10QSB 1 nighthawk10q.htm NIGHTHAWK 10Q SB

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                  FORM 10-QSB/A

                                   (MARK ONE)

   ______X_____ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) Of The Securities
                              Exchange Act of 1934

                For the quarterly period ended September 30, 2003

   ____________ TRANSITION REPORT UNDER SECTION 13 OR 15(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.)



                                 10715 GULFDALE
                                    SUITE 200
                            SAN ANTONIO, TEXAS 78216
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

          REGISTRANT'S TELEPHONE NUMBER, WITH AREA CODE: (210) 341-4811

Indicate  by,  check  mark  whether  the  registrant  (1)  has filed all reports
required  to  be  filed by Section 13 or 15(d) of the Securities Exchange Act of
1934  during  the  preceding  twelve months (or for such shorter period that the
registrant  was required to file such reports), and (2) has been subject to such
filing  requirements  for  the  past  90  days.

Yes  __X__  No  _____

State the number of shares outstanding of each of the issuer's classes of common
equity  as  of  the  latest  practicable  date:



              Class              Outstanding  at  October 12,  2004
              -----              --------------------------------
             Common                          30,597,408

                             NIGHTHAWK SYSTEMS, INC.
                                TABLE OF CONTENTS
                                   FORM 10-QSB

                                     PART I
                              FINANCIAL INFORMATION


Item  1  Financial  Statements  (unaudited)

       Report  of  Independent  Registered  Public  Accounting  Firm           3

       Condensed  consolidated  balance  sheet  as  of  September  30,  2003   4

       Condensed  consolidated  statements  of  operations  for  the
       three  and  nine  months  ended  September  30,  2003  and  2002        5

       Condensed  consolidated  statement  of  stockholders'
       deficit  for  the  nine  months  ended  September  30,  2003            6

       Condensed consolidated statements of cash flows for the nine
       months ended September  30,  2003  and  2002                            7

       Notes  to  condensed  consolidated  financial  statements               8

Item  2  Management's  Discussion  and  Analysis  or  Plan  of  Operation     13

Item  3  Evaluation  of  Disclosure  Controls  and  Procedures                16

                                    PART  II
                               OTHER  INFORMATION

Item  1  Legal  proceedings                                                   16

Item  2  Changes  in  securities  and  use  of  proceeds                      17

Item  3  Defaults  upon  senior  securities                                   17

Item  4  Submission  of  matters  to  a  vote  of  securities  holders        17

Item  5  Other  information                                                   17

Item  6  Exhibits  and  reports  on  Form  8-K                                18
                         PART I - FINANCIAL INFORMATION



            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board  of  Directors
Nighthawk  Systems,  Inc.

We  have  reviewed  the  accompanying  condensed  consolidated  balance sheet of
Nighthawk  Systems,  Inc.  and  subsidiary as of September 30, 2003, the related
condensed  consolidated  statements  of  operations  for  the  three-month  and
nine-month periods ended September 30, 2003 and 2002, the condensed consolidated
statement of stockholders' deficit for the nine-month period ended September 30,
2003, and the condensed consolidated statements of cash flows for the nine-month
periods  ended September 30, 2003 and 2002. These interim condensed consolidated
financial  statements  are  the  responsibility  of  the  Company's  management.

We  conducted  our  reviews  in  accordance with standards of the Public Company
Accounting  Oversight  Board  (United  States).  A  review  of interim financial
information  consists  principally  of applying analytical procedures and making
inquiries  of  persons  responsible for financial and accounting matters.  It is
substantially  less  in  scope  than  an  audit conducted in accordance with the
standards  of the Public Company Accounting Oversight Board (United States), the
objective  of  which  is  the  expression  of an opinion regarding the financial
statements  taken  as  a whole.  Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements referred
to  above  for  them  to  be  in conformity with accounting principles generally
accepted  in  the  United  States  of  America.

As discussed in Note 9 to these condensed consolidated financial statements, the
Company  has  restated  its  September  30,  2003 condensed consolidated balance
sheet,  its  condensed consolidated statements of operations for the three-month
and  nine-month  periods  ended  September  30,  2003  and  2002,  its condensed
consolidated statements of stockholders' deficit for the nine-month period ended
September  30,  2003, and its condensed consolidated statement of cash flows for
the  nine-month  periods  ended  September  30,  2003  and  2002.




GELFOND  HOCHSTADT  PANGBURN,  P.C.

Denver,  Colorado
September  8,  2004

                                       3


                         NIGHTHAWK  SYSTEMS,  INC.
                   CONDENSED  CONSOLIDATED  BALANCE  SHEET
                           SEPTEMBER  30,  2003
                         (UNAUDITED AND RESTATED)

       ASSETS

Current  assets  :
       Cash                                                 $       4,167
       Accounts  receivable,  net  of  allowance  for
         doubtful  accounts  of  $134                              47,593

       Inventories                                                119,813
       Other                                                       29,987
                                                            -------------
       Total  current  assets                                     201,560


Furniture,  fixtures  and  equipment,  net                         19,047
Intangible  assets,  net                                            8,658
                                                            -------------
                                                            $     229,265
                                                            =============

       LIABILITIES  AND  STOCKHOLDERS'  DEFICIT

Current  liabilities:
Accounts  payable                                           $     476,159
Accrued  expenses                                                 222,929
Lines  of  credit                                                  19,842
Notes  payable:
       Related  parties                                           109,311
       Other                                                      354,830
Deferred  revenue                                                  16,771
Customer  deposit                                                  60,000
Other  related  party  payable                                     48,912
                                                            -------------
       Total  liabilities                                       1,308,754
                                                            -------------
Commitments  and  contingencies

Stockholders'  deficit:
Preferred  stock;  $0.001  par  value;  5,000,000
       shares  authorized;  none  issued  and  outstanding              -
Common  stock;  $0.001  par  value;  50,000,000
       shares  authorized;  22,604,235  issued
       and  outstanding                                            22,604
Additional  paid-in  capital                                    2,774,431
Accumulated  deficit                                           (3,876,524)
                                                            -------------

 Total  stockholders'  deficit                                 (1,079,489)
                                                            -------------
                                                            $     229,265
                                                            =============

The  accompanying  notes  are  an  integral  part of these financial statements.


                                   4
<TABLE>
<CAPTION>
                                                    NIGHTHAWK SYSTEMS, INC.
                                          CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                                   (UNAUDITED AND RESTATED)

<S>                                                 <C>                <C>             <C>             <C>
                                                    THREE MONTHS ENDED SEPTEMBER 30,  NINE MONTHS ENDED SEPTEMBER 30,

                                                           2003             2002           2003            2002
                                                       ------------    ------------    ------------    ------------
Product sales, net                                     $    209,279    $    132,131    $    904,551    $    292,533

Cost of goods sold                                          145,380          79,279         522,979         171,970
                                                       ------------    ------------    ------------    ------------
    Gross profit                                             63,899          52,852         381,572         120,563
                                                       ------------    ------------    ------------    ------------
Selling, general and administrative expenses                287,876         839,233         911,946       2,530,173
Reversal of 2002 consulting expense                               -               -         (39,000)              -
                                                       ------------    ------------    ------------    ------------
    Loss from continuing operations                        (223,977)       (786,381)       (491,374)     (2,409,610)

Discontinued operations
    Loss from operations
     of discontinued segment                                 (5,778)         (5,967)        (14,472)        (89,467)
    Gain on disposal of
     discontinued segment                                    92,443               -          92,443               -
                                                       ------------    ------------    ------------    ------------
                                                           (137,312)       (792,348)       (413,403)    (2,499,077)
                                                       ------------    ------------    ------------    ------------
Interest expense:
       Related parties                                        4,726           5,046          11,387          23,102
       Other                                                  5,113           3,311          23,600          11,090
                                                       ------------    ------------    ------------    ------------
                                                              9,839           8,357          34,987          34,192
                                                       ------------    ------------    ------------    ------------
Net loss                                               $   (147,151)   $   (800,705)   $   (448,390)   $ (2,533,269)
                                                       ============    ============    ============    ============

Net loss per basic and diluted common share            $      (0.01)   $      (0.04)   $      (0.02)   $      (0.14)
                                                       ============    ============    ============    ============

Weighted average shares outstanding,
  basic and diluted                                      22,994,057      19,614,067      22,970,851      18,087,279
                                                       ============    ============    ============    ============

              The accompanying notes are an integral part of these financial statements.

                                                              5
</TABLE>
<TABLE>
<CAPTION>
                                                      NIGHTHAWK SYSTEMS, INC.
                                     CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
                                                NINE MONTHS ENDED SEPTEMBER 30, 2003
                                                     (UNAUDITED AND RESTATED)
<S>                          <C>           <C>         <C>           <C>              <C>             <C>
                                                       Additional
                                 Common Stock            Paid-in     Accumulated      Stockholder
                              Shares        Amount       Capital       Deficit        Receivable          Total
                            ----------     -------     ----------    -----------      ----------       -----------
Balances, December 31,
 2002                       22,808,780     $22,809     $2,815,863     $(3,428,134)     $(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)

Common stock received for sale
 of discontinued segment      (150,000)       (150)       (28,350)                                         (28,500)

Common stock received for
 stockholder receivable       (454,545)       (455)      (113,182)                       118,629             4,992

Net loss                                                                (448,390)                         (448,390)
                            ----------     -------     ----------    -----------      ----------       -----------

Balances, September 30,
 2003                       22,604,235     $22,604     $2,774,431    $(3,876,524)     $        -       $(1,079,489)
                            ==========     =======     ==========    ===========      ==========       ===========

               The accompanying notes are an integral part of these financial statements.

                                                             6
</TABLE>



                                          NIGHTHAWK  SYSTEMS,  INC.
                              CONDENSED  CONSOLIDATED  STATEMENTS  OF CASH FLOWS
                                         (UNAUDITED  AND  RESTATED)

                                              Nine months  ended  September  30,
                                                     2003          2002
                                                 -----------    ------------
Net  cash  used  in  operating  activities
of continuing operations:                         $ (670,572)   $   (443,130)

Cash  flows  from  investing  activities:
   Purchases  of  furniture,  fixtures  and
   equipment                                         (12,655)              -
                                                ------------    ------------
Net cash used in investing activities                (12,655)              -
                                                ------------    ------------
Cash  flows  from  financing  activities:
   Proceeds  from  notes  payable,  related
   parties                                            43,733          59,000
   Payments  on  notes  payable,  related
   Parties                                           (40,495)        (93,400)
   Payments  made  on  factoring  arrangement,
     net                                             (82,502)              -
   Payments  on  notes  payable,  other              (14,383)        (10,000)
   Proceeds  from  notes  payable,  other            250,000          30,000
   Net  payments  on  lines  of  credit,
   related  party                                          -            (415)
   Net  payments  on  lines  of  credit,  other            -         (10,052)
   Advances  to  stockholder                                            (920)
   Payments  by  stockholder                               -             920
   Net  proceeds  from  issuance  of  common
   stock and  warrants                               128,000         448,900
                                                ------------    ------------
Net  cash  provided  by  financing
   activities                                        284,353         424,033
                                                ------------    ------------
Cash  used  by  discontinued  operations             (25,636)         (7,003)
                                                ------------    ------------
Net  decrease  in  cash                             (424,510)        (26,100)
Cash,  beginning                                     428,677          30,311
                                                ------------    ------------
Cash,  ending                                    $     4,167   $       4,211
                                                ============    ============
Supplemental  disclosures  of  cash
flow  information:

Cash  paid  for  interest                        $     6,690   $      12,398
                                                ============    ============
Supplemental  disclosure  of  non-cash
investing  and  financing  activities:

Exchange  of  shares  for  shareholder
receivable
  Carrying  value  of  receivable
  from  shareholder                              $   118,629
  Value  of  stock  returned  to  and
  retired  by  Company                              (113,637)
                                                ------------
  Compensation  expense  on  settlement
  of  receivable  from  shareholder              $     4,992
                                                ============

Disposition  of  discontinued  segment
  Carrying  value  of  assets                    $    26,176
  Liabilities                                        (90,119)
  Value  of  stock  returned  to  and
  retired  by  Company                               (28,500)
                                                ------------
    Gain  on  disposition  of
    discontinued  segment                        $   (92,443)
                                                ============

The  accompanying  notes  are  an  integral  part of these financial statements.

                                          7





                         NIGHTHAWK SYSTEMS, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                  NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002

1.   Basis  of  presentation:

The  accompanying  unaudited  condensed consolidated financial statements, which
include  the  accounts  of  Nighthawk  Systems,  Inc.  and  its  subsidiary  PCT
(collectively  referred  to  herein  as  "the  Company"),  have been prepared in
accordance with accounting principles generally accepted in the U.S. for interim
financial information. In the opinion of management, all adjustments (consisting
of  only  normal  recurring  items), which are necessary for a fair presentation
have  been  included.  The  results  for  interim  periods  are  not necessarily
indicative  of  results that may be expected for any other interim period or for
the  full year. These condensed consolidated financial statements should be read
in  conjunction  with  a  reading  of the financial statements and notes thereto
included  in  the  Company's  Form  10-KSB annual report for 2003 filed with the
Securities  and  Exchange  Commission  (the  "SEC").

Going  concern,  results  of  operations  and  management's  plans:

The  Company  has incurred operating losses for several years. These losses have
caused  the  Company  to  operate  with  limited  liquidity  and  have created a
stockholders'  deficit  and  working  capital  deficiency  of  $1,079,489  and
$1,107,194  respectively,  as  of  September  30,  2003.  These conditions raise
substantial  doubt  about  the Company's ability to continue as a going concern.
Management's  plans  to  address  these  concerns  include:

1.  Raising  working  capital  through  additional  borrowings.
2.  Raising  equity  funding  through  sales  of  the  Company's common stock or
    preferred  stock.
3.  Improving  working capital through increased sales of the Company's products
    and  services.

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

In August 2004, the Company signed a financing arrangement with Dutchess Private
Equities,  II,  L.P.  ("Dutchess")  which  was amended on August 26, 2004 and on
September  24,  2004.  Under  the  terms of the amended arrangement, the Company
received  $100,000  under a convertible debenture on August 11, 2004, $25,000 on
August  26,  2004,  and  $125,000  under  the  debenture  on September 27, 2004.
Interest  accrues on the debenture at an annual rate of 8%. The debenture can be
converted into common shares anytime prior to its maturity on August 10, 2007 at
the lesser of (i) 75% of the lowest closing bid price on the date of conversion,
or  (ii)  twelve  and  a half cents ($0.125)per common share. Any portion of the
debenture that remains outstanding at August 10, 2007 will automatically convert
into  common shares. The number of shares converted at any time is limited so as
not  to  exceed  4.99%  of  the  outstanding  shares  of  Nighthawk common stock
outstanding.  In  addition,  Dutchess  was  issued  a  warrant to purchase up to
250,000  shares  of  common stock at a price of twelve and a half cents ($0.125)
for  a  period  of  up  to  five  years.  The  Company also signed an investment
agreement  under which Dutchess agreed to purchase up to $10.0 million in common
stock  from the Company, at the Company's discretion, over the next three years,
subject  to  certain  limitations  including  the Company's then current trading
volume.  The  Company also signed a consulting agreement with a company in which
an  employee  of  Dutchess  is  a member of management. Under the agreement, the
company  was  issued  500,000  shares  of  Company  common  stock.

2.  Related  party  transactions:

During  the  nine  months ended September 30, 2003, the Company repaid $3,495 on
notes  payable  to an officer of the Company. The Company also paid $25,504 on a
note  payable  to  an officer/director of the Company, which is included in cash
used by discontinued operations in the accompanying financial statements. During
the  nine-month  period  ending  September 30, 2003, two officers of the Company
loaned  the  Company  $43,733,  of  which  $37,000  was  repaid.

3.  Inventories

Inventories  at  September  30,  2003  consist  entirely  of  parts  and  pre-
manufactured  component  parts.  The Company monitors inventory for turnover and
obsolescence,  and  records  reserves  for  excess  and  obsolete  inventory  as
appropriate. The Company did not have a reserve for excess or obsolete inventory
as  of  September  30,  2003.

4.  Revenue  recognition  and  major  customers

Revenue from product sales is recognized when all significant obligations of the
Company  have  been  satisfied.  Revenues  from  equipment  sales are recognized
either  on  the completion of the manufacturing process, or upon shipment of the
equipment  to  the customer, depending on the Company's contractual obligations.
The  Company  occasionally  contracts to manufacture items, bill for those items
and  then  hold  them  for  later  shipment  to  customer-specified  locations.

                                      8

During  the  nine  months  ended  September  30, 2003, the Company's two largest
customers  accounted for approximately 55% and 33% of sales respectively. During
the  three  months ended September 30, 2003, the Company's two largest customers
accounted  for  approximately 39% and 32% of sales. During the nine months ended
September  30,  2002,  the  Company's  two  largest  customers  accounted  for
approximately  19% and 16% of sales. During the three months ended September 30,
2002,  the  Company's  two largest customers accounted for approximately 36% and
22%  of  sales.

5.  Net  loss  per  share

Basic  net  loss  per  share  is computed by dividing the net loss applicable to
common  stockholders  by  the  weighted-average number of shares of common stock
outstanding  for  the  period. Diluted net loss per share reflects the potential
dilution  that  could  occur  if dilutive securities were exercised or converted
into  common  stock or resulted in the issuance of common stock that then shared
in the earnings of the Company, unless the effect of such inclusion would reduce
a  loss  or  increase  earnings  per share. In 2001 the Company issued 2,075,000
shares  under  stock-based compensation arrangements, which were to be earned in
future  periods.  Until  they  were  earned,  or canceled, during the year ended
December 31, 2002, these shares were considered options for purpose of computing
basic and diluted earnings per share. For the three and nine month periods ended
September  30,  2003  and  2002,  the effect of the inclusion of dilutive shares
would  have  resulted in a decrease in loss per share. Accordingly, the weighted
average  shares  outstanding  have  not  been  adjusted  for  dilutive  shares.

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 stock
at $0.20 per share, and warrants to purchase $200,000 of additional common stock
on  or before September 30, 2003 at the lesser of  $0.25 per share or 50% of the
consecutive  10-day  average  closing price prior to the purchaser's election to
exercise  the  warrant;  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's  election  to  exercise  the  warrant; or on or before September 30,
2004,  at  the  lesser  of   $1.00  per  share  or 50% of any consecutive 10-day
average closing price prior to the purchaser's election to exercise the warrant;
or  on or before March 31, 2005, at the lesser of  $2.00 per share or 50% of any
consecutive  10-day  average  closing price prior to the purchaser's election to
exercise  the  warrant.

The  Company  also  received  $35,000, $30,000 net of offering costs, during the
second  quarter  of  2003  in exchange for the issuance of 175,000 shares of its
common  stock  and the issuance of 175,000 warrants to purchase shares of common
stock  at  $0.40  per  share  which  are  exercisable  for  two  years.

During  the third quarter of 2003, the Company canceled 300,000 shares of common
stock  previously  issued  to  a  consultant during 2002. A $39,000 reduction in
consulting  expense  was  recorded  during the second quarter of 2003 related to
this  cancellation, as the Board of Directors determined that the shares had not
been  properly  authorized for issuance, and that there was a lack of sufficient
evidence  that  any  services  had  been  performed.

7.  Notes  payable

On  May  13,  2003,  the same investor that invested $100,000 (see Note 6 above)
loaned $200,000 to the Company in exchange for a 90-day note that is convertible
into  common  shares of the Company at the lender's option beginning on the 91st
day  at a price of no more than $0.20 per share. During September 2003, the same
investor loaned the Company an additional $50,000 under an unsecured, short term
arrangement.  During  October  2003,  the  same  investor  loaned  an additional
$100,000  under  a second unsecured, short term arrangement. Both of these notes
were  scheduled  to mature on October 31, 2003. Subsequent to the maturity dates
of the notes, the lender has continued to renew the notes for 90-day periods. In
April  2004,  the Company reached an agreement with the investor under which, in
return for an additional $25,000 in borrowings and the extension of the maturity
dates  of  his  three notes to July 31, 2004, the Company granted the creditor a
secured  position  in  the assets of the Company. The Company also agreed to pay
the creditor cash interest at an annual rate of 8% retroactive to the signing of
the  notes, and future interest monthly at an annual rate of 8% on the new total
of  $375,000  in notes, with $750 of the monthly interest due being paid in cash
and  the  remainder  being  paid  in stock at a rate of $0.20 per share. For the
period  of  March  through June of 2004, the Company issued 33,750 shares to the
creditor for $6,750 of interest owed under this arrangement. In August 2004, the
creditor  extended  the  maturity  dates  of  the notes to October 31, 2004, and
converted  $50,000 of his convertible note to common stock of the Company at the
prescribed  rate  of  $0.20  per  share.





                                       9

In July 2004, the creditor also loaned the Company an additional $60,000 under a
90-day arrangement for the purpose of purchasing parts needed to complete orders
that  had  been  placed  by  the Company's customers as of that date. Under this
arrangement, the creditor will receive varying percentages of the cash collected
from those customers until his note balance, plus interest at the annual rate of
10%  is  collected  in  full.

Effective  June  30,  2004,  a  creditor  of  the  Company  converted $71,640 in
principal  and  $8,876  in accrued interest into 375,000 shares of the Company's
common  stock  and a warrant to purchase 375,000 shares of common stock at $0.25
per  share. Based on a calculation using Black-Scholes, the warrant's fair value
at  that  date  was  $27,750.

In  August  2004,  the  Company  issued  739,423  common  shares and warrants to
purchase  739,423  common  shares  at  $0.20  per share to two individuals and a
company  in  exchange  for  approximately  $110,000 in notes payable and accrued
interest  owed  them  by  the  Company.


8.  Legal  matters

In  May 2003, the Company was sued by a former Board member seeking recovery for
the  value  of  350,000  shares,  or $209,500, and $120,000 due his firm under a
retainer agreement between the Company and his firm. The former Board member had
previously  signed a settlement agreement with the Company in which he agreed to
cancel  all potential claims against the Company and its directors in return for
150,000  unregistered  shares trading at a value of $0.60 or higher. The Company
does  not believe it owes the former Board member anything beyond the settlement
agreement  and  has  actively  defended its position. No assurance can be given,
however,  as  to  the  ultimate  outcome  of  the  case.

In  an  8-K/A  filed  on  July  17,  2003,  the  Company  disclosed that two key
employees,  Arlen  Felsen  and  Steve  Jacobson, who were both also former board
members,  had  resigned  from the employment and/or the Board of the Company and
that  the Company had commenced an internal investigation of five specific items
prior  to  their  resignations.  As  a result of the internal investigation, the
Company  reached  an agreement with each of the employees. Specifically, as part
of  the  agreement  with  Arlen Felsen, effective July 31, 2003 the Company sold
back  to  him  the  remaining  assets  and  liabilities  of the Company's paging
business  segment which were originally purchased with or originated as a result
of  the  purchase  of Vacation Communications, Inc., d/b/a Gotta Go Wireless. In
return,  the  Company received 150,000 shares of Nighthawk common stock, and Mr.
Felsen  facilitated  the  return of approximately $34,000 in cash to the Company
that  had  been  held  in an account under his control. The Company recognized a
gain  on this transaction of $92,443, and has presented the financial results of
this  paging  business  segment  as  discontinued operations in the accompanying
financial  statements.

With  respect  to  Steve Jacobson, the Company reached a Separation Agreement on
September 8, 2003 in which, among other things, Mr. Jacobson agreed to return to
the Company 454,545 shares of common stock as payment of the $118,629 receivable
due  from  him.  The  Company  recognized  compensation expense of approximately
$5,000  as  a  result  of  this  transaction.

In  letters dated September 24, 2003, a former director of the Company, Lawrence
Brady,  and  a former Chief Financial Officer (CFO), Mark Brady, made demands of
the  Company  for  payment  of  stock  and  compensation. On April 16, 2004, the
Company,  along  with  the current officers and board members and several former
directors,  accepted  service  of  a suit brought by the Bradys for, among other
things,  breach  of  contract  for  unlawful  termination and failure to provide
stock.  The  alleged  breaches and other claims all stem from their service with
the  Company  for part of 2001 and part of 2002. The aggregate amount of damages
claimed  is  not specified. The case is proceeding in the state court in Denver,
Colorado.  Several  of  the  individually-named defendants have been voluntarily
dismissed  by  the plaintiffs. The Company plans to vigorously defend itself and
its  current  directors  and officers. No assurance can be given, however, as to
the  ultimate  outcome  of  the  case.

On  November  13,  2003, the Company was notified of a complaint filed in Denver
County,  Colorado  by  one  of  its directors, Herb Jacobson, for repayment of a
loan.  The  suit  alleged,  among  other  things,  that  Mr.  Jacobson  was owed
approximately $49,500 as the principal amount of a loan, plus interest and other
fees.  The  Company  disputed  the  allegations  and  plans  to defend this case
vigorously.  On  November 13, 2003 the Board of Directors of the Company removed
Mr.  Jacobson  as a director of the Company on the basis of his disqualification
for  an  apparent  conflict  of  interest. The Company then filed a counter-suit
against Mr. Jacobson. On December 19, 2003 the Company entered into a settlement
and  release  agreement  with  Mr.  Jacobson,  and his wife.  Under terms of the
agreement,  Mr.  &  Mrs.  Jacobson and the Company agreed to dismiss any and all
claims  against each other in return for, among other things, payment of a total
of  $25,000  over  a  four  month  period  from the Company to Mr. Jacobson.  In
addition, Mr. and Mrs. Jacobson, along with their son Steven Jacobson, agreed to
refrain  from  selling,  transferring,  conveying  or


                                      10

otherwise  disposing of their remaining share ownership for a period of eighteen
months subsequent to selling an aggregate of 850,000 shares.  As a result of the
agreement,  the  Company  recorded  a  gain of $23,912 due to a reduction in the
amount  previously  recorded  by  the  Company  as  owed  to  Mr.  Jacobson.

9.  Restatement

During 2003, management of the Company became aware that 1,475,000 shares of the
Company's  common  stock  had  been  issued,  but  not  accounted  for  by prior
management,  in  return for $300,000 of consulting and other services related to
the reverse acquisition of the Company by PCT in 2002. Because the services were
performed during 2002, the Company has restated its September 30, 2003 condensed
consolidated  balance sheet, its condensed consolidated statements of operations
for  the  three-month  periods  ended September 30, 2003 and 2002, its condensed
consolidated statements of operations for the nine-month periods ended September
30,  2003  and  2002,  and its condensed consolidated statement of stockholders'
deficit for the nine-month period ended September 30, 2003 which were previously
reported  in  the  Company's  filing on Form 10-QSB on November 19, 2003 for the
period  ending  September  30,  2003 in order to reflect this transaction in the
proper periods. Following is a summary comparison of amounts previously reported
with  restated  results:

<TABLE>
<CAPTION>

                                              Three Months Ended             Nine Months Ended
                                              September 30, 2002             September 30, 2002
<S>                                       <C>           <C>           <C>            <C>
                                                          As Previously             As Previously
                                             Restated        Reported    Restated     Reported

Statements of Operations
------------------------
Revenues                                  $   132,131   $   132,131   $    292,533   $    292,533

Cost of goods sold                        $    79,279   $    79,279   $    171,970   $    171,970

Selling, general and
  administrative expenses                 $   839,233   $   839,233   $  2,530,173   $  2,230,173

Net loss                                    ($800,705)    ($800,705)   ($2,533,269)  $ (2,233,269)

Net loss per basic and
  diluted common share                         ($0.04)       ($0.04)        ($0.14)        ($0.13)

Weighted average common shares
outstanding - basic and diluted            19,614,067    18,139,067     18,087,279     17,098,993
</TABLE>

<TABLE>
<CAPTION>
<S>                                         <C>          <C>            <C>           <C>
                                               Three Months Ended            Nine Months Ended
                                               September 30, 2003           September 30, 2003
                                                 As Previously                As Previously
                                               Restated       Reported      Restated       Reported
Statements of Operations
------------------------
Net loss per basic and
  diluted common share                         ($0.01)       ($0.01)        ($0.02)       ($0.02)

Weighted average common shares
outstanding - basic and diluted             22,994,057    21,519,057     22,970,851    21,495,851

Statement of Stockholders' Deficit/Balance Sheet
------------------------------------------------
Balances as of December 31, 2002:
  Common stock - shares                                                  22,808,780    21,333,780
  Common stock - amount                                                 $    22,809   $    21,334
  Additional paid-in capital                                            $ 2,815,863   $ 2,517,338
  Accumulated deficit                                                  ($ 3,428,134) ($ 3,128,134)

Balances as of December 31, 2003:
  Common stock - shares                                                 22,604,235     21,129,235
  Common stock - amount                                                 $    22,604   $    21,129
  Additional paid-in capital                                            $ 2,774,431   $ 2,475,906
  Accumulated deficit                                                  ($ 3,876,524) ($ 3,575,524)



</TABLE>









                                                 11




In  addition,  the Company has restated its condensed consolidated balance sheet
as  of September 30, 2003 and its condensed consolidated statement of cash flows
for the nine-month period ended September 30, 2003 and 2002, which it originally
reported  in its filing on Form 10-QSB on November 19, 2003, to properly reflect
accounts  receivable  and  accounts  payable  balances,  the  cash  flows of its
continuing  and discontinued operations and proceeds from the issuance of common
stock and warrants. The net effect of the restatement was a decrease in net cash
used in operating activities of continuing operations from $674,921 to $670,572,
an  increase  in  net  cash  provided  by  financing activities from $270,349 to
$284,353, and an increase in cash used by discontinued operations from $7,283 to
$25,636.  The  net  effect of these restatements on the net decrease in cash for
the  nine  months  ended  September  30,  2003  and  2002  was  $0.

10.  Subsequent event

Subsequent to September 30, 2003, the Company received $127,850, net of offering
costs  of  $900, for the issuance of 858,333 shares of common stock and warrants
to  purchase  858,333  additional shares for $0.25 per share. A total of 540,000
shares  of  common  stock  were  issued  to  consultants  in return for services
rendered,  and  300,000  shares  were  issued  to consultants for services to be
performed.  The  Company received $109,500 in cash proceeds upon the exercise of
630,000  options  subsequent  to  September  30,  2003.

In  order to provide the Company with working capital, a Canadian brokerage firm
sponsored  a  private placement of up to $300,000 in Special Warrants, which are
convertible  into  shares of common stock of the Company at $0.20 per share, and
also  provide the purchaser with a warrant to purchase an equal number of shares
of  common  stock  of  the Company for a period of two years at $0.30 per share.
The  Special  Warrants  will  automatically  convert  at  the  earlier  of i) an
effective  registration  statement  filed  with  the  Securities  and  Exchange
Commission  or  receipt  of  a  qualified  prospectus  by  a Canadian provincial
authority,  whichever comes later; or ii) one year from their date of issue.  As
of  June  30,  2004, the Company had issued $188,775 in Special Warrants, net of
issuance  costs  of  $43,625.

In 2001, PCT issued 391,200 shares of its common stock in return for $391,200 in
cash  proceeds.  Based  on  a  review  of  Company  records during 2003, Company
management  determined  that  associated  warrants to purchase 391,200 shares of
common  stock  at  $1.50  per  share  were  never  delivered  to  the purchasers
subsequent  to  their  investment. Company management also determined this to be
the case with 255,000 shares issued by the Company between January and June 2002
in  return for $255,000 in cash proceeds, for which warrants to purchase 255,000
shares  at  $1.50  per  share  should  have been delivered. According to Company
records,  all  such  warrants  should  have been exercisable for a period of two
years  from  their date of issuance; therefore, the warrants to purchase 391,200
shares  of  common  stock  owed  to  investors  from  2001 expired without being
delivered  to  the investors. In order to fulfill the terms of their investment,
in  January 2004 the Company offered new warrants to each of the investors whose
funds  were received in 2001 and during the first six months of 2002 in order to
permanently  replace  those  that  were  never issued. Terms of the new warrants
allowed  the  investors  to  purchase  one share of Series A Preferred Stock for
$2.50  per share for every $10 originally invested in the Company. The Preferred
Stock  will  pay  a  7%  annual  dividend,  on a quarterly basis, in the form of
Company  common  stock. The Preferred Stock is convertible into common shares of
the Company on a 1 for 10 basis at any date through June 30, 2005. On that date,
all  outstanding  Preferred  Stock  will  convert  to common stock on a 1 for 10
basis.  The  new warrants to purchase Preferred Stock were to be exercised on or
before  April 30, 2004. A total of 5,000 shares of Series A Preferred Stock were
purchased  during  the six month period ended June 30, 2004, and preferred stock
dividends  of $197 were accrued in the form of 703 shares of common stock of the
Company.

In August 2004, the Company signed a financing arrangement with Dutchess Private
Equities,  II,  L.P.  ("Dutchess")  which  was amended on August 26, 2004 and on
September  24,  2004.  Under  the  terms of the amended arrangement, the Company
received  $100,000  under a convertible debenture on August 11, 2004, $25,000 on
August  26,  2004,  and  $125,000  under  the  debenture  on September 27, 2004.
Interest  accrues on the debenture at an annual rate of 8%. The debenture can be
converted into common shares anytime prior to its maturity on August 10, 2007 at
the lesser of (i) 75% of the lowest closing bid price on the date of conversion,
or  (ii)  twelve  and  a  half cents ($0.125). Any portion of the debenture that
remains  outstanding  at  August 10, 2007 will automatically convert into common
shares.  The  number  of  shares  converted  at any time is limited so as not to
exceed 4.99% of the outstanding shares of Nighthawk common stock outstanding. In
addition,  Dutchess  was  issued  a  warrant to purchase up to 250,000 shares of
common  stock  at a price of twelve and a half cents ($0.125) for a period of up
to  five  years.  The  Company  also  signed an investment agreement under which
Dutchess  agreed  to  purchase  up  to  $10.0  million  in common stock from the
Company,  at  the  Company's  discretion,  over the next three years, subject to
certain  limitations  including  the  Company's then current trading volume. The
Company  also  signed a consulting agreement with a company in which an employee
of  Dutchess  is  a  member  of management. Under the agreement, the company was
issued  500,000  shares  of  Company  common  stock. The Company also issued 2.1
million  shares  of  common  stock  to  the  placement  agent  involved  in  the
transaction  with  Dutchess.

                                       12

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-looking
statements,  including  those  regarding  the  potential revenues from increased
sales,  and  the  business  prospects  or any other aspect of NightHawk Systems,
Inc.'s  business,  actual results and business performance may differ materially
from  that  projected or estimated in such forward-looking statements. NightHawk
Systems, Inc. ("the Company") has attempted to identify in this document certain
of the factors that it currently believes may cause actual future experience and
results  to differ from its current expectations. Differences may be caused by a
variety  of  factors, including but not limited to, adverse economic conditions,
entry  of  new and stronger competitors, inadequate capital and the inability to
obtain  funding  from  third  parties.

The  following  information  should  be  read  in conjunction with the unaudited
condensed  consolidated  financial statements included herein which are prepared
in accordance with accounting principles generally accepted in the United States
of  America  for  interim  financial  information.

The  Three  Months  Ended  September 30, 2003 Compared to the Three Months Ended
September  30,  2002

Net  sales for the three-month period ended September 30, 2003 were $209,279, an
increase of $77,148 or 58% from the $132,131 for the corresponding period of the
prior  year.  Approximately  $142,000  of  the  product sales during the quarter
ending  Sept  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  a  kiosk  manufacturer,  and  load  control  units  for an electric utility
customer, and no revenues were recognized from these two orders during the three
months  ending  September  30, 2002. The Company completed all but approximately
$70,000  of  these  orders  in  fiscal  2003.  Although the Company continues to
receive  additional  orders  from  one of these customers, overall revenues have
subsequently  decreased  after  September  30,  2003 because the Company has not
received  large  enough  orders  to  replace  these  completed  contracts.

Cost  of goods sold increased by $66,101 or 83% to $145,380 for the three months
ended  September 30, 2003 from $79,279 for the corresponding period of the prior
year,  and increased as a percentage of revenues between the periods from 60% in
2002  to  69%  in  2003.  Approximately  39% of the Company's revenues generated
during  the  quarter  came  from  the sale of the Company's load control device,
which  generates  a  lower margin per product than the Company's other products.
The  Company's gross margin decreased from 40% to 31% from last year's period to
this  year's  period,  due  to  this  change  in  the  mix  of  product  sold.

Selling,  general  and  administrative  expenses  for  the  three  months  ended
September  30,  2003  decreased by $551,357 or 66% to $287,876 from $839,233 for
the  three-month  period  ended  September  30,  2002. During the quarter ended
September  30,  2002,  the  Company  recognized  $518,750  of expense  from  the
amortization  of  deferred  compensation,  a  non-cash item. No such expense was
recognized  during  the  current  year's  quarter.  Excluding  the effect of the
amortization  of  deferred  compensation,  selling,  general  and administrative
expenses  would  have  decreased approximately 10% between the two periods. This
decrease  was  primarily  due  to  the  recording of one-time charges related to
salary  accruals  during  the  quarter  ending  September  30,  2002.

Effective July 31, 2003 the Company sold the remaining assets and liabilities of
the  Company's  paging  business segment which were originally purchased with or
originated  as  a result of the purchase of Vacation Communications, Inc., d/b/a
Gotta  Go  Wireless  to  their  original owners. In return, the Company received
150,000  shares  of  Nighthawk  common  stock,  and  one  of  the  former owners
facilitated  the return of approximately $34,000 in cash to the Company that had
been held in an account under his control. The Company recognized a gain on this
transaction  of  $92,443, and has presented the financial results of this paging
business  segment  as  discontinued  operations  in  the  accompanying financial
statements.

Interest  expense  increased  by  $1,482,  or 18% to $9,839 for the three months
ended  September  30, 2003 from $8,357 for the corresponding period of the prior
year  due to an increase in short term borrowings by the Company since the third
quarter  of  2002.

The  net  loss  for the three-month period ended September 30, 2003 was $147,151
compared  to  $800,705  for the three month period ended September 30, 2002. The
improvement  in  results  can  be  attributed  to  the increase in revenues, the
decrease  in  expenses  associated  with  deferred compensation arrangements and
improved  gross profit results. The combined effect of the items mentioned above
was a reduction in net loss per share from $0.04 in 2002 to $0.01 in 2003, based
on  weighted  average shares outstanding of 19.6 million and 23.0 million during
the  three  months  ended  September  30,  2002  and  2003,  respectively.

The  Nine  Months  Ended  September  30,  2003 Compared to the Nine Months Ended
September  30,  2002

Net  sales  for the nine-month period ended September 30, 2003 were $904,551, an
increase  of  $612,018 or 209% from the $292,533 for the corresponding period of
the  prior  year.  Approximately  $786,000  of the product sales during the nine
month  period  ending September 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  a  kiosk  manufacturer,  and  load  control units for an
electric  utility  customer. The Company completed all but approximately $70,000
of  these  orders  in  fiscal  2003.  Although  the  Company  continues  to

                                      13
receive  additional  orders  from  one of these customers, overall revenues have
subsequently  decreased  after  September  30,  2003 because the Company has not
received  large  enough  orders  to  replace  these  completed  contracts.

Cost of goods sold increased by $351,009 or 204% to $522,979 for the nine months
ended September 30, 2003 from $171,970 for the corresponding period of the prior
year,  but  decreased  slightly  as a percentage of revenues between the periods
from  59%  in  2002  to  58%  in  2003,  due primarily to increased efficiencies
associated  with  higher sales volumes which offset increased sales of its lower
margin  load  control  units. The Company's gross margin increased slightly from
41% to 42% from last year's period to this year's period, due to the benefits of
the  increased  production  from  the  two  major  contracts  discussed  above.

Selling, general and administrative expenses for the nine months ended September
30,  2003  decreased  by  approximately  $1.6  million  or  64% to $911,946 from
$2,530,173  for  the nine month period ended September 30, 2002. During the nine
month  period  ended  September  30,  2002, the Company recognized approximately
$1,556,000 of expense from the amortization of deferred compensation, a non-cash
item.  No  such  expense  was  recognized  during  the current year's nine month
period.  Excluding  the  effect  of  the  amortization of deferred compensation,
selling,  general and administrative expenses would have decreased approximately
6% between the two periods. This decrease was largely the result of the issuance
of  1,475,000  shares of the Company's common stock during the nine-month period
ended September 30, 2002 in return for $300,000 of consulting and other services
related  to  the  reverse  acquisition  of  the  Company  by  PCT  in  2002.

During the second quarter of 2003, the Company canceled 300,000 shares of common
stock  previously  issued  to  a  consultant during 2002. A $39,000 reduction in
consulting  expense  was  recorded  during the second quarter of 2002 related to
this  cancellation, as the Board of Directors determined that the shares had not
been  properly  authorized for issuance, and that there was a lack of sufficient
evidence  that  any  services  had  been  performed.

Effective July 31, 2003 the Company sold the remaining assets and liabilities of
the  Company's  paging  business segment which were originally purchased with or
originated  as  a result of the purchase of Vacation Communications, Inc., d/b/a
Gotta  Go  Wireless  to  their  original owners. In return, the Company received
150,000  shares  of  Nighthawk  common  stock,  and  one  of  the  former owners
facilitated  the return of approximately $34,000 in cash to the Company that had
been held in an account under his control. The Company recognized a gain on this
transaction  of  $92,443, and has presented the financial results of this paging
business  segment  as  discontinued  operations  in  the  accompanying financial
statements.

The  net  loss  for  the nine month period ended September 30, 2003 was $448,390
compared  to  $2,533,269 for the nine month period ended September 30, 2002. The
improvement  in  results  can  be  attributed  in  large part to the decrease in
expenses  associated  with  deferred  compensation arrangements. However, larger
volumes  of  production  would  have  led to an improvement of 54% excluding the
amortization  of  deferred  compensation.  The  combined  effect  of  the  items
mentioned  above  was an improvement in net loss per share from $0.14 in 2002 to
$0.02  in 2003, based on weighted average shares outstanding of 18.1 million and
23.0  million  during  the nine-month periods ended September 30, 2002 and 2003,
respectively.

                         LIQUIDITY AND CAPITAL RESOURCES

The  Company's financial statements for the nine months ended September 30, 2003
have  been prepared on a going concern basis, which contemplates the realization
of assets and the settlement of liabilities and commitments in the normal course
of  business. For the nine months ended September 30, 2003, the Company reported
a  net loss of $448,390 and has a stockholders' deficit as of September 30, 2003
of  approximately  $1.1  million. In addition, the Company had a working capital
deficiency  of  approximately  $1.1 million at September 30, 2003. The Report of
Independent  Registered  Public  Accounting  Firm  on  the  Company's  financial
statements  as  of  and  for  the year ended December 31, 2002 included a "going
concern"  explanatory  paragraph  which  means  that  the  auditors  expressed
substantial  doubt  about  the Company's ability to continue as a going concern.

In  an  effort to improve its operating procedures and its financial results and
condition,  the  Company  sold  certain  assets  and  liabilities  of its paging
operating  segment effective July 31, 2003. This segment generated negative cash
flows  during  2002  and  the  first  seven  months of 2003. As a result of this
transaction,  the  Company  reduced its outstanding obligations by approximately
$95,000,  and recognized a gain of approximately $92,000. The Company will still
be  able  to  provide paging services to its equipment customers, but will do so
for  the  foreseeable  future  by  contracting  with  third party paging airtime
providers.

During  the nine month period ended September 30, 2003, the Company used cash of
$670,572  in  its  normal  operating  activities. Approximately $476,000 of this
amount  was  collected  during  December  2002  and  January 2003 in the form of
prepayments  or  deposits  on  contracts  that have produced the majority of the
Company's  revenues  during  the first nine months of 2003.

Although  the  Company generated $128,0000 from private equity placements of the
Company's common stock to individuals during the nine months ended September 30,
2003,  the majority of the Company's non-operating cash inflows have come from a
single  investor,  who  loaned  the  Company $250,000 under two short term notes
during  the  period  and  also loaned the Company an additional $100,000 under a
short  term  note during October 2003. Subsequent to the original maturity dates
of  the  notes,  the  lender  has  continued to renew the three notes for 90-day
periods. In April 2004, the Company reached an agreement with the investor under
which,  in  return  for  an  additional  $25,000  in  borrowings  and

                                       14

the  extension  of  the  maturity dates of his three notes to July 31, 2004, the
Company  granted  the  creditor a secured position in the assets of the Company.
The  Company  also agreed to pay the creditor cash interest at an annual rate of
8%  retroactive  to  the signing of the notes, and future interest monthly at an
annual  rate  of  8%  on  the  new  total of $375,000 in notes, with $750 of the
monthly interest due being paid in cash and the remainder being paid in stock at
a  rate  of  $0.20 per share. In August 2004, the creditor extended the maturity
dates of the notes to October 31, 2004, and converted $50,000 of his convertible
note  to  common stock of the Company at the prescribed rate of $0.20 per share.

In  July  2004, the same lender loaned the Company an additional $60,000 under a
90-day arrangement for the purpose of purchasing parts needed to complete orders
that  had  been  placed  by  the Company's customers as of that date. Under this
arrangement, the creditor will receive varying percentages of the cash collected
from those customers until his note balance, plus interest at the annual rate of
10%,  is  collected  in  full.

Effective  June  30,  2004,  a  creditor  of  the  Company  converted $71,640 in
principal  and  $8,876  in accrued interest into 375,000 shares of the Company's
common  stock  and a warrant to purchase 375,000 shares of common stock at $0.25
per  share. Based on a calculation using Black-Scholes, the warrant's fair value
at  that  date  was  $27,750.  This  amount is reflected in interest expense and
additional  paid-in  capital  for  the  periods  ending June 30, 2004.

In  August  2004,  the  Company  issued  739,423  common  shares and warrants to
purchase  739,423  common  shares  at  $0.20  per share to two individuals and a
company  in  exchange  for  approximately  $110,000 in notes payable and accrued
interest  owed  them  by  the  Company.

Until  the Company is able to generate positive cash flows from operations in an
amount  sufficient to cover its current liabilities and debt obligations as they
become  due, it will remain reliant on borrowing funds or selling equity to meet
those  obligations.   The  Company  has  historically sold its equity securities
through  private  placements  with  various  individuals.  Raising funds in this
manner typically requires much time and effort to find new accredited investors,
and the terms of such an investment must be negotiated for each investment made.
Cash  from these types of investments has historically been generated in amounts
of  $50,000 or less, in an unpredictable manner, making it difficult to fund and
implement  a  broad-based  sales  and  marketing  program.

During  February  2004, the Company met with several brokerage firms and private
equity  groups  to  investigate  the  possibilities of raising an amount of cash
sufficient to both fund a comprehensive sales and marketing plan and improve its
working  capital  position  from  a  deficit  to a surplus. As a result of those
meetings,  the  Company  announced  in March 2004 that a brokerage firm based in
Vancouver,  British  Columbia  would sponsor an offering of equity securities of
the Company.  However, this offering would be performed on a best-efforts basis,
without any guarantee of success.  In an effort to fund the Company's operations
in advance of such an offering, the brokerage firm sponsored a private placement
of  Special  Warrants  which  are  convertible into units consisting of both one
share  of  common  stock  of  the  Company  at  $0.20 per share and a warrant to
purchase  one  share of common stock at $0.30 per share.  This private placement
effort  resulted  in  net  proceeds  of  $188,775.

In August 2004, the Company signed a financing arrangement with Dutchess Private
Equities,  II,  L.P.  ("Dutchess")  which  was amended on August 26, 2004 and on
September  24,  2004.  Under  the  terms of the amended arrangement, the Company
received  $100,000  under a convertible debenture on August 11, 2004, $25,000 on
August  26,  2004,  and  $125,000  under  the  debenture  on September 27, 2004.
Interest  accrues on the debenture at an annual rate of 8%. The debenture can be
converted into common shares anytime prior to its maturity on August 10, 2007 at
the lesser of (i) 75% of the lowest closing bid price on the date of conversion,
or  (ii)  twelve  and  a  half cents ($0.125). Any portion of the debenture that
remains  outstanding  at  August 10, 2007 will automatically convert into common
shares.  The  number  of  shares  converted  at any time is limited so as not to
exceed 4.99% of the outstanding shares of Nighthawk common stock outstanding. In
addition,  Dutchess  was  issued  a  warrant to purchase up to 250,000 shares of
common  stock  at a price of twelve and a half cents ($0.125) for a period of up
to  five  years.  The  Company  also  signed an investment agreement under which
Dutchess  agreed  to  purchase  up  to  $10.0  million  in common stock from the
Company,  at  the  Company's  discretion,  over the next three years, subject to
certain  limitations  including  the  Company's then current trading volume. The
Company  also  signed a consulting agreement with a company in which an employee
of  Dutchess  is  a  member  of management. Under the agreement, the company was
issued 500,000 shares of Company common stock. Although the amount and timing of
specific  cash infusions available under the entire financing arrangement cannot
be predicted with certainty, the arrangement represents a contractual commitment
by  Dutchess to provide funds to the Company. Although no assurance may be given
that  it  will  be able to do so, the Company expects to be able to access funds
under  this  arrangement  to  help  it  fund  near-term  and long-term sales and
marketing  efforts.



                                       15

ITEM  3.  CONTROLS  AND  PROCEDURES

(a)  Evaluation  of  Disclosure  Controls  and  Procedures:

Disclosure  controls  and  procedures  are  designed  to ensure that information
required  to  be  disclosed in the reports filed or submitted under the Exchange
Act  is  recorded,  processed,  summarized and reported, within the time periods
specified  in  the  SEC's  rules  and  forms. Disclosure controls and procedures
include,  without  limitation,  controls  and procedures designed to ensure that
information required to be disclosed in the reports filed under the Exchange Act
is  accumulated  and  communicated  to management, including the Chief Executive
Officer  and  the  Chief  Financial  Officer,  as  appropriate,  to allow timely
decisions  regarding required disclosure. Within the 90 days prior to the filing
of this report, the Company carried out an evaluation, under the supervision and
with  the  participation  of  the  Company's management, including the Company's
Chief Executive Officer and its Chief Financial Officer, of the effectiveness of
the  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 disclosure
controls  and procedures are effective to ensure that information required to be
disclosed in the reports the Company files and submits under the Exchange Act is
recorded,  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-QSB
filed  for  the  first and second quarter of 2003, prior to January 1, 2003, the
Company  did  not  maintain  adequate  internal  controls  related  to  treasury
activities. Further, in the Form 8-K/A filed by the Registrant on July 17, 2003,
the  Registrant  disclosed certain issues that were under internal investigation
by  the  Registrant. Those issues included, among other items, (i) the Company's
former  Chief  Executive  Officer's  possible  use of Company funds for personal
expenses,  (ii)  improper  accounting and failure to remit payroll taxes for the
year  2002, (iii) potential misuse and retention of Registrant funds in accounts
under  the control of an officer of the Registrant. A process has been initiated
to  segregate responsibilities in order to reduce the opportunities for a single
person  to  be  in  a  position  to  both  perpetrate  and  conceal  errors  or
irregularities  in  the  normal  course  of  business.  In  addition,  the Chief
Executive  Officer and the audit committee have initiated a process to establish
and  implement  a  written policy on disclosure controls and procedures to be in
place  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 the
company's  former Chief Information Officer continued to have responsibility for
cash  deposits,  accounting  procedures  and  for  producing  internal financial
reports  related  to  the  Company's  airtime  business  segment.  This  lack of
segregation  of  responsibilities  constituted  a  significant  deficiency  and
material  weakness  in  the  Registrant's  financial controls. During the three-
month  period  ended  June 30, 2003, the Company discovered that checks received
from  customers made out to NightHawk Systems, Inc. for product sales were being
deposited  into  the  airtime  bank  account  controlled  by  the  former  Chief
Information  Officer.  Management  estimates  that  approximately  $34,000  was
erroneously  deposited  into  the  airtime  bank account. Management is actively
pursing  return  of  these funds. On July 14, 2003, the former Chief Information
Officer  resigned  as  both an officer and as a member of the Company's Board of
Directors. As mentioned in the preceding paragraph, a process has been initiated
to  segregate responsibilities in order to reduce the opportunities for a single
person  to  be  in  a  position  to  both  perpetrate  and  conceal  errors  or
irregularities  in  the  normal course of business. As noted in the accompanying
financial  statements,  the  Company  received  the  funds from the former Chief
Information  officer  as  part  of  an  agreement reached during the three month
period  ended  September  30,  2003.

                           PART II - OTHER INFORMATION

ITEM  1  LEGAL  PROCEEDINGS

In  May 2003, the Company was sued by a former Board member seeking recovery for
the  value  of  350,000  shares,  or $209,500, and $120,000 due his firm under a
retainer  agreement  between  the Company and his firm.  The former Board member
had previously signed a settlement agreement with the Company in which he agreed
to  cancel  all potential claims against the Company and its directors in return
for  150,000  unregistered  shares  trading  at  a value of $0.60 or higher. The
Company  does  not  believe  it owes the former Board member anything beyond the
settlement agreement and has actively defended its position. No assurance can be
given,  however,  as  to  the  ultimate  outcome  of  the  case.

In  letters dated September 24, 2003, a former director of the Company, Lawrence
Brady,  and  a former Chief Financial Officer (CFO), Mark Brady, made demands of
the  Company  for  payment  of  stock  and  compensation. On April 16, 2004, the
Company,  along  with  the current officers and board members and several former
directors,  accepted  service  of  a  suit  brought  by  the  Bradys  for, among



                                     16

other things, breach of contract for unlawful termination and failure to provide
stock.  The  alleged  breaches and other claims all stem from their service with
the  Company  for part of 2001 and part of 2002. The aggregate amount of damages
claimed  is  not specified. The case is proceeding in the state court in Denver,
Colorado.  Several  of  the  individually-named defendants have been voluntarily
dismissed  by  the plaintiffs. The Company plans to vigorously defend itself and
its  current  directors  and officers. No assurance can be given, however, as to
the  ultimate  outcome  of  the  case.

On  November  13,  2003, the Company was notified of a complaint filed in Denver
County,  Colorado  by  one  of  its directors, Herb Jacobson, for repayment of a
loan.  The  suit  alleged,  among  other  things,  that  Mr.  Jacobson  was owed
approximately $49,500 as the principal amount of a loan, plus interest and other
fees.  The  Company  disputed  the  allegations  and  plans  to defend this case
vigorously.  On  November 13, 2003 the Board of Directors of the Company removed
Mr.  Jacobson  as a director of the Company on the basis of his disqualification
for  an  apparent  conflict  of  interest. The Company then filed a counter-suit
against Mr. Jacobson. On December 19, 2003 the Company entered into a settlement
and  release  agreement  with  Mr.  Jacobson,  and his wife.  Under terms of the
agreement,  Mr.  &  Mrs.  Jacobson and the Company agreed to dismiss any and all
claims  against each other in return for, among other things, payment of a total
of  $25,000  over  a  four  month  period  from the Company to Mr. Jacobson.  In
addition, Mr. and Mrs. Jacobson, along with their son Steven Jacobson, agreed to
refrain  from  selling,  transferring, conveying or otherwise disposing of their
remaining  share ownership for a period of eighteen months subsequent to selling
an  aggregate  of  850,000  shares.  As a result of the agreement, in the fourth
quarter  of  2003,  the Company recorded a gain of $23,912 due to a reduction in
the  amount  previously  recorded  by  the  Company  as  owed  to  Mr. Jacobson.

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 share
for  an  aggregate amount of consideration received by the Registrant of $90,000
in  cash,  net of offering costs. The Registrant also issued Mr. Revesz warrants
to  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-day average
closing  price  prior to the purchaser's election to exercise the warrant; or on
or  before  March  31,  2004,  at the lesser of US $0.37 per share or 50% of any
consecutive  10-day  average  closing 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 share or 50% of any consecutive 10-day average closing price prior to
the  purchaser'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 consecutive 10-day
average closing price prior to the purchaser's election to exercise the warrant.

On  May  13, 2003, Mr. Revesz also loaned $200,000 to the Registrant in exchange
for  a  90-day note that is convertible into common shares of the Company at the
lender's  option  on  the 91st day at a price of no more than US$0.20 per share.
Should  the Registrant sell any shares during the period the note is outstanding
for  less than US$0.20 per share, the conversion price would be lowered to match
that  selling  price.  The  Registrant  will  have  the 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 the Company's common stock. Should Mr.
Revesz  choose  not to convert the note, and should the Registrant fail to repay
the  note  when due, the Registrant will incur a penalty of 25,000 common shares
per  month.  The  sale  is exempt under Rule 506 as there was only one purchaser
under  this offering and the purchaser is an accredited investor. During August,
Mr.  Revesz  agreed  to  extend  the  note  to  December  1,  2003.

The  Registrant  also sold 175,000 shares of common stock and issued warrants to
purchase  175,000  shares  of common stock to two individuals, Carol Vorberg and
John  Gray  for  $30,000  and $5,000, respectively, during the second quarter of
2003. The Registrant received $30,000 net of offering costs. The securities were
sold  at  a price of $0.20 per share and the warrants are exercisable at a price
of  $0.40,  and  are  exercisable  for  two  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





                                         17


ITEM  6  EXHIBITS  AND  REPORTS

(a)  Exhibits

31  Certification  pursuant  to Rule 13A-14 or 15D-14 of the Securities Exchange
Act  of  1934,  as  adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.

32  Certification pursuant to the 18 U.S.C. Section 1350, as adopted pursuant to
Section  906  of  the  Sarbanes-Oxley  Act  of  2002.

(b)  Reports  on  Form  8-K.

None

                                   SIGNATURES

In  accordance  with the requirements of the Exchange Act, the Registrant caused
this  report  to  be  signed  on  its  behalf by the undersigned, thereunto duly
authorized.

                             NIGHTHAWK SYSTEMS, INC.
                                  (Registrant)



Date:  October 12,  2004                  By: /s/ H. Douglas Saathoff
                                                 H.  Douglas  Saathoff
                                                 Chief  Executive  Officer  and
                                                 Chief  Financial  Officer