U.S. SECURITIES AND EXCHANGE COMMISSION
                              Washington, D.C. 20549

                                   FORM 10-QSB

(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, 2006

 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
                                     OF 1934

               For the transition period from _________ to ________

                         Commission File Number: 0-30786

                             NIGHTHAWK SYSTEMS, INC

                             ----------------------
        (Exact name of small business issuer as specified in its charter)

          Nevada                                       87-0627349
          ------                                       ----------
(State  or  other  jurisdiction                          (I.R.S  Employer
of  incorporation  or  organization)                   Identification  No.)

                           10715  Gulfdale,  Suite  200
                            San  Antonio,  TX  78216
                            ----------------------
                   (Address  of  principal  executive  offices)

                                  210 341-4811
                                  ------------
                           (Issuer's telephone number)


(Former name, former address and former fiscal year, if changed since last
report)

Check  whether  the issuer (1) filed all reports required to be filed by Section
13  or  15(d) of the Exchange Act during the past 12 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 [ ]

                APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEEDING FIVE YEARS

Check  whether  the  registrant  filed  all documents and reports required to be
filed  by  Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities  under  a  plan  confirmed  by  a  court.  Yes  [  ]  No  [  ]

                      APPLICABLE ONLY TO CORPORATE ISSUERS

As  of November 14, 2006 there were 77,066,699 shares of common stock, par value
$.001  per  share,  of  the  registrant  issued  and  outstanding.
Transitional  Small  Business  Disclosure  Format  (Check  one):  Yes [ ] No [X]

<PAGE>

INDEX

Part  I     FINANCIAL  INFORMATION

Item  1    Financial  Statements  (unaudited)
           Condensed consolidated balance sheet as of September 30, 2006       2
           Condensed consolidated statements of operations for the
           three and nine month periods ended September 30, 2006 and 2005      3
           Condensed  consolidated  statement  of  stockholders'
           deficit for the nine months ended September 30, 2006                4
           Condensed consolidated  statements of cash flows for
           the nine months ended September 30, 2006 and 2005                   5
           Notes to condensed consolidated financial statements                7

Item 2     Management's Discussion and Analysis or Plan of Operation          11
Item 3     Controls and Procedures                                            15

Part  II     OTHER  INFORMATION

Item 1     Legal Proceedings                                                  16
Item 2     Unregistered Sales of Equity Securities and Use of Proceeds        16
Item 3     Defaults Upon Senior Securities                                    16
Item 4     Submissions of Matters to a Vote of Security Holders               16
Item 5     Other Information                                                  16
Item 6     Exhibits and Reports on Form 8-K                                   16
           Signatures and Certifications                                      17

                                       -1-
<PAGE>

<TABLE>
                            NIGHTHAWK SYSTEMS, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEET
                                  SEPTEMBER 30, 2006
<CAPTION>
        ASSETS
<S>                                                                                  <C>
Current assets:
     Cash                                                                            $   121,790
     Accounts receivable, net of allowance for doubtful accounts of $1,654               152,057
     Inventories                                                                         104,625
     Prepaids                                                                            793,130
                                                                                     ------------
               Total current assets                                                    1,171,602
                                                                                     ------------

Furniture, fixtures and equipment, net                                                    19,299
Intangible and other assets                                                               24,200
                                                                                     ------------
                                                                                     $ 1,215,101
                                                                                     ============

      LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
    Accounts payable                                                                 $   221,249
    Accrued expenses                                                                     384,441
    Line of credit                                                                        19,792
    Notes payable:
        Related parties                                                                   12,716
        Other                                                                            338,601
                                                                                     ------------
               Total current liabilities                                                 976,799
                                                                                     ------------

Long-term liabilities:
   Convertible debt                                                                    2,849,320
                                                                                     ------------
Commitments and contingencies

Stockholders' deficit:
    Preferred stock, $0.001 par value; 5,000,000 shares authorized; no shares issued
    and outstanding; liquidation preference                                          $         -
    Common stock; $0.001 par value; 200,000,000 shares authorized;
    74,480,015 issued and outstanding                                                     74,480
    Additional paid- in capital                                                        7,919,493
    Accumulated deficit                                                              (10,604,991)
                                                                                     ------------
               Total stockholders' deficit                                            (2,611,018)
                                                                                     ------------
                                                                                     $ 1,215,101
                                                                                     ============
<FN>
The accompanying notes are an integral part of these financial statements
</TABLE>

                                      -2-
<PAGE>

<TABLE>
                            Nighthawk Systems, Inc.
                Condensed Consolidated Statements of Operations
<CAPTION>
<S>                                                           <C>                <C>         <C>            <C>
                                                              Three months ended September 30,  Nine months ended September  30,
                                                                         2006       2005           2006          2005
                                                                    -----------------------  ---------------------------
Revenue                                                             $  231,710   $ 120,973     $  625,236   $   390,567
Cost of goods sold                                                     136,690      91,579        400,983       281,203
                                                                    -----------------------  ---------------------------
     Gross profit                                                       95,020      29,394        224,253       109,364


Selling, general and administrative expenses                           555,375    476,496       1,866,749     1,626,195
                                                                    -----------------------  --------------------------
     Loss from operations                                             (460,355)   (447,102)    (1,642,496)   (1,516,831)

 Interest expense:
     Related parties                                                       346         627          1,677         1,466
     Other                                                             145,050     130,224        910,820       619,232
                                                                    -----------------------  ---------------------------
         Total interest expense                                        145,396     130,851        912,497       620,698
                                                                    -----------------------  ---------------------------
Net loss                                                              (605,751)   (577,953)    (2,554,993)   (2,137,529)
Less: preferred stock dividends                                                       (224)                        (664)
                                                                    -----------------------  ---------------------------
Net loss to common stockholders                                     $ (605,751)  $(578,177)   $(2,554,993)  $(2,138,193)
                                                                    =======================  ===========================
Net loss per basic and diluted common share                         $    (0.01)  $   (0.01)   $     (0.04)  $     (0.06)
                                                                    =======================  ===========================
Net loss to common stockholders per basic and diluted common share  $    (0.01)  $   (0.01)   $     (0.04)  $     (0.06)
                                                                    =======================  ===========================
Weighted average common shares outstanding - basic and diluted      74,712,976  40,626,529     67,270,080    37,228,455
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>

                                      -3-
<PAGE>
<TABLE>
                                                       Nighthawk Systems, Inc.
                                       Condensed Consolidated Statement of Stockholders' Deficit
                                                  Nine months ended September 30, 2006
<CAPTION>
<S>                                                             <C>           <C>           <C>           <C>           <C>
                                                                        Common stock        Additional
                                                                --------------------------    paid-in     Accumulated
                                                                   Shares        Amount       capital       deficit         Total
                                                                ------------  ------------  ------------  ------------  ------------
Balances, December 31, 2005                                      46,477,158   $    46,477   $ 5,464,436   $(8,049,998)  $(2,539,085)

Common stock issued for Dutchess puts, including commissions     20,130,857        20,131     1,447,955                   1,468,086

Common stock issued as incentive for notes payable                5,353,666         5,354       332,626                     337,980

Common stock issued for consulting services                       4,925,000         4,925       232,075                     237,000

Common stock converted to warrants                               (3,256,666)       (3,257)        3,257

Warrant to purchase common stock issued(notes payable)                                           48,000                      48,000

Conversion of accrued liabilities to common stock                   850,000           850        34,150                      35,000

Amortization of beneficial conversion feature on notes payable                                  254,280                     254,280

Vesting of options                                                                              102,714                     102,714

Net loss                                                                                                   (2,554,993)   (2,554,993)
                                                                ------------  ------------  ------------  ------------  ------------
Balances, September 30, 2006                                     74,480,015   $    74,480   $ 7,919,493  $(10,604,991)  $(2,611,018)
                                                                ============  ============  ============  ============  ============
<FN>
The accompanying notes are an integral part of these financial statements
</TABLE>

                                      -4-
<PAGE>
<TABLE>
                            Nighthawk Systems, Inc.
                Condensed Consolidated Statements of Cash Flows
<CAPTION>
<S>                                                                               <C>              <C>
                                                                                  Nine months ended September 30,
                                                                                         2006          2005
                                                                                     ------------  ------------
Cash flows from operating activities:
      Net loss                                                                       $(2,554,993)  $(2,137,529)
                                                                                     ------------  ------------
Adjustments to reconcile net loss to net cash used in operating activities:
   Bad debt expense                                                                        1,987         1,648
   Depreciation and amortization                                                           7,413         4,740
   Vesting of options                                                                    102,714             -
   Loan discounts and warrants                                                           133,789       267,929
   Beneficial conversion feature                                                         254,281             -
   Common stock issued for consulting services                                           177,000       238,031
   Common stock issued for interest                                                       88,109             -
   Shares and warrants issued as incentives on notes payable                             233,267       180,007
   Note payable issued for consulting                                                     74,550             -
   Note payable issued for interest                                                            -       131,954
   Amortization of prepaid consulting expense                                                  -       186,310
Changes in assets and liabilities:
   (Increase) in accounts receivable                                                     (70,839)      (18,052)
   (Increase) in inventories                                                             (24,747)      (51,676)
   (Increase) decrease in prepaids                                                       ( 9,434)       34,482
    Decrease in other assets and liabilities                                             ( 4,652)       (1,020)
    Decrease in accounts payable                                                         (64,000)     (121,805)
    Increase in accrued expenses                                                          91,601       116,058
                                                                                     ------------  ------------
Total adjustments                                                                        991,039       968,606
                                                                                     ------------  ------------
Net cash used in operating activities                                                 (1,563,954)   (1,168,923)
                                                                                     ------------  ------------

Cash flows from investing activities:
   Purchases of furniture, fixtures and equipment                                        (13,283)       (4,348)
                                                                                     ------------  ------------
Net cash used in investing activities                                                    (13,283)       (4,348)
                                                                                     ------------  ------------

Cash flows from financing activities:
   Proceeds from notes payable, related parties                                                -         1,070
   Payments on notes payable, related parties                                             (1,678)       (1,658)
   Proceeds from notes payable, other                                                  1,615,000     1,026,133
   Payments on notes payable, other                                                       (5,500)      (20,075)
   Net proceeds from the sale of common stock, and the exercise of puts and warrants           -       112,093
                                                                                     ------------  ------------
Net cash provided by financing activities                                              1,607,822     1,117,563
                                                                                     ------------  ------------
Net increase (decrease) in cash                                                           30,585       (55,708)
Cash, beginning balance.                                                                  91,205        61,118
                                                                                     ------------  ------------
Cash, ending balance                                                                 $   121,790   $     5,410
                                                                                     ============  ============
</TABLE>

                                      -5-
<PAGE>
<TABLE>
                   Condensed Consolidated Statements of Cash Flows
                                      (continued)
<CAPTION>
<S>                                                                         <C>          <C>
Supplemental disclosures of cash flow information:
                                                                               2006         2005
                                                                            ----------   ----------
Cash paid for interest                                                      $   24,409   $  195,244
                                                                            ==========   ==========
Supplemental disclosure of non-cash investing and financing activities:

Common shares issued as payments on notes payable, including commissions    $1,482,943   $  169,796
                                                                            ==========   ==========

Common shares issued as incentives for notes payable                        $  385,980   $  248,300
                                                                            ==========   ==========
Common shares issued for prepaid consulting agreements                                   $  207,500
                                                                                         ==========
Conversion of accrued expenses to common stock                              $   35,000   $   83,226
                                                                            ==========   ==========
Conversion of notes payable and accrued interest to common stock
   Notes payable                                                                         $  240,623
   Accrued interest                                                                          14,362
                                                                                         ----------
Total amount converted                                                                   $  254,987
                                                                                         ==========
Preferred stock dividends issued in common stock                                         $      664
                                                                                         ==========
</TABLE>
                                       -6-

<PAGE>

                             NIGHTHAWK SYSTEMS, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
         THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2006 AND 2005
                                   (unaudited)

1.  ORGANIZATION,  GOING  CONCERN,  RESULTS OF OPERATIONS AND MANAGEMENT'S PLANS
ORGANIZATION

Nighthawk  Systems,  Inc.  ("the  Company") designs and manufactures intelligent
wireless  power  control  products  that  enable  simultaneous  activation  or
de-activation  of  multiple  assets  or systems on demand. Nighthawk's installed
customer  base includes major electric utilities, internet service providers and
fire  departments  in  over  40  states. Nighthawk's products also enable custom
message  display,  making  them  ideal  for use in traffic control and emergency
notification  situations.

Nighthawk  products  enable customers to wirelessly extend their reach, allowing
them  to  turn  on,  off  or reboot remotely located equipment at any time, from
anywhere.  Expensive truck rolls and third-party service contracts are no longer
required  with  Nighthawk products in place. The Company's proprietary, wireless
products are ready to use upon purchase, so they are easily installed by anyone,
regardless of technical ability, and are also easily integrated into third-party
products,  systems  and  processes.  They  allow  for  intelligent  control  by
interpreting  instructions  sent  via  wireless  media,  and  executing  the
instructions  by  'switching'  the  electrical  current  that powers the device,
system  or  process.  Nighthawk's  intelligent  products  can  be  activated
individually, in pre-defined groups, or en masse, and for specified time periods
with  a  simple  click  of  a  mouse  or  by  dialing  a  telephone  number.

GOING  CONCERN,  RESULTS  OF  OPERATIONS  AND  MANAGEMENT'S  PLANS

The  Company  incurred  a net loss of approximately $2.5 million during the nine
month  period  ended  September  30,  2006  and  had  a stockholders' deficit of
approximately  $2.6  million  as  of  September 30, 2006. These conditions raise
substantial  doubt  about  the Company's ability to continue as a going concern.
Although  no  assurance  can  be  given  that  such  plans  will be successfully
implemented,  management's  plans  to  address  these  concerns  include:

-  Raising  working  capital  through  additional  borrowings.
-  Raising  equity  funding  through  sales  of  the  Company's  common  stock.
-  Implementation  of  the  Company's  sales  and  marketing  plans.

In August 2004, the Company signed a financing arrangement with Dutchess Private
Equities,  II,  L.P.  ("Dutchess")  under which the Company received $250,000 in
exchange for a convertible debenture during August 2004. 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.  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.  Since  entering into the arrangement with
Dutchess,  the  Company  has  utilized  the arrangement to obtain enough cash to
cover  its  operating  cash  flow  deficits  on  a  monthly  basis.

For  more information on transactions with Dutchess during the nine-month period
ending  September  30,  2006,  please  see  Note  4  -  Notes  payable.
Although  no  assurance  may be given that it will be able to do so, the Company
expects to be able to continue to access funds under this arrangement to help it
fund near-term and long-term sales and marketing efforts, and to cover cash flow
deficiencies.

During 2005, the Company hired its first full-time personnel that were dedicated
only  to  developing sales channels and sales opportunities Throughout 2005, the
sales  staff  was  responsible for generating new business opportunities for the
Company's  core  products, the NH100 rebooting device and the CEO700 whole house
disconnect  device.  It  also  launched  a  new website during 2005 which allows
potential  customers  to send contact information and product inquiries directly
to  the  Company  via  the  Internet.

                                       -7-
<PAGE>
              The Company's strategic initiatives for 2006 include:

-  Capitalize  on  existing  enterprise  sales  opportunities
-  Cultivate  and  capitalize  on  indirect  sales  channels
-  Enhance  our  marketing  effort to support direct and indirect sales channels
-  Bundle  our  products with ancillary products and services to enhance revenue
   opportunities
-  Develop  and  sell  a  device  that  functions on multiple wireless protocols
-  Form  an  advisory  board  with relevant industry expertise and relationships
-  Execute  on a strategic acquisition that is scalable and complementary to our
existing  business

The Report of the Company's Independent Registered Public Accounting Firm on the
Company's  financial  statements  as of and for the year ended December 31, 2005
includes  a  "going concern" explanatory paragraph which means that the auditors
expressed  substantial  doubt about the Company's ability to continue as a going
concern.  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.

2.  BASIS  OF  PRESENTATION

The  accompanying  unaudited  condensed consolidated financial statements, which
include  the  accounts  of  Nighthawk Systems, Inc. and its subsidiary Peregrine
Control  Technologies,  Inc. (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 the financial statements and notes thereto
included  in  the Company's Annual Report on Form 10-KSB for 2005 filed with the
Securities  and  Exchange  Commission  (the  "SEC").

3.  SIGNIFICANT  ACCOUNTING  POLICIES

REVENUE  RECOGNITION

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. As of
September 30, 2006, the Company billed $16,415 for equipment that was being held
pending  shipping  instructions  from  a  customer.  Revenue  related to airtime
billing  is  recognized  when  the  service is performed. Some customers pre-pay
airtime  on  a quarterly or annual basis and the pre-paid portion is recorded as
deferred  revenue. Deferred revenue, included in accrued expenses on the balance
sheet  at  September  30,  2006,  is  approximately  $15,869.

PROVISION  FOR  DOUBTFUL  ACCOUNTS

The  Company  reviews  accounts  receivable  periodically for collectibility and
establishes an allowance for doubtful accounts and records bad debt expense when
deemed  necessary.

                                       -8-

<PAGE>

CONCENTRATIONS

Financial  instruments that potentially subject the Company to concentrations of
credit  risk consist primarily of trade accounts receivable. Receivables arising
from  sales  to  customers  are  not collateralized and, as a result, management
continually monitors the financial condition of its customers to reduce the risk
of  loss.  At  September  30,  2006,  the  Company had approximately $152,057 in
accounts  receivable,  net of the allowance for doubtful accounts. Approximately
$132,669  of  this  balance  was  from  four  customers,  $120,602  of which was
collected  as  of  November  14,  2006.

During  the three month period ended September 30, 2006, two customers accounted
for  approximately  14%  and 32% of total revenue, respectively. During the nine
month  period ended September 30, 2006, one customer accounted for approximately
12%  of  total  revenue.  During  the three months ended September 30, 2005, two
customers  accounted  for  approximately  12%  and  20%  of  total  revenue,
respectively.  During  the  nine  month  period  ended  September  30, 2005, two
customers  accounted  for  approximately  14%  and  20%  of  total  revenue,
respectively.

During  the  three month period ended September 30, 2006 two suppliers accounted
for  approximately  56% of the Company's purchases of pre-manufactured component
materials,  during  the  nine  month  period  ended  September  30,  2006, three
suppliers  accounted  for  approximately  74%  of  the  Company's  purchases  of
pre-manufactured  component  materials.

INVENTORIES

Inventories  consist  of  parts  and  pre-manufactured  component  materials and
finished  goods. Inventories are valued at the lower of cost or market using the
first-in,  first-out  (FIFO)  method.

PROPERTY  AND  EQUIPMENT

Property  and equipment are recorded at cost. Depreciation is recorded using the
straight-line  method  over  the  estimated useful lives of five to seven years.
Maintenance  and  repairs  are  expensed  as  incurred  and  improvements  are
capitalized. Upon sale or retirement of assets, the cost and related accumulated
depreciation  or amortization is eliminated from the respective accounts and any
resulting  gains  or  losses  are  reflected  in  operations.

INTANGIBLE  ASSETS

Intangible  assets  include  patent costs and are stated at cost. If the patents
are  granted,  the  Company  will  then  begin  to amortize the patents over the
shorter  of  the  lives  of  the patents or the estimated useful lives using the
straight-line  method. The Company reviews these and any other long-lived assets
for  impairment  whenever  events  or  changes  in  circumstances indicate their
carrying  amounts  may not be recoverable. Recoverability of an asset to be held
and  used  is  measured  by  a comparison of the carrying amount of the asset to
future  undiscounted  cash  flows  expected to be generated by the asset. If the
asset  is considered to be impaired, the impairment to be recognized is measured
by  the  amount by which the carrying amount of the asset exceeds the fair value
of  the  asset.  Based  on  its  review,  management  does  not believe that any
impairment  of  intangible  or  other  long-lived assets exists at September 30,
2006.

RESEARCH  AND  DEVELOPMENT  COSTS

Research  and development costs include materials and equipment costs associated
with  the  formulation,  design,  construction  and  testing  of  new  product
prototypes.  These  costs  also  include  contract labor and salaries, wages and
other  related  costs  of  personnel  engaged  in  the  research and development
activities.  During  the  three month and nine month periods ended September 30,
2006,  the  Company incurred approximately $32,500 and $92,500, respectively, in
research  and development costs related to the development of a two-way wireless
product  for  the utility industry. These costs are included in selling, general
and  administrative  expenses  in  the  accompanying  financial  statements.

INCOME  TAXES

Deferred  tax  assets  and liabilities are recorded for the estimated future tax
effects of temporary differences between the tax basis of assets and liabilities
and  amounts reported in the accompanying balance sheets, and for operating loss
and tax credit carry forwards. The change in deferred tax assets and liabilities
for  the  period  measures the deferred tax provision or benefit for the period.
Effects  of  changes  in enacted tax laws on deferred tax assets and liabilities
are  reflected  as  adjustments to the tax provision or benefit in the period of
enactment.  The  Company's deferred tax assets have been completely reduced by a
valuation  allowance  because  management  does  not  believe realization of the
deferred  tax  assets  is  sufficiently  assured  at  the  balance  sheet  date.

                                       -9-

<PAGE>

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  year.  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. For each of the periods presented in the
accompanying financial statements, the effect of the inclusion of dilutive hares
would  have  resulted in a decrease in loss per share. Accordingly, the weighted
average  shares  outstanding  have  not  been  adjusted  for  dilutive  shares.

USE  OF  ESTIMATES

The  preparation  of  the  financial  statements  in  conformity with accounting
principles  generally  accepted in the United States requires management to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities  and  disclosure of contingent assets and liabilities at the date of
the  financial  statements  and  the  reported  amounts of revenues and expenses
during  the  reporting period. Actual results could differ from those estimates.

STOCK-BASED  COMPENSATION

During  the first quarter of fiscal 2006, the Company adopted the provisions of,
and  accounts  for  stock-based  compensation  in accordance with, the Financial
Accounting Standards Board's Statement of Financial Accounting Standards No. 123
-  revised  2004 ("SFAS 123R") "Share-Based Payment" which replaced Statement of
Financial  Standards  No.  123  ("SFAS  123"),  "Accounting  for  Stock-Based
Compensation"  and  supersedes  APB  Opinion  No. 25 ("APA 25"), "Accounting for
Stock  Issued to Employees". Under the fair value recognition provisions of this
statement,  stock-based compensation cost is measured at the grant date based on
the  fair  value  of  the  award and is recognized as expense on a straight-line
basis  over  the  requisite  service  period,  which  is the vesting period. The
Company  elected  the modified-prospective method, under which prior periods are
not  revised  for  comparative  purposes.  The valuation provisions of SFAS 123R
apply to new grants and to grants that were outstanding as of the effective date
and  are  subsequently  modified.

RECLASSIFICATIONS

Certain  amounts reported in the condensed consolidated financial statements for
the  three  and  nine  month  periods  ended  September  30,  2005  have  been
reclassified  to  conform  to  the  September  30,  2006  presentation.


4.  NOTES  PAYABLE

<TABLE>
<CAPTION>
<S>                                                                                                                      <C>
At September 30, 2006, notes payable consist of the following:

Related parties:
Note payable, officer; unsecured; interest at prime rate plus 5.5% (13.74% at September 30, 2006); due on demand         $    9,247
Note payable, officer; unsecured; interest at 23.99%, revolving                                                               3,469
                                                                                                                         ----------
                                                                                                                         $   12,716
                                                                                                                         ==========

Other:
Convertible note payable to stockholder, 8% interest rate, in default as of the date of this report (1)                  $  160,000
Notes payable to stockholder, 8% interest rate, in default as of the date of this report (1)                                165,000
Unsecured note with a financial institution, 18.24% interest rate, revolving                                                 13,601
                                                                                                                         -----------
                                                                                                                         $  338,601
                                                                                                                        ===========

Long Term:
Convertible debenture,  5% interest rate, due December, 2010                                                             $  500,000
Convertible debenture, 10% interest rate, due December, 2009                                                              1,303,924
Convertible debenture, 10% interest rate, due March, 2011                                                                   137,084
Convertible debenture, 10% interest rate, due April, 2011                                                                   165,000
Convertible debenture, 10% interest rate, due May, 2011                                                                      92,071
Convertible debenture, 10% interest rate, due June, 2011                                                                    205,000
Convertible debenture, 10% interest rate, due July, 2011                                                                    135,000
Convertible debenture, 10% interest rate, due August, 2011                                                                  126,241
Convertible debenture, 10% interest rate, due September, 2011                                                               185,000
                                                                                                                         ----------
                                                                                                                         $2,849,320
<FN>
                                                                                                                         ==========
1)     Based on recurring discussions with the shareholder, who is a former board member, the Company does not expect to receive
a notice of default and to have the notes called  by  the  holder. However, no assurance may be give that this will be the case.
</TABLE>
                                      -10-

<PAGE>

On January 9, 2006, Dutchess loaned the Company $245,000. The note had no stated
interest  rate but had a face amount of $294,000 and matured on January 9, 2007.
Dutchess was issued 653,000 incentive shares of unregistered common stock valued
by the Company at $45,710 for the note, which was secured by put notices. During
the  three  month  period  ending March 31, 2006, Dutchess exercised put notices
valued at $294,000 to pay off the note and was issued 3,477,247 shares of common
stock  as  a  result.

On  February  8,  2006,  Dutchess  loaned the Company $205,000 in exchange for a
convertible debenture that was due February 8, 2011. Dutchess was issued 615,000
incentive  shares  of unregistered common stock valued by the Company at $55,350
for  the  debenture, which was secured by put notices. The debenture contained a
clause  calling  for  an early redemption penalty of 20%. During the three month
period  ending March 31, 2006, Dutchess exercised put notices valued at $246,000
to  pay  off  the debenture and the redemption penalty, and was issued 2,429,107
shares  of common stock as a result. The Company recorded the redemption penalty
as  interest  expense,  and also recorded $68,333 in interest expense during the
period  related  to  the  beneficial  conversion  feature  of  the  debenture.

On  March  16,  2006,  Dutchess  loaned  the  Company $185,000 in exchange for a
convertible  debenture  that  is due March 16, 2011. Dutchess was issued 444,000
incentive  shares  of unregistered common stock valued by the Company at $44,400
for  the debenture, which is secured by put notices. The Company recorded $7,196
in  interest  expense  during  the  nine  month period ending September 30, 2006
related  to  the  beneficial  conversion feature of the debenture. Additionally,
during  the  nine month period ending September 30, 2006, Dutchess exercised put
notices  valued  at  $47,916 to pay down the debenture, and was issued 1,089,480
shares  as  a  result.  The  debenture  contains  a  clause calling for an early
redemption  penalty  of  20%.

On  April  19,  2006,  Dutchess  loaned  the  Company $165,000 in exchange for a
convertible  debenture  that  is due April 19, 2011. Dutchess was issued 366,666
incentive  shares  of unregistered common stock valued by the Company at $33,000
for  the debenture, which is secured by put notices. The Company recorded $5,502
in  interest  expense  during  the  nine  month period ending September 30, 2006
related  to  the  beneficial  conversion feature of the debenture. The debenture
contains  a  clause  calling  for  an  early  redemption  penalty  of  20%.

On  May  17,  2006,  Dutchess  loaned  the  Company  $130,000  in exchange for a
convertible  debenture  that  is  due  May 17, 2011. Dutchess was issued 690,000
incentive  shares  of unregistered common stock valued by the Company at $48,300
for  the debenture, which is secured by put notices. The Company recorded $3,610
in  interest  expense  during  the  nine  month period ending September 30, 2006
related  to  the  beneficial  conversion feature of the debenture. Additionally,
during  the  nine month period ending September 30, 2006, Dutchess exercised put
notices  valued  at  $37,929 to pay down the debenture, and was issued 1,307,593
shares  as  a  result.  The  debenture  contains  a  clause calling for an early
redemption  penalty  of  20%.

On  June  15,  2006,  Dutchess  loaned  the  Company  $205,000 in exchange for a
convertible  debenture  that is due June 15, 2011. Dutchess was issued 1,010,000
incentive  shares  of unregistered common stock valued by the Company at $47,470
for  the debenture, which is secured by put notices. The Company recorded $4,556
in  interest  expense  during  the  nine  month period ending September 30, 2006
related  to  the  beneficial  conversion feature of the debenture. The debenture
contains  a  clause  calling  for  an  early  redemption  penalty  of  20%.

On  July  6,  2006,  Dutchess  loaned  the  Company  $135,000  in exchange for a
convertible  debenture  that  is  due  July 6, 2011. Dutchess was issued 575,000
incentive  shares  of unregistered common stock valued by the Company at $28,750
for  the debenture, which is secured by put notices. The Company recorded $2,250
in  interest  expense  during  the  nine  month period ending September 30, 2006
related  to  the  beneficial  conversion feature of the debenture. The debenture
contains  a  clause  calling  for  an  early  redemption  penalty  of  20%.

On  August  21,  2006,  Dutchess  loaned  the Company $160,000 in exchange for a
convertible debenture that is due August 21, 2011. Dutchess was issued 1,000,000
incentive  shares  of unregistered common stock valued by the Company at $35,000
for  the debenture, which is secured by put notices. The Company recorded $1,778
in  interest  expense  during  the  nine  month period ending September 30, 2006
related  to  the  beneficial  conversion feature of the debenture. Additionally,
during  the  nine month period ending September 30, 2006, Dutchess exercised put
notices  valued  at  $33,759  to  pay  down  the  debenture,  and  was  issued
1,009,035shares  as  a  result.  The  debenture contains a clause calling for an
early  redemption  penalty  of  20%.

On  September  27,  2006, Dutchess loaned the Company $185,000 in exchange for a
convertible  debenture  that  is  due  September  27,  2011.  In addition to the
debenture,  which  is  secured  by put notices, Dutchess was issued a warrant to
purchase  1,200,000 shares of common stock for $0.001 per share. The Company has
valued  the  warrant, which it considers to be equivalent to 1,200,000 shares of
common  stock,  at  $48,000.  See  note 5 below. The debenture contains a clause
calling  for  an  early  redemption  penalty  of  20%.

In addition to the activity discussed about, during the nine month period ending
September  30,  2006, Dutchess exercised puts valued at $737,832 to pay off four
notes and one debenture, plus all related interest, that had been outstanding at
December  31, 2005, and exercised puts valued at $59,573 to pay down a debenture
that  had  been outstanding at December 31, 2005. Dutchess was issued 14,661,608
shares  as  a  result  of  these  transactions. The Company recorded $121,039 in
interest  expense  on  these  notes and debentures during the period, as well as
$83,908  in interest expense related to the beneficial conversion feature of the
debenture.

During  the  three  and nine month periods ended September 30, 2006, the Company
recognized  a  total  of $54,680 and $254,281, respectively, in interest expense
related  to  the  beneficial conversion feature of debentures outstanding during
the  period.  During  the three and nine month periods ended September 30, 2006,
the Company also recognized $8,533 and $75,667, respectively, in commissions due
to  a  third  party as a result of puts exercised by Dutchess during the period.

                                      -11-
<PAGE>

Subsequent  to  September  30,  2006, Dutchess has exercised four puts valued at
$65,432 in order to pay down the debentures issued in May, 2006 and August 2006.
The  Company  issued  Dutchess  1,888,000  shares  of  common stock as a result.
On  October  6,  2006,  Dutchess  loaned  the Company $105,000 in exchange for a
convertible debenture that is due October 6, 2011. In addition to the debenture,
which  is  secured  by  put  notices,  Dutchess was issued a warrant to purchase
650,000  shares of common stock for $0.001 per share. The Company has valued the
warrant,  which it considers to be equivalent to 650,000 shares of common stock,
at  $19,250.  The  debenture  contains  a clause calling for an early redemption
penalty  of  20%.

On  October  25,  2006,  Dutchess  loaned the Company $330,000 in exchange for a
convertible  debenture  that  is  due  October  25,  2011.  In  addition  to the
debenture,  which  is  secured  by put notices, Dutchess was issued a warrant to
purchase  1,250,000  shares of common stock at $0.001 per share. The Company has
valued  the  warrant, which it considers to be equivalent to 1,250,000 shares of
common  stock, at $62,500.  The debenture contains a clause calling for an early
redemption  penalty  of  20%.

5.  STOCKHOLDERS'  DEFICIT

COMMON  STOCK

During  the  nine  month  period  ending  September 30, 2006, the Company issued
4,925,000  unregistered shares of common stock to consultants for services to be
performed. The Company recognized $177,000 in expense related to these contracts
during the period, and has recorded an additional $60,000 in prepaids related to
one  of  the contracts as of September 30, 2006. The Company also issued 850,000
unregistered  shares  of  common  stock  to a consultant for $35,000 in services
rendered  in  2004  and  2005.

During  the  nine  month  period  ended  September  30, 2006, the Company issued
options  to purchase 200,000 shares to employees, 250,000 shares to a consultant
and  4,000,000  shares  to its board members. The Company recognized $96,738 and
$102,714  respectively,  in non-cash compensation expense for the three and nine
month  periods ending September 30, 2006 for the vesting of these and previously
issued  options.

Effective  September  25,  2006,  the Company approved the exchange of 3,256,666
shares  of  its  outstanding  common  stock  previously  issued  to Dutchess for
warrants  to  purchase  an  equal  number  of shares of Company common stock for
$0.001  per  share.  As a result of the exchange, the Company reduced the number
of  its shares outstanding by 3,256,666.  However, because the exercise price of
the  warrants is minimal, and Dutchess has seven years to exercise the warrants,
the  Company has continued to value and account for the warrants as if they were
incentive shares that were originally issued with the associated debentures.  As
such,  the  warrants issued in exchange for common stock continue to be expensed
as  interest  expense  at  the same value and over the same period as the shares
they  were  exchanged  for.  Any  warrants  issued  with  debentures to Dutchess
subsequent  to  September  25,  2006  that have minimal exercise prices and long
lives have also been valued at the fair value of the Company's common stock, are
being accounted for by the Company as incentive shares, and expensed as interest
expense  over the lives of the associated debentures.  All debentures associated
with  these  warrants  have  been  recorded  at  their  full  face values in the
accompanying  financial  statements.

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.

GENERAL

The  Company  designs  and  manufactures intelligent remote monitoring and power
control  products  that  are  easy  to use, inexpensive and can remotely control
virtually  any  device from any location. Our proprietary, wireless products are
ready  to  use upon purchase, so they are easily installed by anyone, regardless
of  technical ability, and are also easily integrated into third-party products,
systems  and  processes.  They  allow  for  intelligent  control by interpreting
instructions sent via paging and satellite media, and executing the instructions
by 'switching' the electrical current that powers the device, system or process.
Our  intelligent  products can be activated individually, in pre-defined groups,
or en masse, and for specified time periods with a simple click of a mouse or by
dialing  a  telephone  number.

Our  products  have been uniquely designed and programmed to be simple and ready
to  use upon purchase by anyone, almost anywhere, at affordable prices. As such,
it  is  the Company's goal to have its products become commonplace, accepted and
used  by  businesses  and  consumers  alike  in  their  daily  routines.

We  save  consumers  and  businesses time, effort and expense by eliminating the
need  for  a person to be present when and where an action needs to be taken. By
utilizing  existing  wireless  technology,  we give our users the flexibility to
move  their  application  from  place  to  place,  without  re-engineering their
network.  Currently,  most  commercial  control  applications  utilize telephone
lines,  which  tether  the  system  to  a  single  location  and have associated
installation and monthly charges. Our products make companies more profitable by
eliminating  installation  costs  and  monthly  charges for telephone lines, and
allow  for  remote  control  of unmanned or remote locations that may operate on
traditional  electrical  power,  or  solar  or  battery  generated  power.

Applications  for  our  intelligent  products  include,  but are not limited to:

-  Rebooting  remotely  located  computer  equipment
-  Remote  switching  of  residential  power
-  Managing  power  on  an  electrical  grid
-  Activation/deactivation  of  alarm  and  warning  devices
-  Displaying  or  changing  a  digital  or  printed  message  or  warning  sign
-  Turning  pumps  on  or  off
-  Turning  heating  or  cooling  equipment  on  or  off

Companies both large and small are seeking ways to save money and lower the risk
of  liability  by  replacing  processes  that  require  human  intervention with
processes  that  can  be controlled remotely without on-site human intervention.
Today,  the  remote  control of industrial or commercial assets and processes is
performed  mainly through the use of telephone-line based systems. Opportunities
exist  for  companies  that provide intelligent wireless solutions, as telephone
lines  are  expensive  and  limited  in  availability  and function. Nighthawk's
products  are  wireless,  and can be designed to work with a variety of wireless
media.  The  number  of  applications  for  wireless remote control is virtually
limitless. The Company has identified primary markets (Utility, IT Professional,
Traffic Control), as well as secondary markets (Irrigation, Outdoor Advertising,
Oil/Gas,  Security)  for  its  products.

CRITICAL  ACCOUNTING  POLICIES  AND  ESTIMATES

The preparation of financial statements in conformity with accounting principles
generally  accepted  in the United States of America requires management to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities  and  disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the  reporting  period.  Actual  results  could  differ  from  those  estimates.

REVENUE  RECOGNITION

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. As of
September 30, 2006, the Company billed $16,415 for equipment that was being held
pending  shipping  instructions  from  a  customer.  Revenue  related to airtime
billing  is  recognized  when  the  service is performed. Some customers pre-pay
airtime  on  a quarterly or annual basis and the pre-paid portion is recorded as
deferred  revenue. Deferred revenue, included in accrued expenses on the balance
sheet  at  September  30,  2006,  is  approximately  $15,869.

STOCK-BASED  COMPENSATION

We  believe  that  stock-based compensation is a critical accounting policy that
affects  our  financial  condition  and  results  of  operations.  Statement  of
Financial  Accounting  Standards  ("SFAS")  No.  123, Accounting for Stock-Based
Compensation  defines  a  fair-value  based method of accounting for stock-based
employee  compensation  plans  and  transactions  in  which an entity issues its
equity  instruments  to  acquire  goods  or  services  from  non-employees,  and
encourages  but  does  not  require  companies  to  record compensation cost for
stock-based employee compensation plans at fair value. The Company has chosen to
continue  to  account  for employee stock-based compensation using the intrinsic
value  method  prescribed  in  Accounting  Principles  Board  Opinion  No.  25,
Accounting  for  Stock  Issued  to  Employees  ("APB  No.  25")  and  related
interpretations.

In  December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS
No.  123R  "Share-Based Payment", which addresses the accounting for share-based
payment  transactions.  SFAS  123R  eliminates  the  ability  to  account  for
share-based  compensation  transactions  using  APB  25,  and instead, generally
requires  that such transactions be accounted and recognized in the statement of
operations  based on their fair value. SFAS No. 123R will be effective for small
business  issuers  as  of the beginning of the first interim or annual reporting
period  that  begins  after  December 15, 2005. SFAS No. 123R offers the Company
alternative  methods  of  adopting  this  standard.  The  Company  has  not  yet
determined  which  alternative method it will use. Depending upon the number and
terms  of  options  that may be granted in future periods, the implementation of
this  standard  could have a material impact on the Company's financial position
and  results  of  operations.

                                      -12-
<PAGE>

COMPARISON  OF THE THREE MONTHS ENDED SEPTEMBER 30, 2006 AND SEPTEMBER  30, 2005

The  components  of  revenue and their associated percentages of total revenues,
for  the  three  months  ended  September  30,  2006  and  2005  are as follows:

<TABLE>
<CAPTION>
<S>                              <C>                      <C>                     <C>           <C>
                                        Three months ended September 30,
                                         2006                     2005             $   Change   % Change
                                 -------------------      -------------------      ----------   --------
Revenues:
Rebooting products               $   57,847     25%      $    30,563     25%      $   27,284       47%
Logic boards                         94,555     41%           14,774     12%      $   79,781       84%
Utility products                     55,804     24%           51,895     43%      $    3,909        7%
Emergency notification products       5,960      2%           10,975      9%      $   (5,015)     -46%
Airtime sales                        10,628      5%            9,729      8%      $      899        8%
Other product                         5,025      2%            1,840      2%      $    3,185       63%
Freight                               1,891      1%            1,197      1%      $      694       37%
                                 -----------               ----------              -----------
Total revenues                   $  231,710      100%      $ 120,973     100%     $  110,737       92%
                                 ===========               ==========              ===========
</TABLE>

Revenues  for  the  three-month period ended September 30, 2006 were $231,710 as
compared to $120,973 for the corresponding period of the prior year, an increase
of  92%  between periods. With the exception of emergency notification products,
sales  of  Company's  core  products  increased  between  the periods presented.
Although  the  Company's  revenues  failed to increase for the fifth consecutive
quarter,  the Company actually closed on significantly more contracts during the
three  months  ending  September  30,  2006  than it had closed on in any of the
previous  eight  quarters.  Lead  times  on required parts that stretched beyond
September  30,  2006 prevented the Company from completing, shipping and billing
for  all  orders  taken during the three month period ending September 30, 2006.
A  sustained sales and marketing effort, which began in 2005 and was enhanced in
2006  with  the  hiring  of  new  sales and marketing personnel, has allowed the
company  to  stay  in regular contact with and grow its customer base.   A large
portion of the Company's revenues were generated during the current year quarter
by  existing  customers  who  ordered  for the second or third time.    A single
customer  contributed  approximately half of the logic board revenues during the
three  month  period  ended  September 30, 2006.  This electric utility customer
purchased  the Company's PT1000 logic board with specialized firmware, placed in
a  customer  enclosure,  in order to control capacitor banks.  An almost equally
large  portion  of  revenues  was  generated by customers who were placing their
initial orders.  Sales of the Company's emergency notification products declined
slightly  between  the  periods  presented.  The  Company  is  not yet providing
significant sales and marketing dollars towards these products as the market for
such  products is still developing.  The products, sold mainly to firehouses for
in-station  alerting,  were  first  sold  by the Company in the latter stages of
2005.  Airtime  revenues increased slightly between the periods presented due to
the  addition  of  new  customers  between  the  periods  presented.

Cost  of  goods  sold  includes  parts  and  pre-manufactured components used to
assemble our products as well as allocated overhead for production personnel and
facilities costs. Cost of goods sold increased by $45,111 or 49% to $136,690 for
the  three  months  ended  September 30, 2006 from $91,579 for the corresponding
period  of  the prior year but decreased as a percentage of revenues between the
periods from 76% in 2005 to 59% in 2006. As a result, the Company's gross margin
increased between the periods from 24% to 41%. This improvement in gross margins
is  attributable  to the increase in products produced during the 2006 period as
compared  to  the  2005  period,  which  led  to  volume discounts for parts and
in-house  production efficiencies. The increase in revenues assisted in covering
fixed  overhead  charges at the Company's assembly facility in Denver, Colorado.

Selling,  general  and  administrative  expenses  for  the  three  months  ended
September 30, 2006 increased by $78,879 or 17% to $555,375 from $476,496 for the
three-month  period  ended  September  30,  2005. During the current year period
presented, the Company incurred $80,000 in non-cash expenses associated with the
granting of options, which immediately vested, to purchase 4.0 million shares of
common stock to the Company's two board members. Shares underlying these options
have  not  been  registered  by  the  Company  with  the Securities and Exchange
Commission.  Excluding  these  expenses,  selling,  general  and  administrative
expenses  remained  relatively  flat  between  the  periods  presented.

Interest  expense  increased  $14,545  or  11%  between  the three-month periods
presented.  During  2005,  the  Company  borrowed  funds on a monthly basis from
Dutchess under short-term notes. While the Company has continued to borrow funds
from  Dutchess  on  a  monthly  basis,  and  the  amount  of debt outstanding at
September  30,  2006  has  increased in comparison to the amount outstanding one
year  earlier,  all amounts outstanding throughout the third quarter of 2006 are
under debentures that mature four to five years from their date of issuance. Any
associated  expenses  for loan discounts and incentive shares on these notes are
amortized  over  the  life of the note, resulting in smaller amounts of interest
expense  recorded  by  the  Company  on  a  monthly  basis.

                                      -13-
<PAGE>

The  net  loss to common shareholders for the three-month period ended September
30,2006  was  $605,751  compared  to  $578,177  for the three-month period ended
September  30,  2005,  an  increase  of  5%.  Although  the  Company  produced
approximately  $66,000 more gross margin dollars in the current year period than
in  the  prior  year  period, that increase was slightly more than offset by the
$80,000  non-cash  expense  associated  with  the  option award to the Company's
directors  discussed  above,  as well as the slight increase in interest expense
recognized between the periods presented. The net loss per common share for each
of  the  quarters  presented  was  ($0.01).

COMPARISON  OF  THE  NINE MONTHS ENDED SEPTEMBER 30, 2006 AND SEPTEMBER 30, 2005

The  components  of  revenue and their associated percentages of total revenues,
for  the  nine  months  ended  September  30,  2006  and  2005  are  as follows:

<TABLE>
<CAPTION>
<S>                              <C>                      <C>                      <C>          <C>
                                        Nine  months ended September 30,
                                         2006                     2005             $   Change   % Change
                                 -------------------      -------------------      ----------   --------
Revenues:
Rebooting products               $ 139,563      22%       $   73,168      19%      $  66,395       48%
Logic boards                       130,930      21%           54,441      14%      $  76,489       58%
Utility products                   267,329      43%          131,040      33%      $ 136,289       51%
Emergency notification products     44,126       7%           10,975       3%      $  33,151       75%
Hydro 1                                  -                    76,975      20%        (76,975)      n/a
Airtime sales                       27,755       4%           37,519       9%      $ ( 9,764)     -26%
Other product                       10,069       2%            3,137       1%      $   6,932       69%
Freight                              5,464       1%            3,312       1%      $   2,152       39%
                                 ----------               -----------              ----------
Total revenues                   $ 625,236      100%      $  390,567     100%      $ 234,669       60%
                                 ==========               ===========              ==========
</TABLE>

Revenues  for  the  nine-month period ended September  30, 2006 were $625,236 as
compared to $390,567 for the corresponding period of the prior year, an increase
of 60% between periods. Sales of all of the Company's core products increased at
least 48% between the periods presented.  During the nine months ended September
30, 2005, one customer, who purchased the Company's Hydro 1 product, represented
approximately  20% of the Company's total revenue. This sale was made as part of
a  stated-funded project in New Mexico, and the Company has not marketed or sold
Hydro  1's  since  that  time. The Company does not consider the Hydro 1 to be a
core  product  that  it  markets  and  sells  on  an  ongoing  basis.

A  sustained sales and marketing effort, which began in 2005 and was enhanced in
2006  with  the  hiring  of  new  sales and marketing personnel, has allowed the
company  to  stay in regular contact with and grow its customer base.   Sales to
both new and existing customers contributed significantly to revenues during the
first  nine  months  of fiscal 2006.  As a result, the company's dependence on a
few  large  customers  has decreased, with only one customer accounting for just
slightly more than 10% of revenues generated during the nine month period ending
September  30,  2006.

Airtime  revenues  decreased  26%,  or $9,764 between the two periods presented.
Recurring  monthly airtime revenues from the Company's largest customer declined
significantly  in  July  2005  when that customer lost its own remote monitoring
contract  with a customer, and airtime access to more than 2,400 rebooting units
was  canceled.  However,  the  Company has continued to add new customers during
this  time  period,  and as a result airtime revenues generated during the three
month  period  ending  September  30,  2006  exceeded airtime revenues generated
during  the  same  fiscal  quarter  of  2005.

Cost  of  goods  sold  includes  parts  and  pre-manufactured components used to
assemble our products as well as allocated overhead for production personnel and
facilities  costs.  Cost  of goods sold increased by $119,780 or 43% to $400,983
for the nine months ended September 30, 2006 from $281,203 for the corresponding
period  of the prior year, but decreased as a percentage of revenues between the
periods from 72% in 2005 to 64% in 2006. As a result, the Company's gross margin
increased between the periods from 28% to 36%. This improvement in gross margins
is  attributable  to the increase in products produced during the 2006 period as
compared  to  the  2005  period,  which  led  to  volume discounts for parts and
in-house  production efficiencies. The increase in revenues assisted in covering
fixed  overhead  charges at the Company's assembly facility in Denver, Colorado.
In addition, the gross margin for the nine month period ended September 30, 2005
was  high  relative to the number of products produced during the period because
of  the  one-time  sale  of the higher margin Hydro 1 units produced during that
period.

Selling, general and administrative expenses for the nine months ended September
30,  2006  increased  by  $240,554  or 15% to $1,866,749 from $1,626,195 for the
nine-month  period  ended September 30, 2005. This increase was due primarily to
the  recognition of approximately $177,000 in noncash expenses from unregistered
stock issuances to public relations firms, as well as the recognition of $80,000
in  non-cash  expense  associated  with  the  vesting of options to purchase 4.0
million  shares  of stock which were granted to the Company's two board members.
The  Company  also  incurred  approximately  $90,000  in  fees  for research and
development  efforts  on  new  devices  capable of bi-directional communication.
These expenses were offset to some degree by decreases in legal fees incurred by
the  Company  between  the  periods  presented.

Interest  expense  increased  $291,799  or  47%  between  the nine-month periods
presented.  The  increase  was  due  to interest expense related to the Dutchess
notes  and  debentures,  several which were paid off during the first quarter of
2006  prior  to  their maturity date. When this occurs, the Company expenses any
unamortized  discount  associated  with  the debt being paid off, as well as any
unamortized  beneficial  conversion  expense, any unamortized expense associated
with  incentive  shares  issued  with  the debt, any early redemption penalties.
During  the  first  quarter  of 2006, the Company recognized interest expense of
approximately  $153,000  related  to  the  beneficial  conversion  feature  of
debentures,  as  well  as approximately $192,000 in interest expense related for
the value of incentive shares issued to Dutchess in exchange for money loaned to
the  Company.  The  Company  also  recognized  approximately $77,000 in interest
expense  during the period in early redemption penalties on debentures that were
paid  off  during  the  period.  During  the  second and third quarters of 2006,
monthly  interest  expense  incurred actually declined, as most short term notes
from  Dutchess  had  either  been  paid  off  or  had been rolled into long term
debentures.  These  longer  term  arrangements allow the Company to expense loan
discounts  and  incentive shares over longer periods of time, resulting in lower
monthly  interest  accruals  than  shorter  term  notes.

The  net  loss  to common shareholders for the nine-month period ended September
30,2006  was  $2,554,993  compared to $2,138,193 for the nine-month period ended
September  30,  2005,  an  increase  of 19%. Increased revenues and gross profit
dollars  were  more  than offset by increases in expenses associated with public
relations firms, the non-cash expense associated with the options awarded to the
Company's  two board members, and the amount of interest expense recorded during
the  first  quarter  of  2006  associated with the early payoff of notes held by
Dutchess.  The  net  loss  per  common  share  for  the  nine month period ended
September  30,  2006  was  ($0.04) as compared to (0.06) for the previous year's
period presented. The improvement was the result of the increase in the weighted
average number of shares outstanding from period to period, primarily due to the
issuance  of  shares  to  Dutchess  during  the first quarter of 2006 which were
utilized  to  reduce  the amounts outstanding under notes and debentures held by
Dutchess.

LIQUIDITY  AND  CAPITAL  RESOURCES

The  Company's financial statements for the nine months ended September 30, 2006
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.  The  Company  incurred  a  net loss of approximately $2.6 million
during  the  nine-month  period ended September 30, 2006 and had a stockholders'
deficit  of  approximately  $2.6  million  as  of  September  30,  2006.

The  Report  of  Independent  Registered Public Accounting Firm on the Company's
financial  statements  as of and for the year ended December 31, 2005 includes a
"going  concern"  explanatory  paragraph which means that the auditors expressed
substantial  doubt  about  the Company's ability to continue as a going concern.
Although  no  assurance  can  be  given  that  such  plans  will be successfully
implemented,  management's  plans  to  address  these  concerns  include:

-  Raising  working  capital  through  additional  borrowings.
-  Raising  equity  funding  through  sales  of  the  Company's  common  stock.
-  Implementation  of  the  Company's  sales  and  marketing  plans  to generate
   additional  cash  flows  from  operations.

In August 2004, the Company signed a financing arrangement with Dutchess Private
Equities,  II,  L.P.  ("Dutchess")  under which the Company received $250,000 in
exchange for a convertible debenture during August 2004. 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.  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.  Since  entering into the arrangement with
Dutchess,  the  Company  has  utilized  the arrangement to obtain enough cash to
cover  its  operating  cash  flow  deficits  on  a  monthly  basis.

During  the  nine-month  period  ended  September  30,  2006,  net  cash used in
operating  activities was approximately $1.6 million. This net cash flow deficit
was covered by proceeds of $1,615,000 from the issuance of a note and debentures
to  Dutchess  during  the  period.  Major  cash  outlays  during the period were
approximately  $506,000  for  payroll/employee  benefits,  $344,000  for  public
relations  efforts,  $304,000  for  inventory,  $148,000 for consulting expense,
$122,000  for  sales and marketing efforts, and $90,000 for product development.
The amount of net cash used in operating activities of the Company has decreased
each  successive  quarter  throughout  2006  as  the Company's sales levels have
increased  at  a  faster  rate  than  it  has incurred expenses related to sales
production.  Net  cash  used  from operations during the first, second and third
fiscal  quarters  of 2006 was $605,116, $586,453 and $372,384, respectively.  In
an effort to further reduce expenses, subsequent to September 30, 2006, Dutchess
and  the  Company  agreed  to  terminate  their  consulting  arrangement  and to
discontinue  the  advanced funding of the Company through the issuance of notes.
By doing so, the Company will no longer incur $10,000 in monthly consulting fees
or  fees  and  interest  previously  incurred with the issuance of new notes and
debentures.  Beginning in January 2007, the Company is expecting to access funds
from  Dutchess  through  the  periodic  issuances  of  puts  under  its existing
investment  agreement  with  Dutchess.

The  Company  issued  19,370,736 shares to Dutchess during the nine-month period
ended  September  30,  2006 which was used to pay down $1,513,348 in debt during
the  period. Each note or debenture issued by the Company to Dutchess is secured
by  put  notices,  which allow Dutchess to exercise puts in order to pay down on
the  notes  and  debentures  if  they  want  to.

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 from or selling equity to
Dutchess  or  other  parties  to meet those obligations. 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.

                                      -14-
<PAGE>

ITEM  3.  CONTROLS  AND  PROCEDURES

(a)  Evaluation  of  Disclosure  Controls  and  Procedures:

The  Company's  management,  including the Company's principal executive officer
and  principal accounting and financial officer, has evaluated the effectiveness
of  the  Company's  disclosure  controls  and  procedures  (as  defined in Rules
13a-15(e)  and  15d-15(e)  under  the Securities Exchange Act of 1934) as of the
three-month period ended September 30, 2006, the period covered by the Quarterly
Report  on  Form  10-QSB.  Based  upon  that evaluation, the Company's principal
executive  officer and principal financial and accounting officer have concluded
that  the  disclosure controls and procedures were effective as of September 30,
2006  to  provide reasonable assurance that material information relating to the
Company  is  made  known  to  management  including  the  CEO.

There were no changes in the Company's internal control over financial reporting
that  occurred  during  the  Company's  last fiscal quarter that have materially
affected,  or are reasonably likely to materially affect, the Company's internal
control  over financial reporting. However, on September 23, 2005, the Company's
Principal Accounting and Financial Officer, Daniel P. McRedmond, resigned as the
Company's  Corporate  Controller.  As  a  result,  the Company's Chief Executive
Officer,  H.  Douglas  Saathoff, will serve as the Company's Principal Operating
and  Principal  Accounting and Financial Officer until Mr. McRedmond's successor
is  hired.

                                      -15-
<PAGE>

PART  II  -  OTHER  INFORMATION

ITEM  1.  LEGAL  PROCEEDINGS
None

ITEM  2.  UNREGISTERED  SALES  OF  EQUITY  SECURITIES  AND  USE  OF  PROCEEDS
None

ITEM  3.  DEFAULTS  UPON  SENIOR  SECURITIES
The  Company  is in default on two loans from Mr. Revesz, a former board member,
as of the date of this report and is in discussions to extend the maturity dates
on  those  notes.  In  April  2004,  the Company reached an agreement with Tomas
Revesz  under  which,  in return for an additional $25,000 in borrowings and the
extension  of  the  maturity  dates of three notes to July 31, 2004, the Company
granted  the  creditor  a  secured  position  in  the  assets  of  the  Company.

ITEM  4.  SUBMISSION  OF  MATTERS  TO  A  VOTE  OF  SECURITIES  HOLDERS
None

ITEM  5.  OTHER  INFORMATION
None

ITEM  6.  EXHIBITS  AND  REPORTS

(a)  Exhibits

31.1 Certification of H. Douglas Saathoff, Chief Executive Officer and Principal
     Accounting  and Financial Officer, 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

                                      -16-
<PAGE>

                                   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:  November  14,  2006        By:  /s/  H.  Douglas  Saathoff
                                       ---------------------------
                                       H.  Douglas  Saathoff,
                                       Chief  Executive  Officer,  Principal
                                       Accounting  and  Financial  Officer

                                      -17-
<PAGE>