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xG Technology Inc (NASDAQ:XGTI) had a big week last week, with a number of key developments hitting press, and these developments are feeding into some upside momentum as a fresh week kicks off this week. There is going to be a bit of selling pressure over the coming couple of weeks, but we think that the  company’s latest updates will offer plenty of buy volume for the selling pressure to absorb into, and that – if it happens – any pullback might be a decent opportunity to get in at a good price ahead of a reversal.

Here’s what we are basing our decision on.

First up, a quick look at the company.

xG Technology is a wireless communications technology company. Its spectrum of services is pretty wide, but by way of simplification, it offers two primary technologies: the first, a wireless imaging and data transfer service (which it picked up on the back of the takeover of its now subsidiary Integrated Microwave Technologies) and what it calls its xMax operations, which is basically a network service that offers a full suite of communications and data transfer technologies, tailored to the client in question. The company has three primary target markets – military and surveillance, sports and entertainment, and broadcasting.

From a quantitative perspective, financials have grown steadily across the last few quarters. Having recorded revenues of $189,000 during the third quarter of 2015, xG Technology boosted this to a little over $1.65 million during the second quarter of this year.

With the latest announcements in place, however, we expect revenues will expand considerably on these levels as we head into the close of this year. Let’s look at each in turn.

The first, announced on October 12, reported that xG’s IMT subsidiary (the acquisition we mentioned a little earlier) just closed on a contract worth $200,000 with a mid-Atlantic police agency. The deal will see the former provide the latter with what’s called an Airborne Video Downlink System (AVDS) – basically a suite of technologies that allows for aerial monitoring via helicopters and drone like systems, all connected to street level viewing platforms.

The second, announced a day later on October 13, detailed a $500,000 order from a leading robotic defense contractor for wireless video transmission modules for use in military remote ordnance disposal applications. Again, this order came via the IMT subsidiary.

Now, the IMT subsidiary is the source of some frustration for shareholders (at least a portion of them) because of the way the deal was structured. When the acquisition first hit press, it’s funding was reported to derive from two sets of convertible notes each worth $1.5 million, with a total acquisition price of $3 million. Fast forward a couple of months, and this deal changed to a $500,000 cash payment, alongside $2.5 million issued as series D convertibles, issued in tranches  between deal close and year end. If the $2.5 million hasn’t been hit by year end, xG will basically keep on dishing out shares until it is.

There’s obviously lots of dilution associated with this sort of arrangement (xG is only valued at a little over $7 million, even with the recent gains taken into consideration) and there’s the added concern that IMT is dumping these shares onto the open market pretty much as soon as it gets them. A just released prospectus details around $1.4 million of exactly this process.

Yes, it’s a bit of a concern, but we think as a long run strategy this acquisition, and its deal structure, is a smart move. xG has been criticized in the past for raising too much shareholder cash, and the only real way to avoid having to repeatedly conduct financings is to boost top line. Yes, the IMT deal might have cost $3 million and some value through dilution, but as the latest announcements show, it is already starting to attract bigger deals than xG had any chance of signing without IMT, and these are not only bringing in sales revenue, but also translating to some value-add on a market capitalization perspective. The company is up 25% at time of writing, and looks set to register further gains as the week progresses.

All said, xG has been a bit of a tough stock to comment on because the company seemed to be languishing in an unfavorable position, whereby revenues were growing but not fast enough to absorb costs, and shareholders were being forced to pick up the tab through dilutive raises. The IMT deal seems to have helped jump start the company out of this cycle, however, and we could finally start to see a longer term reversal if the IMT sales team remains on top form.

$2 million annual cash savings don’t hurt, either.

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Disclosure: We have no position in XGTI and have not been compensated for this article.