Wednesday, December 13, 2006

Daystar Technologies NASDAQ:DSTI - To be or not to be?

If you follow, or invest in, Daystar Technologies (NASDAQ:DSTI) stock, you may be wondering about the long-term prospects for this company. Will they make it as a solar-cell player, or will they be unable to secure adequate funding to remain viable and/or competitive?

I have watched Daystar Technologies, Inc. stock for some time now, and have watched it rise from $2-3.00 range back in early 2005, to a peak of nearly $16.00 in mid-2005, through to its current slide to the $4.65 level. A lot of this stock's price chart can be correlated to the over-exuberance about alternative-energy and solar plays that took place during the massive oil price run up which started in 2005, followed by a corresponding realization that these solar companies in startup-mode (like Daystar) may not make a profit for quite some time, let alone even remain viable as a company if they can not obtain adequate financing for the capital-intensive manufacturing ramp-up they require to reach any real economy-of-scale production capacity.

Recently, it seems DSTI has come under quite a bit of selling pressure as the obviousness of the financing situation emerges. Apparently, one of the biggest investors of recent ( Castlerigg Master Investments Ltd., an offshore investment fund that has already provided about $15MM in funding to DayStar), has been backing off a bit when it comes to any future/continued investment into the company. Coupled with the recent departure of DayStar's founder (John Tuttle) and subsequent shuffling at the top of the management structure, there is certainly reason to take pause as an investor.

Now, let's put that aside for a bit and look at what DayStart Technologies has to offer as a company. DSTI is focused on providing low-cost, high-volume solar-electric photovoltaic (PV) cells, using patented technologies that employ a unique combination of Copper Indium Gallium diSelenide (CIGS) technology solar cells placed on flexible specialty metal foils. Their approach promises a few improvements over standard silicon solar-cells in that they will take require much less natural resources to product, not be dependent on high-quality silicon wafers (that are in short supply), and also be lightweight and flexible.

This all sounds great! And, DayStar seems to be have laid out some logical steps to execute their stated three-year mission of establishing themselves with a profitable manufacturing platform, expandable to Gigawatt scale, by 2008. Gigawatt scale! WOW! Assuming they reach that level of solar cell production, that would imply a capacity approximately equal to today’s combined worldwide manufacturing capacity for all PV solar cells! That could sure change the game for Solar Energy as a whole.

So, I look at their stock with both caution and excitement. I see inherent value in their patents and technology. I see potential for the alternative energy market as a whole, though I see our government doing little to promote it and instead wasting 100's of billions of dollars on oil-subsidies (yes, the war costs are oil subsidies in one way or the other -- the cost of protecting the steady flow of oil from the Middle East). When I look at DayStar's funding requirements to stay on plan, and the fact that an investment as tiny as $15MM from Castlerigg can even matter, I just sit shaking my head when I think how that $15MM is not even 1/30,000th of what our government has spent on the Iraq War. But, our government's priorities will likely not change, so DayStar will need to seek funding elsewhere: perhaps Bill Gates or the Google founders will see the light?

Next, as with ANY stock (especially startups), I keep a VERY close eye on management compensation and watch for what I call "self-awarded" excessive stock options and such. I am always concerned that the entire goal for many of these higher profile small startups (certainly not publicly stated) is simply to become a publicly traded stock and gain enough market liquidity whereby internal holders of said stock have a way to essentially "print stock" and convert that stock to cash,... regardless of the long-term impact on the stock price or the ramifications for the average investor that doesn't have the ability to simply "print more stock shares" to reap substantial returns. If all these senior-level managers in the company truly believe in their vision, then they need to forego the immediate "need" for cashing stock holdings out until the company is profitable and the stock is steady and solid enough for ALL investors (meaning, us the average stock holder) to reap rewards for taking risk too. I do not want to be viewed simply as a source for liquidity for insiders to dump their over-generous self-awarded shares onto. (this rant of mine is not about DSTI per se, but my concern that many, many companies, both small and large, are absolutely abusing the average shareholder these days by diluting stock through excessive "self awards").

So, DayStar executives, if you want to absolutely convince me that your company is a great investment, prove it by not selling your stock until you have achieved your stated goals for 2008, and have executed a plan that produces profits. You have the technology from what I can figure, and you have a team with skills in the Solar sector. Time to make some friends with a few wealthy individuals that can kick in $10 million or so apiece to keep your plan on track though! It's really not that much given how many ultra-rich entrepreneurs and individuals there are out there; you may want to focus on the more "liberal" or "green" ones, like StarBucks Howard Schultz, the Google guys, and so on.

I'll be watching DSTI, and who knows, if their stock's market capitalization goes much lower, I may start making a few calls myself and seeing if I can line up the cash to buy out the company and make sure the DayStar Technologies vision becomes reality. :)

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