance as of June 30, 2013 $ 13,924,000 $ (1,643,000) $12,280,000 $(5,939,000) $18,622,000
------------ ----------- ---------- ---------- ----------
The total cost basis of intangible assets at June 30, 2013 was
$26.2 million which consists of $15.9 million of costs that are
subject to amortization at June 30, 2013 and $10.3 million of costs
that are not subject to amortization at June 30, 2013.
Software Development Costs:
At June 30, 2013 the Company has capitalized a total of $13.9
million of software development costs. Included in the capitalized
costs is $3.9 million of 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. Also included in the
capitalized costs is $10.0 million of development costs related to
the xAP, xMod and xMSC which will allow the Company to offer data
and interference mitigation solutions that are not yet available
for sale. Company recognized amortization of software development
costs available for sale of $0.4 million for both the six months
ended June 30, 2013 and 2012. These costs are being amortized over
a five year period.
Patents & Licenses:
At June 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 $0.3 million of
amortization expense related to patents and licenses for the six
months ended June 30, 2013 and 2012.
Estimated amortization expense for the twelve-month periods
ended June 30 as follows:
2014 $1,400,000
2015 1,400,000
2016 1,400,000
2017 739,000
2018 and thereafter 3,406,000
---------
$8,345,000
NOTE 5 - 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.
NOTE 5 - CONVERTIBLE NOTES PAYABLE (continued)
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.
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 six months ended June 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.
NOTE 5 - CONVERTIBLE NOTES PAYABLE (continued)
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 19, 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).
For every $350 of principal amount of Bridge Loan advanced by a
loan note holder, the loan note holder will be issued a warrant for
one share with an exercise price of $0.35 per share. The warrants
are exercisable for a period of five years from issue. The Company
recorded a debt discount of approximately $336,000, against
additional paid in capital to bifurcate the value ascribed to the
warrant issued in combination with the Bridge Loan. See Note 9
-Equity. The debt discount will be accreted over the debt term of
one year and resulted in accretion to interest expense of $119,000
during the six months ended June 30, 2013.
From January 16, 2013 through June 30, 2013, the Company
received additional principal advances of $4,224,000 under the
Bridge Loan for a total principal balance at June 30, 2013 of
$8,265,000. As of June 30, 2013, the outstanding principal loan
balance of $8,048,000, net of the $217,000 debt discount, is
reflected in the balance sheet as $1,577,000 convertible bridge
loan payable and $6,471,000 convertible bridge loan payable to
related party which is net of the debt discount).
The Company agreed to pay an origination fee of 5% to note
holders five days after closing as defined in the Bridge Loan. The
Company deferred the loan origination fee and will amortize it to
interest expense on a straight line basis over the one year term of
the debt agreement. The origination fee of $413,000 and the
interest accrual of $569,000 are recorded under accrued interest
and fees as of June 30, 2013 and are reflected in the balance sheet
as $79,000 accrued interest and fees and $904,000 accrued interest
and fees to related parties. During the six months ended June 30,
2013, the Company amortized $152,000 of the loan origination fee
included in other current assets (See Note 10 - Subsequent
Events).
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
June 30, 2013, $2 million of principal balance was outstanding
under the $2 million Convertible Note. The accrued interest at June
30, 2013 was $42,000 and is reflected in the balance sheet as
accrued interest and fees to related parties. By way of payment of
interest that had accrued and was due May 1, 2013, we issued to
Treco 6,923 new shares on May 7, 2013.
NOTE 6 - COMMITMENTS
The Company's office rental, deployment sites and warehouse
facilities expenses aggregated approximately $134,000 and $122,000
of which approximately $55,000 and $80,000 was capitalized during
the six months ended June 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 June 30,
-----------------------------
2014 $309,000
2015 307,000
2016 280,000
-------
$896,000
=======
NOTE 7 - RELATED PARTY TRANSACTIONS
MBTH
As of June 30, 2013 MBTH owned approximately 63% of the
Company's outstanding shares, which represents a controlling
interest. The Company has entered into convertible notes with MBTH
refer to Note 5 - 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.
From July 1, 2012 through the period ended June 30, 2013, MBTH paid
additional liabilities on the behalf of the Company which are
reflected in the due to related party balance in current
liabilities on the balance sheet of $2,316,000 at June 30, 2013
(inclusive of the $1,218,000 liabilities assumed during the six
months ended June 30, 2013).
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 $480,000 for the six months ended June
30, 2013 and 2012. MBC is beneficially controlled and operated by
Rick Mooers and Roger Branton.
Treco
See Note 5 - Convertible Notes Payable.
NOTE 8 - 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 June 30, 2013, the Company did not
have any legal actions pending.
NOTE 9 - EQUITY
Warrants
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 Options/ Weighted Average
Warrants (in Shares) Exercise Price
---------------------- ------------------
Warrants Outstanding January 1, 2013 594,285 $ 25.90
Granted 209,346 6.08
Exercised - -
Forfeited or Expired - -
--------------------- --- -------------
Warrants Outstanding, June 30, 2013 803,631 11.56
===================== === =============
Exercisable, June 30, 2013 803,631 $ 11.56
===================== === =============
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 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 $336,000 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:
Six Months Ended
June 30, 2013
------------------
Exercise price $ 0.35
Volatility 104.4%
Risk-free interest rate 0.68%
Expected dividend yield 0%
Expected term (years) 5.00
NOTE 9 - EQUITY (continued)
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.
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
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 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.
NOTE 10 - SUBSEQUENT EVENTS
Bridge Loan
The Company 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 19, 2013 to finance operating activities
of the Company for a total of $6,768,000 with MBTH and $2,267,300
with the other investors. Additionally, the Company accrued
additional interest and fees of $475,000 from July 1, 2013 through
July 19, 2013.
On July 19, 2013, the Company exercised its 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 50% 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 $1,456,000.
On August 7, 2013, the Company repaid $125,000 to a non-related
investor for investment into 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 their intent to convert the principal
balance and accrued fees.
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 per share 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 August 29, 2013.
Due torelated party
From July 1, 2013 through August 29, 2013, MBTH paid additional
liabilities on the behalf of the Company of approximately $250,000,
and the Company repaid MBTH $370,000 for liabilities previously
paid by MBTH on behalf of xG for a net decrease in the related
party liability of $120,000. On August 22, 2013, the Company
refinanced $1,013,000 of liabilities previously paid by MBTH on
behalf of the Company under the Bridge Loan and converted the
balance into common shares. The due to related party balance was
$1,183,000 as of August 29, 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 offer.
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.
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.
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.
In the second half of 2013, the Company intends to 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 commercial off the shelf "COTS"
device.
Results of Operations
Comparison for the three and six months ended June 30, 2013 and
2012
Revenues
The Company did not record any revenue for the comparative
periods shown.
Cost of Revenue and Operating Expenses
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 six months ended June 30, 2013 the Company incurred
aggregate expense of $1.2 million and $2.5 million, respectively,
compared to $1.4 million and $2.6 million, respectively, for the
three and six months ended June 30, 2012, a decrease of $0.2
million or 14% and $0.1 million or 4%, respectively. The majority
of this decrease is related to a decrease in consulting fees of
$0.2 million.
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 75%, from $0.8 million in the three months ended June 30, 2012
to $1.4 million in the three months ended June 30, 2013.
Development expenses increased $1.1 million or 58%, from $1.9
million in the six months ended June 30, 2012 to $3.0 million in
the six months ended June 30, 2013. The increase is due to
additional costs related to producing and testing equipment as the
Company grows closer to launching its products.
Stock Based Compensation
Stock based compensation increased $0.07 million, from $0.13
million in the three months ended June 30, 2012 to $0.20 million in
the three months ended June 30, 2013. Stock based compensation
increased $0.23 million, from $0.11 million in the six months ended
June 30, 2012 to $0.34 million in the six months ended June 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 20%, from $0.5 million in the three months ended June 30, 2012
to $0.4 million in the three months ended June 30, 2013, and $0.1
million, from $1.0 million in the six months ended June 30, 2012 to
$0.9 million in the six months ended June 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 2012.
Other Expense
Other expense reflects interest expense (net of interest income)
as discussed below:
Total interest expense for the three months ended June 30, 2013
was $0.4 million compared to $0.1 million for the three months
ended June 30, 2012, an increase of $0.3 million or 300%. Total
interest expense for the six months ended June 30, 2013 was $1.0
million compared to $0.2 million for the six months ended June 30,
2012, an increase of $0.8 million. The increase is attributable to
the higher interest and fees incurred on the Bridge Loan for 2013
compared to the May 2011 Convertible note in 2012. Also the fee is
being amortized over a shorter period of 1 year based on the
contractual obligation of the Bridge Loan.
Net Loss
For the three months and six months ended June 30, 2013, the
Company had a net loss of $3.6 million and $7.8 million,
respectively, as compared to a net loss of $3.0 million and $5.9
million for the three and six months ended June 30, 2012, or an
increase of $0.6 million and $1.9 million, respectively. The
increase in net loss is due mainly to the increase in development
expenses and interest expenses discussed above.
Liquidity and Capital Resources
Our operations primarily have been funded through cash generated
by financing.
During the first half of 2012 and 2013, the Company relied upon
additional investment through proceeds from the Bridge Loan and
convertible notes payable. The Company had drawn down $4.2 million
under the Bridge Loan and $0.5 million under the convertible notes
payable to related party during the first half of 2013 compared to
$5.1 million under the convertible notes payable to related party
during the first half of 2012.
In March 2012, the Company issued 11,428 of our shares at a
price of $35.00 per share for net proceeds of $0.4 million. We used
the proceeds for working capital purposes.
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 offer.
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.
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 their intent to convert the principal
balance and accrued fees.
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 per share 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 August 29, 2013.
Cash Flows and Working Capital
To date, we have financed our operations primarily through the
sale of equity and convertible debt. As of June 30, 2013, the
Company has negative working capital of approximately $16.2 million
and $25,000 of cash and cash equivalents.
As a means for financing our operations, on January 16, 2013 we
entered into a convertible Bridge Loan with MBTH and other
investors for the Company to borrow principal advances in the
amount of up to $10 million. As of June 30, 2013, $8.0 million of
principal balance was outstanding under the Bridge Loan. In August
2013, the Company converted $11.4 million of principal, interest,
and fees into 2,187,529 new shares. In August 2013, the Company
repaid $0.1 million, the remaining Bridge Loan balance.
In July 2013 the Company closed its initial public offering for
net proceeds to the Company of $6.8 million. In August 2013, the
Company closed its over-allotment option for net proceeds to the
Company of $1.0 million.
We have incurred net losses of $3.6 million and $3.0 million in
the three months ended June 30, 2013 and 2012, respectively.
Additionally, we have incurred negative operating cash flows
including cash used in operations of $3.2 million and $2.9 million
in the six months ended June 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 in order to
obtain additional capital to allow the Company to deliver its
products and fulfill its current backlog.
The following table sets forth the major components of our
statements of cash flows data for the periods presented.
For the Six Month Period Ended
(In Thousands)
June 30, June 30,
2013 2012
---------- ----------
Cash flows used in Operations $ (3,201) $ (2,858)
Investing Activities $ (1,719) $ (2,510)
Financing Activities $ 4,674 $ 5,517
Cash at end of period $ 25 $ 282
Operating Activities
Net cash used in operating activities for the six months ended
June 30, 2013 totaled $3.2 million as compared to $2.9 million for
the six months ended June 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 six months ended
June 30, 2013 was $1.7 million as compared to $2.5 million for the
six months ended June 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 six months
ended June 30, 2013 was $4.7 million as compared to $5.5 million
for the six months ended June 30, 2012, which primarily consisted
of proceeds from further advances under convertible promissory
notes issued by the Company. Proceeds from convertible promissory
notes issued to MBTH totaled $0.5 million during the first half of
2013. Also MBTH converted their promissory note of $15 million and
issued additional proceeds of $4.2 million under the Bridge Loan
during the first half of 2013.
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:
an obligation under a guarantee contract, although we do have obligations under certain sales
arrangements including purchase obligations to vendors;
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;
any obligation, including a contingent obligation, under a contract that would be accounted
for as a derivative instrument,; or
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.
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 June 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 June 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 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. We are in the
process of hiring additional personnel with technical accounting
expertise to further support our current accounting personnel and
intend to have such personnel in place prior to the end our current
quarter.
Management believes that the hiring of additional personnel who
have 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. Additional personnel will also
provide 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 June 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.
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 August 29, 2013, the Company does 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.
On May 1, 2013, the Company issued 1,156 new shares to two
employees as part remuneration for services. The issuances of the
securities described above were deemed to be exempt from
registration under the Securities Act in reliance on Section
4(a)(2) of the Securities Act or Rule 701 promulgated under Section
3(b) of the Securities Act. The recipients of securities in some
but not all such transactions represented their intention to
acquire the securities for investment only and not with a view to
or for sale in connection with any distribution thereof and
appropriate legends were affixed to the stock certificates and
option agreements issued in such transactions. All recipients had
adequate access, through their relationships with us, to
information about us.
On May 1, 2013, the Company issued 6,923 new shares for payment
of interest on $2 million promissory note to Treco at $13.00 per
each new share. The issuance was 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.
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 their intent to convert the principal
balance and accrued fees.
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. 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 August 29, 2013.
The 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.
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.
Item 6. Exhibits
Exhibit
Number Description
--------- -------------------------------------------------------------------------------------------
3.1* Articles of Incorporation
3.2 Amended and Restated By-laws
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.
* Furnished by Amendment. 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.
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 TECHNOLGY, Inc.
Date: August 30, 2013 By: /s/ John C. Coleman
----------------------------------------------------------
John C. Coleman
Chief Executive Officer
(Duly Authorized Officer and Principal Executive Officer)
Date: August 30, 2013 By: /s/ Roger G. Branton
----------------------------------------------------------
Roger G. Branton
Chief Financial Officer
(Duly Authorized Officer and Principal Financial Officer)
24
EXHIBIT INDEX
Exhibit
Number Description
--------- -------------------------------------------------------------------------------------------
3.1* Articles of Incorporation
3.2 Amended and Restated By-laws
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.
* Furnished by Amendment. 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.
Exhibit 3.2
AMENDED AND RESTATED
BY-LAWS
OF
xG TECHNOLGY, INC.
(a Delaware corporation)
ARTICLE I
Stockholders
Section 1.1. Annual Meetings. An annual meeting of stockholders
shall be held for the election of directors at such date, time, and
place, either within or without the State of Delaware, as may be
designated by resolution of the Board of Directors from time to
time. Any other proper business may be transacted at the annual
meeting.
Section 1.2. Special Meetings. Special meetings of stockholders
for any purpose or purposes may be called at any time by the Board
of Directors, or by a committee of the Board of Directors that has
been duly designated by the Board of Directors and whose powers and
authority, as expressly provided in a resolution of the Board of
Directors, include the power to call such meetings, but such
special meetings may not be called by any other person or
persons.
Section 1.3. Notice of Meetings. Whenever stockholders are
required or permitted to take any action at a meeting, a written
notice of the meeting shall be given that shall state the place,
date and hour of the meeting and in the case of a special meeting,
the purpose or purposes for which the meeting is called. Unless
otherwise provided by law, the certificate of incorporation, or
these by-laws, the written notice of any meeting shall be given not
less than ten nor more than sixty days before the date of the
meeting to each stockholder entitled to vote at such meeting. If
mailed, such notice shall be deemed to be given when deposited In
the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the
corporation.
Section 1.4. Adjournments. Any meeting of stockholders, annual
or special, may adjourn from time to time to reconvene at the same
or some other place, and notice need not be given of any such
adjourned meeting if the time and place thereof are announced at
the meeting at which the adjournment is taken. At the adjourned
meeting the corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for
more than thirty days, or if after the adjournment a new record
date is fixed for the adjourned meeting, notice of the adjourned
meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 1.5. Quorum. Except as otherwise provided by law, the
certificate of incorporation or these by-laws, at each meeting of
stockholders the presence in person or by proxy of the holders of
shares of stock having one-third of the votes which could be cast
by the holders of all outstanding shares of stock entitled to vote
at the meeting shall be necessary and sufficient to constitute a
quorum. In the absence of a quorum, the stockholders so present
may, by majority vote, adjourn the meeting from time to time in the
manner provided in Section 1.4 of these by-laws until a quorum
shall attend. Shares of its own stock belonging to the corporation
or to another corporation, if a majority of the shares entitled to
vote in the election of directors of such other corporation is
held, directly or indirectly, by the corporation, shall neither be
entitled to vote nor be counted for quorum purposes; provided,
however, that the foregoing shall not limit the right of the
corporation to vote stock, including but not limited to its own
stock, held by it in a fiduciary capacity.
Section 1.6. Organization. Meetings of stockholders shall be
presided over by the Chairman of the Board, if any, or in his
absence by the Vice Chairman of the Board, if any, or in his
absence by the President, or in his absence by a Vice President, or
in the absence of the foregoing persons by a chairman designated by
the Board of Directors, or in the absence of such designation by a
chairman chosen at the meeting, The Secretary shall act as
secretary of the meeting, but in his absence the chairman of the
meeting may appoint any person to act as secretary of the meeting.
The chairman of the meeting shall announce at the meeting of
stockholders the date and time of the opening and the closing of
the polls for each matter upon which the stockholders will
vote.
Section 1.7. Voting; Proxies. Except as otherwise provided by
the certificate of incorporation, each stockholder entitled to vote
at any meeting of stockholders shall be entitled to one vote for
each share of stock held by him which has voting power upon the
matter in question. Each stockholder entitled to vote at a meeting
of stockholders or to express consent or dissent to corporate
action in writing without a meeting may authorize another person or
persons to act for him by proxy, but no such proxy shall be voted
or acted upon after three years from its date, unless the proxy
provides for a longer period. A proxy shall be irrevocable if it
states that it is irrevocable and if, and only as long as, it is
coupled with an interest sufficient in law to support an
irrevocable power. A stockholder may revoke any proxy which is not
irrevocable by attending the meeting and voting in person or by
filing an instrument in writing revoking the proxy or by delivering
a proxy in accordance with applicable law bearing a later date to
the Secretary of the corporation. Voting at meetings of
stockholders need not be by written ballot and, unless otherwise
required by law, need not be conducted by inspectors of election
unless so determined by the holders of shares of stock having a
majority of the votes which could be cast by the holders of all
outstanding shares of stock entitled to vote thereon which are
present in person or by proxy at such meeting. At all meetings of
stockholders for the election of directors a plurality of the votes
cast shall be sufficient to elect. All other elections and
questions shall, unless otherwise provided by law, the certificate
of incorporation or these by-laws, be decided by the vote of the
holders of shares of stock having a majority of the votes which
could be cast by the holders of all shares of stock outstanding and
entitled to vote thereon.
Section 1.8. Fixing Date for Determination of Stockholders of
Record. In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to
corporate action in writing without a meeting, or entitled to
receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix a record date,
which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of
Directors and which record date: (1) in the case of determination
of stockholders entitled to vote at any meeting of stockholders or
adjournment thereof, shall, unless otherwise required by law not be
more than sixty nor less than ten days before the date of such
meeting; (2) in the case of determination of stockholders entitled
to express consent to corporate action in writing without a
meeting, shall not be more than ten days from the date upon which
the resolution fixing the record date is adopted by the Board of
Directors; and (3) in the case of any other action, shall not be
more than sixty days prior to such other action. If no record date
is fixed: (1) the record date for determining stockholders entitled
to notice of or to vote at a meeting of stockholders shall be at
the close of business on the day next preceding the day on which
notice is given, or, if notice is waived, at the close of business
on the day next preceding the day an which the meeting is held; (2)
the record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting when no
prior action of the Board of Directors is required by law, shall be
the first date on which a signed written consent setting forth the
action taken or proposed to be taken is delivered to the
corporation in accordance with applicable law, or, if prior action
by the Board of Directors is required by law, shall be at the close
of business on the day on which the Board of Directors adopts the
resolution taking such prior action; and (3) the record date for
determining stockholder for any other purpose shall be at the close
of business on the day on which the Board of Directors adopts the
resolution relating thereto. A determination of stockholders of
record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
Section 1.9. List of Stockholders Entitled to Vote. The
Secretary shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of
shares registered in the name of each stockholder. Such list shall
be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall
be specified in the notice of the meeting, or if not so specified,
at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during
the whole time thereof and may be inspected by any stockholder who
is present. Upon the willful neglect or refusal of the directors to
produce such a list at any meeting for the election of directors,
they shall be ineligible for election to any office at such
meeting. The stock ledger shall be the only evidence as to who are
the stockholders entitled to examine the stock ledger, the list of
stockholders or the books of the corporation, or to vote in person
or by proxy at any meeting of stockholders.
Section 1.10. Action By Consent of Stockholders. Unless
otherwise restricted by the certificate of incorporation, any
action required or permitted to be taken at any annual or special
meeting of the stockholders may be taken without a meeting, without
prior notice and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon
were present and voted and shall be delivered (by hand or by
certified or registered mail, return receipt requested) to the
corporation by delivery to its registered office in the State of
Delaware, its principal place of business, or an officer or agent
of the corporation having custody of the book in which proceedings
of minutes of stockholders are recorded. Prompt notice of the
taking of the corporate action without a meeting by less than
unanimous written consent shall be given to those stockholders who
have not consented in writing.
Section 1.11. Conduct of Meetings. The Board of Directors of the
corporation may adopt by resolution such rules and regulations for
the conduct of the meeting of stockholders as it shall deem
appropriate. Except to the extent inconsistent with such rules and
regulations as adopted by the Board of Directors, the chairman of
any meeting of stockholders shall have the right and authority to
prescribe such rules, regulations, and procedures and to do all
such acts as, in the judgment of such chairman, are appropriate for
the proper conduct of the meeting. Such rules, regulations or
procedures, whether adopted by the Board of Directors or prescribed
by the chairman of the meeting, may include, without limitation,
the following: (i) the establishment of an agenda or order of
business for the meeting; (ii) rules and procedures for maintaining
order at the meeting and the safety of those present; (iii)
limitations on attendance at or participation in the meeting to
stockholders of record of the corporation, their duly authorized
and constituted proxies or such other persons as the chairman of
the meeting shall determine; (iv) restrictions on entry to the
meeting after the time fixed for the commencement thereof, and (v)
limitations on the time allowed to questions or comments by
participants. Unless and to the extent determined by the Board of
Directors or the chairman of the meeting, meetings of stockholders
shall not be required to be held in accordance with the rules of
parliamentary procedure.
ARTICLE II
Board of Directors
Section 2.1. Number; Qualifications. The Board of Directors
shall consist of one or more members, the number thereof to be
determined from time to time by resolution of the Board of
Directors. Directors need not be stockholders.
Section 2.2. Election; Resignation; Removal; Vacancies. At the
first annual meeting of stockholders and at each annual meeting
thereafter, the stockholders shall elect directors each of whom
shall hold office for a term of one year or until his successor is
elected and qualified. Any director may resign at any time upon
written notice to the corporation. Any newly created directorship
or any vacancy occurring in the Board of Directors for any cause
may be filled by a majority of the remaining members of the Board
of Directors, although such majority is less than a quorum, or by a
plurality of the votes cast at a meeting of stockholders, and each
director so elected shall hold office until the expiration of the
term of office of the director whom he has replaced or until his
successor is elected and qualified.
Section 2.3. Regular Meetings. Regular meetings of the Board of
Directors may be held at such places within or without the State of
Delaware and at such times as the Board of Directors may from time
to time determine, and if so determined notices thereof need not be
given.
Section 2.4. Special Meetings. Special meetings of the Board of
Directors may be held at any time or place within or without the
State of Delaware whenever called by the President, any Vice
President, the Secretary, or by any member of the Board of
Directors. Notice of a special meeting of the Board of Directors
shall be given by the person or persons calling the meeting at
least twenty four hours before the special meeting.
Section 2.5. Telephonic Meetings Permitted. Members of the Board
of Directors, or any committee designated by the Board of
Directors, may participate in a meeting thereof by means of
conference telephone or similar communications equipment by means
of which all persons participating in the meeting can hear each
other, and participation in a meeting pursuant to this by-law shall
constitute presence in person at such meeting.
Section 2.6. Quorum; Vote Required for Action. At all meetings
of the Board of Directors a majority of the whole Board of
Directors shall constitute a quorum for the transaction of
business. Except in cases in which the certificate of incorporation
or these by-laws otherwise provide, the vote of a majority of the
directors present at a meeting at which a quorum is present shall
be the act of the Board of Directors.
Section 2.7. Organization. Meetings of the Board of Directors
shall be presided over by the Chairman of the Board, if any, or in
his absence by the Vice Chairman of the Board, if any, or in his
absence by the President, or in their absence by a chairman chosen
at the meeting. The Secretary shall act as secretary of the
meeting, but in his absence the chairman of the meeting may appoint
any person to act as secretary of the meeting.
Section 2.8. Informal Action by Directors. Unless otherwise
restricted by the certificate of incorporation or these by-laws,
any action required or permitted to be taken at any meeting of the
Board of Directors or of any committee thereof, may be taken
without a meeting if all members of the Board of Directors or such
committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of
the Board of Directors or such committee.
ARTICLE III
Committees
Section 3.1. Committees. The Board of Directors may, by
resolution passed by a majority of the whole Board of Directors,
designate one or more committees, each committee to consist of one
or more of the directors of the corporation. The Board of Directors
may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of a
member of the committee, the member or members thereof present at
any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in place of any such
absent or disqualified member. Any such committee, to the extent
permitted by law and to the extent provided in the resolution of
the Board of Directors, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the
business and affairs of the corporation, and may authorize the seal
of the corporation to be affixed to all papers which may require
it.
Section 3.2. Committee Rules. Unless the Board of Directors
otherwise provides, each committee designated by the Board of
Directors may make, alter and repeal rules for the conduct of its
business. In the absence of such rules each committee shall conduct
its business in the same manner as the Board of Directors conducts
its business pursuant to Article II of these by-laws.
ARTICLE IV
Officers
Section 4.1. Executive Officers; Election; Qualifications; Term
of Office: Resignation; Removal; Vacancies. The Board of Directors
shall elect a President and Secretary, and it may, if it so
determines, choose a Chairman of the Board and a Vice Chairman of
the Board from among its members. The Board of Directors may also
choose a Chief Executive Officer, Chief Financial Officer, one or
more Vice Presidents, one or more Assistant Secretaries, Treasurer,
one or more Assistant Treasurers, or such other officers as the
Board shall determine. Each such officer shall hold office until
the first meeting of the Board of Directors after the annual
meeting of stockholders next succeeding his election, and until his
successor is elected and qualified or until his earlier resignation
or removal. Any officer may resign at any time upon written notice
to the corporation. The Board of Directors may remove any officer
with or without cause at any time, but such removal shall be
without prejudice to the contractual rights of such officer, if
any, with the corporation. Any number of offices may be held by the
same person. Any vacancy occurring in any office of the corporation
by death, resignation, removal, or otherwise may be filled for the
unexpired portion of the term by the Board of Directors at any
regular or special meeting.
Section 4.2. Powers and Duties of Executive Officers. The
officers of the corporation shall have such powers and duties in
the management of the corporation as may be prescribed in a
resolution by the Board of Directors and, to the extent not so
provided, as generally pertain to their respective offices, subject
to the control of the Board of Directors. The Board of Directors
may require any officer, agent, or employee to give security for
the faithful performance of his duties.
ARTICLE V
Stock
Section 5.1. Certificates. Every holder of stock shall be
entitled to have a certificate signed by or in the name of the
corporation by the Chairman or Vice Chairman of the Board of
Directors, if any, or the President or a Vice President, and by the
Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary, of the corporation certifying the number of
shares owned by him in the corporation. Any of or all the
signatures on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent, or registrar before such
certificate is issued, it may be issued by the corporation with the
same effect as if he were such officer, transfer agent, or
registrar at the date of issue.
Section 5.2. Lost, Stolen or Destroyed Stock Certificates;
Issuance of New Certificates. The corporation may issue a new
certificate of stock in the place of any certificate theretofore
issued by it, alleged to have been lost, stolen or destroyed, and
the corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the
corporation a bond sufficient to indemnify it against any claim
that may be made against it on account of the alleged loss, theft
or destruction of any such certificate or the issuance of such new
certificate.
ARTICLE VI
Indemnification
Section 6.1. Right to Indemnification. Except to the extent that
the General Corporation Law of Delaware prohibits the elimination
or limitation of liability of directors for breaches of fiduciary
duty, no director of the corporation shall be personally liable to
the corporation or its stockholders for monetary damages for any
breach of fiduciary duty as a director, notwithstanding any
provision of law imposing such liability. No amendment to or repeal
of this provision shall apply to or have any effect on the
liability or alleged liability of any director of the corporation
for or with respect to any acts or omissions of such director
occurring prior to such amendment. The corporation shall indemnify
and hold harmless, to the fullest extent permitted by applicable
law as it presently exists or may hereafter be amended, any person
who was or is made or is threatened to be made a party or is
otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (a "proceeding")
by reason of the fact that he, or a person for whom he is the legal
representative, is or was a director or officer of the corporation
or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust, enterprise or nonprofit entity,
including service with respect to employee benefit plans, against
all liability and loss suffered and expenses (including attorneys'
fees) reasonably incurred by such person. The corporation shall be
required to indemnify a person in connection with a proceeding (or
part thereof) initiated by such person only if the proceeding (or
part thereof) was authorized by the Board of Directors of the
corporation.
Section 6.2. Actions, Suits and Proceedings Other than by or in
the Right of the Corporation. The corporation shall indemnify each
person who was or is a party or is threatened to be made a party to
any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation), by reason of
the fact that he is or was, or has agreed to become, a director or
officer of the corporation, or is or was serving, or has agreed to
serve, at the request of the corporation, as a director, officer or
trustee of, or in a similar capacity with, another corporation,
partnership, joint venture, trust or other enterprise (including
any employee benefit plan) (all such persons being referred to
hereafter as an "Indemnitee"), or by reason of any action alleged
to have been taken or omitted in such capacity, against all
expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him or on
his behalf in connection with such action, suit or proceeding and
any appeal therefrom, if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests
of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in, or not opposed to,
the best interests of the corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that
his conduct was unlawful. Notwithstanding anything to the contrary
in this Article, except as set forth in Section 6.8 below, the
corporation shall not indemnify an Indemnitee seeking
indemnification in connection with a proceeding (or part thereof)
initiated by the Indemnitee unless the initiation thereof was
approved by the Board of Directors of the corporation.
Notwithstanding anything to the contrary in this Article, the
corporation shall not indemnify an Indemnitee to the extent such
Indemnitee is reimbursed from the proceeds of insurance, and in the
event the corporation makes any indemnification payments to an
Indemnitee and such Indemnitee is subsequently reimbursed from the
proceeds of insurance, such Indemnitee shall promptly refund such
indemnification payments to the corporation to the extent of such
insurance reimbursement.
Section 6.3. Actions or Suits by or in the Right of the
Corporation. The corporation shall indemnify any Indemnitee who was
or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right
of the corporation to procure a judgment in its favor by reason of
the fact that he is or was, or has agreed to become, a director or
officer of the corporation, or is or was serving, or has agreed to
serve, at the request of the corporation, as a director, officer or
trustee of, or in a similar capacity with, another corporation,
partnership, joint venture, trust or other enterprise (including
any employee benefit plan), or by reason of any action alleged to
have been taken or omitted in such capacity, against all expenses
(including attorneys' fees) and, to the extent permitted by law,
amounts paid in settlement actually and reasonably incurred by him
or on his behalf in connection with such action, suit or proceeding
and any appeal therefrom, if he acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best
interests of the corporation, except that no indemnification shall
be made in respect of any claim, issue or matter as to which such
person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery of
Delaware shall determine upon application that, despite the
adjudication of such liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to
indemnity for such expenses (including attorneys' fees) which the
Court of Chancery of Delaware shall deem proper.
Section 6.4. Indemnification for Expenses of Successful Party.
Notwithstanding the other provisions of this Article, to the extent
that an Indemnitee has been successful, on the merits or otherwise,
in defense of any action, suit or proceeding referred to in
Sections 6.2 and 6.3 of this Article, or in defense of any claim,
issue or matter therein, or on appeal from any such action, suit or
proceeding, he shall be indemnified against all expenses (including
attorneys' fees) actually and reasonably incurred by him or on his
behalf in connection therewith. Without limiting the foregoing, if
any action, suit or proceeding is disposed of, on the merits or
otherwise (including a disposition without prejudice), without (i)
the disposition being adverse to the Indemnitee, (ii) an
adjudication that the Indemnitee was liable to the corporation,
(iii) a plea of guilty or nolo contendere by the Indemnitee, (iv)
an adjudication that the Indemnitee did not act in good faith and
in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation, and (v) with respect to any
criminal proceeding, an adjudication that the Indemnitee had
reasonable cause to believe his conduct was unlawful, the
Indemnitee shall be considered for the purposes hereof to have been
wholly successful with respect thereto.
Section 6.5. Notification and Defense of Claim. As a condition
precedent to his right to be indemnified, the Indemnitee must
notify the corporation in writing as soon as practicable of any
action, suit, proceeding or investigation involving him for which
indemnity will or could be sought. With respect to any action,
suit, proceeding or investigation of which the corporation is so
notified, the corporation will be entitled to participate therein
at its own expense and/or to assume the defense thereof at its own
expense, with legal counsel reasonably acceptable to the
Indemnitee. After notice from the corporation to the Indemnitee of
its election so to assume such defense, the corporation shall not
be liable to the Indemnitee for any legal or other expenses
subsequently incurred by the Indemnitee in connection with such
claim, other than as provided below in this Section 6.5. The
Indemnitee shall have the right to employ his own counsel in
connection with such claim, but the fees and expenses of such
counsel incurred after notice from the corporation of its
assumption of the defense thereof shall be at the expense of the
Indemnitee unless (i) the employment of counsel by the Indemnitee
has been authorized by the corporation, (ii) counsel to the
Indemnitee shall have reasonably concluded that there may be a
conflict of interest or position on any significant issue between
the corporation and the Indemnitee in the conduct of the defense of
such action or (iii) the corporation shall not in fact have
employed counsel to assume the defense of such action, in each of
which cases the fees and expenses of counsel for the Indemnitee
shall be at the expense of the corporation, except as otherwise
expressly provided by this Article. The corporation shall not be
entitled, without the consent of the Indemnitee, to assume the
defense of any claim brought by or in the right of the corporation
or as to which counsel for the Indemnitee shall have reasonably
made the conclusion provided for in clause (ii) above.
Section 6.6. Advance of Expenses. Subject to the provisions of
Section 6.7 below, in the event that the corporation does not
assume the defense pursuant to Section 6.5 of this Article of any
action, suit, proceeding or investigation of which the corporation
receives notice under this Article, any expenses (including
attorneys' fees) incurred by an Indemnitee in defending a civil or
criminal action, suit, proceeding or investigation or any appeal
therefrom shall be paid by the corporation in advance of the final
disposition of such matter; provided, however, that the payment of
such expenses incurred by an Indemnitee in advance of the final
disposition of such matter shall be made only upon receipt of an
undertaking by or on behalf of the Indemnitee to repay all amounts
so advanced in the event that it shall ultimately be determined
that the Indemnitee is not entitled to be indemnified by the
corporation as authorized in this Article. Such undertaking shall
be accepted without reference to the financial ability of the
Indemnitee to make such repayment.
Section 6.7. Procedure for Indemnification. In order to obtain
indemnification or advancement of expenses pursuant to Section 6.2,
6.3, 6.4, or 6.6 of this Article, the Indemnitee shall submit to
the corporation a written request, including in such request such
documentation and information as is reasonably available to the
Indemnitee and is reasonably necessary to determine whether and to
what extent the Indemnitee is entitled to indemnification or
advancement of expenses. Any such indemnification or advancement of
expenses shall be made promptly, and in any event within 60 days
after receipt by the corporation of the written request of the
Indemnitee, unless with respect to requests under Section 6.2, 6.3,
or 6.6 the corporation determines within such 60-day period that
the Indemnitee did not meet the applicable standard of conduct set
forth in Section 6.2 or 6.3, as the case may be. Such determination
shall be made in each instance by (a) a majority vote of the
directors of the corporation consisting of persons who are not at
that time parties to the action, suit or proceeding in question
("disinterested directors"), whether or not a quorum, (b) a
majority vote of a quorum of the outstanding shares of stock of all
classes entitled to vote for directors, voting as a single class,
which quorum shall consist of stockholders who are not at that time
parties to the action, suit or proceeding in question, (c)
independent legal counsel (who may, to the extent permitted by law,
be regular legal counsel to the corporation), or (d) a court of
competent jurisdiction.
Section 6.8. Remedies. The right to indemnification or advances
as granted by this Article shall be enforceable by the Indemnitee
in any court of competent jurisdiction if the corporation denies
such request, in whole or in part, or if no disposition thereof is
made within the 60-day period referred to above in Section 6.7.
Unless otherwise required by law, the burden of proving that the
Indemnitee is not entitled to indemnification or advancement of
expenses under this Article shall be on the corporation. Neither
the failure of the corporation to have made a determination prior
to the commencement of such action that indemnification is proper
in the circumstances because the Indemnitee has met the applicable
standard of conduct, nor an actual determination by the corporation
pursuant to Section 6.7 that the Indemnitee has not met such
applicable standard of conduct, shall be a defense to the action or
create a presumption that the Indemnitee has not met the applicable
standard of conduct. The Indemnitee's expenses (including
attorneys' fees) incurred in connection with successfully
establishing his right to indemnification, in whole or in part, in
any such proceeding shall also be indemnified by the
corporation.
Section 6.9. Subsequent Amendment. No amendment, termination or
repeal of this Article or of the relevant provisions of the General
Corporation Law of Delaware or any other applicable laws shall
affect or diminish in any way the rights of any Indemnitee to
indemnification under the provisions hereof with respect to any
action, suit, proceeding or investigation arising out of or
relating to any actions, transactions or facts occurring prior to
the final adoption of such amendment, termination or repeal.
Section 6.10. Other Rights. The indemnification and advancement
of expenses provided by this Article shall not be deemed exclusive
of any other rights to which an Indemnitee seeking indemnification
or advancement of expenses may be entitled under any law (common or
statutory), agreement or vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity
and as to action in any other capacity while holding office for the
corporation, and shall continue as to an Indemnitee who has ceased
to be a director or officer, and shall inure to the benefit of the
estate, heirs, executors and administrators of the Indemnitee.
Nothing contained in this Article shall be deemed to prohibit, and
the corporation is specifically authorized to enter into,
agreements with officers and directors providing indemnification
rights and procedures different from those set forth in this
Article. In addition, the corporation may, to the extent authorized
from time to time by its Board of Directors, grant indemnification
rights to other employees or agents of the corporation or other
persons serving the corporation and such rights may be equivalent
to, or greater or less than, those set forth in this Article.
Section 6.11. Partial Indemnification. If an Indemnitee is
entitled under any provision of this Article to indemnification by
the corporation for some or a portion of the expenses (including
attorneys' fees), judgments, fines or amounts paid in settlement
actually and reasonably incurred by him or on his behalf in
connection with any action, suit, proceeding or investigation and
any appeal therefrom but not, however, for the total amount
thereof, the corporation shall nevertheless indemnify the
Indemnitee for the portion of such expenses (including attorneys'
fees), judgments, fines or amounts paid in settlement to which the
Indemnitee is entitled. The corporation's obligation, if any, to
indemnify any person who was or is serving at its request as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust, enterprise or nonprofit entity
shall be reduced by any amount such person may collect as
indemnification from such other corporation, partnership, joint
venture, trust, enterprise or nonprofit enterprise.
Section 6.12. Insurance. The corporation may purchase and
maintain insurance, at its expense, to protect itself and any
director, officer, employee or agent of the corporation or another
corporation, partnership, joint venture, trust or other enterprise
(including any employee benefit plan) against any expense,
liability or loss incurred by him in any such capacity, or arising
out of his status as such, whether or not the corporation would
have the power to indemnify such person against such expense,
liability or loss under the General Corporation Law of
Delaware.
Section 6.13. Merger or Consolidation. If the corporation is
merged into or consolidated with another corporation and the
corporation is not the surviving corporation, the surviving
corporation shall assume the obligations of the corporation under
this Article with respect to any action, suit, proceeding or
investigation arising out of or relating to any actions,
transactions or facts occurring prior to the date of such merger or
consolidation.
Section 6.14. Savings Clause. If this Article or any portion
hereof shall be invalidated on any ground by any court of competent
jurisdiction, then the corporation shall nevertheless indemnify
each Indemnitee as to any expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement in connection with
any action, suit, proceeding or investigation, whether civil,
criminal or administrative, including an action by or in the right
of the corporation, to the fullest extent permitted by any
applicable portion of this Article that shall not have been
invalidated and to the fullest extent permitted by applicable
law.
Section 6.15. Definitions. Terms used herein and defined in
Section 145(h) and Section 145(i) of the General Corporation Law of
Delaware shall have the respective meanings assigned to such terms
in such Section 145(h) and Section 145(i).
Section 6.16. Subsequent Legislation. If the General Corporation
Law of Delaware is amended after adoption of this Article to expand
further the indemnification permitted to Indemnitees, then the
corporation shall indemnify such persons to the fullest extent
permitted by the General Corporation Law of Delaware, as so
amended.
ARTICLE VII
Miscellaneous
Section 7.1. Fiscal Year. The fiscal year of the corporation
shall be determined by resolution of the Board of Directors.
Section 7.2. Seal. The corporate seal shall have the name of the
corporation inscribed thereon and shall be in such form as may be
approved from time to time by the Board of Directors.
Section 7.3. Waiver of Notice of Meetings of Stockholders,
Directors and Committees. Any written waiver of notice, signed by
the person entitled to notice, whether before or after the time
stated therein, shall be deemed equivalent to notice. Attendance of
a person at a meeting shall constitute a waiver of notice of such
meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully
called or convened. Neither the business to be transacted at nor
the purpose of any regular or special meeting of the stockholders,
directors, or members of a committee of directors need be specified
in any written waiver of notice.
Section 7.4. Interested Directors; Quorum. No contract or
transaction between the corporation and one or more of its
directors or officers, or between the corporation and any other
corporation, partnership, association, or other organization in
which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable
solely for this reason, or solely because the director or officer
is present at or participates in the meeting of the Board of
Directors or committee thereof which authorizes the contact or
transaction, or solely because his or their votes are counted for
such purpose, if: (1) the material facts as to his relationship or
interest and as to the contract or transaction are disclosed or are
known to the Board of Directors or the committee, and the Board of
Directors or committee in good faith authorizes the contract or
transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be
less than a quorum; or (2) the material facts as to his
relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote
thereon, and the contract or transaction is specifically approved
in good faith by vote of the stockholders; or (3) the contract or
transaction is fair as to the corporation as of the time it is
authorized, approved or ratified, by the Board of Directors, a
committee thereof, or the stockholders. Common or interested
directors may be counted in determining the presence of a quorum at
a meeting of the Board of Directors or of a committee which
authorizes the contract or transaction.
Section 7.5. Form of Records. Any records maintained by the
corporation in the regular course of its business, including its
stock ledger, books of account, and minute books, may be kept on,
or be in the form of, punch cards, magnetic tape, photographs,
microphotographs, or any other information storage device, provided
that the records so kept can be converted into clearly legible form
within a reasonable time.
Section 7.6. Amendment of By-Laws. These by-laws may be altered
or repealed and new by-laws made, by the Board of Directors, but
the stockholders may make additional bylaws and may alter and
repeal any by-laws whether adopted by them or otherwise.
/s/ Roger Branton
Roger Branton
Secretary
xG Technology, Inc.
July 18, 2013
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: August 30, 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: August 30, 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 June 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: August 30, 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 June 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: August 30, 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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