North Coast Solar Stocks

October 22, 2009

Hoku Scientific Reports Second Quarter Fiscal Year 2010 Results

Filed under: HOKU — Tags: , , , , , , , — Jason @ 4:15 pm

4:15 pm EDT, Thursday October 22, 2009

HONOLULU, HI–(Marketwire – 10/22/09) – Hoku Scientific, Inc. (HOKU), a materials science company focused on clean energy technologies, today announced its financial results for the second quarter ended September 30, 2009 and provided a general update on its business.

Financial Results

Revenue for the quarters ended September 30, 2009 and 2008 was $1.5 million and $1.9 million, respectively, derived primarily from photovoltaic, or PV, system installation and related service contracts. As of September 30, 2009 and March 31, 2009 deferred revenue of $12,000 and $784,000, respectively, was attributable to PV system installations and related service contracts.

Net loss, computed in accordance with U.S. generally accepted accounting principles, or GAAP, for the quarter ended September 30, 2009 was $1.2 million, or $0.06 per diluted share, compared to $1.4 million, or $0.07 per diluted share, for the same period in fiscal 2009.

Non-GAAP net loss, which excludes the effect of stock-based compensation, for the quarter ended September 30, 2009 was $959,000, or $0.05 per diluted share, compared to $1.1 million, or $0.05 per diluted share, for the same period in fiscal 2009. Non-GAAP net loss for the quarters ended September 30, 2009 and 2008 excludes non-cash stock-based compensation of $272,000 and $260,000, respectively. The accompanying schedules provide a reconciliation of net loss per share computed on a GAAP basis to net loss per share computed on a non-GAAP basis.

Dustin Shindo, chairman, president and chief executive officer of Hoku Scientific, said, “With the recent announcement of our financing agreement with Tianwei, we have successfully identified sufficient funding to complete construction of our polysilicon manufacturing plant in Pocatello, Idaho, to the point where we can commence our first shipments to our customers.”

Describing the Company’s current shipment timeline, Mr. Shindo continued, “We expect to ramp up our construction efforts in this fourth calendar quarter, and are making all preparations to conduct reactor demonstration testing in December. In order to allow sufficient time for our production to reach commercial product specifications, we now expect to make the first commercial deliveries of Hoku-manufactured polysilicon to our current customers in the first quarter of calendar year 2010. From there, we will continue ramping up production until we reach our full, planned capacity of 4,000 metric tons per year, which we expect to occur in the second half of calendar year 2010.”

The Company asserted that it would need to identify approximately $71 million in additional funding to complete construction and reach its planned full production capacity of 4,000 MT/year, but clarified that it intended to delay any such subsequent financing until it had made initial shipments to its current customers in the first quarter of calendar 2010. Hoku said that although Tianwei had provided commitments to assist in securing the remaining funds, the Company expected to complete this subsequent financing through a combination of prepayments from new customers, through other debt sources, or possibly through U.S. Federal loan guarantees and other qualified renewable energy incentive programs.

“In light of these developments, we are extremely pleased to be focused again on execution. Having established a clear path forward, we expect our financing progress will not only benefit our polysilicon business, but that it will have a healthy effect on our PV systems integration business as well,” concluded Mr. Shindo. “By removing financing uncertainty and strategically aligning ourselves with Tianwei, we have both materially strengthened our presence in the global solar industry, and added real value for our customers in Hawaii.”

Business Updates

Hoku Materials Polysilicon Plant Update

Commenting on the Company’s polysilicon subsidiary, Hoku Materials, Inc., Mr. Shindo said, “As announced previously, in September we entered into a definitive agreement providing for a majority investment in Hoku by one of our polysilicon customers, Tianwei New Energy Holdings Co., Ltd. The transaction, which features debt financing by Tianwei through China Construction Bank for the construction and development of our polysilicon production facility in Pocatello, Idaho, is expected to close by the end of October 2009.”

According to the terms of the financing agreement, Tianwei will enter into a loan agreement with Hoku providing for $50 million in debt financing, of which $20 million is expected in November 2009, with the remaining $30 million expected in December 2009. In addition, Tianwei committed to assist Hoku in obtaining any additional financing that Hoku may require to fully construct and operate its polysilicon facility.

In exchange for this consideration, Hoku will convert $50 million of Tianwei’s aggregated $79 million in secured prepayments into shares of Hoku’s common stock at closing. This will represent approximately 60% of Hoku’s fully-diluted voting shares. Hoku will also provide Tianwei with warrants for an additional 10 million share of Hoku’s common stock. The $79 million in deposits were previously paid by Tianwei to Hoku according to the terms of the polysilicon supply agreements in place between the two companies. The remaining $29 million in prepayments will be offset over time against shipments of polysilicon by Hoku to Tianwei.

Conditioned on the closing of the transaction, Hoku also agreed to modify its shipping terms to Tianwei, accepting an 11% price reduction in exchange for an agreement by Tianwei that would allow Hoku to ship product to all of its other existing customers before making its initial product deliveries to Tianwei. Hoku clarified that this reduction was roughly equivalent to the $50 million of Tianwei’s prepayments which are to be converted to equity in the transaction. Accordingly, since Hoku would no longer be obligated to offset that amount against future invoices for polysilicon shipments, the Company explained that the price reduction would, therefore, have only a negligible effect on the net amount of cash payments to be received from Tianwei as payment for future polysilicon shipments.

Hoku had previously reported that it had arrived at an agreement with J.H. Kelly, the project’s General Contractor, which established clear milestones for resuming work upon closing of any eventual financing. The companies also agreed on the outline of an accelerated project construction schedule, revising the timeline to completion.

Hoku confirmed that the onsite ramp-up had already begun. “Construction at the plant recommenced in earnest in October,” said Mr. Shindo. “In the coming weeks, we expect the construction workforce to expand to more than 100 full-time personnel. Though we will initially focus on completing the systems required to conduct the reactor testing planned for this quarter, we expect to quickly resume progress on nearly all non-TCS areas of the plant. During the construction slow-down over the past few months, J.H. Kelly’s onsite team invested time and planning into preparing multiple work-fronts for the eventual resumption of construction. This will ensure the most rapid progress possible across all areas of the plant.”

Polysilicon Plant Financing Update

Hoku Materials continues to estimate that it will cost approximately $390 million to engineer, procure and construct its polysilicon production plant. The estimate reflects its discussions with vendors, declining costs of materials and labor, and ongoing adjustments of certain design elements; however, changes in costs, modifications in construction timelines, and other factors could increase the actual costs. As of September 30, 2009, construction-in-progress for the project was $262 million.

Hoku had received $115 million in prepayment deposits from its current customers as of September 30, 2009, excluding the $50 million prepayment from Tianwei that will be converted into equity. All customers are current on their prepayment obligations, with the exception of Solarfun Power Hong Kong Limited (Solarfun), which is past due on $15 million in prepayments that were to have been paid between July and October, 2009. In addition, the Company has granted waivers, until November 15, 2009, for Wealthy Rise International, Ltd. (Solargiga) to make its $9.9 million of prepayments that had been originally scheduled for payment between June and October, 2009. The Company is in discussions with Solarfun and Solargiga, respectively, regarding the timing of when these unpaid amounts will be paid.

Upon the expected closing of the Tianwei transaction and conversion of Tianwei’s $50 million in prepayments into equity, Hoku’s customers will have committed to make $178 million in contractual prepayments, including the $115 million that has been paid to date. In addition, Hoku has contributed $41 million of its available cash. Thus, considering Tianwei’s $50 million in converted equity and the $50 million in debt financing expected in November and December 2009, and assuming that all of Hoku’s customers meet their future prepayment commitments in full, Hoku will have secured approximately $319 million in financing, leaving a funding gap of $71 million. The Company expects to fill this gap with additional debt financing, prepayments from new customers, or possibly from U.S. Federal loan guarantees and other qualified renewable energy incentive programs.

“With Tianwei’s declaration to assist us in securing the remaining funds, we do not plan to commit to a particular strategy for the final tranche of financing until we have begun commercial operations,” said Mr. Shindo. “Because the plant is expected to be operational by the time we need to secure these funds, we believe we will have a wide range of available financing choices, including, possibly, Federal loan guarantees and other qualified renewable energy incentive programs.”

Hoku Solar Update

The Company’s wholly owned subsidiary, Hoku Solar, Inc., markets, sells and installs turnkey photovoltaic, or PV, power systems in Hawaii.

Commenting on Hoku Solar, Mr. Shindo said, “During the second quarter of fiscal 2010, Hoku Solar completed roof-mounted PV installations for customers on Oahu and Hawaii Island, and completed the first full quarter of operations for the seven PV systems installed on Hawaii Department of Transportation (HDOT) facilities throughout the state. In aggregate, the HDOT systems were performing at 99% of projected output, which includes some downtime for system commissioning.”

“Hoku Solar continues working to expand our project pipeline,” said Mr. Shindo. “Conditions for market expansion continue to improve in Hawaii, with the recent announcement of a tiered feed-in-tariff rate structure that contemplates an off-take rate for large-scale generating facilities throughout the state. This, plus the refundable State Energy Tax Credit creates a very favorable opportunity for distributed solar generating facilities, a market which we will continue to aggressively explore.”

Summary

Mr. Shindo summarized the Company’s progress saying, “Thanks to the support of our vendors, partners, and customers, we are on a clear path to polysilicon production in Pocatello, and we have been able to refocus our efforts in all of our business units. Considering this, along with the broader signs of improvement in the solar industry — including an incremental strengthening of demand in solar and a stabilizing of polysilicon market prices — we believe we are well-positioned to bring our solar industry strategy to fruition.”

Conference Call Information

Hoku Scientific has scheduled a conference call on Thursday, October 22, 2009 at 5:00 p.m., Eastern Time, to discuss results for the Company’s second quarter fiscal year 2010 ended September 30, 2009 and the Company’s business outlook. All interested parties are invited to call-in. To participate, please call (719) 325-4907. A live webcast can also be accessed by going directly to the Company’s web site at http://www.hokucorp.com and selecting the conference call link on the home page. A playback of the webcast will be available on the Company’s website until the Company’s conference call to discuss its financial results for its third quarter fiscal year 2010.

                       HOKU SCIENTIFIC, INC.
               CONSOLIDATED STATEMENTS OF OPERATIONS
                           (Unaudited)
          (in thousands, except share and per share data)

                              Three Months Ended       Six Months Ended
                                September 30,           September 30,
                            ----------------------  ----------------------
                               2009        2008        2009        2008
                            ----------  ----------  ----------  ----------
Service and license revenue $    1,498  $    1,638  $    1,572  $    3,824
Product revenue                     --         232          --         254
                            ----------  ----------  ----------  ----------
Total revenue                    1,498       1,870       1,572       4,078
                            ----------  ----------  ----------  ----------

Cost of service and license
 revenue(1)                      1,410       1,320       1,424       2,812
Cost of product revenue             --         176          --         208
                            ----------  ----------  ----------  ----------
Total cost of revenue            1,410       1,496       1,424       3,020
                            ----------  ----------  ----------  ----------

Gross margin                        88         374         148       1,058

Operating expenses:
Selling, general and
 administrative (1)              1,539       1,060       2,604       2,304
                            ----------  ----------  ----------  ----------
Total operating expenses         1,539       1,060       2,604       2,304
                            ----------  ----------  ----------  ----------

Loss from operations            (1,451)       (686)     (2,456)     (1,246)

Interest and other income
 (loss)                            217        (687)        302          51
                            ----------  ----------  ----------  ----------

Net loss                        (1,234)     (1,373)     (2,154)     (1,195)
Net loss attributable to
 noncontrolling interest            (3)         --         (18)         --
                            ----------  ----------  ----------  ----------

Net loss attributable to
 Hoku Scientific, Inc.      $   (1,231) $   (1,373) $   (2,136) $   (1,195)
                            ==========  ==========  ==========  ==========

Basic net loss per share
 attributable to Hoku
 Scientific, Inc.           $    (0.06) $    (0.07) $    (0.10) $    (0.06)
                            ==========  ==========  ==========  ==========

Diluted net loss per share
 attributable to Hoku
 Scientific, Inc.           $    (0.06) $    (0.07) $    (0.10) $    (0.06)
                            ==========  ==========  ==========  ==========

Shares used in computing
 basic net loss per share   21,018,162  20,454,235  21,012,129  19,933,107
                            ==========  ==========  ==========  ==========

Shares used in computing
 diluted net loss per share 21,018,162  20,454,235  21,012,129  19,933,107
                            ==========  ==========  ==========  ==========

(1) Includes stock-based
 compensation as follows:
Cost of service and license
 revenue                    $        3  $        3  $        7  $        7
Selling, general and
 administrative                    269         257         428         721



                             HOKU SCIENTIFIC, INC.
                         CONSOLIDATED BALANCE SHEETS
                      (in thousands, except share data)

                                              September 30,
                                                  2009         March 31,
                                               (unaudited)       2009
                                              -------------  -------------
                Assets
Cash and cash equivalents                     $       9,111  $      17,383
Inventory                                               302          1,549
Accounts receivable                                     102            420
Costs of uncompleted contracts                          667            108
Other current assets                                    491            226
                                              -------------  -------------
    Total current assets                             10,673         19,686
Property, plant and equipment, net                  267,689        204,525
                                              -------------  -------------
    Total assets                              $     278,362  $     224,211
                                              =============  =============
         Liabilities and Equity
Accounts payable and accrued expenses         $      60,596  $      38,191
Deferred revenue                                         12            784
Deposits- Hoku Solar                                     --            158
Deposits- Hoku Materials                              6,194            375
Other current liabilities                               223            446
                                              -------------  -------------
    Total current liabilities                        67,025         39,954
Long-term debt (Deposits-Hoku Materials)            158,806        133,625
                                              -------------  -------------
    Total liabilities                               225,831        173,579
                                              -------------  -------------
Commitments and Contingencies
Equity:
  Preferred stock, $0.001 par value.
   Authorized 5,000,000 shares; no shares
   issued and outstanding as of September
   30, 2009 and March 31, 2009.                          --             --
  Common stock, $0.001 par value. Authorized
   100,000,000 shares; issued and
   outstanding 21,397,078 and 21,092,079
   shares as of September 30, 2009 and March
   31, 2009, respectively.                               21             21
Additional paid-in capital                           66,208         65,780
Accumulated deficit                                 (17,305)       (15,169)
                                              -------------  -------------
    Total Hoku Scientific, Inc. shareholders�
     equity                                          48,924         50,632
                                              -------------  -------------
Noncontrolling interest                               3,607             --
                                              -------------  -------------
    Total equity                                     52,531         50,632
                                              -------------  -------------
    Total liabilities and equity              $     278,362  $     224,211
                                              =============  =============



                         HOKU SCIENTIFIC, INC.

    Reconciliations from GAAP Net Loss and GAAP Net Loss per share to
          Non-GAAP Net Loss and Non-GAAP Net Loss per share
                             (Unaudited)
           (in thousands, except share and per share data)


                                    Three Months Ended   Six Months Ended
                                         Sept 30,            Sept 30,
                                    ------------------  ------------------
                                      2009      2008      2009      2008
                                    --------  --------  --------  --------
GAAP net loss attributable to Hoku
 Scientific Inc.                    $ (1,231) $ (1,373) $ (2,136) $ (1,195)
Stock-based compensation expense         272       260       435       728
                                    --------  --------  --------  --------

Non-GAAP net loss attributable to
 Hoku Scientific Inc.               $   (959) $ (1,113) $ (1,701) $   (467)
                                    ========  ========  ========  ========

GAAP basic net loss per share
 attributable to Hoku Scientific,
 Inc.                               $  (0.06) $  (0.07) $  (0.10) $  (0.06)
Basic stock-based compensation
 expense per share                      0.01      0.02      0.02      0.04
                                    --------  --------  --------  --------

Non-GAAP basic net loss per share
 attributable to Hoku Scientific,
 Inc.                               $  (0.05) $  (0.05) $  (0.08) $  (0.02)
                                    ========  ========  ========  ========

GAAP diluted net loss per share
 attributable to Hoku Scientific,
 Inc.                               $  (0.06) $  (0.07) $  (0.10) $  (0.06)
Diluted stock-based compensation
 expense per share                      0.01      0.02      0.02      0.04
                                    --------  --------  --------  --------

Non-GAAP diluted net loss per
 share, attributable to Hoku
 Scientific, Inc.                   $  (0.05) $  (0.05) $  (0.08) $  (0.02)
                                    ========  ========  ========  ========

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