Hoku Scientific, Inc. has provided an update on the status of its contact with the U.S. Navy. Hoku announced on January 19, 2006 that, along with partner IdaTech, it would begin manufacturing 11 fuel cell systems, 10 of which will be field tested by the U.S. Navy over a twelve-month period. This manufacturing and demonstration agreement is the result of Hoku’s successful completion of all milestones in its initial contract with the U.S. Navy.
Dustin Shindo, chairman, president and chief executive officer of Hoku Scientific said, “We are working with the U.S. Navy to finalize the demonstration site selection, preparation and logistics, which is taking longer than we had previously anticipated. In addition, although we have achieved all of our initial Navy contract milestones on time, including the successful demonstration of our Hoku MEA in the IdaTech fuel cell stack and system generating in excess of 1-kilowatt of electrical power in December 2005, we have not yet run an IdaTech fuel cell stack incorporating our Hoku MEA for a prolonged period of time. As we previously announced, this fuel cell demonstration program is our first opportunity to publicly demonstrate Hoku MEA in full-size fuel cell systems operating under real-world conditions. Therefore, we are taking advantage of the delays in finalizing the site selection to conduct further internal testing and evaluation of the continuous runtime of our Hoku MEA in the IdaTech fuel cell stacks and systems. IdaTech has begun manufacturing the fuel cell systems for the 12- month demonstration, and we expect to finalize the site selection and preparation, complete the additional testing and deliver the first systems to the U.S. Navy by this summer.”
As a result of the delay in the commencement of the Navy demonstration system installations, Hoku is revising its revenue guidance for the fourth quarter ending March 31, 2006, to $1.4 million. Fluctuations in quarterly revenue are expected to continue in future periods due to uncertainty regarding the level and the timing of revenue from customer contracts and achievement of contract milestones.
In March 2005, Hoku Scientific was awarded a contract by the U.S. Navy to develop and demonstrate a PEM fuel cell power plant prototype that incorporates Hoku Scientific’s Hoku MEA within IdaTech’s fuel cell stacks and integrated fuel cell systems. Under the contract, the U.S. Navy agreed to pay Hoku Scientific up to an aggregate of $2.1 million if and when the Company completed specified testing and performance milestones, which it has now done.
On September 30, 2005, Hoku Scientific and the U.S. Navy entered into an Amendment of Solicitation/Modification of Contract pursuant to which the U.S. Navy exercised its two options under the PEM fuel cell demonstration contract. The amendment to the contract provided that when Hoku Scientific successfully met the remaining milestones in its contract, the U.S. Navy will purchase 11 demonstration-ready fuel cell systems for a total of $1.1 million in installments payable as each fuel cell power plant is completed. In December 2005, the Company achieved the remaining milestones in its initial contract.
The second option provides that Hoku Scientific will operate and maintain 10 of the 11 fuel cell power plants purchased under the first option for a period of 12 months at a U.S. Navy facility, for which the U.S. Navy has agreed to pay the Company a total of $1.4 million in monthly installments.
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