xG Technology Inc (NASDAQ:XGTI) Looks Like A Great Long Term Government Contract Tech Play

xG Technology Inc (NASDAQ:XGTI) is a company we've come back to on a few occasions over the last twelve months here at Insider Financial. In our most recent coverage, we noted that the company was running up on the back of seemingly no major news, but we opined that the run was rooted in the then-pending release of some clarity-inducing info related to the financial implications of company's acquisition of Vislink.Turns out we were spot on.Basically, there was a bit of downside risk in the uncertainty of how the acquisition would impact xG's balance sheet (specifically, the debt element), primarily rooted in some outstanding sums from Vislink's pre-acquisition operations. With the update that we just linked to, the company alleviated this downside risk, and its stock ran up just shy of 15% on the lift.Subsequent to this development, we've had some financials hit press, and the company has continued to appreciate towards its current market capitalization of just shy of $17 million. We think there's still plenty of appreciation on offer here, however.Here's what we learnt from the financials (and a conference call that management held shortly after the Vislink update) and how it plays into our expectations going forward.So, as part of the earnings release, management reported that the company generated revenues of $6.57 million for the year to December 31, 2016 – up from the $932,000 reported during 2015. That's an increase of more than 600%. Sure, the increase came on the back of some acquisitions, and the resulting impact of these acquisitions on xG's on-offer portfolio or products, but it validates the capital allocation, and is a great sign from our perspective.So topline is increasing, and that's a strong indicator of forward value appreciation, but there's some pressure coming from the bottom line – net loss for the year increased from $21 million to $22.7 million. With that said, revenues have expanded more than 600% while net loss only increased 8%, so that's a positive sign.So what's next?Well, much of the growth seen throughout 2016 derived from government type contracts in the US. As many reading will likely already be more than aware, these sorts of contracts are gold dust for a company like xG. We're not going to list them here, as all the info is available at this operational update, but management highlighted contracts worth around $1.5 million during 2016 with government defense contractors, police forces and investigational bureaus, as well as undisclosed contract volumes with correctional agencies, a defense research institution and the US Army. As this company moves forward, we expect these contracts to provide a sort of bread and butter revenue source, and in doing so, free up strategic capital allocation to other, non-governmental growth areas such as sports and broadcasting.As such, as primary growth drivers, we're looking for any government contracts as indicative of continued strategy execution, and in turn, continued topline expansion.On the other side of the equation, we'd like to see xG rein in costs a little, in terms of proportional to topline (so not necessarily from a numerical standpoint). If we see this achieved, it should remove some of the downside pressure we're seeing on the back of the bottom line expansion year over year.The primary risk here is one of dilution. A Feb offering added around $3 million to on-hand, and there was reportedly a gain of just short of $3 million on the eventual closing of the Vislink deal. This isn’t going to be enough to offset expansion costs this year, and we're probably going to see some more equity issued before the close of 2017. These issues aren’t going to be prohibitive to an exposure based on current revenue trends (and the long term upside these trends infer) but they add a degree of near term risk on an early stage position.We will be updating our subscribers as soon as we know more. For the latest updates on XGTI, sign up below!Disclosure: We have no position in XGTI and have not been compensated for this article.