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Hoku Scientific loses $1.4M


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POSTED: Friday, October 24, 2008

Hoku Scientific Inc. said yesterday it returned to a loss in the second quarter of fiscal 2009, after facing higher costs for manufacturing and employee compensation. In June, Hoku posted a profit for the first quarter on gains from foreign currency contracts following six quarters of consecutive losses.

Net loss for the quarter ending Sept. 30 widened to $1.4 million, or 7 cents a diluted share, compared to a net loss of $1 million, or 6 cents a diluted share, a year ago, Hoku said after the market closed.

That was worse than an average estimate of a loss of 5 cents a share from four analysts surveyed by Thomson Reuters.

Revenue was $1.9 million, a nearly eightfold increase from $239,000 a year ago, from photovoltaic system installation contracts and the resale of solar inventory, compared to fuel-cell contracts a year earlier. The company's cost of revenue jumped by eight times to $1.5 million from $195,000 on manufacturing expenses and employee compensation.

Operating expenses dropped to $1 million from $1.3 million a year ago, while cash and cash equivalents dropped by half to $13.8 million from $27.8 million.

In the quarter, the Kapolei-based alternative-energy company secured an aggregate of more than $1.2 billion in new polysilicon purchase commitments.

The company is still searching for financing for its planned $390 million Pocatello, Idaho, polysilicon plant, scheduled to start commercial shipments in the first half of 2009.

"We have made detailed preparations for the upcoming winter season and feel well prepared to maintain our planned construction schedule," Dustin Shindo, president and chief executive, said on a conference call with investors and analysts. "We believe that we can wait until calendar year 2009 to raise additional funds through debt or equity if our customers make their scheduled prepayments on time, which is advantageous under current financial market conditions."

China-based Wealthy Rise International Ltd., a subsidiary of Solargiga Energy Holdings Ltd., had not yet made its initial deposit of $22 million, due within 15 days of the contract's signing on Sept. 4. Solargiga signed a $455 million contract with Hoku for polysilicon delivery over 10 years.

"Under the terms of the agreement, they had the opportunity to have the agreement reviewed by their shareholders," said Scott Paul, who was appointed as chief operating officer yesterday after serving as Hoku's vice president of business development and general counsel since joining the company in July 2003. "We are allowing them some time to do that. There is a daily dialogue."

Solargiga has 75 days from the contract signing to obtain shareholder approval and make the payment, Paul said.

Prepayments have been received by new customers China-based Jiangxi Kinko Energy Co. Ltd. and Tianwei New Energy Holdings Co., which signed contracts in July and August, respectively.

Another customer, Solarfun Power Hong Kong Ltd., agreed to pay a total prepayment deposit of $21 million this month, consisting of its $19 million second deposit originally planned for Sept. 30, and an accelerated payment of $2 million from a $20 million prepayment scheduled for March 2009.

"Hoku expects to maintain roughly the same level of customer prepayment commitments and contracted future revenue through the sale of available polysilicon capacity to new or existing customers," Shindo said on the call.

The company is close to filling the plant's increased capacity of 4,000 metric tons with its five major customers, Shindo said. He declined to give a specific number. The plant is expected to generate $2.3 billion in polysilicon over a 10-year period, with customer prepayments of $306 million, $48 million of which has already been received.

"We are still getting inbound inquiries as well as a continuing dialogue with previous potential customers," Shindo said. "Certainly the market has changed a little bit, but the need for polysilicon is still very strong."

In the quarter, Hoku's solar installation segment completed the installation of more than 180 kilowatts of solar power for Prudential Locations LLC and Paradise Beverages Inc. The recent extension of federal solar tax credits through 2016 may push back projects from potential customers, who would have otherwise needed to complete installation by Dec. 31, Shindo said.

As of Sept. 30, deferred revenue was $12,000 from system installation projects and service contracts.

In the current quarter, Hoku will focus on the financing and delivery of systems under a power purchase agreement signed earlier this month with the state Department of Transportation to install and operate photovoltaic power systems at four Hawaii airports totaling 779 kilowatts, and a 218-kilowatt system planned for Hawaiian Electric Co.'s Archer Street substation.