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US buyer’s financial position needs clarification
Thursday 27 Oct 2016 Author: Steven Frazer

Questions are being raised over the funding arrangements behind Nasdaq-listed XG Technology’s (XGTI:NDQ) $16m acquisition of part of broadcast technology specialist Vislink (VLK:AIM).

On 20 October the UK company reported the planned sale of its core Vislink Communication Systems hardware business to US-based, and once AIM-quoted, XG Technology.

That proposed deal sparked a huge surge in the share price of Vislink, the stock almost doubling (up 98.9%) from 7.6p to the current 15.12p. The reason for the rally is that, if it concludes, the sale will clear most of Vislink’s debts and confirm the company’s transition to a broadcast software-only business.

But investors are being cautioned against counting their chickens too soon. According to IT analysis consultancy Megabuyte, XG Technology is far from financially sound, with 2016 revenues of $3.7m (based on annualised first quarter figures) and losses of $17.6m. The company has ‘burned through $200m of shareholders’ money,’ in the years since its 2002 foundation, says analyst
Philip Carse.

The business had $0.5m of cash as of 31 March this year, although ‘we understand that it plans an equity fund raise, and we assume that Vislink will have done its due diligence and XG will have ensured the funding would be available before signing a binding contract.’ (SF)

Vislink may have pulled a rabbit out of a hat if this sale goes through and it will leave the UK company is a far stronger position going forward, both strategically and financially. But the stock’s rally despite the funding uncertainly surrounding XG suggests to us that caution is needed until the deal is confirmed.

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