Financial Results

Revenue for the quarters ended June 30, 2009 and 2008 was $74,000 and $2.2 million, respectively, derived primarily from photovoltaic, or PV, system installation and related service contracts. As of June 30 and March 31, 2009 deferred revenue of $1.1 million and $784,000, respectively, was attributable to PV system installation projects and related service contracts.

Net loss, computed in accordance with U.S. generally accepted accounting principles, or GAAP, for the quarter ended June 30, 2009 was $905,000, or $0.04 per diluted share, compared to net income of $178,000, or $0.01 per diluted share, for the same period in fiscal 2009.

Non-GAAP net loss for the quarter ended June 30, 2009 was $741,000, or $0.03 per diluted share, compared to non-GAAP net income of $646,000, or $0.03 per diluted share, for the same period in fiscal 2009. Non-GAAP net loss for the quarter ended June 30, 2009 and non-GAAP net income for the quarter ended June 30, 2009 excludes non-cash stock-based compensation of $164,000 and $468,000, respectively. The accompanying schedules provide a reconciliation of net income / (loss) per share computed on a GAAP basis to net income / (loss) per share computed on a non-GAAP basis.

Dustin Shindo, chairman, president and chief executive officer of Hoku Scientific, said, "We continued to make progress in our solar and polysilicon businesses during the first quarter of fiscal 2010. We advanced our solar integration business in Hawaii and -- although we were required to modify our approach -- continued to make progress toward the completion of our polysilicon production facility in Pocatello, Idaho."

Business Updates

Hoku Materials Polysilicon Plant Update

Commenting on the Company's polysilicon subsidiary, Hoku Materials, Inc., Mr. Shindo said, "As announced previously, we took steps to temporarily slow construction and procurement efforts in Idaho because it has taken longer than expected to identify the remaining financing for our polysilicon plant. This was a necessary strategic step for us to complete the project, and an option we could pursue thanks to the support of our customers, vendors, and partners."

Hoku had previously reported that it had ordered a slowdown of construction and procurement in Pocatello, but clarified that this was not a complete stoppage of work. The Company explained that its primary partners, including J.H. Kelly, would keep staff on site in order to be prepared to ramp back up quickly, including continuing to receive select pieces of equipment. In addition, Hoku reported that it did not expect to make any layoffs, and that it would continue training the first group of plant operators who were hired in June 2009.

"Hoku Materials has identified a number of potentially viable sources of financing, but we recognize that it will require a few more months to evaluate all options and negotiate the right deal," Mr. Shindo said. "As a result, we decided to take the prudent course of slowing down construction and procurement activities to reduce our cash outflow, at least until we have better visibility on the sources and timing of receipt for the remaining funds."

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 discussion 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.

Hoku had received $160 million in prepayment deposits from its current customers as of June 30, 2009, and in July 2009, received subsequent prepayments from Jinko Solar in the amount of $2 million, for a total of $162 million received to date. As of June 30, 2009, construction-in-progress for the project was $243 million.

Hoku's customers have committed to make $228 million in contractual prepayments. Depending on the timing of Hoku's completion of certain milestones, Suntech Power may pay an additional $15 million, bringing the total amount of customer commitments to $243 million. Considering that Hoku has already contributed $41 million of its available cash, and assuming that all of Hoku's customers meet their prepayment commitments in full, a funding gap of between $106 million and $121 million remains.

This additional capital is required to fully fund the estimated $390 million construction budget, but Hoku reported that it expected to resume construction and procurement efforts at full pace once it had secured the first $30-$50 million of the remaining amount. Hoku noted that it had already developed a plan to defer some capital expenditure by purchasing TCS from a third party for the plant's start-up and initial production runs. In addition, the Company said it had flexibility in its delivery requirements such that, if required, Hoku could operate the plant at an interim capacity of less than 4,000 metric tons per year. This would allow further deferment of some costs, including the procurement of the Company's full order of 28 polysilicon deposition reactors, among other equipment.

The Company said it is actively working to identify the remaining funds through a combination of sources, including prepayments from new customers, and one or more debt or equity financing strategies.

"Although we have retained Deutsche Bank Securities, Inc. as our financial advisor in matters related to a possible merger or sale of Hoku, this type of transaction is just one possible means of obtaining the final piece of financing for our plant; it is not the only possibility," said Mr. Shindo. "Since we have no structured debt on the project, we believe we have quite a bit of flexibility in our approach, and we continue to see a wide spectrum of possible solutions, ranging from debt and equity investments on one end, to strategic merger or acquisition at the other."

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 first quarter of fiscal 2010, Hoku Solar completed ground and roof-mounted PV installations for Dowling Company on Maui, and commissioned all seven photovoltaic systems installed on Hawaii Department of Transportation (HDOT) facilities throughout the state. In aggregate, these HDOT projects total nearly a megawatt of clean solar power generating capacity, and represent the largest collective PV installation to date on Hawaii state government facilities. The projects are also significant because they are among the very few solar power systems installed in Hawaii using third-party financing, and they reflect Hoku Solar's ability to simultaneously complete several installation projects on multiple islands. Going forward, Hoku Solar will continue to operate these systems under the terms of power purchase agreements with the state of Hawaii."

"Hoku Solar remains committed to providing our customers with the highest quality turnkey solar power systems, and we continue working to expand our project pipeline," said Mr. Shindo. "During the first quarter of fiscal 2010, among other projects, we were very pleased to commence the installation of a solar power system in Hilo for the County of Hawaii. We expect to complete that installation in the second quarter of fiscal 2010, and we are increasingly optimistic about the potential market benefits of the newly-passed refundable state tax credit contained in Hawaii's Act 154. We believe this change could be helpful in attracting additional investment to solar power projects in the islands."

"Thus, even as we focus on securing the remaining funds for Hoku Materials, I expect to continue investing in our Hawaii business," concluded Mr. Shindo.