DayStar Technologies Inc. F3Q09 Earnings Call Transcript

| About: DayStar Technologies, (DSTI)

DayStar Technologies Inc. (NASDAQ:DSTI)

F3Q09 Earnings Call

November 13, 2008 at 5:00 pm ET


Alexis Pascal - Investor Relations

Stephen DeLuca - Chief Executive Officer and Director

William Steckel - Chief Financial Officer

Patrick Forkin - Vice President of Corporate Development


Dale R. Pfau - Cantor Fitzgerald

Colin Rusch - American Technology Research

Adam Krop - Ardour Capital Investments


Good afternoon and welcome to the DayStar third quarter financial results conference call. At this time, all participants are in a listen only mode. (Operator Instructions). Today’s conference is being recorded. If you have any objections, you may disconnect at this time.

I will now turn the call over to Alexis Pascal, who will introduce today’s speakers.

Alexis Pascal

Thank you and welcome everyone to the DayStar Q3 financial results conference call. The speakers today will be Dr. Stephen DeLuca, the Company’s Chief Executive Officer, and Bill Steckel, the Company’s Chief Financial Officer.

Before we begin I would like to remind you that some of the comments we will make on this call are forward-looking including without limitations statements regarding expectations of further technological development, timing and technological technical and financial ability to scale to production capacity and complete the build-out of the production facilities and timing and ability to secure additional financing. Given the current market turmoil, we cannot provide assurance that such financing will be available on terms favorable to the Company whereof. If we fail today’s adequate funds on terms acceptable to us, we will be required to delay or terminate certain of our scale and commercialization activities and otherwise scale back our operations. These statements are only predictions based on assumptions that are believed to be reasonable at the time they are made and are subject to significant risks and uncertainties. You should not rely on any forward-looking statements as representing our views in the future and we undertake no obligation to publicly update or revise these statements. Our actual results may differ materially and adversely from any projections and forward-looking statements discussed on this call. Our annual report on Form 10K-SB and other forms on file with the SEC identify important risk factors and uncertainties that you should consider and that may affect whether our forward-looking statements prove to be correct.

I will now turn the call over to Dr. Stephen DeLuca. Steve?

Stephen DeLuca

Thanks Alexis and thanks to all of you for joining us today. I am here today with Bill Steckel, our Chief Financial Officer and Patrick Forkin, our Vice President of Corporate Development. Bill will be presenting the financial results, but let me start with a few comments on our operational progress.

As a reminder, we held an operation update call just four weeks. On that call we stated that all of our Q3 technical goals were met and that we are focused on successfully scaling up our single step deposition process. Since that call, we have continued to run Big Baby and we have achieved greater than 12% cell efficiencies on our 2’ by 4’ substrates. And our Newark California fab, we have continued to build out our first production CIGS deposition tool. We expect to have a capability to produce full 2’ by 4’ modules in Q1 2009 as we begin operation of the production tool. We are maintaining our timeline to commence commercial shipments in Q3 2009.

Based on the progress we have made to date, we believe we can produce modules at a cost of approximately a dollar per watt and 100-megawatt scale. It is advantageous for us to get there as fast as we can in order to capitalize on growing demand for high efficiency, low cost PV modules. We are actively working to bring in strategic partners to finance the expansion of our manufacturing capabilities.

Bill will now take you to our financial results. Bill?

William Steckel

Thank you, Steve. I would also like to thank everyone for joining us on today’s call. I will review our financial results for the third quarter before turning the call back over to Steve.

I encourage all shareholders to review the details of our operations and financial condition that will be disclosed on Form 10-Q which we will file with the SEC this week. Now, let us review our results for the third quarter.

Our net loss in the third quarter of 2008 was $6.7 million or a loss of $0.20 per share. This compares with a net loss of $3.8 million or a loss of $0.25 per share in the third quarter of 2007. The per share loss was calculated on the weighted average common shares outstanding of 33.3 million this year compared with 15.2 million last year reflecting our Q4 ’07 secondary offering. The increased loss mainly reflects higher operating expenses for commercialization of CIGS-on-glass module and manufacturing processes.

Specifically, within operating expenses we incurred $5.1 million in research and development cost during the quarter, an increase of $2.9 million or 131% compared with the third quarter of 2007. The increase reflects the continued ramp of personnel costs and other spending for the development of our CIGS-on-glass modules and the manufacturing processes we will utilize in our new factory. The higher costs were primarily due to the addition of key personnel, consumable tools and supplies, and share based compensation expense.

Selling, general and administrative expenses in the third quarter were $2 million, an increase of $893,000 or 79% compared with the same quarter last year. The increase was primarily due to personnel costs to support our progress toward commercialization of our CIGS-on-glass modules.

Total other income was $1.2 million compared with $478,000 in the third quarter of last year. Interest income increased by $224,000 due to the higher cash balances from our secondary offering in Q4 of last year and we no longer incurred amortization of note discount and financing costs which was an expense of $94,000 last year. Our gain on derivative liabilities was $927,000 or 42% increased compared to Q3 ’07. As a reminder, the derivative warrant liability on our balance sheet must be adjusted to fair market value each quarter. A decrease on our stock price during the quarter results decrease on the warrant liability and a related gain on derivative liabilities.

On a year-to-date basis, our net loss for 2008 was $18.5 million or a loss of $0.56 per share. This compares with a net loss of $28.1 million or a loss of $1.97 per share in 2007. The per share loss was calculated on weighted average common shares outstanding of $33.1 million this year compared with $14.2 million last year, again, reflecting our Q4 ’07 secondary offering.

Operating expenses increased by $5.7 million or 37% on a year-over-year basis. However, the year-to-date loss for 2007 also included significant non-cash costs for the restructuring and ultimate conversion to equity of a $15 million convertible note. The increase on ongoing operating expenses reflects commercialization efforts for our CIGS-on-glass module and manufacturing processes.

Turning to the balance sheet, we have $34.4 million in cash, cash equivalents and short term investment at September 30, 2008 compared with $47.9 million at the end of the second quarter. We continue to invest all of our excess cash in treasury instruments insured by the US government. We have total liabilities of $8.1 million reflecting our increase commercialization activities and total stock holders equity was $50.2 million at the end of the third quarter of 2008.

During the third quarter we have spent net cash of approximately $3.8 million for operating expenses, while we invested $9.5 million in capital additions. As we have stated in previous conference calls, our capital investments increased in accordance with our plan to ramp for commercial production.

Our capital spending is increased from $1 million in the first quarter to $4.5 million in the second quarter and $9.5 million on the third quarter of this year in line with our plans. In total, our cash usage in the quarter was $13.4 million compared with the cash usage of $8.4 million on the second quarter.

We believe that our current cash on hand gives the ability to produce limited quantities of complete 2’ by 4’ CIGS on glass modules in the first quarter of 2009. We will require substantial funds beyond our current cash on hand in order to fully build out and operate our first production line and to further expand our manufacturing capacity beyond the initial 25 megawatts of output we expect to generate from that line.

Credit in equity markets remains challenging, but we have taken concrete steps to evaluate financing strategic and partnering alternatives.

If additional financing cannot be secured, we are prepared to take appropriate measures to preserve our cash on hand while focusing on producing 2’ by 4’ CIGS on glass module using our proprietary deposition tool.

That completes my review of the financial information for the third quarter. At this time I will turn the call back over to Steve.

Stephen DeLuca

Thanks bill. I just want to summarize, we are confident that our core CIGS deposition technology is ready for commercialization. We have demonstrated that our one step spatter deposition process give high efficiency CIGS cycle.

We have demonstrated the successful scale up of the process with the Big Baby and we are constructing our first manufacturing facility around that technology. We are addressing our capital needs by actively working to bring in strategic partners that will allow us to expand our manufacturing capability.

Now, we are happy to take your questions.

Question-and-Answer Session


(Operator Instruction) Your first question comes from Dale R. Pfau of Cantor Fitzgerald. Your line is open.

Dale R. Pfau - Cantor Fitzgerald

Good afternoon gentlemen, a few questions here, number one, you said you are hitting 12% sale efficiencies. Would you extrapolate that for me Steve, and tell me what you expect you might get on modules?

Stephen DeLuca

As you know, at this point time, we do not have the ability to create a full module. We do not have the complete tool set to do a complete two foot by four foot module yet. What we have to do is, look at the sell level and with that 12% selling efficiency. One would expect to have something like 10.5% to 11% module efficiency.

Dale R. Pfau - Cantor Fitzgerald

Next question on the financing, I know you are in the process of talking to strategic and so on and Bill mentioned you are prepared to do some other things if that is not available. Have you determined when you are kind of drop dead date is that you need to have something on the books by]?

Stephen DeLuca

We are not giving a guidance on our cash spend going forward. Let me put it that way. We have contingencies, we have provided for the contingencies and as we said, we are working hard to bring in some capital that will allow us to really expand our manufacturing capability.

Dale R. Pfau - Cantor Fitzgerald

Could you tell me what you’ve got outstanding now in purchase order commitment for capital equipment?

Stephen DeLuca

Right now, it is about $24 million Dale.

Dale R. Pfau - Cantor Fitzgerald

And most of that equipment is slated to come in between now and probably mid first quarter and the first quarter?

Stephen DeLuca

No, that flows in to next year actually; those commitments are covered well into next year.

Dale R. Pfau - Cantor Fitzgerald

Housekeeping, Bill could you give me what your total share base compensation expense was in the quarter?

William Steckel

Yes, we can get that.

Dale R. Pfau - Cantor Fitzgerald

You can give it to me later or shoot it to me on that. Maybe you can talk, Steve, just a little bit about because of the current financial conditions out there. How your discussions are going with strategic out there and maybe how many different parallel pass you have got going?

Stephen DeLuca

Well let me just talk about what we are doing here. We are talking to a number of people in different segments but the kind of communally is we are talking to people who understand DayStar’s value proposition and that is having access to low cost high efficiency CIGS panels in the short term, right on the very near future. Those are the kinds of companies we are talking to, people who are interested in that value proposition.

We have a process ongoing now, we are not going to talk about that process, but that is what we are up to right now.

Dale R. Pfau - Cantor Fitzgerald

One last question before I turn over. Could you remind us again when you are going to complete qualification in certification?

Stephen DeLuca

What we have scheduled, we have started that process. Once we have the complete module, we can test all the individual components and so far, all of those tests are working well.

When we have complete modules, we will submit those for testing and we would expect to have those completed by the time we ship products, which again we are expecting to be a Q3.

William Steckel

Dale, this is Bill. Then the number you are looking for on share based compensation was $1.1 million for the quarter.


Your next question comes from Colin Rusch - American Technology Research

Colin Rusch - American Technology Research

Good afternoon. Can you give an update on how far along you are up selling CIGS 1 and the rest of your manufacturing line, then if you could address the issue of list within the available leases for much about net balance plan?

Stephen DeLuca

So the CIGS 1 is now all of the chambers are on the floor. The system pump down, the initial pump down has been done. It is on the wrecking, well today’s not on the wrecking but we have it on the wrecking for how we are installing all of the transports and the electronic components and all those are being installed in the system now.

It is well underway and on schedule to have that CIGS 1 tool ready to go. We are metering the rest of the tool sets that are going to be put on the floor. We have all the equipment that we need on order and we expect to have it, as we said, in the capability to make complete modules in Q1.

You asked about equipment leasing? We are not working on it, we are not going to comment right now on a specific leasing program that will… So, I cannot comment on that right now.

Colin Rusch - American Technology Research

And when are you going to start running your first test pieces of glass through CIGS 1?

Stephen DeLuca

Our schedule is to do that before the end of this year.

Colin Rusch - American Technology Research

Just to, kind of pressure you as about the strategic partners that you are talking with. How shall we think about that going forward? I see that is critical issue. There is a lot of technology value with the company and the real risk is the ongoing operation of the company in the manufacturing base. So, is this something that you are hotly pursuing, and keep the level of interest from these parties at this point?

Stephen DeLuca

There is a formal process that we are going through at this point. Again, I cannot comment on any details about that process. I cannot comment on who we are talking to or what the different deals might look like. But, what I can tell you is there is a formal process that we are going through to assess the opportunities there.


Your next question comes from Adam Krop - Ardour Capital Investments.

At this time we have no further questions.

Stephen DeLuca

The question was dropped? He lost his line, okay.

Okay, if there are no more questions then, I would like to thank everybody for joining us today and goodbye for now.


Thanks for participating in this conference and if you may disconnect.

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