**UNITED STATES****SECURITIES AND EXCHANGECOMMISSION****Washington, D.C. 20549**
**FORM 10-QSB**
**(MARK ONE)**
______X_____     QUARTERLY  REPORT UNDER SECTION13 OR 15(d) OF The Securities  Exchange Act of 1934 
       For the quarterly period ended June30, 2003
____________     TRANSITION  REPORT UNDER SECTION 13 OR15(d) OF The  Securities
       Exchange Act of 1934

Commission File Number 0-30786 
**NIGHTHAWK SYSTEMS, INC.**
**(Exact name of registrant as specified in its charter)** 
NEVADA 
87-0627349
**(State or other jurisdiction of** 
**(IRS Employer**
**Incorporation or Organization)** 
**Identification No.)** 
8200 E. PACIFIC PLACE
SUITE 204
DENVER, CO 80231
**(Address of Principal Executive offices)** 
**Registrant's telephone number, with area code: (303)337-4811**
Indicate   by,  check  mark  whether  the  registrant  (1) has filed all reportsrequired to  be filed by Section 13 or 15(d) of the  Securities Exchange  Act of1934 during the  preceding  twelve  months (or for such shorter  period that theregistrant was required to file such reports),  and (2) has been subject to suchfiling requirements for the past 90 days.
Yes __X__        No _____
State the number of shares outstanding of each of the issuer's classes of commonequity as of the latest practicable date:
Class
Outstanding at August 14, 2003
Common
21,733,780
****   

**NIGHTHAWK SYSTEMS, INC.****TABLE OF CONTENTS****FORM10-QSB**
**PART I****FINANCIAL INFORMATION**

Item 1

Financial Statements (unaudited)
 
Condensed consolidated balance sheet as of June 30, 2003 

3        	
Condensed consolidated statements of operations for the
       	
three and six months ended June 30, 2003 and 2002

4        	
Condensed consolidated statement of stockholders'
       	
deficit for the six months ended June 30, 2003 

5        	
Condensed consolidated statements of cash flows for the six months ended June30, 2003 and 2002                

6 
Notes to condensed consolidated financial statements       

7 
Item 2 

Management's Discussion and Analysis or Plan of Operation  

10 
Item 3 

Evaluation of Disclosure Controls and Procedures        

13         	
PART II
       	
OTHER INFORMATION
 
Item 1

Legal proceedings              

14 
Item 2 

Changes in securities and use of proceeds     

14 
Item 3 

Defaults upon senior securities 

14 
Item 4 

Submission of matters to a vote of securities holders

14 
Item 5 

Other information 

14 
Item 6 

Exhibits and reports on Form 8-K             

14 **2**   PART I - FINANCIAL INFORMATION	
**NightHawk Systems, Inc.**
**Condensed Consolidated Balance Sheet**
**June 30, 2003**  
       ASSETS
   
Current assets :
 
       Cash 

$
75,708
       Accounts receivable, net of allowancefor
 
       doubtful accounts of $377

84,364 
       Inventories

184,005 
       Other

46,334 
  
       Total current assets

390,411     
Furniture, fixtures and equipment, net 

29,810 
Intangible assets, net 

26,246 
 
  
$
446,467
    
       LIABILITIES AND STOCKHOLDERS'DEFICIT
   
Current liabilities :
 
Accounts payable

$
413,629
Accrued expenses

223,926 
Lines of credit 

19,842 
Notes payable: 
 
       Related parties

205,672 
       Other

304,830 
Deferred revenue

78,486 
Customer deposit

60,000 
Other related party payable

48,912 
  
       Total liabilities

1,355,297 
  
Commitments and contingencies 
   
Stockholders' deficit:
 
Preferred stock; $0.001 par value; 5,000,000
 
       shares authorized; none issued andoutstanding

- 
Common stock; $0.001 par value;50,000,000
 
       shares authorized; 21,733,780 issuedand outstanding

21,734 
Additional paid- in capital

2,617,438 
Accumulated deficit

(3,429,373)
Receivable from stockholder

(118,629)
 
 
       Total stockholders' deficit

(908,830)
   
$
446,467
  
The accompanying notes are an integral part of these financial statements.
 
**3**   

**NightHawk Systems, Inc.**
**Condensed Consolidated Statements of Operations**    
Three months ended June 30,
Six months ended June 30,         
2003
2002
2003
2002     
Product sales, net

$
528,095
$
114,117
$
695,271
$
160,402
Airtimes sales, net

19,515 

36,955 

44,959 

107,181 
 
 

 

 

 
 
547,610 

151,072 

740,230 

267,583 
     
Cost of goods sold

284,487 
67,235 
379,017 
92,691 
Cost of airtime sold

6,664 

23,085 

12,327 

64,202 
 
 
 
 
  
291,151 
90,320 
391,344 
156,893      
       Gross profit

256,459 

60,752 

348,886 

110,690 
     
Selling, general and administrative expenses

342,343 
807,351 
663,977 
1,517,419 
Reversal of 2002 consulting expense

(39,000)

- 

(39,000)

 - 
 
 
 
 
 
       Loss from operations

(46,884)

(746,599)

(276,091)

(1,406,729)
     
Interest expense :
    
       Related parties

3,718 
12,962 
6,661 
18,057 
       Other 

11,025 

4,819 

18,487 

7,779 
      
14,743 

17,781 

25,148 

25,836 
     
Net loss

$
(61,627)

$
(764,380)

$
(301,239)

$
(1,432,565)
     
Net loss per basic and diluted common share

$
*

$
(0.05)

$
(0.01)

$
(0.09)
     
Weighted average shares outstanding

21,632,681

15,724,482 

21,484,056 

16,564,830 

* Less than $0.01 per share
        
The accompanying notes are an integral part of these financial statements

**4**   

**NightHawk Systems, Inc.**
**Condensed Consolidated Statement of Stockholders'Deficit**
**Six months ended June 30, 2003**      
Additional        
Common Stock 
Paid-in 
Accumulated 
Stockholder    
Shares 
Amount 
Capital 
Deficit 
Receivable 
Total             
Balances, December 31, 2002
 
21,333,780  
$
21,334 
$
2,517,338 
$
(3,128,134) 
$
(118,629) 
$
(708,091)             
Common stock and warrants issued for cash, net 
           
of issuance costs
 
675,000  
675  
127,325      
128,000              
Common stock and warrants issued for interest expense

25,000  
25  
11,475      
11,500              
Cancellation of consulting arrangement
 
(300,000)

(300) 
(38,700)     
(39,000)             
Net loss
 
 
 
 
 
 
 
(301,239)
 
 
 
(301,239)
             
Balances, June 30, 2003
 
21,733,780 
 
$
21,734
 
$
2,617,438
 
$
(3,429,373)
 
$
(118,629)
 
$
(908,830)
        
****    
The accompanying notes are an integral part of these financial statements.
 
**5**       
**NightHawk Systems, Inc.**
**Condensed Consolidated Statements of Cash Flows**     
Six months ended June 30, 
2003 
2002    
Cash flows from operating activities:
   
     Net loss

$
(301,239)
 
$
(285,283)
    
Adjustments to reconcile net loss to 
   
   net cash used in operating activities
       
   Depreciation and amortization

21,637  
44,509 
   Common stock issued for services

-  
8,000 
   Cancellation of consulting agreement

(39,000) 
- 
   Common stock and warrants issued for interest

11,500  
135,000 
   Amortization of deferred compensation 

-  
518,750 
Change in assets and liabilities
   
   Decrease in accounts receivable

120,926  
2,971 
   Increase in inventories

(124,297) 
(52,481)
   Increase in accounts payable

73,507  
272,059 
   Increase in accrued expenses

31,981  
59,533 
   Decrease in deferred revenue

(354,114) 
- 
   Increase in customer deposits

60,000  
- 
   Net decrease in other assets and liabilities

(47,054)
 
- 
 
  
 
Total adjustments

(244,914)
 
(118,208)
    
Net cash used in operating activities

$
(546,153)
 
$
(285,283)
    
Cash flows from investing activities:
   
   Purchases of furniture, fixtures and equipment

(16,108)
 
-  
  
 
Net cash used in investing activities

(16,108)
 
-     
Cash flows from financing activities:
   
   Proceeds from notes payable, related parties

43,733  
49,000 
   Payments on notes payable, related parties

(65,556) 
(75,500)
   Payments made on factoring arrangement, net

(82,502) 
- 
   Payments on notes payable, other

(14,383) 
(10,000)
   Proceeds from notes payable, other

200,000  
30,000 
   Net payments on lines of credit, related party

-  
(414)
   Net payments on lines of credit, other

-  
(6,658)
   Advances to stockholder

-  
(920)
   Net proceeds from issuance of common stock
   
      and warrants

128,000 
 
280,000 
 
  
 
Net cash provided by financing activities

209,292 
 
265,508 
    
Net decrease in cash

(352,969) 
(19,775)
Cash, beginning

428,677 
 
30,311 
 
  
 
Cash, ending

$
75,708
 
$
10,536
        
Supplemental disclosures of cash flow information:
       
Cash paid for interest

$
4,708
 
$
9,242
        
The accompanying notes are an integral part of these financial statements

..

**6**   
**NIGHTHAWK SYSTEMS, INC.****NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS****THREE MONTHS ENDED MARCH 31, 2003 AND 2002**

       1. Basis of presentation:
In  November  2001,   Peregrine,  Inc.  ("Peregrine"),  formerly  known  as  LSICommunications, Inc., sold  the  assets  and  liabilities of its investment in amajority  owned subsidiary to a major stockholder.  On  February  1,  2002,  theCompany  acquired  Peregrine  Control  Technologies,  Inc.  ("PCT")  a  Coloradocompany. The  transaction  represents a reverse acquisition of Peregrine by PCT,since  PCT  owns approximately  76%  of  the  post  acquisition  shares  of  theconsolidated  entity immediately after the completion of the transaction. At thedate of the transaction,  Peregrine  was a shell company with no net assets. Foraccounting purposes, the acquisition was  treated as an acquisition of Peregrineby PCT and a recapitalization of PCT. The historical  stockholders'  deficit  ofPCT  has  not  been  retroactively  restated  since  the shares exchanged in thetransaction were on a one-for-one basis. On April 29,  2002,  Peregrine  changedits  name  to  NightHawk  Systems,  Inc. The accompanying condensed consolidatedfinancial statements include the accounts  of  NightHawk  Systems,  Inc. and itssubsidiary PCT (collectively referred to herein as "the Company").
             Interimfinancial statements:
The  condensed  consolidated  financial statements of the Company for the  threeand six month periods ended June 30, 2003  and  2002, have been prepared by theCompany without audit by the Company's independent  auditors.  In  the  opinionof  the Company's  management,  these  financial  statements  reflect  alladjustments, including  normal recurring adjustments, considered necessary topresent  fairly the Company's  condensed  consolidated financial position atJune 30, 2003, the results of operations for the  three  and six months  endedJune 30, 2003 and 2002, and the changes in stockholders' deficit for the sixmonths ended June 30, 2003.
Certain  information  and  note  disclosures normally  included in the Company'sannual  financial statements prepared in accordance with  accounting  principlesgenerally  accepted  in  the  United  States  of  America have been condensed oromitted. These condensed consolidated financial statements  should  be  read  inconjunction  with  a  reading  of  the  financial  statements  and notes theretoincluded  in  the  Company's Form 10-KSB annual report for 2002 filed  with  theSecurities and Exchange  Commission  (the "SEC").  The results of operations forthe six months ended June 30, 2003  are  not  necessarily  indicative  of theresults to be expected for the full year.
       Going concern, results of operationsand management's plans:
The  Company  has incurred operating losses for several years. These losses havecaused the Company  to  operate  with  limited  liquidity  and  have  created  astockholders'  deficit  and working capital deficiency of $908,830 and $964,886respectively, as of June 30,  2003.  These  conditions raise substantial doubtabout the Company's ability to continue as a going  concern.  Management's plansto address these concerns include:
- Raising working capital through additional borrowings.
- Raising equity funding through sales of the Company's common stock orpreferred stock.
- Improving working capital through increased sales of the Company's productsand services.

The accompanying financial statements do not include any adjustments relating tothe  recoverability and classification of assets or the amounts  of  liabilitiesthat might be necessary should the Company be unsuccessful in implementing theseplans, or otherwise be unable to continue as a going concern.**7**   

       2. Related party transactions:
During the six months ended June 30, 2003, the Company repaid $3,052 on notespayable  to  an  officer  of  the  Company,  and  $25,504 on notes payable to anofficer/director of the Company.  During the three month period ending June 30,2003, two officers of the Company loaned the Company $43,733, of which $37,000was repaid.
       3. Inventories
Inventories  at  June 30, 2003 consist entirely of parts  and  pre-manufacturedcomponent parts. The  Company  monitors inventory for turnover and obsolescence,and records reserves for excess  and  obsolete  inventory  as  appropriate.  TheCompany did not have a reserve for excess or obsolete inventory  as of June 30,2003.
       4. Revenue recognition
Revenues  from  product  sales  are  recognized when persuasive evidence  of  anarrangement  exists,  delivery  has  occurred,  the  sales  price  is  fixed  ordeterminable and collectibility is probable.  Generally,  the  criteria  are metupon  shipment  of products on an F.O.B destination point basis and transfer  oftitle to customers.  In  certain  instances,  the Company will recognize revenueprior to shipment when the customer requests in  writing that the transaction beon a bill and hold basis, the risk of ownership has  passed to the customer, themanufactured equipment is segregated, complete and ready for shipment, and thereis a fixed schedule for delivery of the equipment and  no  specific  performanceobligations  exist. Revenue from airtime sales are recognized when the servicesare performed.
       5. Net loss per share
Basic net loss  per  share  is  computed  by dividing the net loss applicable tocommon stockholders by the weighted-average  number  of  shares  of common stockoutstanding  for  the  year.  Diluted net loss per share reflects the  potentialdilution that could occur  if  dilutive  securities  were exercised or convertedinto common stock or resulted in the issuance of common  stock  that then sharedin the earnings of the Company, unless the effect of such inclusion would reducea  loss  or  increase earnings per share.  In 2001 the Company issued  2,075,000shares under stock-based  compensation  arrangements, which were to be earned infuture periods.  Until they were earned,  or  canceled,  during  the  year endedDecember 31, 2002, these shares were considered options for purpose of computingbasic  and diluted earnings per share.  For the three  and six month periodsended  June 30, 2003  and  2002,  the  effect of the inclusion of dilutiveshares would have resulted in a decrease in loss  per  share.  Accordingly,  theweighted average shares outstanding have not been adjusted for dilutiveshares.
       6. Stock transactions:
On April 16, 2003, the Company received $100,000, $98,000 net of offering costs,from an investor in exchange for the issuance of 500,000 shares of common stockat $0.20 per share, and warrants to purchase $200,000 of additional commonstock  on  or before  September  30,  2003  at  the lesser of US $0.25 per shareor 50% of the consecutive 10-day average closing  price  prior  to thepurchaser's election to exercise the warrant; or on or before March 31, 2004, atthe lesser of US $0.37 per share  or  50%  of any consecutive 10-day averageclosing  price  prior  to  the purchaser's election  to  exercise  the  warrant;or  on or before September 30, 2004,  at  the lesser of US  $1.00  per  shareor 50% of any consecutive 10-day average    closing  price prior to thepurchaser's  election   to  exercise  the warrant; or on or before  March 31,2005, at the lesser of US $2.00 per share or 50%  of any         consecutive10-day  average  closing  price  prior  to  the purchaser's  election  toexercise  the  warrant.   
On  May 13, 2003, the same investor loaned $200,000 to the Company  in  exchangefor a  90-day  note  that is  convertible into common shares  of the  Company atthe lender's  option  on  the  91st  day  at a price of no more than US$0.20 pershare.  Should  the  Company  sell any shares during  the  period  the  note  isoutstanding for less than US$0.20  per  share,  the  conversion  price  would belowered  to  match that selling price. The Company will have the right to prepaythe note anytime  prior  to  the 91st day with no penalty.  Interest on the notefor the 90-day period will be  25,000  shares  of  the  Company's  common stock,valued at $0.46 per share, which was the market value of the common stock on thedate of issuance. Should the lender choose not to convert the note, and shouldthe Company fail to repay  the  note  when  due,  the Company will incur apenalty of 25,000  common shares per month.  The Company also agreed to registerall shares underlying the agreement on a best-efforts basis. As of the date ofthis report, the Company anticipates that it will negotiate the terms of theagreement and extend the due date of the note until later in 2003.
The Company also received $35,000, $30,000 net of offering costs, during thesecond quarter of 2003 in exchange for the issuance of 175,000 shares of itscommon stock and the issuance of 175,000 warrants to purchase shares of commonstock at $0.40 per share which are exercisable for two years.
During the second quarter of 2003, the Company canceled 300,000 shares of commonstock previously issued to a consultant during 2002.  A $39,000 reduction inconsulting expense was recorded during the second quarter of 2003 related tothis cancellation, as the Board of Directors determined that the shares had notbeen properly authorized for issuance, and that there was a lack of sufficientevidence that any services had been performed. **8**   

       7. Major customers and businesssegments:
During  the  six  months ended June 30,  2003,  the  Company's  two  largestcustomers accounted for approximately 49% and 30% of sales, respectively.
The Company operates  in  two  business segments: sales of remote-access controldevices that utilize paging technology and sales of wireless paging airtime. TheCompany evaluates performance based  on  operating  earnings  of  the respectivebusiness units.
During  the  three  months  ended  June 30,  2003 the segment results were  asfollows:
 
Control
Paging  
devices
airtime
Total
Revenues     

$
528,095  
$
19,515
$
547,610
Segment operating profit

       (loss) 

(57,597) 
10,713
(46,884)
Total assets          

399,796      
46,671     
446,467

During  the  three  months  ended June 30, 2002 the  segment  results  were  asfollows:
 
Control
Paging  
devices
airtime
Total
Revenues       

$
114,118  $	
36,955
$
151,073
Segment operating loss  

(688,625)    
(57,974)  
(746,599)
Total assets             

111,500 
301,300
412,800

During the six months ended June 30, 2003 the segment results were asfollows:
 
Control
Paging  
devices
airtime
Total
Revenues 

$
695,271
$
44,959  
$
740,230
Segment operating loss 

(299,599)
23,508
(276,091)
Total assets 

399,796
46,671
446,467 

During the six months ended June 30, 2002 the segment results were asfollows:
 
Control
Paging  
Devices
airtime
Total
Revenues 

$
160,402
$
107,181
$
267,583
Segment operating loss 

(1,323,235)
(83,494)
(1,406,729)
Total assets 

111,500 
301,300
412,800

       8. Legal matters
On June 2, 2003, the Company  was  notified  that on May 27, 2003 its registeredagent in Nevada had been served with a lawsuit  in  the  Ninth Judicial DistrictCourt  of the State of Nevada, Douglas County.  The suit, which  is  brought  byCharles  R.  McCarthy,  a  former  board  member  who resigned in April 2002, isseeking relief for damages in excess of $10,000. McCarthy  served  for  a  briefperiod  of  time (less than four months) as a director and chairman of the boardof directors  of the Company until he resigned in April 2002. He also executed aretainer agreement  with the Company on behalf of his law firm prior to becominga director and chairman.   The suit is based on McCarthy's claims that (i) stockwhich he was awarded as compensation  should  be  unrestricted stock; (ii) he isowed  additional  compensation  in the form of stock,  and;  (iii)  the  Companybreached the retainer agreement with  his  law  firm.    The  Company executed aSettlement Agreement and Release with McCarthy less than one month  prior to hisfiling  the  present  suit.   The Company disputes his allegations and plans  tovigorously defend this lawsuit.  On July 25, 2003 the Court transferred thecase, at the Company's request, from the county in which McCarthy filed thelawsuit to Reno, Nevada.**9**   

Item 2. Management's Discussion and Analysis or Plan of Operation
Forward-Looking Statements
Discussions and information in  this  document,  which are not historical facts,should be considered forward-looking statements. With  regard to forward-lookingstatements,  including  those  regarding the potential revenues  from  increasedsales, and the business prospects  or  any  other  aspect  of NightHawk Systems,Inc.'s business, actual results and business performance may  differ  materiallyfrom  that  projected or estimated in such forward-looking statements. NightHawkSystems, Inc. ("the Company") has attempted to identify in this document certainof the factors that it currently believes may cause actual future experience andresults to differ  from its current expectations. Differences may be caused by avariety of factors,  including  but not limited to, adverse economic conditions,entry of new and stronger competitors,  inadequate  capital and the inability toobtain funding from third parties. 
The  following  information  should be read in conjunction  with  the  unauditedcondensed consolidated financial  statements  included herein which are preparedin accordance with accounting principles generally accepted in the United Statesof America for interim financial information.
The Three Months Ended June 30, 2003 Compared to the Three Months Ended June 30,2002
Net sales for the three month period ended June 30, 2003 were  $547,610, anincrease of $396,538 or 262% from the $151,072 for the corresponding period ofthe prior year. This increase consists of an increase of $413,978 or 363% inproduct sales  netted  against  a  decrease  of  $17,440 in airtime sales.Approximately $447,480 of the product sales during the quarter ending June 30,2003 came from two  customers  who have placed orders totaling  approximately$816,000.    These orders were for the Company's NH2 rebooting device for akiosk manufacturer, and  load control units for an electric utility customer.The Company plans on   completing  these orders during 2003.  Unless the Companyreceives similar size orders prior to the completion of these two contracts,revenue rates from product sales will  decrease subsequent to the completion ofthese two contracts.  Airtime sales decreased with the Company's de-emphasis  ofretail  paging  sales.  **10**   

Cost of goods sold increased by $200,831 or 222% to $291,151  for the threemonths ended  June 30, 2003 from $90,320 for the corresponding period  of  theprior year, but decreased  as a percentage of revenues between the periods from60% in 2002 to 53% in 2003.   The  cost  of equipment sold as a percentage ofequipment revenues declined from 59% to 54% between periods, due primarily toincreased efficiencies associated with  higher sales volumes.  The cost ofairtime  sold  decreased  as  a  percentage  of airtime revenue  from 62% to 34%between periods.  This was due to a shift in the makeup of the paging  customerbase between years from a retail, consumer-oriented base to a business-orientedcustomer  base.  The Company makes a larger gross margin on airtime from itsequipment customers  than  it  does  on its retail, consumer customer base.  TheCompany's gross margin increased from 40% to 47% from last year's  period tothis year's period, due to the favorable change in the mix of airtime revenues,and the increased production from the two major contracts discussed above.
Selling, general and administrative expenses for the three  months  ended  June30,   2003  decreased  by $504,008 or 62% to $303,343 from $807,351 for thethree month period ended June 30,  2002.  During the quarter ended June 30,2002, the Company  recognized  $518,750  expense  from   the   amortization   ofdeferred compensation, a non-cash item.  No such expense was recognized duringthe current  year's quarter.  Excluding the effect of the amortization ofdeferred compensation, selling, general and administrative expenses would haveonly increased approximately 5%  between the two periods.  This increase waslargely the result of increased personnel and personnel-related costs.  Duringthe second quarter of 2003, the Company canceled 300,000 shares of common stockpreviously issued to a consultant during 2002.  A $39,000 reduction inconsulting expense was recorded during the second quarter of 2002 related tothis cancellation, as the Board determined that the shares had not been properlyauthorized for issuance, and that there was a lack of sufficient evidence thatany services had been performed.
Interest  expense  decreased  by $3,038, or 17% to $14,743 for the three  monthsended June 30, 2003 from $17,781 for the corresponding period of the prior yeardue in large part to lower interest rates on some of the Company's variable ratedebt.
The net loss for the three month  period  ended  June 30,  2003  was  $61,627compared  to  $764,380  for  the  three  month  period ended June 30, 2002. Theimprovement in results can be attributed  to  the decrease in expensesassociated with deferred compensation arrangements and improved gross profitresults.  The Company produced and sold more units during  the quarter endingJune 30, 2003 than in any other quarter in its history.  The combined effect ofthe items mentioned above was an improvement in net loss per share from  $0.05in  2002 to $0.00 in 2003, based on weighted average shares outstanding of 15.7million  and  21.6  million during the three months ended June 30, 2002 and2003, respectively.
The Six Months Ended June 30, 2003 Compared to the Six Months Ended June 30,2002
Net sales for the six month period ended June 30, 2003 were  $740,230, anincrease of $472,647 or 177% from the $267,583 for the corresponding period ofthe prior year. This increase consists of an increase of $534,869 or 333% inproduct sales  netted  against  a  decrease  of  $62,222 in airtime sales.Approximately $605,000 of the product sales during the six month period endingJune 30, 2003 came from two  customers  who have placed orders totalingapproximately  $816,000.  These orders were for the Company's NH2 rebootingdevice for a kiosk manufacturer, and  load control units for an electric utilitycustomer.  The Company plans on   completing  these orders during 2003.Unless the Company receives similar size orders prior to the completion of thesetwo contracts, revenue rates from product sales will  decrease subsequent to thecompletion of these two contracts.  Airtime sales  decreased with the Company'sde-emphasis  of retail  paging  sales.  **11**   

Cost of goods sold increased by $234,451 or 149% to $391,344 for the six monthsended  June 30, 2003 from $156,893 for the corresponding period  of  the  prioryear, but decreased  slightly as a percentage of revenues between the periodsfrom 59% in 2002 to 53% in 2003.   The  cost  of equipment sold as a percentageof equipment revenues declined from 58% to 55% between periods, due primarily toincreased efficiencies associated with  higher sales volumes.  The cost ofairtime  sold  decreased  as  a  percentage  of airtime revenue  from 60% to 27%between periods.  This was due to a shift in the makeup of the paging  customerbase between years from a retail, consumer-oriented base to a business-orientedcustomer  base.  The Company makes a larger gross margin on airtime from itsequipment customers  than  it  does  on its retail, consumer customer base.  TheCompany's gross margin increased from 41% to 47% from last year's  period tothis year's period, due to the favorable change in the mix of airtime revenues,and the increased production from the two major contracts discussed above. 
Selling, general and administrative expenses for the six  months  ended  June30,   2003  decreased  by $892,442 or 59% to $663,977 from $1,517,419 for thesix month period ended June 30,  2002.  During the six month period ended June30, 2002, the Company  recognized  approximately $1,040,000  of expense  fromthe   amortization   of  deferred compensation, a non-cash item.  No suchexpense was recognized during the current  year's six month period.  Excludingthe effect of the amortization of deferred compensation, selling, general andadministrative expenses would have increased approximately 31%  between the twoperiods.  This increase was largely the result of increased personnel andpersonnel-related costs.  During the second quarter of 2003, the Companycanceled 300,000 shares of common stock previously issued to a consultant during2002.  A $39,000 reduction in consulting expense was recorded during the secondquarter of 2002 related to this cancellation, as the Board determined that theshares had not been properly authorized for issuance, and that there was a lackof sufficient evidence that any services had been performed.
Interest expense  decreased  3% from $25,836 to $25,148 for the six  monthsended June 30, 2003. Although the average amount of debt outstanding for thecorresponding periods increased slightly, interest rates on some of theCompany's  variable rate debt declined between periods.
The net loss for the six month  period  ended  June 30,  2003  was  $301,329compared  to  $1,432,565 for  the  six  month  period ended June 30, 2002. Theimprovement in results can be attributed primarily  to  the decrease in expensesassociated with deferred compensation arrangements.  Excluding  the amortizationof  deferred  compensation,  the  increased  payroll costs offset the  Company'simproved gross profit results.  The combined effect of the items mentioned abovewas an improvement in net loss per share from  $0.09  in  2002 to $0.01 in 2003,based on weighted average shares outstanding of 16.6 million  and  21.5  millionduring the six month periods ended June 30, 2002 and 2003, respectively.
       Liquidity and Capital Resources
The  Company's  financial  statements  for the six months ended June 30, 2003have been prepared on a going concern basis,  which contemplates the realizationof assets and the settlement of liabilities and commitments in the normal courseof business. For the six months ended June 30,  2003,  the Company reported anet loss of $301,239 and has a stockholders' deficit as of  June 30,  2003  of$908,830. In addition, the Company had a working capital deficiency of $964,886.The Independent Auditors' Report on the Company's financial statements as of andfor  the  year  ended  December  31, 2002 included a "going concern" explanatoryparagraph which means that the auditors  expressed  substantial  doubt about theCompany's ability to continue as a going concern.
During  the six month period ended June 30, 2003, the Company used cash of$546,153  in its normal  operating  activities.   Of  this amount, approximately$124,000 was used to purchase inventory, most of which  will be used tomanufacture equipment during the current and future quarters for two  customers.In December 2002 and January 2003, the Company received two contracts  whichare expected to produce revenues of at least $816,000 during 2003.  However,$432,600 of this amount was collected prior to the beginning of 2003 and wasrecorded as deferred revenue as of  December  31. 2002, and an additional$60,000 was collected  as  a  customer deposit during the quarter ended March31, 2003.  During the six month period ended  June 30, 2003 the Company usedapproximately $354,000 of the funds already collected  and recognizedapproximately $605,000 in revenue from these two contracts.**12**   

Until the Company  is able to generate positive cash flows from operations in anamount sufficient to  cover its current liabilities and debt obligations as theybecome due, it will be  reliant  on  borrowing  funds  or selling equity to meetthose  obligations.  During the six month period ended June 30, 2003, theCompany received cash proceeds, net of issuance costs, of $128,000.  Most ofthis was received on  April 16, 2003, when the Company received  $98,000,  netof $2,000 in issuance costs,  in cash proceeds from an investor in exchange forthe issuance of 500,000 shares of common stock  at $0.20  per share, andwarrants to purchase $200,000 of additional common stock on or  before September30, 2003 at the lesser of $0.25 per share  or  50% of the consecutive 10-dayaverage closing price prior to the purchaser's election  to  exercise  thewarrant; or on or before March 31, 2004, at the lesser of $0.37 per share or 50%of  any consecutive 10- day  average closing price prior to the purchaser'selection  to  exercise   the warrant;  or  on or before September 30, 2004,  atthe lesser of $1.00 per share or 50% of any  consecutive 10-day average closingprice prior to the purchaser's election  to exercise the warrant; or on orbefore March 31, 2005, at the lesser of $2.00 per share  or 50% of anyconsecutive 10-day average closing price prior to the purchaser's election  toexercise the warrant.  
On May 13, 2003, the  same  investor  loaned $200,000 to the Company in exchangefor a 90-day note that may be convertible  into  common shares of the Company atthe lender's option on the 91st day at a price of  no more than $0.20 per share.Should the Company sell any shares during the period the note is outstanding forless than $0.20 per share, the conversion price would  be  lowered to match thatselling price. The Company will have the right to repay the  note  anytime priorto  the  91st  day with no penalty.  Interest on the note for the 90-day  periodwill be 25,000 shares  of  the  Company's common stock. Should the lender choosenot to convert the note, and should the Company fail to repay the note when due,the Company will incur a penalty of 25,000 common shares per month.  The Companyalso agreed to register all shares  underlying  the  agreement on a best-effortsbasis. As of the date of this report, the Company anticipates that it willrenegotiate the terms of the arrangement, and extend the due date of the noteuntil later  during fiscal 2003.
In addition,  as  of  June 30,  2003,  the  Company   had   3,189,000 warrantsoutstanding with exercise prices ranging  from  $0.20  to  $1.50  per share thatexpire  from  August  2003 through June 2005.  These warrants, to the  extentthey have exercise prices  below current market prices, may represent  a  sourceof  cash  funds  for  the  Company  in  the future. However, no assurance can begiven  that the Company will  receive  proceeds  from  the   exercise  of  thesewarrants,  or  from  any  other  source, without  which, the Company  will  haveinsufficient funds to execute its business plan for the next twelve months.
As a result of funds raised and expected to be raised  subsequent  to  June 30,2003,   the  Company  believes  that  it  will  be  able to initiate a sales andmarketing plan designed  to utilize  direct sales efforts,  as  well as indirectsales efforts through dealer networks and through  improvements to  its  own website.  To date, the majority of revenues have been generated from customers  whohave  found  the Company via its web site, or through referrals from  vendors orexisting customers.
The  Company   also believes that it can eventually generate additional revenuesby making improvements   to  existing  products and designing new products.  TheCompany's current products  utilize  a paging  medium,  but  the Company  is nowworking  to develop a product that will  utilize an alternative wireless medium,such as satellite.**13**   

Item 3. Controls and Procedures
             (a)Evaluation of Disclosure Controls and Procedures:
Disclosure  controls  and procedures are designed  to  ensure  that  informationrequired to be disclosed  in  the  reports filed or submitted under the ExchangeAct is recorded, processed, summarized  and  reported,  within  the time periodsspecified  in  the  SEC's  rules  and  forms. Disclosure controls and proceduresinclude, without limitation, controls and  procedures  designed  to  ensure thatinformation required to be disclosed in the reports filed under the Exchange Actis  accumulated  and  communicated  to management, including the Chief ExecutiveOfficer  and  the  Chief Financial Officer,  as  appropriate,  to  allow  timelydecisions regarding  required disclosure. Within the 90 days prior to the filingof this report, the Company carried out an evaluation, under the supervision andwith the participation  of  the  Company's  management,  including the Company'sChief Executive Officer and its Chief Financial Officer, of the effectiveness ofthe  design and operation of the Company's disclosure controls  and  procedures.Based  upon  and as of the date of that evaluation, the Chief Executive Officer,who is also the Chief Financial Officer, concluded that the Company's disclosurecontrols and procedures  are effective to ensure that information required to bedisclosed in the reports the Company files and submits under the Exchange Act isrecorded, processed, summarized and reported as and when required.
             (b)Changes in Controls:
As disclosed by the Registrant in the 10-KSB for the year 2002 and the 10-QSBfiled for the first quarter of 2003, prior  to January 1, 2003,  the  Companydid  not  maintain  adequate  internal controls  related  to  treasuryactivities. Further, in the Form 8-K/A filed by the Registrant on July 17, 2003,the Registrant disclosed certain issues that were under internal investigationby the Registrant.  Those issues included, among other items, (i) the Company'sformer Chief Executive  Officer's possible use of Company funds for personalexpenses, (ii) improper accounting and failure to remit payroll taxes for theyear 2002, (iii) potential misuse and retention of Registrant funds in accountsunder the control of an officer of the Registrant. A process has been initiatedto segregate responsibilities in order to reduce the opportunities for a singleperson to be in a position to both perpetrate  and  conceal  errors  orirregularities  in  the  normal  course  of  business.  In addition, the ChiefExecutive Officer and the audit committee have initiated a process to establishand implement a written policy on disclosure controls and procedures to be inplace as soon as possible.
Subsequent to the purchase of certain assets of Vacation Communication, Inc.("Vacation") in September 2001, the former owner of Vacation, who is also thecompany's former Chief Information Officer continued to have responsibility forcash deposits, accounting procedures and for producing internal financialreports related to the Company's airtime business segment.  This lack ofsegregation of responsibilities constituted a significant deficiency andmaterial weakness in the Registrant's financial controls.  During thethree-month period ended June 30, 2003, the Company discovered that checksreceived from customers made out to NightHawk Systems, Inc. for product saleswere being deposited into the airtime bank account controlled by the formerChief Information Officer.  Management estimates that approximately $34,000 waserroneously deposited into the airtime bank account. Management is activelypursing return of these funds.  On July 14, 2003, the former Chief InformationOfficer resigned as both an officer and as a member of the Company's Board ofDirectors. As mentioned in the preceding paragraph, a process has been initiatedto segregate responsibilities in order to reduce the opportunities for a singleperson to be in a position to both perpetrate and conceal errors orirregularities in the normal course of business.**14**   

**PART II - OTHER INFORMATION**
Item 1   Legal proceedings
On  June  2,  2003,  the  Company  was  notified   that  on  May  27,  2003  itsregistered agent in Nevada had been served with a lawsuit  in the Ninth JudicialDistrict  Court  of  the State of Nevada, Douglas County.  The  suit,  which  isbrought by Charles R.  McCarthy,  a  former  board  member who resigned in April2002, is seeking relief for damages in excess of $10,000.  McCarthy served for abrief period of time (less than four months) as a director and  chairman  of theboard  of  directors  of  the  Company  until he resigned in April 2002. He alsoexecuted a retainer agreement with the Company  on  behalf of his law firm priorto  becoming a director and chairman.  The suit is based  on  McCarthy's  claimsthat  (i)  stock  which  he  was  awarded as compensation should be unrestrictedstock; (ii) he is owed additional compensation  in the form of stock, and; (iii)the Company breached the retainer agreement with  his  law  firm.    The Companyexecuted  a  Settlement Agreement and Release with McCarthy less than one  monthprior to his filing  the present suit.  The Company disputes his allegations andplans to vigorously defend this lawsuit. On July 25, 2003 the Court transferredthe case, at the Company's request, from the county in which McCarthy filed thelawsuit to Reno, Nevada.
Item 2   Changes in securities and use of proceeds
(c) On April 16, 2003, the Registrant sold 500,000 shares of common stock to Mr.Tomas Revesz.  The securities were sold at a purchase price of $0.20 per sharefor an aggregate amount of consideration received by the Registrant of $90,000in cash, net of offering costs. The Registrant also issued Mr. Revesz warrantsto purchase $200,000 of additional common  stock  on  or before  September  30,2003  at  the lesser of US $0.25 per share or 50% of the consecutive 10-dayaverage closing  price  prior  to the purchaser's election to exercise thewarrant; or on or before March 31, 2004, at the lesser of US $0.37 per share  or50%  of any consecutive 10-day average closing  price  prior  to  thepurchaser's election  to  exercise  the  warrant; or  on or before September 30,2004,  at  the lesser of US  $1.00  per  share  or 50% of any consecutive 10-dayaverage    closing  price prior to the purchaser's  election   to  exercise  thewarrant; or on or before  March 31, 2005, at the lesser of US $2.00 per share or50%  of any         consecutive  10-day  average  closing  price  prior  to  thepurchaser's  election  to  exercise  the  warrant.   
On  May 13, 2003, Mr. Revesz also loaned $200,000 to the Registrant  inexchange for a  90-day  note  that is  convertible into common shares  of theCompany at the lender's  option  on  the  91st  day  at a price of no more thanUS$0.20 per share.  Should  the  Registrant  sell any shares during  the  periodthe  note  is outstanding for less than US$0.20  per  share,  the  conversionprice  would be lowered  to  match that selling price. The Registrant will havethe right to prepay the note anytime  prior  to  the 91st day with no penalty.Interest on the note for the 90-day period will be  25,000  shares  of  theCompany's  common stock. Should Mr. Revesz choose not to convert the note, andshould the Registrant fail to repay  the  note  when  due,  the Registrant willincur a penalty of 25,000  common shares per month.  The sale is exempt underRule 506 as there was only one purchaser under this offering and the purchaseris an accredited investor.
The Registrant also sold 175,000 shares of common stock and issued 175,000warrants to two individuals, Carol Vorberg and John Gray for $30,000 and $5,000,respectively, during the second quarter of 2003. The Registrant received $30,000net of offering costs.  The securities were sold at a price of $0.20 per shareand the warrants are exercisable at a price of $0.40, and are exercisable fortwo years.

Item 3

Defaults upon senior securities
 
       

None
 
Item 4

Submission of matters to a vote of securities holders
 
       

None
 
Item 5 

Other information
 
       

None 
 
Item 6 

Exhibits and Reports
 
(a)   

Exhibits

31 Certification pursuant to Rule 13A-14 or 15D-14 of the Securities ExchangeAct of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of2002.
32 Certification pursuant  to the 18 U.S.C.  Section 1350, as adopted pursuantto Section 906 of the Sarbanes-Oxley Act of 2002.
(b)     Reports on Form8-K.
Two reports were filed on Form 8-K during the quarter, the first on July 14,reported the resignation of Steve Jacobson from the Board of Directors of theCompany, and the second, on July 17, amended the previous 8-K and reported theresignation of Arlen Felsen as an officer and director of the Registrant andidentified certain issues which the  Registrant had beeninvestigating.**15**   

SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant causedthis report to be signed on its behalf by the undersigned, thereunto dulyauthorized.

       

NightHawk Systems, Inc.

       

(Registrant)
  
Date: August 14, 2003     

By: /s/ H. Douglas Saathoff

       

H. Douglas Saathoff

       

Chief Executive Officer and

       

 Chief Financial Officer

Exhibit 31
CERTIFICATION OF PERIODIC REPORT
I, H. Douglas Saathoff, certify that:
       1.    I  have  reviewed   thisquarterly   report   on   Form   10-QSB   of NightHawk Systems, Inc. (the"Registrant");
       2.    Based  on   my  knowledge,  thisquarterly report does not contain any untrue statement of a material fact oromit  to  state a material fact necessary to  make the statements  made, inlight of the circumstances  under  which  such statements  were  made,  notmisleading  with respect  to the period covered by this quarterly report;
       3.    Based on my knowledge,  thefinancial  statements,  and other financial information included  in  thisquarterly report, fairly present in all  material respects the financialcondition,   results  of operations and cash flows of the Registrant as of, andfor, the periods presented in this quarterly report;
       4.    I am responsible forestablishing  and maintaining  disclosure controls and procedures  (as definedin Exchange Act Rules  13a-14, 13a-15(e), 15d-14 and 15d-15(e)) for  theRegistrant and have:
             a)designed  such  disclosure controls and procedures, or caused such  disclosurecontrols and procedures to be designed under my supervision, to ensure  thatmaterial information relating to  the  Registrant,  including  its  consolidatedsubsidiaries,  is made known to me by others within those entities, particularlyduring the period in which this quarterly report is being prepared; 
             b)evaluated the effectiveness of the Registrant's disclosure controls andprocedures and presented in this report my conclusions about the effectivenessof the disclosure controls and procedures; and
             c)disclosed in this report any change in the Registrant's internal control overfinancial reporting that occurred during the Registrant's most recent fiscalquarter that has materially affected, or is reasonably likely to materiallyaffect, the Registrant's internal control over financial reporting; and 
       5.    I  have  disclosed, based  onour  most  recent   evaluation,   to the Registrant's  auditors   and   theaudit  committee  of  Registrant's board of directors:
             a)all significant deficiencies and material weaknesses in the design or operationof internal controls over financial reporting which are reasonably likely toadversely affect the Registrant's ability to record, process, summarize andreport financial information; and 
             b)any fraud,  whether  or  not material,  that involves management or otheremployees  who  have  a  significant  role  in the Registrant's  internalcontrols; and
       6.   I have  indicated in thisquarterly report  in Part II, Item 3 (b) that there were significant  changes ininternal  controls   or   in   other  factors that  could significantly  affectinternal  controls  subsequent to the date of our  most  recent  evaluation,including any corrective actions with regard   to significant deficiencies andmaterial weaknesses.
Date:  August 14, 2003

       

/s/ H. DOUGLAS SAATHOFF
 
       

H. Douglas Saathoff

       

Chief Executive Officer and

       

     Chief Financial Officer

**16**   

Exhibit 32
**CERTIFICATION PURSUANT TO THE 18 U.S.C. SECTION 1350, ASADOPTED****PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF2002**
In  connection  with the  Quarterly  Report  of  NightHawk  Systems,  Inc.  (the"Company") on Form  10-QSB for the period ended June 30, 2003 as filed with theSecurities and Exchange  Commission  on  the  date  hereof (the "Report"), I, H.Douglas  Saathoff, Chief Executive Officer and Chief Financial  Officer  of  theCompany, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuantto Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge that:
The Report fully complies with the requirements of Section 13(a) or 15(d) of theSecurities  Exchange Act of 1934; and the financial information contained in theReport fairly  presents,  in  all material respects, the financial condition andresults of operations of the Company, as of, and for the periods presented inthe report.

/s/ H. Douglas Saathoff
  
H. Douglas Saathoff

Chief Executive Officer

and Chief Financial Officer
 
August 14, 2003

**17**