Fresh Headache For Xtera Communications Inc. (NASDAQ: XCOM)?

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Xtera Communications Inc (NASDAQ: XCOM)’s challenges may have just compounded with Foxconn deciding to terminate a manufacturing agreement between the two parties. The termination of the agreement not only leaves Xtera with bills to foot, but also threatens to disrupt its normal operations.

Non-payment of accounts

In a notice, Foxconn has not only informed Xtera Communications Inc (NASDAQ: XCOM) of its decision to terminate their 2013 Master Manufacturing Agreement, but also explained the reason behind the move.

Foxconn clearly said that the decision to cancel the agreement was triggered by non-payment of certain outstanding accounts receivable. On top of that, Foxconn said that Xtera’s account has some unpaid liabilities relating to material and inventory.

What happens next?

Citing Section 12.3 of their agreement, Foxconn has said that Xtera will be responsible for meeting the outstanding accounts receivables and settling the unpaid material and inventory bills.

However, it is not clear how much Xtera owns Foxconn. What Foxconn did say in its notice of termination of the agreement was that it can only readmit XCOM for service continuity after it fulfills its contractual obligation.

Xtera Communications Inc (NASDAQ: XCOM) uses Foxconn facilities to manufacture and assemble its products. That tells you that termination of the master manufacturing agreement will take a hit on Xtera’s production and possibly its financial results. However, the company has not revealed how it expects to be disrupted by the agreement termination.

Delisting notice – Xtera Communications Inc (NASDAQ: XCOM)

Xtera problems go beyond termination of manufacturing contract with Foxconn. The NASDAQ Stock Market also recently notified the company that it has fall short of the requirement for continued listing. The company fell short of listing requirement after it reported shareholder equity of only $9.989 million in 2Q2016. The NASDAQ requires companies to maintain a minimum of $10 million in shareholder equity.

However, NASDAQ listing issue doesn’t pose an immediate threat to Xtera Communications Inc (NASDAQ: XCOM) as the company has until October to submit a plan on how it intends to regain compliance. If the plan is accepted, it can get up to 180 days to sort its listing issues.

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