Reid also sees a bright future. "Right now regular solar cells are experiencing tremendous supply problems; the industry is sold out until 2007," he says. "At the same time about 19 states have mandated that electricity producers must currently generate some power from green sources."
Solar Flair in Halfmoon
By Lawrence Carrel Published: June 9, 2005
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DayStar Technologies, Inc. (DSTI)
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Share price as of Wednesday's close: $6.88
Share price now: $11.09
Change: 61.2%
Volume: 3.9 million shares, daily average 197,100 shares
Last time this high: All-time high
52-week high: $8.90
52-week low: $1.43
Forward P/E before announcement: n/a
Forward P/E after announcement: n/a
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EXXON MOBIL (XOM) shares gained 3% Thursday as crude prices topped $54 a barrel. But the hottest play on costly energy traded on the Nasdaq, where shares of DayStar Technologies (DSTI) sparkled.
The designer of silicon-free solar-power cells just signed its first big commercial contract. Traders enthralled by the technology's potential and the tiny stock's momentum bid it up 61% to an all-time high of $11.09.
Blitzstrom, a leading European maker of solar power equipment, agreed to buy DayStar's TerraFoil cells through 2008. The pact could be worth up to $60 million based on current market prices for photovoltaic cells, according to the company.
"This is a big deal for them. DayStar hasn't sold a thing yet and now it's hooking up with a serious partner," says Kenneth Reid, editor of Spear's Security Industry Analyst. He is following DayStar because of its technology's potential to power surveillance drones. "In addition to using DayStar products as is, it looks like Blitzstrom is going to incorporate some of DayStar's technology into its existing product line."
DayStar, based in Halfmoon, N.Y., designs low-cost, high-efficiency photovoltaic (PV) cells that convert sunlight into energy. Its patented processes make silicon-free Copper Indium Gallium Selenide (CIGS) cells and deposits them onto lightweight flexible metal foils and substrates. DayStar Chairman and Chief Executive John Tuttle pioneered commercial applications of the 20-year-old CIGS technology when he worked at the Department of Energy's National Renewable Energy Laboratory, according to the company.
DayStar believes its TerraFoil, an alternative to wafer silicon solar cells, can produce electricity at competitive rates and without some of the drawbacks of the fragile silicon wafers.
Silicon's main problem is that it's also needed by the fast-growing chip industry, which enjoys higher margins and can therefore pay a higher price. DayStar hopes to capitalize on the current world-wide shortage of the material.
Alternative energy suppliers are enjoying quite a growth spurt of their own. According to PV News, a monthly newsletter for the photovoltaic industry, the industry has grown about 40% annually for the past six years, posting sales for installed systems of $7.4 billion in 2004. That is expected to grow to at least $24 billion by 2010.
Peter Lynch, the former head of business development for DayStar and currently a consultant to the company, says it has identified 48 projects around the globe that require its type of solar cell.
Reid also sees a bright future. "Right now regular solar cells are experiencing tremendous supply problems; the industry is sold out until 2007," he says. "At the same time about 19 states have mandated that electricity producers must currently generate some power from green sources."
DayStar will begin shipments to Blitzstrom in the third quarter and continue monthly, increasing in volume through 2008. The company expects contract costs to exceed revenues until it updates its production line, likely by the end of 2006.
Production constraints are one of DayStar's biggest issues. The nine-year-old company can currently manufacture less than one megawatt worth of cells a year. It expects to ramp up to as many as two megawatts by the middle of next year. By 2008, Day Star hopes to be making enough cells to generate 50 megawatts.
But those plans highlight DayStar's other problem, financing. The microcap company still has no timetable for turning a profit.
For 2004, DayStar posted a net loss of $4.7 million on revenues of $157,412. As of March 31, it had $2.2 million in cash after posting a first-quarter net loss of $1.4 million on revenues of just $34,597.
DayStar went public in February 2004. At the time, it sold 2.1 million warrants exercisable at $6 and 4.2 million warrants exercisable at $10.
"It has always been our business plan to augment our finances through various mechanisms, and we are working on those as we speak," says Tom Polich, DayStar's general counsel. "We have no immediate plans to do a secondary offering. However, the $6 warrants are callable at $8.50 and we plan to call them in. That will bring $10 million to $12 million. But as we advance the technology, hopefully that will draw more funding sources to us."
"I think the CIGS technology has the potential to become the lowest-cost solar-generating technology," says David Kurzman, general partner of Kurzman Partners, a New York hedge fund. "But it does have some drawbacks, such as capacity. It's not commercially available in quantity. Today's announcement provides visibility up to 30 megawatts of backlog through 2008. It will give DayStar a substantial leg up to its efforts to reach profitability, which I suspect it could reach with well under 25 megawatts of production per year." Kurzman, a former Wall Street analyst of renewable energy technologies, has considered investing in DayStar but decided to hold off for now.
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"Considering the significant costs to ramp up production, I forecast it could hit profitability in 2007," says Kurzman. "But it has to get these warrants converted quickly. If the warrants don't bring in enough money DayStar could face a cash crunch by the end of the year. I suspect it would be in its best interest to raise some more money in the next one to two years to get some Wall Street sponsorship. It has the technology and the people, so it's a good start. But, I'm not investing my money in this yet. It needs sufficient free cash flow to be a good sustainable investment. It's a matter of executing on the business plan."
Neither Kurzman nor Reid owns DayStar shares. Kurzman Partners and Spear's Security Industry Analyst don't have a business relationship with the company
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