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 June 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  August 14, 2006 there were 74,420,053 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]

                                        INDEX

Part  I     FINANCIAL  INFORMATION

Item  1     Financial  Statements  (unaudited)
            Condensed consolidated balance sheet as of June 30, 2006           2
            Condensed consolidated statements of operations for the
            three and six month periods ended June 30, 2006 and 2005           3
            Condensed  consolidated  statement  of  stockholders'
            deficit  for the six  months ended June 30, 2006                   4
            Condensed  consolidated  statements  of cash flows for
            the six months ended June 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>

PART I - FINANCIAL INFORMATION



<TABLE>
<CAPTION>

                            NIGHTHAWK SYSTEMS, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEET
                                  JUNE 30, 2006
<S>                                                                                  <C>
        ASSETS

Current assets:
     Cash                                                                            $    18,713
     Accounts receivable, net of allowance for doubtful accounts of $456                 156,311
     Inventories                                                                         137,842
     Prepaids                                                                            690,115
                                                                                     ------------
               Total current assets                                                    1,002,981
                                                                                     ------------

Furniture, fixtures and equipment, net                                                    19,918
Intangible and other assets                                                               19,548
                                                                                     ------------
                                                                                     $ 1,042,447
                                                                                     ============

      LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
    Accounts payable                                                                 $   249,429
    Accrued expenses                                                                     306,479
    Line of credit                                                                        19,792
    Notes payable:
        Related parties                                                                   13,471
        Other                                                                            340,439
                                                                                     ------------
               Total current liabilities                                                 929,610
                                                                                     ------------

Long-term liabilities:
   Convertible debt                                                                    2,539,983
                                                                                     ------------
Commitments and contingencies

Stockholders' deficit:
    Preferred stock, $0.001 par value; 5,000,000 shares authorized; 5,000 issued
    and outstanding; liquidation preference                                          $         -
    Common stock; $0.001 par value; 200,000,000 shares authorized;
    71,452,553 issued and outstanding                                                     71,453
    Additional paid- in capital                                                        7,500,641
    Accumulated deficit                                                               (9,999,240)
                                                                                     ------------
               Total stockholders' deficit                                            (2,427,146)
                                                                                     ------------
                                                                                     $ 1,042,447
                                                                                     ============

<FN>
The accompanying notes are an integral part of these financial statements
</TABLE>

                                     -2-
<PAGE>

<TABLE>
<CAPTION>

                            Nighthawk Systems, Inc.
                Condensed Consolidated Statements of Operations
<S>                                                                 <C>          <C>               <C>           <C>
                                                                    Three months ended June 30,    Six months ended June 30,
                                                                         2006       2005                2006          2005
                                                                    -----------------------  ---------------------------
Revenue                                                             $  252,139   $  98,372     $  393,526   $   269,594
Cost of goods sold                                                     165,480      85,099        264,292       189,623
                                                                    -----------------------  ---------------------------
     Gross profit                                                       86,659      13,273        129,234        79,971


Selling, general and administrative expenses                           554,155     588,040      1,311,375     1,149,700
                                                                    -----------------------  --------------------------
     Loss from operations                                             (467,496)   (574,767)    (1,182,141)   (1,069,729)

 Interest expense:
     Related parties                                                       647         148          1,331           839
     Other                                                             165,418     358,381        765,770       489,008
                                                                    -----------------------  ---------------------------
         Total interest expense                                        166,065     358,529        767,101       489,847
                                                                    -----------------------  ---------------------------
Net loss                                                              (633,561)   (933,296)    (1,949,242)   (1,559,576)
Less: preferred stock dividends                                                       (221)                        (440)
                                                                    -----------------------  ---------------------------
Net loss to common stockholders                                     $ (633,561)  $(933,517)   $(1,949,242)  $(1,560,016)
                                                                    =======================  ===========================
Net loss per basic and diluted common share                         $    (0.01)  $   (0.03)   $     (0.03)  $     (0.04)
                                                                    =======================  ===========================
Net loss to common stockholders per basic and diluted common share  $    (0.01)  $   (0.03)   $     (0.03)  $     (0.04)
                                                                    =======================  ===========================
Weighted average common shares outstanding - basic and diluted      68,696,251  37,249,225     63,486,951    35,501,257

<FN>

The accompanying notes are an integral part of these financial statements.
</TABLE>

                                     -3-
<PAGE>

<TABLE>
<CAPTION>
                                                       Nighthawk Systems, Inc.
                                       Condensed Consolidated Statement of Stockholders' Deficit
                                                  Six months ended June 30, 2006
<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     15,421,729        15,422     1,290,533                   1,305,955

Common stock issued as incentive for notes payable                3,778,666         3,779       273,871                     277,650

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

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

Amortization of beneficial conversion feature on notes payable                                  199,600                     199,600

Vesting of employee options                                                                       5,976                       5,976

Net loss                                                                                                   (1,949,242)   (1,949,242)
                                                                ------------  ------------  ------------  ------------  ------------
Balances, June 30, 2006                                          71,452,553   $    71,453   $ 7,500,641   $(9,999,240)  $(2,427,146)
                                                                ============  ============  ============  ============  ============

<FN>

The accompanying notes are an integral part of these financial statements

</TABLE>

                                     -4-
<PAGE>

<TABLE>
<CAPTION>

                            Nighthawk Systems, Inc.
                Condensed Consolidated Statements of Cash Flows
                            Six months ended June 30,
<S>                                                                                   <C>           <C>
                                                                                         2006          2005
                                                                                     ------------  ------------
Cash flows from operating activities:
      Net loss                                                                       $(1,949,242)  $(1,559,576)
                                                                                     ------------  ------------
Adjustments to reconcile net loss to net cash used in operating activities:
   Bad debt expense                                                                          309         1,648
   Depreciation and amortization                                                           4,848         3,163
   Vesting of employee options                                                             5,976             -
   Loan discounts and warrants                                                           133,789       198,013
   Beneficial conversion feature                                                         199,600             -
   Common stock issued for consulting services                                           177,000        23,025
   Common stock issued for interest                                                       88,109             -
   Shares issued as incentives on notes payable                                          224,624       133,908
   Note payable issued for consulting                                                     49,700             -
   Amortization of prepaid consulting expense                                                  -       212,124
Changes in assets and liabilities:
   (Increase) decrease in accounts receivable                                            (73,414)       17,186
    Increase in inventories                                                              (57,965)      (62,199)
    Decrease in prepaids                                                                  18,744        26,810
    Decrease in other assets and liabilities                                                   -        (1,020)
    Decrease in accounts payable                                                         (35,820)      (82,553)
    Increase in accrued expenses                                                          22,173       149,434
                                                                                     ------------  ------------
Total adjustments                                                                        757,673       619,539
                                                                                     ------------  ------------
Net cash used in operating activities of continuing operations                        (1,191,569)     (940,037)
                                                                                     ------------  ------------

Cash flows from investing activities:
   Purchases of furniture, fixtures and equipment                                        (11,338)       (1,973)
                                                                                     ------------  ------------
Net cash used in investing activities                                                    (11,338)       (1,973)
                                                                                     ------------  ------------

Cash flows from financing activities:
   Proceeds from notes payable, related parties                                                -           567
   Payments on notes payable, related parties                                               (923)       (1,233)
   Proceeds from notes payable, other                                                  1,135,000     1,113,500
   Payments on notes payable, other                                                       (3,662)     (573,818)
   Net proceeds from the sale of common stock, and the exercise of puts and warrants           -       361,803
                                                                                     ------------  ------------
Net cash provided by financing activities                                              1,130,415       900,819
                                                                                     ------------  ------------
Net (decrease) increase in cash                                                          (72,492)      (41,191)
Cash, beginning balance.                                                                  91,205        61,118
                                                                                     ------------  ------------
Cash, ending balance                                                                 $    18,713        19,927
                                                                                     ============  ============
</TABLE>

                                     -5-
<PAGE>

<TABLE>
<CAPTION>

Condensed Consolidated Statements of Cash Flows
(continued)
<S>                                                                         <C>           <C>
Supplemental disclosures of cash flow information:
                                                                               2006         2005
                                                                            ----------   ----------
Cash paid for interest                                                      $  16,528    $   49,722
                                                                            ==========   ==========
Supplemental disclosure of non-cash investing and financing activities:

Common shares issued as payments on notes payable, including commissions    $1,312,280
                                                                            ==========

Common shares issued as incentives for notes payable                        $  277,650   $  168,500
                                                                            ==========   ==========
Common shares issued for prepaid consulting agreements                                   $  207,500
                                                                                         ==========
Conversion of accrued expenses to common stock                              $   35,000   $   56,620
                                                                            ==========   ==========
Conversion of notes payable and accrued interest to common stock
   Notes payable                                                                         $  155,590
   Accrued interest                                                                           6,960
                                                                                         ----------
Total amount converted                                                                   $  162,550
                                                                                         ==========
Preferred stock dividends issued in common stock                                         $      440
                                                                                         ==========

</TABLE>

                                     -6-
<PAGE>

                             NIGHTHAWK SYSTEMS, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
            THREE AND SIX MONTH PERIODS ENDED JUNE 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 $1.9 million during the six
month  period  ended  June  30,  2006  and  had  a  stockholders'  deficit  of
approximately  $2.4  million  as  of  June  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 six-month
period  ending  June 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. The
Company  had no bill and hold sales at June 30, 2006. 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  June  30,  2006,  is  approximately  $14,323.

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 June 30, 2006, the Company had approximately $156,311 in accounts
receivable,  net  of the allowance for doubtful accounts.  Approximately $79,004
of  this  balance  was  from  two customers, $57,763 of which was collected
subsequent to June 30, 2006.


During  the  three  months  ended  June  30,  2006,  two customers accounted for
approximately  24%  and  12%  of  total  revenue, respectively. During the three
months  ended  June, 2005, one customer accounted for approximately 46% of total
revenue.

During  the  three  months  ended  June  30, 2006, three suppliers accounted for
approximately  76%  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 June 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  period ending June 30, 2006, the Company
incurred  approximately $60,000 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.

4.  NOTES  PAYABLE

<TABLE>
<CAPTION>

<S>                                                                                                                    <C>
At June 30, 2006, notes payable consist of the following:

Related parties:
Note payable, officer; unsecured; interest at prime rate plus 5.5% (12.24% at June 30, 2006); due on demand              $    9,554
Note payable, officer; unsecured; interest at 23.99%, revolving                                                               3,917
                                                                                                                         ----------
                                                                                                                         $   13,471
                                                                                                                         ==========

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, 17.24% interest rate, revolving                                                 15,439
                                                                                                                         -----------
                                                                                                                         $  340,439
                                                                                                                        ===========

Long Term:
Convertible debenture, 5% interest rate, due December, 2010                                                              $  500,000
Convertible debenture, 10% interest rate, due December, 2009                                                              1,360,263
Convertible debenture, 10% interest rate, due March, 2011                                                                   179,720
Convertible debenture, 10% interest rate, due April, 2011                                                                   165,000
Convertible debenture, 10% interest rate, due May, 2011                                                                     130,000
Convertible debenture, 10% interest rate, due June, 2011                                                                    205,000
                                                                                                                         ----------
                                                                                                                         $2,539,983
                                                                                                                         ==========
<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
$58,770  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. During the six-month period
ended  June  30,  2006, Dutchess exercised on put notice valued at $5,280 to pay
down  the  debenture,  and  was  issued 69,480 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 $2,751
in  interest expense during the six month period ending June 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 $1,444
in  interest expense during the six month period ending June 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  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 $1,139
in  interest expense during the six month period ending June 30, 2006 related to
the  beneficial  conversion  feature  of the debenture. The debenture contains a
clause  calling  for  an  early  redemption  penalty  of  20%.

In  addition to the activity discussed about, during the six month period ending
June  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.

In  total, the Company recognized a total of $46,331 in interest expense related
to  the  beneficial  conversion  feature  of  debentures  outstanding during the
period.  The  Company  also paid $30,405 in cash, issued 760,121 shares of stock
valued at $30,405 and accrued an additional $6,325 in commissions due to a third
party  as  a  result  of  puts  exercised  by  Dutchess  during  the  period.

Subsequent  to June 30, 2006, Dutchess has exercised four puts valued at $98,975
in  order to pay down the debentures issued in December 2005 and March 2006. The
Company  issued  Dutchess  2,392,500  shares  of  common  stock  as  a  result.

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 debenture contains a
clause  calling  for  an  early  redemption  penalty  of  20%.

5.  STOCKHOLDERS'  DEFICIT

COMMON  STOCK

During  the  six month period ending June 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  June  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.

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

                                      -11-
<PAGE>

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.  There
were  no  bill  and  hold  items  at March 31, 2005.  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  March  31,  2005,  is  approximately  $15,800.

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  JUNE 30,  2006  AND  JUNE 30, 2005

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

<TABLE>
<CAPTION>
<S>                              <C>             <C>      <C>            <C>       <C>         <C>
                                           Three months ended June 30,
                                         2006                     2005             $   Change   % Change
                                 -------------------      -------------------      ----------   --------
Revenues:
Rebooting products               $   34,646      14%      $   21,002      21%      $   13,644       65%
Logic boards                         18,610      7%           14,144      15%      $    4,466       32%
Utility products                    163,827      65%          47,590      48%      $  116,237      244%
Emergency notification products      20,351      8%                -       0%      $   20,351       n/a
Hydro 1                                   -                        -       0%      $        -       n/a
Airtime sales                         9,082      4%           13,556      14%      $   (4,474)     -33%
Other product                         3,652      1%            1,282       1%      $    2,370      185%
Freight                               1,971      1%              798       1%      $    1,173      147%
                                 -----------               ----------              -----------
Total revenues                   $  252,139      100%      $  98,372     100%      $  153,767      156%
                                 ===========               ==========              ===========

</TABLE>

Revenues  for  the  three-month  period  ended  June  30,  2006 were $252,139 as
compared  to $98,372 for the corresponding period of the prior year, an increase
of  156%  between  periods.  Sales  of each of Company's core products increased
between  the  periods presented, and the Company also produced revenues from the
sale  of  emergency  notification products during the 2006 period. The products,
sold  mainly  to  firehouses  for  in-station  alerting, were not yet being sold
during  the prior year period. During 2005, the Company hired its first fulltime
sales staff, and began proactively marketing its products for the first time. In
2006,  the  Company  added  an  in-house sales coordinator. These additions have
produced  more  frequent contact with both new and existing customers, which has
resulted  in  an  increased  level  of product sales. Airtime revenues decreased
approximately  $4,500  between  periods. Recurring monthly airtime revenues from
the Company's largest customer declined 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.

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 $80,381 or 94% to $165,480 for
the  three  months ended June 30, 2006 from $85,099 for the corresponding period
of  the prior year but decreased as a percentage of revenues between the periods
from  94%  in  2005  to  66%  in  2006.  As a result, the Company's gross margin
increased between the periods from 13% to 34%. 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 June 30,
2006  decreased  by  $33,885 or 6% to $554,155 from $558,040 for the three-month
period  ended  June  30,  2005.  The  Company  incurred  one-time  expenses  of
approximately  $60,000  during  the second quarter of 2005 for the settlement of
lawsuit  and  legal  fees  associated with that suit. No such fees were incurred
during  the  second  quarter  of  2006,  but the Company did spend approximately
$60,000  during  the  second quarter of 2006 on the development of a new product
for  the  utility market that has two-way wireless capability. These development
costs  offset  the  decrease  in  legal  expenses  between quarters. The Company
expects  to  begin marketing the new product during the quarter ending September
30,  2006.  The  Company  also spent less on public relations efforts during the
second  quarter  of  2006  than  it  did  during  the  second  quarter  of 2005.

Interest  expense  decreased  $192,462  or  54%  between the three-month periods
presented.  During  2005,  the  Company  borrowed  funds on a monthly basis from
Dutchess  under  short-term notes. The value of any associated loan discounts or
incentive  shares  was  expensed over the term of the notes. In addition, if the
notes  were  not paid off prior to maturity, the Company incurred penalties when
the  matured notes were rolled into new note balances. During the second quarter
of  2005,  the  Company  recognized  approximately $132,000 in non-cash expenses
related  to  the  amortization of these loan discounts, approximately $84,000 in
non-cash  expenses  related  to  incentive  shares  and approximately $86,000 in
penalties on late payments of Dutchess notes. While the Company has continued to
borrow  funds  from  Dutchess  on  a  monthly  basis,  all  amounts  outstanding
throughout  the  second 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 June
30,2006  was $633,561 compared to $933,517 for the three-month period ended June
30,  2005,  an improvement of 31%. The decrease in net loss was due primarily to
increased  sales  and  production  of  the  Company's  products  that  produced
additional  gross  margin  dollars,  combined  with  a reduction in expenses for
public  relations campaign and reduction in interest expense related to Dutchess
notes  and  debentures. The net loss per common share for the quarter ended June
30,  2006 was ($0.01) as compared to (0.03) for the previous year's quarter. The
improvement  was  the  result  of  the  lower  net loss, and the increase in the
weighted  average  number of shares outstanding from period to period, primarily
due  to  the  issuance  of  shares to Dutchess which were utilized to reduce the
amount  outstanding  under  notes  and  debentures  held  by  Dutchess.

COMPARISON  OF  THE  SIX  MONTHS  ENDED  JUNE 30,  2006  AND  JUNE 30, 2005

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

<TABLE>
<CAPTION>
<S>                              <C>             <C>      <C>            <C>       <C>         <C>
                                           Six  months ended June 30,
                                         2006                     2005             $   Change   % Change
                                 -------------------      -------------------      ----------   --------
Revenues:
Rebooting products               $  81,716      21%       $   42,606      16%      $  39,110        92%
Logic boards                        36,075      9%            39,997      15%      $  (3,922)      -10%
Utility products                   211,825      54%           78,815      29%      $ 133,010       169%
Emergency notification products     38,166      10%                -       0%      $  38,166       n/a
Hydro 1                                  -                    76,750      28%        (76,750)      n/a
Airtime sales                       17,127      4%            27,789      10%      $ (10,662)      -38%
Other product                        5,044      1%             1,637       1%      $   3,407       208%
Freight                              3,573      1%             2,000       1%      $   1,573        79%
                                 ----------               -----------              ----------
Total revenues                   $ 393,526      100%      $  269,594     100%      $ 123,932        46%
                                 ==========               ===========              ==========
</TABLE>

Revenues  for the six-month period ended June 30, 2006 were $396,526 as compared
to  $269,594  for the corresponding period of the prior year, an increase of 46%
between  periods.  Sales  of  two  of the Company's core products (Rebooting and
Utility)  increased between the periods presented, and the Company also produced
revenues  from  the  sale  of  emergency  notification  products during the 2006
period.  During  2005,  the  Company  began  selling  its PT1000 logic boards to
wireless  integrators  for  use in firehouse alerting. During the latter half of
2005,  the  Company  produced a new product, the FAS8 Firehouse Alerting System,
based  on the specific needs of fire departments. As such, in many instances the
Company  sold  the  FAS8 solution to fire departments during 2006 instead of the
PT1000  logic  board that it had sold them in prior years. The Company continues
to  sell  the  PT1000, it's most versatile product, for use in a wide variety of
applications. During 2005, the Company hired its first fulltime sales staff, and
began  proactively  marketing  its  products  for  the  first time. In 2006, the
Company  added an in-house sales coordinator. These additions have produced more
frequent  contact with both new and existing customers, which has resulted in an
increased level of product sales. During the six months ended June 30, 2005, one
customer, who purchased the Company's Hydro 1 product, represented approximately
28%  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 part
of  its  portfolio  of  products  that it markets and sells on an ongoing basis.
Airtime  revenues  decreased  38%, or $10,662 between the two periods presented.
Recurring  monthly airtime revenues from the Company's largest customer declined
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.

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 $74,669 or 94% to $264,292 for
the six months ended June 30, 2006 from $189,623 for the corresponding period of
the  prior  year  but  decreased as a percentage of revenues between the periods
from  70%  in  2005  to  67%  in  2006.  As a result, the Company's gross margin
increased between the periods from 30% to 33%. 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 six month period ended June 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 six months ended June 30,
2006  increased  by  $161,675  or  14%  to  $1,311,375  from  $1,149,700 for the
three-month  period  ended  March  31,  2005.  This  increase  was  due  to  the
recognition  of  approximately  $180,000  in  noncash expenses from unregistered
stock  issuances  to  public  relations  firms.

Interest  expense  increased  $277,254  or  57%  between  the  six-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 quarter of 2006, interest expense
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 six-month period ended June 30,2006
was  $1,949,242  compared  to $1,560,016 for the six-month period ended June 30,
2005,  an increase of 25%. Increased sales and gross profit was more than offset
by  increases  in expenses associated with public relations firms 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  quarter  ended  June  30,  2006  was  ($0.03) as compared to (0.04) for the
previous  year's  quarter. 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 six months ended June 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 $1.9 million during
the  six-month  period  ended  June  30, 2006 and had a stockholders' deficit of
approximately  $2.4  million  as  of  June  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.

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  six  month  period  ended June 30, 2006, net cash used in operating
activities  was  approximately $1.2 million. Net proceeds from the issuance of a
note and debentures to Dutchess during the period totaled $1,135,000. Major cash
outlays  during  the  period  were  approximately  $350,000 for payroll/employee
benefits,  $302,000  for  public  relations  efforts,  $221,000  for  inventory,
$144,000  for  consulting  expense, $72,000 for sales and marketing efforts, and
$60,000  for  product  development.

The  Company  issued  14,466,308  shares to Dutchess during the six-month period
ended  June  30,  2006  which was used to pay down $1,332,826 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  June  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 June 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:  August 14,  2006        By:  /s/  H.  Douglas  Saathoff
                                   ---------------------------
                                       H.  Douglas  Saathoff,
                                       Chief  Executive Officer, Principal
                                       Accounting and Financial Officer