Xtera Communications Inc (OTCMKTS:XCOM) Hits The OTC

Back at the beginning of the month, NASDAQ served Xtera Communications Inc (OTCMKTS:XCOM) with what was essentially a two weeks eviction notice. The company had failed to not only meet the minimum bid requirement for listing on the exchange, but also failed to maintain the minimum required shareholders' equity of $2.5 million, and the notice set October 16, business close, as the day of the drop. Xtera had the opportunity to appeal the delisting, but as per the 8K, management decided to take the hit and let it go through. As such, and as of October 17, Xtera hit the OTC.On numerous occasions here at Insider Financial, we've covered exactly this type of situation. When a company is in the position that Xtera found itself in last week, it's only real option is to issue stock to raise equity above the NASDAQ minimum. At its current price, Xtera would have found it very difficult to raise anything substantial, and that would probably have necessitated a reverse split to boost price before the raise.Sometimes we see a last ditch proxy and a reverse split/dilutive raise announcement. Other times we see a company take a delisting on the chin and rebuild without diluting its shareholders just for the purposes of maintaining a listing.Xtera went for the latter, and we think from a long term growth perspective, it might have been a smart move. Before we get in to why, and what we are looking for from here on out, here's a bit about the company.The company is a leading supplier of something called high capacity optical solutions, both on land (terrestrial) and under water (subsea), to commercial customers. At its core, the technology is rooted in data transfer. Without the use of satellites, which can be very expensive, long distance data transfer can be tough and slow. The current network is primarily comprised of what's called Erbium-Doped Fiber Amplifier (EDFA) technology, and this tech is limited in both capacity and reach. If an entity wants to increase the capacity of this EDFA technology, it has got to add additional fiber to the network, which is very costly.Xtera's technology offers an increased capacity right off the bat, and is scalable at a far lower cost to the current systems by way of its optic construction.For those new to this sort of thing, that description might not clear things up too much, so let's jump to something a little more straightforward – the numbers.For the third quarter of this year, the company generated $5.3 million in revenues. This was down considerably on the $16.2 million recorded during the same period a year earlier, but Xtera had more than $90 million in backlogged orders at the time of the report. Management put the discrepancy down to liquidity challenges; basically, the company didn’t have enough free operating cash to fulfill its orders.So this brings us to what we are looking for going forward. In short, we want to see the company free up some cash and start delivering on the $90 million backlog. If you're looking for something to boost shareholder equity, it's delivering on $90 million worth of orders and bringing in a positive bottom line.Here's a quote from the latest 8K:

"The Company continues to pursue a variety of strategic initiatives to address its liquidity needs, including the sale of all or a portion of its business, certain financing activities and restructuring alternatives."

An asset sale might be the easiest option on shareholders, but chances are, we're going to see some dilution near term to raise capital. This delisting isn’t going to help this raise, and terms are probably going to be tough, but if it can start the ball rolling on the $90 million in deliverables, then the post-announcement dip might be a nice opportunity to pick up an exposure.One to keep an eye on.We're watching this one closely to see how the pink sheets play out for Xtera. Subscribe below and we'll bring you our take as the situation unfolds.Disclosure: We have no position in XCOM and have not been compensated for this article.