To OTC Journal Members:
 

Nighthawk Systems (OTC BB: NIHK) Teams With Verizon Wireless

If you are anything like me you might love a good old fashioned penny stock idea. A stock which could go from $.10 to $.40 with the right kind of breakthrough. Let's face it- us folks with a gambler's mentality love the leverage you get with a 10 cent stock. It's almost like an option that doesn't expire.

Currently, the trading levels of OTC Journal offerings range from $.30 (TLPE) right up to $18 (DXCM). I've been wanting to add one very low priced idea to the 2006 menu.

NIHK came along, and brought back fond memories of another microcap out of the past. In 2002 I owned shares in a small company called EMobile Data. They made wireless meter reading devices for utilities. A truck could just drive by a house and remotely read the meter for the monthly power bill. It saved the utilities a fortune vs having someone physically read the meter on foot.

EMobile launched a couple of pilot projects with a utility in the Pacific Northwest, and the stock bounced around some, mostly to the downside. About 6 months into the investment, EMobile was bought out in an all cash transaction by Itron (NASDAQ: ITRI). Shares of EMobile, which had been trading around $.08, shot up to about $.30.

When I started looking at Nighthawk, it struck me as a next generation EMobile. Nighthawk has developed a line of products which have the ability to remotely turn any electrical device on or off. The switching mechanism can take many forms- it can be done on the internet, a cell phone, a telephone line, or any manner of wireless device. The technology runs on the same platform that pagers run on.

NIHK introduced its first products two years ago and had the misfortune of having business come their way too easily. Their first big contract was with AT&T Wireless for 2400 kiosks nationwide. AT&T Wireless used their systems to reboot the computers in these kiosks remotely. If you look back at January of '03, you will see the stock price shot from $.20 to $.70 in a matter of two weeks.

The early AT&T Wireless contract might have been the worst thing that could happened to the company. The business came too easily and too early. In 2004 NIHK found out they were not Kevin Costner in Field of Dreams. They built it, but the customers didn't just come. They realized they would need a sales force to bring in business. 

In 2005 the company was revamped and a professional sales force was hired to start bringing in the business. The seasoned professionals they brought in identified the Utility market as Target #1. Despite the long sales cycle, the products benefits to the utility industry made it the most attractive initial market segment. 

Here's their flagship product for utilities. Pictured here is Nighthawk's CEO-700. This device fits into most household utility meters. Once retrofitted in a meter, the power can be turned on or off from a variety of different devices- through the internet, a cell phone, a phone line, etc.

Utilities view this device as a behavior modification tool. Surprisingly enough, utility bill delinquencies are spread fairly evenly amongst higher and lower income neighborhoods. This device is far more valuable to a utility when used to turn on power vs turning off power. In the event a utility bill is delinquent, the power company can discontinue service at its leisure. However, once the bill is brought current, regulations require power companies to restore service in a very limited amount of time. Often, crews work overtime hours restoring the power at great expense to the power company. With this device, one technician simply has to flip a proverbial switch from a remote location to restore service.

Since bringing in a professional sales force last year, NIHK has implemented a number of pilot projects with a nationwide group of small to medium sized utilities and power co-ops. 

In 2006 I expect a number of these pilot projects to become major new orders. This company needs sales, and sales will drive the stock price. Recall the AT&T Wireless deal in 2003- $.20 to $.70 in two weeks.

NIHK has a number of other product application for its offerings. They include remote power management of computer systems, irrigation systems, traffic controls, solar systems, warning sirens, and satellite controls. 
 

Nighthawk Partners With Verizon Wireless

On Thursday, January 19th, NIHK made an announcement which I believe signals the beginning of a long cycle of improving sales. Over the ensuing four trading days shares of NIHK nearly quadrupled. 10.2 million shares traded in one day. 

NIHK announced it had entered into a joint marketing agreement with Verizon Wireless. Verizon Wireless offers a whole slate of wireless products to large companies. Utilities, with the huge number of workers in the field, are a major target market.

Verizon Wireless's nationwide sales force has now added the NIHK products to its offerings. Some 90 plus professionals who habitually call on large corporate clients are out in the field showing the NIHK line.

My hope and belief is that this new relationship will lead to significant high profile sales throughout 2006. Sales should lead to an improving stock price and profits for those acting today.
 

Conclusion

As of the last SEC filing, there were about 43 million shares Issued and Outstanding in NIHK. Trading at roughly $.10, this would equate to a $4.3 million market valuation. This market valuation lends itself to a lot of upside. I can see this company being valued at $10 million to $15 million if they land one or two big contracts.

As you can see from the chart, NIHK has gotten off to a strong start in '06. The company announced a contract which got the stock started, then followed up with probably the biggest event in their corporate history- the Verizon Wireless sales relationship news.

However, if I had put up a longer term chart, you would see that NIHK was trading at a 2 year low at the end of 2005. The stock has been trading down since 2003, and therefore has plenty of upside.

The next major catalyst will no doubt take this stock past the 2006 high of $.13. The only question- will a major event come before the stock pulls back to about the $.08 level?

NIHK has a number of potential major orders in the pipeline. However, in the utilities business the sales cycle is very long, but rewarding once achieved.

I believe this little stock is a great speculation for those looking for a lot of leverage. An initial position in the $.10 to $.11 range is suggested. The ideal level to own this stock would be $.08- so look to load the boat if the stock starts drifting down on light volume. Owning this stock is a bet on big contracts coming NIHK's way from the utility sector. With the Verizon Wireless sales force knocking on doors for them, I like our chances. The next big deal could come sooner than later.

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