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Hoku Scientific: Light Volume and Hefty Dilution Traditionally Don’t Mix

Hoku Scientific Inc. (HOKU) recently announced an equity distribution agreement with UBS Securities to sell up to $54 million worth of common stock by means of ordinary brokers’ transactions on the NASDAQ Global Market at market prices. The deal also calls for an additional $56 million in calendar year 2009 to complete the construction and engineering of its polysilicon production facility. At current prices, that would mean in the intermediate term about a little under 10 million shares hitting the market. Needless to say, that’s pretty significant considering that there are only 19.79 million shares outstanding and average daily trading volume has dipped to 438,922 shares. Traditionally that does not mix well with a hefty round of dilution, but this is might actually be worth a look from a contrarian investor point of view. Here’s why: from its mid-May high of $8.77, the stock was already down 33% in anticipation of the offering and it failed to break below the November 2007 low in the $5.80’s in the wake of the news, and given this solar name’s history, it has a tendency to spike up on some big contract news that could clean up on that equity offering pretty quickly.

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