Market Comments Submitted by Nick at Ambitions as a Stock Trader

Sumbmited From Knobias ClipReport

HOKU: Announces Deadline Extension Agreement with SANYO

Tuesday’s session saw the Dow give up almost 100 points as continued oil price spikes and housing worries dominated talk during the day. With earnings season in full swing this week, analysts were also watching some of the names report softer than expected numbers causing many to feel the housing slump is having a broader and longer term impact on the normally resilient consumer.

In the small cap space, alternate energy was again an area of interest, especially considering the recent hoopla involving LDK Solar Company Limited (LDK). The quick synopsis involves a successful IPO which many on Wall Street believe was based on the incorrect numbers provided by the company’s accounting department involving inventory which should have been written off but wasn’t to promote higher asset levels. An ex employee brought the proposed inaccuracies to the light of many, including the SEC, whose value has been stripped from the market cap almost ten times over.

The entire story involves a ‘he said, she said’ finger pointing battle between management of a growing company in a highly prosperous market and an ex employee who may or may not be blowing the proverbial whistle on accounting shenanigans. Again, the story is entertaining if one has no stake, but a real dread if one did because of the amount of manipulative action in the shares over the past weeks.

In any event, another solar player reported some news after the bell that also should have shares down a bit. Hoku Scientific, Inc. (HOKU) announced that it had amended its polysilicon reactor contract with GEC Graeber Engineering Consultants GmbH, and MSA Apparatus Construction for Chemical Equipment Ltd. to include an option for Hoku Materials to purchase additional reactors to enable the production of up to an additional 500 metric tons of polysilicon per year, which if exercised would bring Hoku's total polysilicon production capacity to up to 2,500 metric tons per year.

This portion of the release was a positive for the Company. They are attempting to be proactive for equipment which could be needed if they reach plant capacity and are attempting to expand.

Additionally, the Company and SANYO Electric Company, Ltd. have amended their polysilicon sales agreement by extending Hoku Materials' date to complete the financing to construct its polysilicon production plant until December 31, 2007.

This part of the agreement isn’t necessarily bad but isn’t exactly good either. Normally, parties would like the counter party to be able to deliver on each portion of contracts. In the particular case, SANYO had a take or pay deal with Hoku to secure financing for the construction of a multi million dollar polysilicon facility.

While SANYO has allowed Hoku to extend the deadline to secure this financing, will they be so generous come the end of the year if Hoku has still yet to capitalize? The answer is probably no, and with Hoku management hoping the Company can raise this capital through debt and not equity, the chance of raising the capital diminishes, especially considering the preliminary results for the quarter which were also released.

Hoku expects revenue of approximately $239,000 and a net loss of between $1.0 million and $1.2 million. In this credit environment, there probably aren’t too many banks or firms willing to lend a Company with these numbers, regardless of signed contracts, with millions and millions of dollars to construct facilities of which they have little experience in running.

The fact of the matter is that the Company has signed an enormous amount of contracts with nothing to produce the product. Though, the name still can raise the money and begin to collect some of the prepayments, the amendment of contracts isn’t a good sign. With that in mind, investors would be wise to watch.



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