If you've been following Energy Conversion Devices (Nasdaq: ENER) for long you know the company is full of promise and risks. The company's new PowerShingle product could change the way we think about roofing and energy all at the same time. Companies such as Toys R Us and Coca-Cola Enterprises have put their faith in Energy Conversion Devices products, but the market has told us a different story about the company.

Shares have fallen 75% over the last year and are now struggling to stay over $1. So can Energy Conversion Devices survive?

It's all about the Benjamins
Let's start by looking at the company's cash situation. At the end of the first quarter, Energy Conversion Devices had $161.7 million in cash and short-term investments. Convertible debt stood at $228.8 million, and this debt matures June 15, 2013. The balance sheet isn't going to sink the company today, but it's looming on the horizon.

On the income statement, last quarter Energy Conversion Devices took a $222.8 million noncash loss on its Solar Ovonics division. This was partly driven by reduced incentives in Europe, which led to revenue falling 70% to $21.5 million in the quarter. Based on the sales drop, Energy Conversion Devices was hit much harder than LDK Solar (NYSE: LDK), JA Solar (Nasdaq: JASO), and Trina Solar (NYSE: TSL), who all rely heavily on Europe for demand. Could this be poor execution by management or second-rate products? I'll get to that in a minute.

With all of that bad news on the table, we can get to the positives. Operations has burned through only $2.8 million in the last nine months, and as bad as the fiscal third quarter was, only $2.5 million of cash was burned in the quarter. Investing activities ate up another $19.1 million, but investing cash flow can vary wildly quarter to quarter.

The bottom line is that the company should have enough cash and a low enough burn rate to survive until it's time to refinance its debt. And that's when the rubber meets the road because it is going to have to show major operational improvements to get bondholders to pony up for more cash.

Redefining solar
Energy Conversion Devices is trying to redefine solar by making thin films that roll out onto rooftops or can be used as shingles in residences, but it is still playing catch-up on technology. Uni-Solar, an Energy Conversion Devices subsidiary, recently touted the 12% efficiency of its latest large-area solar cell using nanocrystalline silicon to make thin-film panels. The problem is that most competitors have passed 12% efficient panels, not just cells, long ago. Uni-Solar's PowerBond PVL product, while easier to install than competitors, is far less efficient than First Solar's (Nasdaq: FSLR) thin-film or Hanwha SolarOne (Nasdaq: HSOL) and JinkoSolar's (NYSE: JKS) monocrystalline modules.

Solar Panel

Efficiency
Energy Conversion Devices PowerBond PVL 6.7%
First Solar 11.6%
Hanwha SolarOne 15.3%
JinkoSolar 15.7%

First Solar's thin-film panels, which would be the most comparable to Uni-Solar, are nearly twice as efficient as PowerBond PVL. The only real advantage Uni-Solar has is that it's lightweight for rooftop applications that don't have the structure to hold heavier panels.

When you don't have industry-leading efficiency or cost structure, it's tough to make a solid profit. But trends were headed in the right direction until the tough fiscal third quarter, which should give investors some hope. In the first two quarters of the fiscal year, products sales resulted in an 18.7% gross margin. That wouldn't lead the industry, but it isn't too shabby.

Foolish bottom line
Based on less efficient panels, falling sales, established competition, a high debt load, and a management team that is in flux, I have to seriously question whether Energy Conversion Devices can survive. But the company's innovative products, increasing efficiency, and improving margins have me seeing a sliver of hope. That said, conditions have to turn around fast.

When I wrote last month about the possibility the company was on its last leg, readers questioned how I couldn't see a bright future ahead. But since then shares are down 27% and bankruptcy will be the company's path without big improvements before debt comes due. This looks like a boom or bust stock if I've ever seen one, and I'm betting it goes bust. Which side are you on? Leave your thoughts in our comments section below.

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