S A ADVISORY July - August 1999


S.A. Advisory
2274 Arbor Lane #3
Salt Lake City, Utah 84117


1. Tels Corporation (ITC BB - TELS) - TELS Corp. designs, manufactures, and sells telecommunications/call accounting products to hotels, motels and small businesses. TELS also provides contract production and assembly services for computer and electronic companies.
  1. Fully reporting
  2. 801-756-9606
  3. 3,891,819 shares outstanding
  4. First quarter $1.2 million and net income/share .03.
  5. Book value .15.
The price: .21.

TEL electronics, inc. signs Three-Year Exclusive Preferred Manufacturer Agreement with Cendant Corporation

TEL electronics, inc.., a wholly owned subsidiary of TELS Corporation, has signed a three (3) year exclusive Preferred Manufacturer Agreement with Cendant Corporation. Under the agreement, TEL electronics, inc. is exclusively marketed by Cendant as the supplier of call accounting systems to the franchisees of Cendant hospitality franchise brands and the resort owners and developers affiliated with Resort Condominiums International, LLC (RCI).

Comments from Sean Gunter, General Manager, TEL electronics, inc.:
“Cendant Communications, a division of Cendant Supplier Services, Inc., has been TEL electronics, inc. (“TEL”) top producing customer for the past seven years. This agreement will solidify our companies’ relationship and marketing opportunities offering additional sales and marketing through channels such as RCI. TEL expects that this agreement will also align TEL with future strategic planning and product development, which will continue to strengthen our position as the leader in the hospitality call accounting industry for many years to come.”

Cendant Corporation is a global provider of consumer and business services. The Company’s core competencies include building franchise systems, providing out-sourcing solutions and direct marketing.

We find this very bullish for a company that trades at .21 and has a varied business agreement with a multi-billion NYSE listed company (CD). If earnings momentum continues, this situation could trade much higher.

Broker: Mike Chesler at 1-800-890-1629.

2. Gold stocks look very attractive as the Y2K scenario unfolds and inflation gets a little more aggressive. It might not be a bad idea to own some insurance: NEM and ASL are our picks.

3. Precision Optics - PREO - only 700K shares outstanding - management sold out control from $1,200,000 for 400K shares - only 200K in float. We hear big plan for this. The company has over $1,000,000 in bank, company is small, but profitable. New Management intends to grow company via acquisition. The new President and CEO is a turnaround specialist. Company intends to become fully reporting with SEC. Company intends to forward split in order to increase liquidity. Current price - $2.75.

Call Mike Chesler at 1-800-890-1629

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MicroTel - BB - MCTL
Corporate # 909-456-4321 (James Butler)

MicroTel International, Inc. is a holding company for its three wholly owned subsidiaries - CXR Telcom Corporation in Fremont, California; CXR, S.A. in Paris, France and XIT Corporation in Ontario, California, and its 41% owned affiliate company Digital Transmission Systems, Inc. located near Atlanta, Georgia. CXR Telcom Corporation, CXR, S.A. and Digital Transmission Systems, Inc. design, manufacture and market electronic telecommunication test instruments, wireless and wireline voice, data and video transmission and networking equipment. XIT corporation designs, manufactures and markets information technology products, including input and display components, subsystem assemblies and power supplies. The Company operates out of facilities in the U.S., France, England and Japan.

The Facts

Fully reporting with SEC. 16.6, million shares outstanding as of May 13, 1999. —Recently 4 million share ,were converted from outstanding Preferred issue. Cash as March 31, 1999 - $362K. Long term debt - 1.3 million. Book value - $6.8 million (includes $1.7 million goodwill). The book value minus the goodwill equals .30 or .40, including the goodwill. Employees - 303. Shareholders - 3709. Management controls - 2.7 million shares. Federal net operating loss carry forward—NOL —$45,000,000.00 — extremely valuable!!!!!

We had anticipated a loss for the first quarter. The company’s gross profit as a percentage of net sales increased to 35% from 23% in the first quarter of 1998 as a result of increase higher margin sales, the disposal and discontinuance of lower margin product lines and the reduction during 1998 of manufacturing overhead costs. Cash used in operations for the first quarter of 1999 fell to only $151K from $1.3 million in the first quarter of 1998.

In pursuing its strategy of disposing of non-core, lower margin product lines and seeking to acquire new telecommunications end-user products, during the first quarter of 1999, the Company sold substantially all the assets of its HyComp, Inc. subsidiary and acquired a 41 % ownership interest in Digital Transmission Systems, Inc., a provider of wireless voice and data transmission products which compliments the Company’s existing base wireline transmission product line. The sale of HyComp completes the Company’s exit from the commercial circuits business.

Carmine T. Oliva, MicroTel’s Chairman and CEO commented, “Despite our anticipated loss in the first quarter of 1999, which was exaggerated by discretionary onetime non cash charges of $830,000, we are pleased that our efforts during 1998 to eliminate lower margin product lines and reduce manufacturing overhead costs have resulted in substantially improved gross profit margins and a 58% decrease in loss from operations compared with the same quarter of 1998. We expect the remainder of 1999 to be similarly improved over 1998 leading to full-year profitability.”

On June 1, 1999, MicroTel International Inc. announced that its CXR, S.A. subsidiary located in-Paris has been appointed master distributor for France for Praxton Inc., the Campbell, California - based provider of integrated business communications solutions.

Under the terms of the agreement, CXR, S.A. will be the master distributor for Praxton’s PHONE DATA EXCHANGE - PDX(TM) system, an integrated business communications solution designed to combine voice, data, messaging and Internet access — generally known as “convergence” — into one easy-to-manage product thereby consolidating the number of communications links required and reducing costs.

PDX(TM) also enables PBX functionality, as well as enabling shared network access for LAN users and remote workers. Aimed at small and medium-sized businesses, as well as remote branch offices, PDX(TM) is an entry-level convergence product ideally suited to resellers wanting to address the burgeoning Small to Medium Enterprise (SME) convergence market.

“Opportunities for VARs in the voice and data integration market are huge, especially in the SME sector,” explained Jacques Moisset, president of CXR, S.A.

“The Praxton agreement will enable us to address these opportunities and further underlies CXR’s commitment to offer state-of-the-art communications solutions. The PDX(TM) product is an exciting addition to the product portfolio of our Networking Division, which has been concentrating on data-voice integration solutions for more than four years.”

According to MicroTech’s management this actual agreement would be worth at least $1.5 million in revenues for 1999.

MicroTech International would be classified as a cyclical stock. The company sells product to corporations.

Note: First quarter was a loss! According to management it is always a loss. Budgets are formed during the 1st quarter and then spending occurs during the second quarter. The third quarter is somewhat slow—due to summer vacations and corporate closing for vacation. The fourth quarter is usually very good because the companies must spend the monies that have not been spent during the year.

Our initial recommendation was made on May 3 at .375/share. Because of the conversion of a preferred issue into common shares, there has been excessive pressure on the share price. It currently trades at .26. We believe that this price being 33% below the first recommendation offers a great averaging down opportunity for current shareholders and a great price for new investors. We rate MCTL with a strong buy recommendation! Based upon the current share price of .26, it is easy to conclude the MCTLC is only trading at an estimated PE of 3.7x 99 earnings. MCTLC will grow by at least 12 to 15 percent during 99 over 98 sales. If we assign a PE value based upon growth rate, then a share valuation of estimated .84 to $1.05 would surface. This, of course is very conservative. At present MCTLC has an estimated PSR of .10. This number, of course, is extremely low and could easily be at least one times sales and still be very undervalued (note: many internet issues have PSR in the hundreds and PE values in the hundreds or none at all!!! Food for thought.

Concerning Book value: Could easily trade at 4 to 5 times the stated value.

We believe that for .26 an investor is buying a great turnaround candidate with huge upside potential with very limited risk! This is a real company -- many internet situations that are trading at 100x MCTLC’s price will never achieve the revenue and earnings that MCTLC will probably deliver this year! This company is trading at its 52-week low as well as 5-year low, has book value, large revenue base when one considers the price, limited debt, new products, large NOL, limited exposure, a technology company and totally underfollowed. We think that this situation should be considered as a CORE HOLDINGS for mini-micro-cap risk investors looking for discounted value with very low downsider. We intend to monitor MCTL for percentage gain performance. Mike Chesler - broker - 1-800-890-1629.Website: www.microtelinternational.com

Note: We intend to monitor a second position of MCTL in our portfolio for percentage gain performance. When one considers the downside risk with the upside potential, you have to play! It is in our opinion that this situation has turned the corner - management has cut costs, introduced new products, discontinued losing operations, increased margins, converted a potential liability into equity and currently is involved in cutting-edge technology. Our numbers and stock price could turn out to be very conservative, thereby yielding even greater share appreciation during the next 12 months.

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