Let’s start with the really good news. Some might think the really good news relates to top line growth- after all, NIHK delivered the best top line 1st quarter I have ever seen in about 2 1/2 years of covering this company. They delivered $826k- up from $212k the same quarter last year. That’s a growth rate of nearly 300%. However, I don’t see that as the best news.
Here’s the best news- it appears the dilution which has been killing the stock price when there’s volume could be winding down. At the end of 2007, there were 134.4 million I&O. At the end of Q1, there were 135.9. I’ve witnessed quarters where the number went up by 10 or 20 million- If and when real volume comes back to this stock, this bodes well for stock price movement.
2200 of the hi def set top boxes were shipped in Q1, but there are currently 3300 on back order. This suggests Q2 could be another great quarter with more significant growth.
I can’t help but remark- in the last month I have spent about 12 nights in 4 different hotels. One was one of the fanciest names in Manhattan- another a $100 per night Marriot on the outskirts of Sacramento.
Of the rooms I have stayed in, 3 out of 4 had very nice, hi def, flat screen TVs. None had a hi def picture available. From a common sense point of view, this suggests there are many thousands of hotel rooms that need a hi def broadcast and interactive features with the internet and the content the individual hotel wants to provide. The market they are going after is absolutely huge.
After digging through the cash flow numbers, it appears NIHK is currently burning through about $100k per month in cash.
With cash, receivables, and inventory matching about just about even with payables, a cash short fall could become problematic. This would require another round of financing, and more dilution. However, if sales and margins could go up about 10% to 20%, the company might finally achieve a cash flow break even, which would halt the dilution and give the stock a real chance to perform. It looks to me like it’s going to be close.
I’m not even going to bother putting up a chart. It’s simple- the stock wants to trade between $.045 and $.055 right now. We need more volume, and renewed enthusiasm for microcaps, and more corporate progress to see NIHK make another one of its big runs.
In the meantime, as I have been saying all along, owning NIHK is like owning an option that doesn’t expire- there is risk, but the company just keeps getting better and better.
Another top line bump is what the doctor is ordering for NIHK, and with back orders of 3300 set top boxes, the odds seem likely.
Comments and questions are welcome.
It’s all about getting to profitability ASAP to avoid further significant dilution (that is of course beyond the shares you were issued for continued coverage here) IMO. I don’t see where they explain why they killed their own margins so badly (down to 19%!?!) and that they have concrete plans to improve on that…just generalities. Any insight? Also what are your thoughts on Dutchess converting, isn’t that dilution that NIHK can’t stop?…cat is already out of the bag on that…so don’t they need other financing source to pay off Dutchess’ convertible.
Editor: I have been waiting to get some clarification on a couple of issues from Doug Saathoff- this is why I haven’t commented in a timely manner. When I can provide a succinct and accurate answer, I’ll replace it with this one. Give it a couple more days.
I have emailed Doug a few times recently and he hasn’t responded, which I am really surprised. He informed me quite awhile ago that they were going to have a new web site and it never happened. Not sure why the silence?
Editor: I’m trying to reach him to get an intelligent answer to your question. When I have it, I’ll replace this response. Check back in a day or two.
is this the start of a breakout for NIHK
Editor: Unfortunately, I don’t see those kinds of volume levels. Wish I did.
The company has not made any deal related news since late March. That’s almost 2 months without any new business being reported. All we’ve heard out of them was the Q1 and last years results. This seems to have restabilized around .055. I believe you were right about the sellers being gone for now. If they were to announce another huge order for the set-top from their current costumer, another customer signing on for them, or any other kind of huge utility/miscelanous deal, this thing would react very, very positively. Couple the huge deal with what should be atleast a million dollar quarter for Q2, this thing could take off by the end of summer. A take off similar to last years 8X from .03 to .24. Having that kind of result from .055 would be huge.
Editor: All I can tell you is that is what the management is working towards. If they deliver, your idea could be spot on.
I am a little confused sometimes on technical analysis, nihk has a rsi over 70 which is overbought according to some ta sites I looked at today. That usually indicates a top according to the sites I looked at. Does this have any value at all?
Editor: Using technical indicators is more of an art than a science, despite technicians wanting you to believe otherwise. I am not a fan of the RSI- I like others better, but that’s just my style. I like Fibonacci retracements and extensions, and the DiNapoli 3×3 moving average. Technically, I’d like to see the stock break above $.065 with some real volume to be convinced there is something exciting happening here. Right now, it seems to me like the stock is drifting up with no real resistance, which suggests sellers are exhausted and have run out of stock.
Another week has gone by, any response yet on them killing their margins, on Dutchess converting, or on new financiers?
Editor: I have two calls in Saathoff, but haven’t heard back yet. It’s on my mind, so I won’t fail to provide a response.
Once NIHK is profitable, improves margins and no longer needs convertible financing, do you think it would be advantages for them to do a one time reverse split and remove the effects of dilution once and for all ? What do you think of the chances of this happening?
Editor: I believe it would be a good idea as long as it is done just as you suggest. If the company decided to do a reverse split before all those factors were in place, I believe it would be a big mistake. I don’t think it will be under consideration until 2009.
If your right that the sellers are exausted, then that must mean that supply and demand is begining to shift maybe in anticipation the company could actually make a turn this year. If they could just get thier books stratight, this company’s products have really great potential.
Editor: It would appear that way. Note that the stock can move up a little on lower volumes. It’s not a coincidence that the I&O has stopped going up, and the stock can move a little. We just need more consistent positive info out of the company.
I’m curious about the new Blue-Ray TV technology and set top boxes; do you think this could be a market for NIHK?
Editor: Not likely. Blue-Ray is a technology Sony owns which allows you to play hi def movies on a dvd player. Right now, if you play a dvd on your regular player, it is not hi def. However, the two technologies are related. The hotels have all put in these flat screen, hi def tvs. However, they don’t get a hi def signal unless they replace the set top box. Then, they can get movies and regular programming in hi def to go with the hi def tv. The only hotel I have stayed in that had a hi def signal was the Wynn in Las Vegas, and that was the NIHK hi def box. It’s a huge opportunity, but they are not the only one in it. They need one more big customer for their box, and they will become very profitable. There are thousands upon thousand of rooms that need to convert. They are working on improving the margins, delivering the boxes, and a second big customer.
The recent price increase in NIHK is making me feel more positive about a higher pps. But I always struggle on when to get out of a stock. It seems every time I pat myself on the back the price declines and I sell at a loss. Have you set a new sell price on NIHK?
Editor: No- I haven’t updated it lately. It’s not trading robustly enough for me to get too excited. I believe the stock is kind of drifting up on a lack of supply- at long last. Now would be a good time for the CEO to deliver some positive developments and see if we can get some volume.
Larry,
What’s up with NIHK? It’s been very strong lately, despite the lackluster market. Seems like there is something brewing, and someone is buying. Also, it appears that other message boards are starting to become more active. Looks like the word is spreading and the excitement is building. If they could just announce another big deal while the momentum is strong, we could be in for a breakout.
Editor: Technically, I believe the market has finally chewed through the supplies, and there don’t appear to be sellers at this point. I believe the stock is kind of “drifting up” against limited supply. Now would be a great time for the company to deliver some positive events so we can see where we end up.
On another site on microcaps I read that NIHK is in a ‘very advanced’ phase of negociations with a second big customer to their set top boxes. Do you have more information on this ? Is a new big contract indeed to be realised in the very near future ?
Editor: Only a quick discussion with the CEO indicating they are closing in on a second customer. As with all market situations, the stock might continue to drift up a bit while this still remains a possible surprise for the market. Will try to get more info this week. It would certainly be a huge positive for the stock.
So some good news comes from NIHK and not even a mention from you WHY? Do you still promote the stock?
Editor: The company didn’t notify me in advance about the news, so the first I saw of it was this morning. I am no longer being “paid” to promote the stock- my obligation has run its course. However, I will continue to cover it until it has its next big run.
Are you going to liquidate your entire position on the next big run in anticipation of the 2009/10 potential reverse split?
Editor: Probably- I like to sell when they are hot and everyone wants them. It might also depend on what’s happening with the company. If they are really charging forward on the fundamental front, I might only sell half.
I got your email about the NIHK at HITC and it sounds like great news. I guess I am still a little apprehensive though there hasn’t been any deals since March and the 2nd quarter is ending very soon. I would have to guess the 2nd quarter wouldn’t be that great. Or am I missing something here?
Editor: I didn’t get any 411 on how the quarter will look. Will be looking into that when I return. However, got some very positive “big picture” feedback.
You gave me a very comprehensive and exciting answe on Blu-ray; this leads me to ask whether NIHK and closed-captioning could be connected in such a way that it would be easier to use in a hotel room setting. I have not been successul, nor has hotel personnel, when I have stayed in expensive hotels, to get the CC working on my TV.
Editor: I have never tried to use the CC in a hotel room. I suspect it’s use is probably requires both the TV and the feed to have it available. The idea of making the same stuff we have available on our home sets in hotels is technology that should be here already, and NIHK is in the middle of trying to make it happen. I can’t answer the question on CC specifically, but that’s the direction.
Noticed on Thursday July 3 there was NO trading of any NIHK shares. Is this something to be concerned about?
Thanks
Marvin
Editor: I guess there were simply no buyers or sellers that day. If there was ever a day for no trades, it would be the day before the 4th of July.
I am curious about as far as no news at all of any new business. It’s hard to believe that nihk hasn’t had any new business coming in for so long. Could it be they just aren’t reporting it? If not, is this something to worry about?
Editor: I have sent your comment on to the CEO and suggested we get an update.
But what good does it do to tell us that you sent our comments to management, when you also tell us management has apparently severed contact with you.
Editor: Management has not severed communication with me. I don’t know where you got that idea. I learned yesterday that Doug Saathoff had been on vacation as I was. Today, we learned the company just landed the biggest disconnect order in its history. All is well at the company I believe.
I was suprised when Doug didn’t make any mention of the set-tops in his email about the Avista deal. HITECH was almost a month ago and we’ve yet to hear anything about that or new deals. All we have heard was Doug telling you it went well. There is a lot of negative speculation on all the boards about this stock. NIHK business won’t thrive on remote disconnects alone. Have you heard from Doug after you requested an undate on the 7th? I have believed in this company for a long time but the silence on their biggest asset, and from their CEO, is slowly starting to make me wonder.
Editor: I have not spoken with him personally. June numbers will be due out in about 3 weeks. NIHk does need the set top boxes to really accelerate their growth. I agree- it’s time for an update on where they are. I can’t do it today, but I will make an effort to reach out to him tomorrow.
Hi Editor,
Just wondering, do you still believe in the potential of NIHK. As Maren asked on 8th of july, how is your contact with the CEO of NIHK ? You asked her in your response how she came to the conclusion that contact was limited, however you yourself in an earlier response stated that you were no longer paid to cover the company. So, Maren’s question is not that remarcable.
Being you no longer a ‘paid’ interested investor, you probably became just one like all of as, and so, as an ‘equal’, just let me ask me the question again do you still believe in the potential of NIHk? This question is a double one, do you believe they will be able to manage their debts and will they be able to become a ‘profitable’ company ( positive cash flow and positive earnings pro share) ?
How’s your vision on this and.. what’s your suggested stock price target for lets’ say end octobre ?
with kind regards
Bart
Editor: It is true I am no longer under contract to represent the company, but will continue to do so as I still believe in the future of the company, and have a rather large share position. My relationship is very good with Doug Saathoff, but he can be tough to reach. As far as the end of October goes- If you could tell me what the over all market is going to do, I could give you a guess. There is no reason the stock couldn’t trade north of $.10, but it could also still be languishing in this area. Doug Saathoff knows I plan to continue to cover the company, and I’m looking forward to June numbers in Mid August.
When was the last time you spoke to NIHK?
Editor: Just briefly about 3 weeks ago.
At these low levels I feel nihk is way oversold. If anything this is a good trading stock, buy in the 0.04 and sell in the 0.07 range. Let’s face it the market sucks right now to many bad things going on in the world. Long term I feel more comfortable about this company.
Editor: Thanks for the comment- you are absolutely right, the market does suck right now, and everything is about as illiquid as it gets. I suspect little pops up will be met with folks getting out, but when real volume returns this one will do very well. I suspect it will be sometime between now and the end of the year.
In your opinion is NIHK a buy or a sell at this price of .05 and lower?
Editor: If you’re still in it, certainly not a sell. You’ve waited out most of the tough time. Why would you sell it now that we’re probably getting close to the end of the summer and a terrible bear market? Company is continuing to grow, and they always have a strong 4th quarter.
I copied and pasted thi from yahoo:
NIHK.OB Needs new PR. There is no exposure. Check out the price drop on all the great news they have had. This stock has nose dived for the last 2 years…Why? No market exposure = no volume = no increase in value of stock.
NIHK.OB Has also diluted itself out of making its stockholders profit.
Do you agree with this analysis?
Editor: First part- yes. Second part- partially. However, there is no mention of the company’s consistent growth, which cannot be overlooked. The lack of PR is symptomatic of this time of the year. No one seems to be saying anything from any company. Everyone’s on vacation. If you like the company and still own the stock, you just have to hold your nose and hang in there. My perception- unlike past patterns, if and when volume returns, the stock will trade up a bit more easily than in the past. There seems to be very limited supply at this time.
I have emailed Doug several times in the past month or so and I never get a response anymore. In the past he has faithfully emailed me back. I’m a shareholder and I don’t think it’s to much to get feedback on the questions I have. I would hope he’s so busy getting the company business, but still I feel it’s his job to respond and if he’s to busy hire an ir person.
Editor: Clearly he needs to get proactive on the market side.
First to you congratulations on the new web page. Looks very good.
You told that you will contact Mr. Saathoff and that you will inform us about some of the latest developments and future plans of the company.
I understand that he can not disclose all the details and that there is a business secret and can not speak, but have you managed to contact him and finde something about…
Editor: I have reached out to him several times and asked for a call. He has emailed me saying he would, but has not actually done it. Sent him a reminder today.
Earnings should be out this week are you still a seller? What could we expect is there a chance of a rally?
Editor: I’ve sold a little because I needed the cash, but I don’t think I’ve done any trades in a week or two. Numbers should be out this week, but I have not had any communication with Saathoff despite a few attempts to hook up, so I can’t provide any insight on how we’re doing.
Earnings came out last night
2008 Revenues Almost Triple 2007 Totals – - Company Implements Cost Reduction Initiative -
SAN ANTONIO, Aug 14, 2008 (BUSINESS WIRE) — Nighthawk Systems, Inc. (NIHK) (“Nighthawk”), a leading provider of wireless and IP-based control devices and solutions, today reported financial results for three and six months ended June 30, 2008. Revenues continued to grow as compared to previous years and the Company implemented initiatives to lower the production costs of both its set top box and power control products which it feels will allow it to generate positive cash flows and income from operations.
The Company reported revenues for the second quarter of $736,356, a 117% increase over the second quarter of 2007 revenue of $339,684 and reported revenues for the six months ended June 30, 2008 of approximately $1.6 million, a 183% increase over revenues for the six months ended June 30, 2007 of approximately $552,000. These increases could have been substantially larger, as the Company shifted the production of 3,911 set top box units from the second quarter to the third quarter of 2008 in order to implement cost savings reductions in the production of set top boxes. As a result, the Company expects a significant increase in revenues, margins and cash flows associated with the production of set top boxes beginning in the third quarter of 2008 and continuing for the foreseeable future.
Despite the shift in production of set top boxes to the third quarter of 2008, overall revenues still more than doubled from the second quarter of 2007 to the second quarter of 2008, and nearly tripled from the first six months of 2007 to the first six months of 2008. The Company experienced significant growth in its general power control products as it completed the remaining 410 units from an order of 600 power control units by a provider of photo traffic and electronic toll enforcement services. Sales of the Company’s utility products decreased slightly as the Company began marketing new utility products capable of 2-way communications capabilities and additional functionality. The Company expects to begin producing these products during the third or fourth quarter of this year.
Due to the increase in overall revenues generated, the Company produced approximately twice the gross profit in the three and six-month periods ending in 2008 than in the comparable periods in 2007. Gross margins declined from 2007 to 2008 due to the addition of previously lower margin set top box revenues to the overall product mix, but as mentioned previously, going forward the Company expects margins on set top boxes to improve significantly and more closely match those of its traditional power control products.
Editor: Comments in the next blog entry.