Hoku Scientific Inc., the Kapolei firm that's building an Idaho-based polysilicon plant, said it's come up with a new $110 million financing plan for the facility after dissolving an agreement with Merrill Lynch to provide the money.

Hoku disclosed the financing setback yesterday, saying it and Merrill Lynch have mutually agreed to end discussions on a loan needed to fully fund the $390 million construction budget on the plant being built in Pocatello.

Hoku is building the facility to take advantage of the growing market for polysilicon, a material used in cells for photovoltaic panels as well as the production of computer chips. In December the company said it had signed a nonbinding term sheet with Merrill Lynch to borrow up to $185 million for the construction, procurement and start-up of the plant outside of Pocatello.

The loan was subject to several conditions, including the negotiation and execution of definitive loan documents. Dustin Shindo, Hoku chairman, president and chief executive officer, wasn't immediately available for comment but told analysts and investors on a conference call that there were advantages to going with a loan from Merrill Lynch, but that it would come at a price.

"One of the attractive things is you get all the capital up front, the downside is you have to pay a pretty meaningful interest rate considering the amount we'd be borrowing and the term we'd be borrowing it for, which significantly impacted our early cash flows," said Shindo, according to transcript of the call.

In addition, the project financing was more constraining on the operation and expansion of the facility, Shindo said.

Instead, Hoku said its new financing plan calls for selling stock, warrants, debt securities or a combination of them in two sales. The sales would be contingent on a shelf registration filed at the U.S. Securities and Exchange Commission being declared effective.

Hoku plans to raise $55 million in the first of the sales, with proceeds going toward the $112 million it needs to complete pilot production in the fourth quarter of this year. The remainder would come from a variety of sources, including money Hoku has previously raised.

A second $55 million offering would go toward the completion of the plant.

"We believe our new approach to financing the plant is more appropriate in this environment because we have reduced the amount of additional financing we need from $185 million to $110 million and delayed the timing of when these funds are required," Shindo said in a press statement.

Hoku disclosed the financing changes in announcing its bottom-line loss declined slightly in the latest quarter as it continued to re-orient its business toward production of polysilicon and photovoltaic systems installation.

The company reported a loss of $2.10 million, or 12 cents a share, in the three months ended March 31.

This compared with a year-earlier net loss of $2.12 million, or 13 cents a share.

"As we previously stated, we expected to see losses as we increased our efforts in supporting a polysilicon manufacturing and PV systems installation service business," Shindo said.

"While we expect to incur continued losses during the polysilicon plant construction phase, we are excited about our solar revenue prospects."

The company reported revenue totaled $621,000 during the quarter, as it installed photovoltaic systems and had related service contracts.

That compared with $1.14 million a year earlier, when Hoku had contracts for a fuel cell business.

Hoku's shares fell 6.6 percent, or 54 cents, to $7.71 at the close of trading.