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Pebble Beach Systems – disposal updates include buyer reserving its rights as it claims “numerous breaches of the contract”!

By Steve Moore | Wednesday 8 March 2017

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

After results for the first half of 2016 showed an increased £8.8 million of net debt, Pebble Beach Systems (PEB, then Vislink) announced a $16 million sale of its hardware division, Vislink Communication Systems, to NASDAQ-listed xG Technology, Inc – stating the disposal to see it “be left substantially debt-free and to execute its software transition strategy”. There are now further updates on how this is working out – including a 5:25pm “Response to xG Technology Inc Press Release” announcement. Uh oh.

A 10:48am announcement yesterday from Pebble Beach included that “xG Technology Inc have settled a further sum of $1.6 million of the remaining deferred consideration of $6.5 million (due on 17 March 2017) by taking on liability for settling $1.6 million of VCS trade creditors”. This followed a 23rd February announcement which included amendment to an already revised sales agreement – with xG “taking on liability for settling $3 million of VCS trade creditors… xG has assumed this liability so as to regularise its supplier base”.

The 5:25pm announcement then noted a press release from xG “stating that they are in dispute with the company”, with the Pebble Beach board stating that it “is not aware of any dispute or any breaches of the business purchase agreement as alleged and has requested from xG disclosure of the allegations made”. Hmmm, the xG release included;

“We do not anticipate that we will know enough about the other liabilities that need to be paid by the March 17 due date, and until all outstanding liabilities are dealt with and fully agreed to by both parties, we do not intend to send any cash to the seller. Furthermore, we reserve all our rights to deal with the seller as needed in response to the numerous breaches of the contract that have occurred.”

Uh oh. This is particularly troublesome since Pebble Beach’s 23rd February announcement also included that it “remains constrained by the group's existing capital structure, including an estimated £11 million of ongoing bank borrowings”. Just how much in Vislink Communication Systems liabilities are there?, whatever happened to being “left substantially debt-free and to execute its software transition strategy”? - and as recently as early February that “the deferred payment of c. £8m ($9.5m) due mid-March will reduce bank borrowings significantly”?

Instead, there is presently a troubling confusion and financial situation – and this remains a certain bargepole stock.

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