1178336--6/29/2006--HOKU_SCIENTIFIC

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Risks Related to Our Business We have a limited operating history, and if we are unable to generate significant revenue, we may not maintain profitability. Our operating results have fluctuated in the past, and we expect a number of factors to cause our operating results to fluctuate in the future, making it difficult for us to accurately forecast our quarterly and annual operating results. If we are unable to obtain the necessary initial financing, supply contracts and licenses to intellectual property required to begin construction of PV cell and module, and polysilicon manufacturing capabilities we will not be able to form an integrated photovoltaic module business. Even if we achieve our initial PV module and polysilicon objectives on a timely basis and complete the construction of manufacturing facilities for PV cells, PV modules and polysilicon as currently planned, we may still be unsuccessful in developing, manufacturing and/or selling these products, which would harm our business. Industry-wide shortages or overcapacity in the production of polysilicon could harm our business. If we fail to improve our accounting systems and controls and financial reporting processes, we may be unable to comply with our reporting obligations as a public company and our stock price may decline. We expect to depend on Nissan and the U.S. Navy for substantially all our revenue for the foreseeable future, and if Nissan or the U.S. Navy terminates its contract with us, our business will be harmed. We experience long and variable sales cycles on our fuel cell products, which could negatively impact our results of operations for any given quarter. We may need to secure additional funding for our fuel cell business, and will need to raise approximately $250 million for our PV module and polysilicon businesses, and we may be unable to raise this additional capital on favorable terms or at all. If there are any adverse developments in our relationships with Sanyo or Nissan, our efforts to develop and market our fuel cell products could be delayed. If our fuel cell products, or PEM fuel cell products in general, do not achieve market acceptance, we may be unable to generate sufficient revenue to continue our operations. If our competitors are able to develop and market products that customers prefer to our products, we may not be able to generate sufficient revenue to continue operations. If we are unable to meet recommended government operating specifications, the market for our fuel cell products may be limited. Our business and industry are subject to government regulation, which may harm our ability to market our products. If the United States does not develop a new hydrogen production, delivery and refueling infrastructure, the market for fuel cell systems for the automotive market may not develop. If favorable government policies encouraging the adoption of fuel cell technologies are eliminated or reduced, market acceptance of our fuel cell products may be reduced or delayed. The reduction or elimination of government and economic incentives for PV modules and related products could reduce the market opportunity for our planned PV module products. Adverse events involving our fuel cell products or fuel cell systems could negatively affect consumer perceptions of us and the fuel cell industry. Defects in our products could result in a loss of revenue, unexpected expenses and harm to our business reputation. We may not be able to protect our intellectual property, and we could incur substantial costs defending ourselves against claims that our products infringe on the proprietary rights of others. The loss of any of our executive officers or the failure to attract or retain specialized technical and management personnel could impair our ability to grow our business. We may have difficulty managing change in our operations, which could harm our business. If we are unable to manufacture our fuel cell products efficiently in significant volumes, we may continue to incur losses. We rely on single suppliers and, if these suppliers fail to deliver materials that meet our quality requirements in a timely manner or at all, the manufacture of our fuel cell and solar products would be limited. We use materials that are considered hazardous in our manufacturing processes and, therefore, we could be liable for environmental damages resulting from our research, development or manufacturing operations. Any significant and prolonged disruption of our operations in Hawaii could result in production delays that would reduce our revenue. We have significant international activities and customers that subject us to additional business risks, including increased logistical complexity and regulatory requirements, which could result in a decline in our revenue. Our stock price is volatile and purchasers of our common stock could incur substantial losses. Anti-takeover defenses that we have in place could prevent or frustrate attempts by stockholders to change our directors or management.

Full 10-K form ▸

1178336--6/29/2006--HOKU_SCIENTIFIC_INC