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

                                   FORM 10-KSB

                                  ANNUAL REPORT
                         PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 2004

                           COMMISSION FILE NO. 0-30786

                             NIGHTHAWK SYSTEMS, INC.
                             -----------------------
             (Exact name of registrant as specified in its charter)

               NEVADA                           87-0627349
               ------                           ----------
   (State or other jurisdiction of      (IRS Employer Identification
     incorporation or organization)               No.)

                             10715 GULFDALE, STE 200
                            SAN ANTONIO, TEXAS  78258
                                 (210) 341-4811
                                 --------------
    (Address, including zip code, and telephone number, including area code, of
                     registrant's principal executive offices)

Securities  registered  pursuant  to  Section  12(b)  of  the  Act:  None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.001
par  value

Check  whether  the  issuer  (1)  has  filed all reports required to be filed by
Section  13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
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[ ]

Indicate  by  check mark if disclosure of delinquent filers pursuant to Item 405
of  Regulation  S-B is not contained  herein,  and will not be contained, to the
best  of registrant's  knowledge,  in definitive proxy or information statements
incorporated  by  reference  in Part III of this Form 10-KSB or any amendment to
this  Form  10-KSB.[ ]

Registrant's  revenues  for  its  most  recent  fiscal  year  were  $610,180.

As  of  April  12,  2005 there were 36,507,560 shares of common stock, par value
$.001  per  share,  of  the  registrant  issued  and  outstanding.

Transitional  Small  Business  Disclosure  Format Used (Check one): Yes[ ] No[x]

<TABLE>
<CAPTION>


TABLE  OF  CONTENTS

<S>                                                                                  <C>

                    PART I
Item 1. Description of Business

Item 2. Description of Property

Item 3. Legal Proceedings

Item 4. Submission of Matters to a Vote of Security Holders

                    PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters

Item 6. Management's Discussion and Analysis or Plan of Operation

Item 7. Financial Statements

Item 8. Changes in and Disagreements with Accountants on Accounting and Financial
        Disclosure

Item 8A. Controls and Procedures

                    PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons;
        Compliance with Section 16(A) of the Exchange Act of 1934, as amended

Item 10. Executive Compensation

Item 11.  Security Ownership of Certain Beneficial Owners and Management
          and Related Stockholder Matters

Item 12. Certain Relationships and Related Transactions

Item 13. Exhibits, Financial Statements and Reports on Form 8-K

Item 14. Principal Accountant Feeds and Services

Signatures and Certifications
</TABLE>



                                     PART I

ITEM  1.  DESCRIPTION  OF  BUSINESS

General

Nighthawk  Systems, Inc. ("Nighthawk" or "the Company") designs and manufactures
intelligent  remote 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 execution
of  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 or
Internet  connections,  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
or  Internet connections, and allow control of unmanned or remote locations that
operate  on  traditional  electrical  power,  solar  or battery generated power.

Effective  February  1,  2002,  the  Company  acquired  100%  of  the issued and
outstanding  shares  of Peregrine Control Technologies, Inc. ("PCT") in exchange
for  14,731,200  post  reverse  split  shares of the Company's common stock.  In
conjunction  with  the  acquisition  and  the  change  in focus of the Company's
business,  the  Company  changed its name to Peregrine, Inc. on January 10, 2002
and  later  to  Nighthawk  Systems,  Inc.  on  April  29,  2002.  Prior  to  the
acquisition of PCT, the Company had conducted a reverse split of its shares on a
1:100 basis, and had 4,600,256 shares outstanding.  The acquisition was recorded
as  a  reverse  acquisition,  with  PCT  being  the  accounting  survivor.

PCT was originally incorporated as a Colorado company in 1992, and operated as a
family-owned  business  specializing in paging repair.  Through knowledge gained
in  the  operation  of  the business, the Company began developing a specialized
circuit board that could receive paging signals and switch electrical power.  In
its simplest form, the technology gave the user the ability to turn devices "on"
or  "off"  from  or to remote sites.  Through limited marketing, the Company was
able  to  solve  specific  control  problems  for both large and small companies
through  customization  of  the  original  circuit  board.

As  of  the  date  of  this  report,  the Company has eight full time employees.

MISSION  STATEMENT

To  become  the  premier  provider of intelligent, wireless remote power control
products and services that allow businesses and consumers to save time and money
through  more  efficient  management  of  resources.

THE  MARKETPLACE

The  controls  industry  is  characterized  by  companies that sell remote asset
management  and  tracking  systems  and  related  products.  It is the Company's
belief  that  there is almost no limit to the size of the remote control market;
the  application  of  remote  control  is  limited  only  by  one's imagination.
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  physical  assets  and  processes  is performed
primarily  through  the  use  of telephone and Internet based systems.  However,
these  connections  are  expensive,  requiring  high  monthly  fees,  and  more
importantly,  they  restrict  the  remote  control  to  the  availability of the
physical  connection  between  the  person  operating the remote control and the
asset  to  be controlled. In contrast, Nighthawk's products are wireless and can
therefore be operated from any location, without our device being connected to a
telephone  line  or Internet connection. This means that the asset does not have
to  be  tethered  to  a  fixed  location  in  order  to  be  accessed. Moreover,
Nighthawk's  products  are  designed  to  work  with a variety of wireless media
including paging and satellite-based systems. Almost any device that runs off of
an  electrical  current,  whether  battery,  solar  or  line  generated,  can be
controlled  by  a  Nighthawk device.  The Company has identified primary markets
(Electric  Utility,  IT Professional, Emergency Management and Traffic Control),
as  well  as  secondary  markets  (Irrigation,  Outdoor Advertising, Oil/Gas and
Security)  for  its  products.

TECHNOLOGY  AND  PRODUCTS

Nighthawk  products  have  been  in service for over six years, primarily to fit
custom  applications.  Customers using Nighthawk products today include IBM, the
Naval  Air  Warfare  Center - Weapons Division, Mercury Online Solutions,  and a
number  of  electric  utilities  around  the  country.  The  Company  has  three
distinguishing  features  that  are not shared by its competitors in the market:
(i)  its  proprietary  firmware  and  software  (which  together  provide  the
intelligence for our solutions); (ii) the design of its products (which provides
the  ease  with  which  they  are  installed  and  operated),  and;  (iii)  the
wireless-based  medium  typically used to operate its products (which allows for
low  cost access, security and flexibility).  The Company's products are shipped
ready  for  use  and  are  pre-programmed  before  shipment  to  the  customer.

Nighthawk's  products  and  suggested  applications:

-     NH1  &  NH100:  rebooting  or  on/off  applications  to  a  single device.
-     NH8:  rebooting  or on/off applications for up to eight electrical devices
      from  a  single  unit.
-     CEO700:  whole house disconnect/reconnect for the Electric Utility market.
-     PT1000:  designed  for OEM integration and control of up to eight devices.
-     PT1-LC:  designed  for  load  control  programs  in  the  Electric Utility
      market.
-     PT  FAS:  designed  to  aid  in  firehouse  automation,  the  PT  FAS will
      simultaneously  print  instructions, activate alarms, turn on lights, turn
      off stoves, open baydoors and activate outdoor flashing lights. The PT FAS
      is  a  low  cost  way  for  fire  departments  to automate critical tasks.
-     Hydro  1:  remote  irrigation  control.
-     AL100:  remote  public  alert  systems.
-     ST1500:  utilizing  the  Orbcomm  satellite  system, the ST1500 allows for
      rebooting  and on/off applications for up to three devices anywhere in the
      world.

All  of  Nighthawk's  products  can  be  and  have  been  modified to fit custom
applications.

Through  innovative engineering, Nighthawk's products typically utilize a common
paging  signal  found  virtually  worldwide.  Paging is often used because it is
very secure, inexpensive, and easy to use.  Customers can choose to source their
own  paging  service  or  Nighthawk  will arrange for the service directly.  The
Company  also  offers  Windows-based  software packages that enable customers to
activate  the  remote  control  units  from  a  PC.   Paging, when combined with
Nighthawk's proprietary firmware and software, allows for a "group call" feature
whereby  a user can access multiple sites at the same time using a single paging
number.  This  exponentially  increases the functionality and ease of use of the
products.  It is important to note that the Company's products can be adapted to
function  with  any  wireless,  or  wireline-based,  communications  medium.

In  September  2003,  the  Company  signed  an agreement to become a value-added
reseller  for  Orbcomm,  a  low-earth  orbit  ("LEO")  satellite  system.  This
relationship  expands  Nighthawk's  coverage  beyond  the  reach  of  paging and
cellular  systems and allows the Company to offer global solutions for companies
that  have global needs.  Additionally, satellite technology enables Nighthawk's
products  to be used in conjunction with monitoring equipment due to the two-way
communication  capability.  Unlike  paging,  which  allows  for  one-way
communication,  satellite  communications allow the customer to get confirmation
from  the  device  that  the  control has been effectuated or that the flow, for
example,  of liquids being monitored has been shut off or turned on, as the case
may  be.

The  Company  completes  the  assembly  of  its products at its Denver, Colorado
facility.  The  Company  sub-contracts  for  assembly of various components, and
utilizes  several  vendors  for  parts  that do not require assembly.  Parts and
sub-assembly  services are widely available.  During the final assembly process,
individual  units  are  programmed  depending  on  their destination or customer
requirements,  tested,  and  then  shipped  to  the  customer  for installation.

In  July  2003, the Company sold back the assets and liabilities it had acquired
from  Vacation  Communication,  Inc. in September 2001 to the original owners of
Vacation  Communication,  Inc.  The  assets  disposed  of  in the sale consisted
primarily  of a retail paging customer base. The Company now purchases wholesale
paging  services  from  paging carriers, including Vacation Communication, Inc.,
for regional, nationwide and international coverage.  The Company utilizes these
paging  carriers  to  offer  paging  services  to  customers  that buy Nighthawk
products,  but do not have their own private paging networks.  Several customers
own  their  own  private paging networks and, hence, do not require Nighthawk to
arrange  for  their  paging  services.

PATENTS  PENDING

The  Company  has two patent applications pending at the U.S. Patent Office: one
is  titled  "Remote  Disconnect  for  Utility  Meters"  and  is  for whole house
disconnect  systems, and the second is titled "Paging Remote Disconnect Systems"
and  is  for  the  remote wireless control for turning on and off electrical and
telephonic  lines.

Under  the  first  patent  application,  the  user  dials a pager number that is
pre-programmed  into  the unit.  The paging service then transmits a signal to a
radio  frequency  ("RF") receiver in the module.  The signal is then decoded and
sent  to  a  processor.  The  processor  then causes a relay to open or close in
accordance  with  the  decoded  signal  in  order  to  connect or disconnect the
electrical  power.

Under  the  second  application,  a  user  simply  plugs  the  power  cord  or
telecommunication  line  of  their device, such as a computer or appliance, into
the  outlet of the module.  The user is then able to dial a pager number that is
pre-programmed.  The paging service then transmits a signal to an RF receiver in
the  module.  The  signal is then decoded and sent to a processor. The processor
then  causes  a  relay to open or close in accordance with the decoded signal in
order  to  activate  the power supply or to turn the power off to the electronic
device  or  to  connect  or  disconnect  the  telecommunications  line.

COMPETITION

We  have three distinguishing features that are not shared by our competitors in
the  market:  (i)  our proprietary firmware and software, which together provide
intelligent  solutions; (ii) the design of our products, which provides the ease
with  which they are installed and operated; and (iii) the wireless-based medium
typically  used  to  operate  our  products,  which  allows for low cost access,
security  and  flexibility.

Utility  competition.  Two  of  our  competitors,  Comverge,  Inc.  and  Canon
Technologies,  Inc.  evolved  from  software  companies, and advertise that they
provide  complete,  end-to-end  solutions  for  utility  load  management. Their
services  are  relatively  expensive,  and must be engineered into the utility's
network.  As  an alternative, we offer equipment that is off-the-shelf and ready
to  use  upon  purchase,  is easily installed and much less expensive. It is our
belief  that we offer a much more affordable solution that allows the utility to
utilize  information  which already exists within its own network. Paging offers
inexpensive  and  reliable access to the units, and also allows for a group call
feature  that  enhances  the  ability  to  implement  an  effective load control
program.  As  evidence of this, the Alabama Municipal Electric Authority ordered
5,000 Nighthawk load control circuit boards as part of a retro-fit of technology
originally  installed  by  Fisher  Pierce. In addition, we repaired load control
units  during  2004 that were originally manufactured by KeySpan Energy and sold
to  PECO Energy. In light of advances made by us, KeySpan Energy no longer makes
load  control units, but has recommended to PECO Energy that they contact us for
their  load  control  needs.  There  is  one  other  competitor  that  provides
paging-based control boards and represents the closest direct competition to us,
BLP Components, Ltd. This competitor provides components to us, and entered into
the  market  when  we  were  experiencing  financial  difficulties.  The  paging
technology  utilized  by  this  competitor limits their coverage to urban areas.
There  is  another  competitor  by the name of Telemetric Corporation within the
electric  utilities  market,  but  their  product  is  more expensive because it
utilizes cellular technology, and it also does not afford the same coverage area
as  paging.

Rebooting  competition.  Remote rebooting of computers has historically utilized
telephone  lines  or  Internet-based  technology  to access the product.  To our
knowledge, we are the only company that offers paging-based rebooting units. Our
units  are competitively priced in comparison to alternative products, and offer
the  distinct  advantage  of being wireless, thus allowing the units to be moved
from  place  to  place  without moving lines and incurring installation charges.

Wireless  competition.  Wireless remote control through the use of radio signals
has  historically  been performed utilizing private system data radios, cellular
telephones, or satellite-based systems.  While our technology can be modified to
utilize  any  of these wireless media, our core expertise has been in the use of
paging. This medium, combined with our proprietary technology, allows for a high
level  of  security,  the  lowest overall cost and greatest control flexibility.
Only  a  handful  of  small,  undercapitalized companies utilize paging for this
purpose. To our knowledge, we are the only company emphasizing paging technology
that  manufactures  a  product  that  is  ready-to-use  upon  receipt.

SALES  AND  DISTRIBUTION

The  Company  believes  that  it  has the opportunity to meet current demand for
applications  of  its  technology  within  specific  markets,  and  to  create
opportunities  in many other markets as well. Despite historically having little
or  no  marketing  resources  to target these markets, customers in our targeted
markets have found that the Company's technology successfully meets their needs.
As  such,  Nighthawk  will  focus  significant direct, and supplier-based, sales
efforts  in  these  industries.

Nighthawk's intelligent products attach to existing customer hardware and act as
a "brain", receiving wireless instructions sent from a remote location, allowing
the  hardware to perform as instructed. As mentioned above, Nighthawk's products
are  typically set up to receive these instructions via a paging protocol, which
allows  for  secure,  reliable  and  low  cost  operation.  Nighthawk  products
literally  serve  as  the "intelligence" between the wireless service medium and
the  hardware  that  must  perform  the  desired  action.  As  such,  we believe
substantial  opportunities  exist  to partner with wireless service providers as
well as hardware manufacturers and dealers, each of which stand to gain from the
use  of Nighthawk's products.  The Company will also attempt to establish itself
as  a  supplier  of products to paging and other wireless service providers, and
establish dealer networks in a number of markets, including, but not limited to,
computer  controls,  utilities,  irrigation,  traffic  control,  and  wide  area
notification.

In  early  2005, the Company expanded its sales force, hiring two seasoned sales
professionals  and  has  also  established  relationships  with  a  number  of
distributors  that  service  the  electric  utility  industry

PREDECESSOR  OPERATIONS

The  Company  was incorporated as TPI, Inc., under the laws of the State of Utah
on  April  26,  1983.  In  1985,  the Corporation changed its situs from Utah to
Nevada  and  its  name  to  Connections  Marketing  Corp.  In  July  1992,  the
shareholders  of the Corporation voted to change the name to LSI Communications,
Inc.  (LSI).

On  June  21, 1999, the Company entered into a Plan of Acquisition with Coaching
Institute,  Inc.,  a  Utah  corporation,  wherein  the  Company issued 2,500,000
shares of common stock for 85,000 shares, 85% of the outstanding common stock of
Coaching  Institute,  Inc.  The  agreement  provided  for the Company to receive
options  to  acquire  the  remaining  15% of the issued and outstanding stock of
Coaching  Institute,  Inc.  in  exchange  for  2,045,455 shares of the Company's
common  stock.  In February 1, 2001, the Company exercised its option by issuing
to  Coaching  Institute,  Inc.  2,045,455  shares  of its common stock valued at
$2,045.  After  the  acquisition,  both  companies  were surviving with Coaching
Institute,  Inc.  being  a  wholly  owned subsidiary of LSI Communications, Inc.

The  acquisition  of  Coaching  Institute,  Inc. was recorded using the purchase
method  of a business combination.  Operating activities have been included from
Coaching  Institute  in the consolidated financials since June 21, 1999.  Due to
the  common ownership of Coaching and LSI, the Company valued the acquisition of
Coaching  Institute  at  its  historical  cost,  which  was  $34,728.
..
In  November  2001,  the  Company  sold  the  assets and liabilities of Coaching
Institute,  Inc.  to  a major shareholder.  The Company recognized a loss on the
sale of $574,236. At the time of the reverse acquisition of PCT, the Company had
no  assets  or  liabilities,  or  ongoing  operations.

NASD  OTC  Bulletin  Board  Quotations

From  July 8, 2002 through May 23, 2003, our common stock traded on the Over the
Counter  Bulletin  Board  ("OTCBB")  under the symbol "NIHK".  From May 27, 2003
until  November  25, 2003 our stock was traded on the pink sheets under the same
symbol,  after  which  our  stock resumed trading on the OTCBB.  For information
concerning  these  stock  quotations  during the past two years, see the section
entitled  "Market  for  Common  Equity  And  Related  Stockholder  Matters." The
quotations  presented  do  not  represent  actual  transactions or broker/dealer
markups,  markdowns  or commissions. On November 25, 2003, Nighthawk was cleared
to  resume  trading  on  the  OTCBB.

ITEM  2.  DESCRIPTION  OF  PROPERTY

The  Company's sales and operations departments are in leased facilities located
at  8200  East  Pacific Place, Suite 204, Denver, Colorado.   The lease for this
facility  expired  on  March  2002,  but  the  Company has maintained use of the
facilities  on  a  month-to-month  basis  since that time.   The leased property
consists  of  approximately 2400 square feet, for which the Company pays  $1,650
per  month.  It  consists  of  office  space  and  a  manufacturing  floor.  The
Company's  executive  offices  are  located  in 679 square feet of leased office
space  at  10715 Gulfdale, Suite 200, San Antonio, Texas. The Company leases the
space  at  a  monthly  rate  of  $815.

ITEM  3.  LEGAL  PROCEEDINGS

In  May  2003,  the Company was sued by a former Board member, Charles McCarthy,
seeking  recovery for the value of 350,000 shares, or $209,500, and $120,000 due
his  law  firm  under  a  retainer  agreement  between the Company and his firm.
McCarthy  had previously signed a settlement agreement with the Company in which
he  agreed  to cancel all potential claims against the Company and its directors
in return for 150,000 unregistered shares trading at a value of $0.60 or higher.
In October 2004 we reached an agreement with him to settle the case for $55,000.
Under  the  Settlement Agreement and Release, we made a cash payment to McCarthy
of  $10,000  during  October 2004, a cash payment of $15,000 in January 2005 and
will  settle  the  remaining  balance  in  the  fourth  quarter  of  2005.

The  Company,  along  with  the  current  officers and board members and several
former directors, were sued by Lawrence Brady, a former director of the Company,
and  his  son  Mark  Brady,  who  served for a period of time as Chief Financial
Officer,  for,  among  other things, breach of contract for unlawful termination
and  failure to provide stock allegedly promised. The alleged breaches and other
claims  all  stem  from  their  service  as  director  of  the Company and chief
financial  officer,  respectively,  for  part  of  2001  and  part  of 2002. The
aggregate  amount of damages claimed is not specified. The case is proceeding in
the  state  court  in  Denver,  Colorado.  Several  of  the  individually-named
defendants  have been voluntarily dismissed by the plaintiffs. The Company plans
to  vigorously defend itself and its current directors and officers, and filed a
counterclaim  against the plaintiffs for non-performance and breach of fiduciary
duties. This counterclaim was allowed to proceed by the court over the objection
of  the  plaintiffs.  No  assurance  can  be  given, however, as to the ultimate
outcome  of  the  case.

Certain claims and lawsuits have arisen against the Company in its normal course
of  business.  The  Company believes that such claims and lawsuits have not had,
and  will  not  have,  a  material  adverse  effect  on  the Company's financial
position,  cash  flow  or  results  of  operations.

ITEM  4.  SUBMISSION  OF  MATTERS  TO  A  VOTE  OF  SECURITY  HOLDERS

     No  matters  were  submitted  to  a shareholder vote in 2004.  However, the
Company  held  a  special  shareholders'  meeting  on January 6, 2005 to vote to
increase  the  number  of authorized common shares.  The results are as follows:

          1.  To  approve  an  amendment to the Amended and Restated Articles of
     Incorporation  of  Nighthawk  Systems,  Inc.  to  increase  the  number  of
     authorized  shares  of  our  common  stock  from  50,000,000 to 200,000,000

                VOTES FOR       VOTES AGAINST       ABSTENTIONS
                17,833,098        1,585,559           102,600


                                     PART II

ITEM  5.  MARKET  FOR  COMMON  EQUITY  AND  RELATED  STOCKHOLDER  MATTERS

(a)  Market  for  Common  Equity

From  July 8, 2002 through May 23, 2003, our common stock traded on the Over the
Counter  Bulletin  Board ("OTCBB") under the symbol  "NIHK".   From May 27, 2003
until  November  25, 2003 our stock was traded on the pink sheets under the same
symbol, after which our stock resumed trading on the OTCBB.  The CUSIP number is
65410X-10-4.   Knight  Securities,  L.P.,  Schwab Capital Markets, L.P. and ACAP
Financial,  Inc.  are  among  the most active market makers for the stock.  From
February  1,  2002  through  July  8, 2002, our common stock traded on the OTCBB
under  the  symbol  "PGRN."  Prior  to February 1, 2002, the stock traded on the
OTCBB  under  the  symbol  "LSIM".

The following is a table of the high and low bid prices of our stock for each of
the  four quarters of the fiscal years ended December 31, 2004 and 2003, and the
first  quarter  of  fiscal  2005:

<TABLE>
<CAPTION>



<S>                 <C>   <C>   <C>                 <C>    <C>
QUARTER ENDED. . .  HIGH  LOW   QUARTER ENDED       HIGH   LOW
------------------  ----  ----  ------------------  -----  -----

December 31, 2004.  0.23  0.09  December 31, 2003   $0.29  $0.15
September 30, 2004  0.25  0.12  September 30, 2003   0.32   0.15
June 30, 2004. . .  0.38  0.20  June 30, 2003        0.72   0.25
March 31, 2004 . .  0.35  0.18  March 31, 2003       0.73   0.20
</TABLE>

These  quotations  reflect interdealer prices, without retail mark-up, mark-down
or  commission  and  may  not  represent  actual  transactions.

(b)  Security  Holders

The  number  of  record  holders  of  our  common stock at year-end 2004 was 197
according to our transfer agent. This figure excludes an indeterminate number of
shareholders  whose  shares  are  held  in  "street"  or  "nominee"  name.

(c)  Dividends

There  have  been  no cash dividends declared or paid since the inception of the
company,  and  no cash dividends are contemplated in the foreseeable future. The
company  may  consider a potential dividend in the future in either common stock
or  the  stock  of  future  operating  subsidiaries.

(d)  Sales  of  Unregistered  Securities

During  the  three month period ended September 30, 2002, we received a total of
$168,900  in  exchange for 1,524,000 unregistered shares of our common stock and
1,524,000 warrants.  The warrants are exercisable for 2 years from their date of
issuance,  with  435,000  exercisable  at  $0.75 per share, and the remainder at
$0.20  per  share.

Subsequent  to  September, 30, 2002, we received $42,500 in exchange for 425,000
unregistered  shares  of  our  common  stock  and 425,000 warrants with exercise
prices of $0.20 which are exercisable for two years from their date of issuance.

In  October 2002, the Board of Directors agreed to issue Steven H. Jacobson, the
Chief  Executive  Officer,  1,000,000 unregistered shares of our common stock in
lieu  of  approximately  $120,000  in  unpaid cash compensation that was due him
under  his  employment  contract  for  the  period from December 1, 2001 through
September  30,  2002.

In  2002,  we  sold 2,479,000 shares of common stock to twenty-one investors for
cash  at  a  weighted  average  price  of $0.45 per share.  Warrants to purchase
2,479,000  shares  of  common  stock  were  also  included  in these sales at an
exercise price of $0.25 per share for 1,869,000 of the warrants and at $0.75 per
share for 435,000 of the warrants.  We did not publicly offer the securities and
the  investors  were all accredited investors.  No underwriters were involved in
the  sales.

In 2003, we sold 1,575,000 shares of common stock to seven investors for cash at
a  weighted  average  price  of $0.17 per share.  Warrants to purchase 1,575,000
shares  of  common  stock  at  an  exercise  price  of $0.25 per share were also
included  in  these  sales.  We  did  not  publicly offer the securities and the
investors  were  all accredited investors.  No underwriters were involved in the
sales.

Between  January  1,  2004  and March 31, 2004, we sold 858,333 shares of common
stock  to  nine  investors  for cash at a price of $0.15 per share.  Warrants to
purchase  858,333 shares of common stock at an exercise price of $0.25 per share
were also included in these sales.  We did not publicly offer the securities and
the  investors  were all accredited investors.  No underwriters were involved in
the  sales.

Between  May  31,  2004 and June 15, 2004, we sold 1,162,000 Special Warrants to
five  investors  for cash at a price of $0.20 per Special Warrant.  Each Special
Warrant  is  convertible  into  one share of our common stock and one warrant to
purchase  a  share  of our common stock at an exercise price of $0.30 per share.
First  Associates  Investments, Inc. was the underwriter in this offering.  They
received  a  commission  of  8%  of  the  total proceeds raised and the right to
purchase  12.5%  of  the amount of the Special Warrants sold in the offering, or
142,250  Special  Warrants.

The  securities described immediately above were issued to investors in reliance
upon  an  exemption  from the registration requirements of the Securities Act of
1933, as set forth in Section 4(2) under the Securities Act of 1933 and Rule 506
of  Regulation  D  promulgated  thereunder  relative  to  sales by an issuer not
involving any public offering, to the extent an exemption from such registration
was  required.  All purchases of the securities described immediately above this
paragraph  represented  to  us  in connection with their purchase that they were
accredited  investors and were acquiring the shares for investment purposes only
and  not  for distribution, that they could bear the risks of the investment and
could  hold  the  securities  for  an indefinite period of time.  The purchasers
received  written  disclosures that the securities had not been registered under
the  Securities  Act  of  1933  and  that  any resale must be made pursuant to a
registration  statement  or an available exemption from such registration.  Each
participant  in  the  offering  or offerings described above was given access to
full  and  complete  information  regarding us, together with the opportunity to
meet  with  our  officers  and  directors  for  purposes of asking questions and
receiving  answers  in  order  to  facilitate  such  participant's  independent
evaluation  of  the  risks  associated  with  the  purchase  of  our securities.

ITEM  6.  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.
("the  Company"),  actual results and business performance may differ materially
from that projected or estimated in such forward-looking statements. 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 Company's
audited  financial  statements  for  the years ended December 31, 2004 and 2003.

General

The  Company's financial results include the accounts of Nighthawk Systems, Inc.
(formerly  Peregrine,  Inc.) and its subsidiary, Peregrine Control Technologies,
Inc.  ("PCT").  Effective  February  1,  2002,  the  two  companies were brought
together under common management through an acquisition in which Peregrine, Inc.
acquired  all  of  the outstanding shares of PCT. Because Peregrine, Inc. issued
more  shares  to  acquire  PCT  than  it  had  outstanding  just  prior  to  the
acquisition,  the  transaction  was  accounted  for  as a reverse acquisition of
Peregrine,  Inc.  by  PCT.  Peregrine,  Inc.  subsequently  changed  its name to
Nighthawk  Systems,  Inc.

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.

Active  applications  for  our intelligent products include, but are not limited
to:
-     Rebooting  unmanned  computer  stations
-     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.

During  2003, the Company spent a significant amount of time resolving corporate
governance  and  operational issues.  This process culminated in the resignation
of the Company's Chief Executive Officer in March 2003, the resignations of five
board  members including one who served as the Company's Chief Operating Officer
during  2002,  the  disqualification and subsequent resignation of a sixth board
member, and the disposal of the Company's paging operations that were originally
purchased  during  2001.

The  Company  has  historically had minimum funds available to it to support its
operations  and has been largely dependent on the private equity placements with
accredited  investors to fund its negative cash flows.  As such, minimum capital
has been available historically to fund and sustain sales and marketing efforts.
In August 2004, the Company signed a financing arrangement with Dutchess Private
Equities,  II, L.P. ("Dutchess")  which  was  amended  on August 26, 2004 and on
September 24, 2004.  Under the  terms  of  the  amended arrangement, the Company
received a total of $250,000  under  a  debenture  during the three-month period
ended  September  30,  2004.  The Company also  signed  an  investment agreement
under  which,  subsequent  to  the  December  2004  effectiveness  of  its  SB-2
registration  statement  filed  with  the  Securities  and  Exchange  Commission
("SEC"),  Dutchess  has  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.  As  is more fully explained in Liquidity and Capital Resources
below,  the Company began utilizing the investment agreement in December 2004 in
order  to  implement  a sales and marketing effort designed to generate revenues
during  2005.   This  effort  for  2005  should  include  the  following:

     -  Hiring  sales and marketing personnel. The Company plans to increase its
     sales force with experienced salespeople to effectively target existing and
     new  markets.  Those  individuals  that  are specialized in a field will be
     assigned  to  those  market  applications  of  our  products.

     -  Product  marketing  including print media and attendance at trade shows.
     This  method  has proved the most effective for the Company to date, and it
     plans  to  increase  its  presence  in  the  current  space  to attract new
     customers.

     - An improved Internet presence, including an e-commerce website for retail
     sales.

     -  Leveraging existing customer relationships by up-selling new products or
     fully  integrating  systems  with  the  Company's  products.

     -  The  establishment  of  distribution  and  dealer  networks.  Through an
     effective  dealer  network,  the  Company  can  increase  awareness  in its
     products  and  utilize  a  dealer's  sales  force  to  actively promote its
     products.

     -  New  applications  in  irrigation  control,  civil defense and emergency
     management.  The  current product design can be altered with little cost to
     the  Company  to  be  effectively  implemented into a wide array of fields.
     Through  the  commitment  of  funding,  the  Company  can  now research all
     possible  applications  and  begin  to  market  directly  to new customers.

     -  The development and launch of a product designed to be used for multiple
     purposes  by  consumers.

In  addition  to  the marketing and sales objectives, the Company has identified
the  following  strategic  goals  for  2005:

     -  Joint  ventures  with  wireless  service  providers  and  equipment
     manufacturers.

     -  The identification of complementary products and companies for potential
     acquisition.

Comparison  of  Years  Ended  December  31,  2004  and  2003

Revenue

The  components of revenue, including revenues from discontinued operations, and
their  associated  percentages  of  total  revenues,  for the fiscal years ended
December  31,  2004  and  2003  are  as  follows:

<TABLE>
<CAPTION>



<S>                                                    <C>               <C>
                                                     YEARS ENDED DECEMBER 31,
                                                    -------------------------
                                                        2004               2003
                                                        ----              -----

Product Revenues
-----------------------------------
Nighthawk NH1, NH2 & NH8. . . . . .  $                 186,492    31%  $  508,352   47%
PT1 LC. . . . . . . . . . . . . . .                     64,536    11%     319,615   30%
PT 1000 & PT Boards . . . . . . . .                     99,256    16%     128,914   12%
CEO 700 . . . . . . . . . . . . . .                    197,508    32%      28,557    3%
Other product . . . . . . . . . . .                     11,938     2%       5,945    0%
Freight . . . . . . . . . . . . . .                      6,848     1%      20,624    2%
                                     -------------------------  -----  ----------  ----
Total product revenues. . . . . . .                    566,578    93%   1,012,007   94%
Airtime sales . . . . . . . . . . .                     43,602     7%      18,786    2%
                                     -------------------------  -----  ----------  ----
Revenues from continuing operations                    610,180   100%   1,030,793   96%

Discontinued operations
-----------------------------------
Airtime sales . . . . . . . . . . .                          -     0%      45,880    4%
                                     -------------------------  -----  ----------  ----
Total revenues. . . . . . . . . . .  $                 610,180   100%  $1,076,673  100%
                                   ====================================================

</TABLE>

Revenues  from  continuing  operations  are made up of product sales and airtime
billed  to  customers  for Nighthawk Systems, Inc. products, while revenues from
discontinued  operations  consist of airtime revenues generated by the Company's
paging  operations,  which  were  disposed of effective July 31, 2003.  Revenues
from continuing operations declined  $420,613 or 41% between years primarily due
to  the  completion  of  two  large  contracts  during  2003.  Combined, the two
contracts  contributed $749,600 or 74%, of total product revenues for 2003.  One
of  the  contracts  was  for  the  Company's  Nighthawk NH2 product and produced
revenues  of $432,600 in 2003.  The second contract was for the Company's PT1 LC
product  and produced revenues of approximately $317,000 in 2003.  This contract
was  approximately 81% complete as of December 31, 2003.  Sales of the Company's
CEO-700  product  increased  $168,951  or  592% between years and offset to some
degree  the  effects  of  the  large  2003 contracts.  During 2004 and 2003, the
Company  spent  approximately  $9,200  and  $6,000,  respectively,  on  product
advertising  due  to  limited  availability  of  operating  funds.

Cost  of  goods  sold  declined $219,730 or 33% between years and increased as a
percentage  of  product  revenues from 64% in 2003 to 72% in 2004.  As a result,
the  Company's  gross  margin  decreased  from 36% in 2003 to 28% in 2004.  This
decrease  in  gross  margin  is due primarily to the overall decrease in product
volume  between  years.  Lower production volume limits the Company's ability to
cover  fixed  costs  of production.  In addition, 47% of sales were generated by
the  Company's  higher margin rebooting products during 2003 as compared to only
31%  in  2004.

Selling,  general  and  administrative  ("SG&A) expenses stayed relatively flat,
increasing $21,681, approximately 2%, from 2003 to 2004.  The comparative figure
for  2003  SG&A  expenses  is  net  of  $333,000 related to the reversal of 2002
deferred  compensation  and  the  reversal  of 2002 consulting expenses in 2003.
Although  the  Company  reduced  employee and employee related costs, insurance,
telecommunications  and  travel  costs,  the reductions were more than offset by
increased  expenditures  in  2004  for  consulting  and public relations related
activities  as  well  as  $55,000 for a legal settlement with a former director.

During  2003,  the  Company  canceled  the  remaining  300,000  shares that were
originally  issued  to  members  of  its  board  of directors during 2002, as it
determined  that the associated services were not performed.  This resulted in a
reversal  of  $300,000  of deferred compensation that was originally recorded in
2002.  During  the  second  quarter  of  2003,  the  Company  authorized  the
cancellation of 300,000 shares of common stock previously issued during 2002.  A
$33,000  reduction  in consulting expense was recorded during the second quarter
of  2003  related  to  this  cancellation,  as  the Company's board of directors
determined  that  the  shares had not been properly authorized for issuance, and
that  there  was  a  lack  of  sufficient  evidence  that  any services had been
performed.

The  Company's  loss from operations during 2004 was $1,140,117 as compared to a
loss  of  $584,553  in 2003.  The increased net loss was the result of decreased
revenues  and  decreased gross margin in 2004 as well as the adjustments in 2003
operating  expenses  related  to  deferred compensation and consulting expenses.

Net  interest  expense  for  2004 was $236,634 as opposed to $45,875 in 2003, an
increase  of $190,759. The increase in interest expense in 2004 is primarily due
to  the  value  of  warrants  issued  to  creditors  who exchanged approximately
$242,000  in  notes  and accrued interest for warrants and common stock, and the
recognition  of  approximately $92,000 in beneficial conversion expenses related
to  the  debenture  agreement between the Company and Dutchess Private Equities,
II,  L.P.

Airtime  sales  were approximately $65,700 in 2003, $45,800 of which is included
in discontinued operations. The majority of the airtime revenues produced during
2003  were  produced  by  retail  paging  customers rather than by the Company's
equipment  customers.  The  Company  sold  the customer base, as well as related
assets and obligations originally purchased from Vacation, back to the owners of
Vacation  and recognized a gain of $92,443 in 2003.  This segment produced a net
loss  from operations of $14,472 during 2003 prior to its disposal.  The airtime
revenues  included in 2004 and 2003 revenues from continuing operations resulted
from  airtime  related  to Nighthawk equipment sales rather than the traditional
paging  revenues  associated  with  Vacation.

The  net  loss  for  2004 was $1,376,751 or $0.05 per share as compared to a net
loss of $552,457 or $0.03 per share in 2003. The increased net loss and net loss
per  share  was  the  result  of  decreased revenues and decreased gross margin,
interest  expense  associated  with note conversions and our funding arrangement
with  Dutchess  in  2004,  as well as the adjustments in 2003 operating expenses
related  to  deferred  compensation  and  consulting  expenses.

Liquidity  and  Capital  Resources

The  Company's  financial  statements  for the year ended December 31, 2004 have
been  prepared  on  a going concern basis, which contemplates the realization of
assets and the settlement of liabilities and commitments in the normal course of
business.  For the year ended December 31, 2004, the Company reported a net loss
of  approximately  $1.38  million and has a stockholders' deficit as of December
31,  2004 of approximately $1.24 million. In addition, the Company had a working
capital  deficiency  of  approximately $1.04 million on this date. The Report of
Independent  Registered  Public  Accounting  Firm  on  the  Company's  financial
statements  as  of  and  for  the year ended December 31, 2004 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.

During  the  year ended December 31, 2004, cash used in operating activities was
$851,884.  Although  the  Company  recorded  a  net loss of $1,376,751 for 2004,
$557,387  in  recorded  expenses  were  non-cash  expenses.

There  were  no  cash  flows  from  investing  activities  during  2004.

Net  cash  provided  by  financing activities for 2004 was $913,002 and resulted
primarily  from  the sale of common stock and warrants and the issuance of notes
payable.  The  Company  issued  1,488,333  shares  of common stock in return for
$237,350  in  net  cash  proceeds, 5,000 shares of preferred stock in return for
$12,500  in  cash  proceeds,  and  received  $188,775  in  net proceeds from the
issuance  of Special Warrants during 2004.  As mentioned above, the Company also
received  $250,000  from Dutchess during August 2004, and received an additional
$250,000 from Dutchess in December 2004 in return for a second note.  These cash
inflows  were  offset  to  some  degree  by  payments  on  notes  payable.

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

During  February  2004, the Company met with several brokerage firms and private
equity  groups  to  investigate  the  possibilities of raising an amount of cash
sufficient to both fund a comprehensive sales and marketing plan and improve its
working  capital  position  from  a  deficit  to a surplus. As a result of those
meetings,  the  Company  announced  in March 2004 that a brokerage firm based in
Vancouver,  British  Columbia  would sponsor an offering of equity securities of
the  Company. However, this offering would be performed on a best-efforts basis,
without  any guarantee of success. In an effort to fund the Company's operations
in advance of such an offering, the brokerage firm sponsored a private placement
of Special Warrants that are convertible into units consisting of both one share
of  common stock of the Company at $0.20 per share and a warrant to purchase one
share of common stock at $0.30 per share. This private placement effort resulted
in  net  proceeds  of  $188,775,  net  of  issuance  costs  of  $43,625.

A  challenge  faced  by  the  Company is the ability to purchase and maintain an
inventory  of  parts  necessary  to complete orders as quickly as possible after
they  are  received.  If the Company is able to complete orders more quickly, it
can  generate  and  collect  cash  from  its contracts more quickly. The Company
generates  recurring  orders  from  several  of  its  customers.  Therefore, the
expeditious  completion  of  orders  could  lead to the generation of additional
orders from existing customers and improved cash flows for the Company. Also, as
noted  earlier,  the  Company's  cost of production will be higher on a per unit
basis  if  it  does  not  maintain minimum levels of production in its facility.
Delays  caused by the purchasing of parts after orders were received during 2004
resulted  in  higher  production  costs  per unit.  Because the Company has some
fixed  costs  of production, delays or work stoppages due to inventory shortages
causes  inefficiency  in  production.  In  addition,  ordering  parts in smaller
quantities  does  not  allow  the  Company to take advantage of volume discounts
offered  by  some  of its suppliers.  These delays and inefficiencies ultimately
result  in  decreased  or  slower cash flows and delays in follow-up orders from
customers.

In  an effort to assist the Company in completing orders for customers in a more
expeditious  manner,  in  August  2004 the Company's largest creditor loaned the
Company  an  additional  $60,000.  Proceeds from this loan were used to purchase
parts  required  to  complete  orders  held  at  that  time by the Company.  The
creditor  was  repaid from the receipts generated by the orders, plus 10% annual
interest.  Although no assurance may be given that it will be able to do so, the
Company  anticipates  that  it  will  also  be  able  to  utilize its investment
agreement  with  Dutchess  to assist it in processing orders more expeditiously.
The Company believes that it will be able to initiate a sales and marketing plan
designed  to  utilize  direct  sales  efforts, as well as indirect sales efforts
through  dealer  networks  and  through  improvements  to  its own web site. The
Company  also  plans  to  utilize  funds  generated  through  debt  and  equity
arrangements  to  expedite the production of the orders it receives in an effort
to  improve  the  Company's  ability to generate cash flows from operations on a
recurring  basis.  Additionally,  in order to lessen the Company's dependence on
securing large contracts for recurring cash flows, the Company is in the initial
stages  of developing a consumer-based product, which it believes may eventually
produce  recurring  cash  flows  from  sales.

In  August 2004, the Company signed a financing arrangement with Dutchess, which
was amended on August 26, 2004 and on September 24, 2004. Under the terms of the
amended arrangement, the Company received $100,000 under a convertible debenture
on August 11, 2004, $25,000 on August 26, 2004, and $125,000 under the debenture
on  September  27,  2004. Interest accrues on the debenture at an annual rate of
8%.  The  debenture  can  be  converted  into common shares anytime prior to its
maturity  on  August 10, 2007 at the lesser of (i) 73% of the lowest closing bid
price  on  the date of conversion, or (ii) twelve and a half cents ($0.125). Any
portion  of  the  debenture  that  remains  outstanding  at August 10, 2007 will
automatically  convert into common shares. The number of shares converted at any
time is limited so as not to exceed 4.99% of the shares of Nighthawk
common stock outstanding. In addition, Dutchess was issued a warrant to purchase
up  to  250,000  shares  of  common  stock at a price of twelve and a half cents
($0.125) for a period of up to five years. The Company also signed an investment
agreement  under which Dutchess agreed to purchase up to $10.0 million in common
stock  from the Company, at the Company's discretion, over the next three years,
subject  to  certain  limitations  including  the Company's then current trading
volume.  On  December 3, 2004 Dutchess loaned the Company an additional $250,000
under  a  second  note  (Second Dutchess Note).  The Second Dutchess Note had no
stated interest rate but had a face value of $300,000 and matured April 3, 2005,
resulting  in  an  implied  annual  rate  of 72.8%.  The note was intended to be
repaid  via  puts  exercised  under  the  investment agreement, with the Company
making payments of the greater of $75,000 every 30 days or 50% of each put until
the  note  is  paid  in  full.

On  January  18,  2005, Dutchess loaned the Company an additional $225,000.  The
note  has  no stated interest rate but has a face amount of $270,000 and matures
on  May  18,  2005.  In  connection  with  the note, Dutchess was issued 250,000
shares  of common stock as an incentive and the Company also signed a consulting
agreement  with  a  company  in  which  an  employee  of Dutchess is a member of
management.  Under  the  consulting  agreement,  the  company was issued 500,000
shares  of  Company  common  stock.

On  April 7, 2005, Dutchess loaned the Company an additional $488,500.  The note
has  no  stated  interest  rate but has a face amount of $586,200 and matures on
June 7, 2005.  A portion of the proceeds of this loan was used to repay the note
dated December 3, 2004 with a face amount of $300,000, which matured on April 3,
2005.  In connection with the note, Dutchess was issued 250,000 shares of common
stock  as  an  incentive  and  the  Company signed a consulting agreement with a
company  in  which  an employee of Dutchess is a member of management. Under the
consulting  agreement,  the  company was issued 300,000 shares of Company common
stock.

During  the  period  from  January  1,  2005 through April 12, 2005, the Company
exercised  six  (6)  puts  to Dutchess totaling 1,276,610 shares for proceeds of
$222,726.  Of  the  total  proceeds,  $142,635  was  used  to  repay portions of
previously  issued  notes  to  Dutchess  and  $80,091  went  to  the  Company.

On  March 9, 2005, Dutchess exercised 250,000 warrants at $0.125 each, for total
proceeds  of  $31,250,  $15,000  of  which  was  applied  to  outstanding notes.

Also  during  the  period  from January 1, 2005 through April 12, 2005, Dutchess
elected  to  convert  at  total  of $75,000 of the 36-month convertible note for
600,000  shares  of  the  Company's  common  stock.

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.

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 December 31, 2004.  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 liabilities on the
balance  sheet  at  December  31,  2004,  is  approximately  $6,500.

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.

ITEM  7.  FINANCIAL  STATEMENTS

The  audited  consolidated  balance sheet of the Company as of December 31, 2004
and  related  consolidated  statements  of operations, stockholders' deficit and
cash  flows  for  the  years  ended  December  31,  2004  and 2003 are included,
following Item 14, in sequentially numbered pages numbered F-1 through F-19. The
page  numbers  for  the  financial  statement  categories  are  as  follows:

<TABLE>
<CAPTION>



<S>                                                                                              <C>
                         INDEX
                         ------
                                                                                                PAGE
                                                                                               ------
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . .  F-1
Consolidated Balance Sheet as of December 31, 2004. . . . . . . . . . . . . . . . . . . . . . .  F-2
Consolidated Statements of Operations for the Years Ended December 31, 2004 and 2003. . . . . .  F-3
Consolidated Statements of Stockholders' Deficit for the Years Ended December 31, 2004 and 2003  F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 2004 and 2003. . . . . .  F-5
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . .  F-7
</TABLE>

ITEM  8.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING AND
FINANCIAL  DISCLOSURE

None.

ITEM  8A.  CONTROLS  AND  PROCEDURES

The  Company's  management,  including the Company's principal executive officer
and  principal  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 year ended
December 31, 2004, the period covered by the Annual Report on Form 10-KSB. Based
upon  that  evaluation,  the Company's principal executive officer and principal
financial  officer  have  concluded  that the disclosure controls and procedures
were  effective  as  of  December  31, 2004 to provide reasonable assurance that
material  information  relating  to  the  Company  is  made  known to management
including  the  CEO/CFO.

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,  as  noted  in  previous filings,
throughout  2002  and until March 26, 2003, the Company's former Chief Executive
Officer  was  responsible  for,  among  other  duties,  opening the mail, making
accounting  entries,  writing  checks  and  producing  financial  reports.
Disbursements of cash and stock issuances were made during this time period that
were  not  substantiated as relating to Company business, or were made in error.
At  the  meeting  of  the  Board of Directors held on March 26, 2003, the former
Chief  Executive  Officer  resigned, and the Chief Financial Officer, H. Douglas
Saathoff,  was  appointed  as  his  replacement  by  the  board  of  directors.
Consequently, Mr. Saathoff held both the position of Chief Executive Officer and
Chief Financial Officer, but procedures were implemented subsequent to March 26,
2003  to  segregate  responsibilities in order to reduce the opportunities for a
single  person  to  be  in  a  position to both perpetrate and conceal errors or
irregularities  in  the  normal  course of business.  In addition, the new Chief
Executive  Officer  and  the board of directors initiated a process to establish
and implement a written policy on disclosure controls and procedures and hired a
corporate  controller  on  January  1,  2005  to add additional oversight to the
accounting  function.  On April 12, 2005, the Board of Directors agreed that Mr.
Saathoff  should  no  longer  act  as  both  Chief  Executive  Officer and Chief
Financial  Officer.  Mr.  Saathoff  relinquished  his  duties as Chief Financial
Officer  as  of  April 12, 2005 and Daniel P. McRedmond, the Company's Corporate
Controller  assumed the role of the Company's Principal Accounting and Financial
Officer.

                                    PART III

ITEM  9.  DIRECTORS,  EXECUTIVE  OFFICERS,  PROMOTERS  AND  CONTROL  PERSONS;
COMPLIANCE  WITH  SECTION  16(A)  OF  THE  EXCHANGE  ACT  OF  1934,  AS  AMENDED

The  following  persons  are  executive  officers  and directors of the Company:

H.  Douglas  Saathoff,  43  -  Chief  Executive Officer, Chief Financial Officer

H.  Douglas  "Doug"  Saathoff,  CPA,  joined  the Company as its full-time Chief
Financial  Officer  on  January  1,  2003  after  serving  in that capacity on a
part-time consulting basis beginning in October 2002.  On March 26, 2003, he was
promoted  to  the  position  of  Chief Executive Officer.   Prior to joining the
Company,  he  served  as  Chief  Financial Officer for ATSI Communications, Inc.
(AMEX:  AI),  from  June  1994 through July 2002 and as a Board Member of ATSI's
publicly  traded subsidiary, GlobalSCAPE, Inc. (GSCP.OB) from April 1997 through
June  2002.  During  his  tenure  at  ATSI,  he  was  directly  responsible  for
establishing  and  monitoring  all accounting, financial, internal reporting and
external  reporting  functions,  and  had primary responsibility for fundraising
efforts.  ATSI  raised  over  $60 million in debt and equity financing from both
individuals  and  institutions during Doug's tenure, and moved from the Canadian
OTC  market  to  the U.S. OTC market and eventually to a listing on the American
Stock  Exchange in February 2000. ATSI grew from San Antonio-based start-up with
11  employees  to an international operation with in excess of 500 employees and
operations  in  the  U.S.,  Mexico,  Costa  Rica, Guatemala and El Salvador with
annual revenues in excess of $60 million. He was instrumental in the acquisition
of subsidiaries and customer bases, as well as the divestiture of GlobalSCAPE in
June  2002.  Prior  to  joining  ATSI,  Doug  served  as the Accounting Manager,
Controller  and  Financial  Reporting  Manager for U.S. Long Distance Corp. from
1990  to  1993.  While  at  USLD  he  was  responsible for supervising all daily
accounting  functions,  developing  internal and external financial reporting of
budgeted  and  actual  information,  and  for preparing financial statements for
shareholders,  lending  institutions and the Securities and Exchange Commission.
Doug  also  served as Senior Staff Accountant for Arthur Andersen & Co. where he
planned,  supervised  and  implemented  audits  for  clients  in  a  variety  of
industries, including telecommunications, oil & gas and financial services. Doug
graduated  from  Texas A&M University with a Bachelor of Business Administration
degree  in  Accounting.

Myron  Anduri,  49  -  President

Mr.  Anduri  joined the Company in January 2000 and was promoted to President in
December  2003 from his previous position as Vice President of Sales.  From 1999
to 2000 he was Vice President-New Business Development for Kyocera Solar Inc. of
Scottsdale,  Arizona.  While with Kyocera, he worked to develop new market areas
for  the  company's  solar  power products.  From 1997 to 1999 he served as Vice
President-  Telecommunications Division, a $21 million international unit, where
he  managed  all  sales  and  engineering efforts. From 1993-1997 Mr. Anduri was
Senior  Vice  President-Marketing  and  Sales for Photocomm Inc. a Nasdaq-traded
company based in Scottsdale Arizona, which was ultimately acquired by Kyocera in
1997.  He  also  served  as Vice President-Industrial Division of Photocomm from
1989-1993 and was the Rocky Mountain Regional Manager from 1987-89.   Mr. Anduri
holds  a  BA  in  Economics  from  Colorado  State  University.

Max  Polinsky,  47  -  Chairman  of  the  Board

Mr.  Polinsky was elected a member of the Board in April 2002 and is a member of
our  audit  committee.  He  is  a  director  and  principal of Venbanc, Inc., an
investment  and  merchant  bank  located  in  Winnipeg,  Manitoba Canada that he
founded  with  a  partner  in  1994.  Venbanc specializes in the structuring and
financing  of start-up companies and provides follow-up financial and management
advisory  assistance.  It  has  successfully  funded  and  taken  public several
companies  in  Canada and the United States in the past ten years. Prior to this
Mr.  Polinsky was the general manager of City Machinery Ltd., a nationwide power
transmission  parts distributor with offices across Canada.  He began his career
as  a  stockbroker  at Canarim Investment Corp. (now Canaccord Capital) in 1982.
Mr. Polinsky graduated with honors from the University of Manitoba with a degree
in  Business  Administration,  Finance  Major.

Patrick  A.  Gorman,  40  -  Board  Member

Mr.  Gorman  was elected a member of the Board in April 2002, and is a member of
the  compensation  committee.  He  is  the  managing  director  of  Gorman  and
Associates,  Inc.,  a  strategic  consulting  firm  for corporate and government
affairs.  Since  its  inception,  the  company  has  been dedicated to being the
preeminent  business  development firm for companies seeking to do business with
the  Fortune  500  as  well  as the advisory firm of choice in understanding the
federal  government  in  Washington,  D.C.  Mr.  Gorman's  focus  at  Gorman and
Associates,  Inc.  includes  law  and  the  legislative process, communications,
government  relations,  and  operations.  Over the last 10 years, he has advised
corporations,  NGOs,  non-profits,  and  individuals  on  issues  pertaining  to
criminal  law,  the  environment,  telecommunications, international trade, fund
raising,  community  development,  media  relations,  and  alternative  dispute
resolution.  Mr.  Gorman  is  a  member  of  the  Advisory  Board  of  New Media
Strategies,  Inc.,  an  Internet  service  provider focused on public relations,
communications,  and  viral  marketing. Mr. Gorman is also a Board member of the
Echo  Hill  Campership  Fund,  a  local  non-profit whose mission is to send the
neediest,  very low-income, inner-city youths to camp on the Chesapeake Bay. Mr.
Gorman  is admitted to practice law in Maryland and the District of Columbia and
has  successfully  appeared  at  the  administrative,  district,  circuit,  and
appellate  court  levels.

On  November  26,  2003, each member of the Board of Directors was elected for a
one-year  term  or  until their successor shall have been elected and qualified.

SECTION  16(a)  BENEFICIAL  OWNERSHIP  REPORTING  COMPLIANCE

The following officers, directors and others failed to timely file the indicated
reporting  forms  during  2004.

Myron  Anduri,  President,  Form  4  filed  January  9,  2004.
Myron  Anduri,  President,  Form  4  filed  October  6,  2004.
Steven  Jacobson,  10%  owner,  Form  3,  filed  September  27,  2004.
Patrick  Gorman,  Director,  Form  4  filed  February  11,  2005.
Max  Polinsky,  Chairman,  Form  4  filed  February  11,  2005.

Nighthawk  Systems,  Inc.  has  adopted  a  code  of  ethics that applies to the
executive  officers  of  the  Company,  including  its  Chief Executive Officer,
President  and  Principal  Accounting  and  Financial  Officer.  A  copy  of the
Company's  code  of  ethics  will  be provided free of charge to any person upon
request.  Requests  may  be  made  by  phone  at  210  341-4811.

ITEM  10.  EXECUTIVE  COMPENSATION

<TABLE>
<CAPTION>



<S>                          <C>    <C>            <C>         <C>             <C>             <C>        <C>       <C>
                                              SUMMARY COMPENSATION TABLE
                                                                                           LONG TERM
                             ANNUAL COMPENSATION                                    COMPENSATION AWARDS      PAYOUTS


                                                                                               SECURITIES
                                                               OTHER ANNUAL       RESTRICTED   UNDERLYING              ALL OTHER
NAME AND PRINCIPAL. . . . .                                    COMPENSATION        STOCK        OPTIONS/SARS   LTIP    COMPENSATION
 POSITION . . . . . . . . .  YEAR       SALARY       BONUS         ($)             AWARD ($)       (#)       PAYOUTS      ($)
                                                                                                               ($)
H. Douglas Saathoff,
 Chief Executive
 Officer (a)  . . . . . . .  2004     $120,000         $-           -                -              -           -          -

                             2003     $115,000         $-           -                -        500,000           -          -



Myron Anduri,
President (b) . . . . . . .  2004     $120,000         $-           -                -              -           -          -

                             2003      $84,125         $-           -                -        250,000           -          -
<FN>
NOTES:

(a)     H. Douglas Saathoff was named the Chief Executive Officer in March 2003.
Myron Anduri was named President in December 2003.  Mr. Anduri was given 181,416
shares  of  the  Company's  common  stock in exchange for $22,276 in debt he had
incurred  on  the  Company's  behalf  and for which the Company had recognized a
liability  to  Mr.
</TABLE>

                                 PERCENT  OF  TOTAL
               NUMBER  OF        OPTIONS/SARS             EXERCISE
               SECURITIES        GRANTED  TO              OR  BASE
               UNDERLYING        EMPLOYEES  IN  FISCAL    PRICE       EXPIRATION
     NAME      OPTIONS GRANTED   YEAR 2004                ($/SH)            DATE

No  options  or  stock appreciation rights were granted to executive officers of
the  registrant  in  2004.

Max  Polinsky  received  150,000 shares in return for serving as Chairman of the
Board through his term ending November 13, 2003. Patrick Gorman received 100,000
shares  for serving as a board member through his term ending November 13, 2003.
Both  Mr. Polinsky and Mr. Gorman were granted 75,000 options to purchase common
shares  at  a  price of $0.22 per share in return for one year of service on the
board  beginning  November 13, 2003.  On December 8, 2004, both Mr. Polinsky and
Mr.  Gorman were granted 500,000 options to purchase common shares at a price of
$0.09  per  share  in  return  for  services  rendered.


ITEM  11.  SECURITY  OWNERSHIP  OF  CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED  SHAREHOLDER  MATTERS

<TABLE>
<CAPTION>



<S>                           <C>                                        <C>                         <C>
                       BENEFICIAL OWNERS OF MORE THAN 5% OF NIGHTHAWK SYSTEMS, INC. COMMON STOCK

                         NAME AND ADDRESS OF BENEFICIAL                  AMOUNT AND NATURE OF       PERCENT OF
TITLE OF CLASS. . . . . . . . . .. .  OWNER                              BENEFICIAL OWNERSHIP          CLASS


Common stock. . . . . . . . .   Steven Jacobson                              3,705,317 (a)(b)           9.6%
                                6600 E Hampden Ave
                                3rd Floor
                                Denver, CO  80224

Common stock. . . . . . . . . . Herbert I. Jacobson                          2,636,800 (c)              7.1%
                                1011 S. Valentia St., #87
                                Denver, CO 80247

Common stock. . . . . . . . . . Myron Anduri                                3,124,815 (d)              8.2%
                                P.O. Box 1051
                                Fairplay, CO 80440


Common stock. . . . . . . . . . Tomas Revesz                                 3,156,884 (e)              8.3%
                                P.O. Box 2498
                                McAllen, TX 78502
<FN>

NOTES:

(a)     Includes 150,000 shares under options which are vested or vest within 60
days,  and  1,875,317  shares held under in an irrevocable voting agreement with
Myron  Anduri which was executed on September 8, 2003 and which will survive for
a  period  of  five  years  from  that  date.  See  Note  (d)  below.

(b)     Includes  550,000  shares  held  in  a trust that expires on 6/11/06 for
Aaron  Guth  and 550,000 shares held in a trust that expires on 3/31/09 for Adam
Guth.  Steve  Jacobson  acts  as  trustee  for  both  trusts, and has all rights
afforded  any  shareholder,  including voting rights, until the trusts expire.

(c)     Includes  an  indeterminate  number  of  shares  held in the name of Mr.
Jacobson's  wife,  Sharon  Jacobson.

(d)     Includes  431,416  shares  and  166,666  under  warrants  and  options,
respectively,  which  are  exercisable  within 60 days.  Also includes 1,875,317
shares  held under an irrevocable voting agreement with Steve Jacobson which was
executed  on September 8, 2003 and which will survive for a period of five years
from  that  date.  Pursuant  to this agreement, Mr. Anduri has the right to vote
the  proxy of said shares on all matters submitted to a vote of the shareholders
with  the  single exception of votes on any proposal to change fifty one percent
(51%)  or more of the ownership of the Company.  Mr. Anduri receives no economic
benefits  from  the  shares  subject  to  this  Voting  Agreement.

(e)     Includes  2,010,050 shares under warrants, exercisable at any time up to
March  31,  2005,  and  750,000  shares that are convertible at any time under a
promissory  note.  The  warrants  expired  unexercised  on  April  1,  2005.
</TABLE>

<TABLE>
<CAPTION>



<S>                           <C>                                        <C>                         <C>
                       BENEFICIAL OWNERS OF MORE THAN 5% OF NIGHTHAWK SYSTEMS, INC. COMMON STOCK

                         NAME AND ADDRESS OF BENEFICIAL                  AMOUNT AND NATURE OF       PERCENT OF
TITLE OF CLASS. . . . . . . . . .. .  OWNER                              BENEFICIAL OWNERSHIP          CLASS


Common stock. . . . . . . . .   Max  Polinsky                               925,000 (a)                 2.6%
                                138 Portage Ave. East, Ste. 406
                                Winnipeg, Manitoba R2CAO1

Common stock. . . . . . . . . . Patrick Gorman                              675,000 (b)                 1.9%
                                1666 K Street NW, Ste 500
                                Washington, D.C. 20006

Common stock. . . . . . . . . . H. Douglass Saathoff                         781,658 (c)                2.2%
                                25106 Callaway
                                San Antonio, TX 78258

Common stock. . . . . . . . . . Myron Anduri                                3,124,815 (d)              8.2%
                                P.O. Box 1051
                                Fairplay, CO 80440

 Common stock                   Directors and officers as a group           5,506,473                 13.7%
<FN>

NOTES:

(a)     Includes  200,000  shares  that are owned by Venbanc, Inc., of which Mr.
Polinsky  is  a  partner, and 575,000 shares under options exercisable within 60
days.

(b)     Includes  575,000  shares  under  options  exercisable  within  60 days.

(a)     Includes  333,334  shares  under  options  exercisable  within  60 days.

(d)     Includes  431,416  shares  and  166,666  under  warrants  and  options,
respectively,  which  are  exercisable  within 60 days.  Also includes 1,875,317
shares  held under an irrevocable voting agreement with Steve Jacobson which was
executed  on September 8, 2003 and which will survive for a period of five years
from  that  date.  Pursuant  to this agreement, Mr. Anduri has the right to vote
the  proxy of said shares on all matters submitted to a vote of the shareholders
with  the  single exception of votes on any proposal to change fifty one percent
(51%)  or more of the ownership of the Company.  Mr. Anduri receives no economic
benefits  from  the  shares  subject  to  this  Voting  Agreement.
</TABLE>

<TABLE>
<CAPTION>



<S>                                 <C>                       <C>                    <C>
                                    NUMBER OF SECURITIES
                                    REMAINING AVAILABLE FOR
                                    FUTURE ISSUANCE UNDER
                                    NUMBER OF SECURITIES      EQUITY COMPENSATION
                                    TO BE ISSUED UPON         WEIGHTED AVERAGE       PLANS (EXCLUDING
                                    EXERCISE OF               EXERCISE PRICE OF      SECURITIES REFLECTED IN
PLAN CATEGORY. . . . . . . . . . .  OUTSTANDING OPTIONS       OUTSTANDING OPTIONS    COLUMN (A)

                                            (a)                      (b)                     (c)

Nighthawk Systems, Inc. 2003 Stock
 Option Plan approved by security
Holders. . . . . . . . . . . . . .      3,035,000                  $0.17                 1,335,000


</TABLE>

ITEM  12.  CERTAIN  RELATIONSHIPS  AND  RELATED  TRANSACTIONS

During  the fourth quarter of 2003, the Company canceled the issuance of 300,000
shares  of its common stock originally issued to outside directors for services,
as  it  determined  that  no  associated  services  had  been  performed.

During 2003, the Company made payments of $25,504 to Arlen Felsen while he was a
director  and employee to reduce amounts owed to him for the purchase of certain
assets and liabilities of Vacation Communications.  Effective July 31, 2003, the
Company  sold  back to Mr. Felsen the assets and liabilities associated with the
original  purchase  and  recognized  a  gain  of  $92,443  on  this transaction.

During  2003, the Company paid a total of $12,678 to Myron Anduri, the Company's
current  President  and  then  Vice  President  of  Sales,  for amounts owed for
commissions  and  salary  earned  in  previous periods.  During 2003, Mr. Anduri
loaned  the Company $7,964 under short-term notes, of which $4,203 was repaid by
December  31, 2003.  As of December 31, 2003 the Company owed Mr. Anduri $38,708
under short-term note arrangements.  During the twelve months ended December 31,
2004,  Mr.  Anduri  was paid an additional $2,289 in cash and $22,278 in Company
common  stock, 181,416 shares, and 181,416 warrants to purchase common stock for
$0.25 per share, for amounts outstanding under these short-term notes.  Based on
calculations  using  Black-Scholes, the fair value of the warrants issued to Mr.
Anduri  was  $9,454. This amount is reflected in interest expense and additional
paid-in  capital  for  the  period  ended  December  31,  2004.

At  a  meeting  of  the  Board  of  Directors held on March 26, 2003, H. Douglas
Saathoff  was  named  Chief  Executive Officer of the Company.  During 2003, Mr.
Saathoff loaned the Company $54,100 under short-term notes, of which $45,100 was
repaid  by  December  31,  2003.  The  remaining  $9,000  was  repaid  in  2004.

At  a  meeting  of  the  Board  of  Directors  held on March 26, 2003, the Board
accepted  the  resignation  of  Steve  Jacobson  as chief executive officer, but
remained as an employee of the Company. On July 9, 2003, Steve Jacobson resigned
as  a  member  of  the  Company's  board of directors. On September 8, 2003, the
Company  entered  into  a  separation agreement with Steve Jacobson under which,
among  other  things,  he  agreed to a) resign as an employee of the Company; b)
return  545,454  shares  of  stock  held by him to the Company in payment of the
$118,629  he owed the Company as of that date; and c) transfer voting rights for
shares owned or held in trust by him to Myron Anduri, an employee of the Company
for  five years. Under the agreement, the Company agreed to issue Steve Jacobson
450,000  options  to  purchase shares of the Company's common stock at $0.22 per
share,  with  such options vesting over a three-year period at a rate of 150,000
shares  per  year.  As  a  result  of  the  transaction, the Company recorded an
additional $39,933 in compensation expense to Steve Jacobson for amounts owed by
him  to the Company upon his resignation. The Company retired the 545,454 shares
returned  to  the  Company  under  the  agreement.

During  2004, the Company entered into an agreement with Steve Jacobson in which
it  allowed  him  to  transfer  up  to 600,000 shares of his stock, which he was
contractually  restricted from selling under his separation agreement until June
2005, to various consultants who had agreed to perform services for the Company.
As  of  December  31,  2004,  200,000  of these shares had been distributed to a
consultant  and the Company recognized $20,000 in consulting expenses related to
this  transaction.  The  remaining  400,000 shares were not distributed, and are
not  included in the issued and outstanding shares of the Company as of December
31,  2004.  As  part  of  the  agreement,  the  Company  agreed  to  replace Mr.
Jacobson's  600,000  shares  with  730,000  shares  of  stock  that would not be
eligible  for  resale  until  November  2005.  The  Company  recorded $13,000 in
consulting  expense  associated  with  this agreement.  In addition, the Company
amended  Mr.  Jacobson's separation agreement to allow him to sell 50,000 shares
of  common  stock  in  each  of  the  months of March, April, May and June 2005.

On December 19, 2003 the Company entered into a settlement and release agreement
with  a  former  director,  Herb  Jacobson,  and  his  wife.  Under terms of the
agreement,  Mr.  &  Mrs.  Jacobson and the Company agreed to dismiss any and all
claims  against each other in return for, among other things, payment of a total
of  $25,000  over  a  four-month  period  from the Company to Mr. Jacobson.  The
Company  paid  this  amount  during  2003  and  2004.  In addition, Mr. and Mrs.
Jacobson,  along with their son Steven Jacobson, agreed to refrain from selling,
transferring,  conveying  or  otherwise  disposing  of  their  remaining  share
ownership  for a period of eighteen months subsequent to selling an aggregate of
850,000  shares.  As  a  result of the agreement, the Company recorded a gain of
$23,912  due  to a reduction in the amount previously recorded by the Company as
owed  to  Mr.  Jacobson.

During  the twelve months ended December 31, 2004, the Company also borrowed and
repaid  approximately $25,000 from a company in which its Chairman is a partner.

In  August  2004,  in  an  effort  to  improve its working capital position, the
Company  issued  558,007 shares of common stock and warrants to purchase 558,007
common  shares at $0.20 per share to an individual and a company in exchange for
approximately  $88,700  in  notes payable plus accrued interest owed them by the
Company.  The individual is a business partner of the Company's Chairman and the
company  is  affiliated  with  the  father  of  the Company's Chairman. Based on
calculations  using  Black-Scholes, the fair value of the warrants issued to the
two  parties  was  $29,079.  This  amount  is  reflected in interest expense and
additional  paid-in  capital  for  the  period  ended  December  31,  2004.

During  the  twelve  months  ended  December 31, 2004, a business partner of the
Company's  Chairman  billed  the  Company  $20,000  for  consulting  services.


ITEM  13.   EXHIBITS,  FINANCIAL  STATEMENTS  AND  REPORTS  ON  FORM  8-K


<TABLE>
<CAPTION>


EXHIBIT INDEX

(THOSE ATTACHED HERETO ARE SEQUENTIALLY NUMBERED)

Item 13(a)

<S>                                                <C>
EXHIBIT NO                                         DESCRIPTION
-------------------------------------------------  --------------------------------------------------------------------------------

3.1                                                Amended and Restated Articles of Incorporation effective March 2, 2005, filed
                                                   herewith.

3.2                                                Bylaws of the Company, incorporated by reference from Exhibit 3.2 to Form 8-K,
                                                   has filed with the SEC on February 1, 2002.

5.1                                                Opinion of Counsel Amy Trombly, Esq., incorporated by reference from Exhibit 5.1
                                                   of the SB-2/A, filed with the SEC on November 18, 2004.

10.1                                               Debenture  Agreement  between  the Registrant and Dutchess Private Equities
                                                   Fund,  II,  LP,  dated  August  10, 2004, incorporated by reference from Form
                                                   8-K filed with the SEC on August 10, 2004.

10.2                                               Subscription Agreement between the Registrant and Dutchess Private Equities
                                                   Fund,  II,  LP,  dated  August  10,  2004,  incorporated by reference from Form
                                                   8-K filed with the SEC on August 10, 2004.

10.3                                               Warrant  Agreement  between  the  Registrant  and Dutchess Private Equities
                                                   Fund,  II,  LP,  dated  August  10,  2004, incorporated by reference from Form
                                                   8-K filed with the SEC on August 10, 2004.

10.4.                                              Registration  Rights  Agreement  for  Debenture  between the Registrant and
                                                   Dutchess  Private  Equities  Fund,  II,  LP,  dated  August  10,  2004,
                                                   incorporated by reference from Form 8-K filed with the SEC on August 10, 2004.

10.5                                               Investment  Agreement  between the Registrant and Dutchess Private Equities
                                                   Fund,  II,  LP,  dated  August  10,  2004, incorporated by reference from Form
                                                   8-K filed with the SEC on August 10, 2004.

10.6                                               Registration  Rights  Agreement  for the Equity Line between the Registrant and
                                                   Dutchess  Private  Equities  Fund,  II,  LP,  dated  August  10,  2004,
                                                   incorporated by reference from Form 8-K filed with the SEC on August 10, 2004.

10.7                                               Placement Agent Agreement with U.S. Euro Securities incorporated by reference
                                                   from Exhibit 10.14 of the SB-2 Registration Statement filed with the SEC on
                                                   November 3, 2004.

10.8                                               Renewal, Extension and Modification Agreement between Nighthawk Systems, Inc.
                                                   and Best Intel, Inc. dated April 14, 2004, filed herewith.

10.9                                               Renewal, Extension and Modification Agreement between Nighthawk Systems, Inc.
                                                   and Infrastructura Espacial, S.A. de C.V., dated April 14, 2004, filed herewith.

10.10                                              Renewal, Extension and Modification Agreement between Nighthawk Systems, Inc.
                                                   and Star Marketing, Inc. dated April 14, 2004, filed herewith.

10.11                                              Security Agreement with Best Intel, Inc. dated April 14, 2004, filed herewith.

10.12                                              Security Agreement with Infrastructura Espacial, S.A. de C.V., dated April 14,
                                                   2004, filed herewith.

10.13                                              Security Agreement with Star Marketing, Inc. dated April 14, 2004, filed
                                                   herewith.

10.14                                              Second Amendment to the Separation Agreement with Steve Jacobson, dated October
                                                   26, 2004, filed herewith.

10.15                                              Settlement Agreement and Release executed between Charles McCarthy and Nighthawk
                                                   Systems, Inc. dated October 25, 2004, filed herewith.

14                                                 Code of Ethics, incorporated by reference from 10-KSB filed on April 13, 2004.

21.                                                Subsidiaries of the Company are incorporated by reference from the SB-2
                                                   Registration Statement, filed with the SEC on November 3, 2004, Exhibit 21.1.

23.1                                               Consent of GHP Horwath

24                                                 Power of Attorney is included on the signature page in this Annual Report on
                                                   this Form 10-KSB.

31.1                                               Rule 13a-14(a)/15d - 14(a) Certification of H. Douglas Saathoff, Chief Executive
                                                   Officer of Nighthawk Systems, Inc., filed herewith.

31.2                                               Rule 13a-14(a)/15d - 14(a) Certification of Daniel P. McRedmond, Principal
                                                   Accounting and Finacial Officer of Nighthawk Systems, Inc., filed herewith.

32.1                                               Certificate pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                                                   906 of the Sarbanes-Oxley Act of 2002, filed herewith.
(b) None

</TABLE>

ITEM  14.  PRINCIPAL  ACCOUNTANT  FEES  AND  SERVICES

(1)     Audit  Fees:

Fees  billed  by GHP Horwath, P.C. for audit and review services for each of the
years  ended  December 31, 2004 and 2003 were $62,000 and $58,919, respectively.

(2)     Audit  Related  Fees:

GHP  billed  the  Company approximately $3,250 for fees during 2003 for services
related  to  the  Company's  NASD  filing  and  a  Form  8-K.

(3)     Tax  Fees:

GHP  did  not  bill  the  Company  any  tax  fees  during  2004  or  2003.

(4)     All  Other  Fees:

GHP  did  not  bill  the  Company  any  other  fees  during  2004  or  2003.

(5)     Audit  Committee's  Pre-Approval  Policies  and  Procedures

(i)     The  audit  committee  of  the  board of directors approves the scope of
services  and  fees  of the outside accountants on an annual basis, prior to the
beginning  of  the  services.

(ii)     The  audit  committee  of  the board of directors reviewed and approved
100%  of  the  fees  for  the  services  above.

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
             -------------------------------------------------------

Board  of  Directors
Nighthawk  Systems,  Inc.


We  have  audited  the  accompanying  consolidated  balance  sheet  of Nighthawk
Systems,  Inc.  and  subsidiary ("the Company") as of December 31, 2004, and the
related  consolidated  statements  of operations, stockholders' deficit and cash
flows  for  each  of  the  years in the two-year period ended December 31, 2004.
These  consolidated financial statements are the responsibility of the Company's
management.  Our  responsibility  is to express an opinion on these consolidated
financial  statements  based  on  our  audits.

We  conducted  our  audits  in  accordance with auditing standards of the Public
Company  Accounting  Oversight  Board  (United States).  Those standards require
that  we plan and perform the audit to obtain reasonable assurance about whether
the  financial  statements  are free of material misstatement. An audit includes
examining,  on  a test basis, evidence supporting the amounts and disclosures in
the  financial  statements.  An  audit  also  includes  assessing the accounting
principles  used  and  significant  estimates made by the management, as well as
evaluating  the  overall  financial  statement presentation. We believe that our
audits  provide  a  reasonable  basis  for  our  opinion.

In  our opinion, the consolidated financial statements referred to above present
fairly,  in  all material respects, the financial position of Nighthawk Systems,
Inc. and subsidiary as of December 31, 2004, and the results of their operations
and their cash flows for each of the years in the two-year period ended December
31,  2004,  in  conformity  with accounting principles generally accepted in the
United  States  of  America.

The  accompanying  consolidated financial statements have been prepared assuming
that  the  Company  will continue as a going concern.  As discussed in Note 1 to
the  consolidated  financial  statements,  the  Company  reported  a net loss of
approximately  $1.38  million during the year ended December 31, 2004, and has a
stockholders'  deficit  and  working  capital  deficiency of approximately $1.24
million and $1.04 million, respectively, at December 31, 2004.  These conditions
raise  substantial  doubt  about  the  Company's  ability to continue as a going
concern.  Management's  plans with regard to these matters are also described in
Note  1.  The  consolidated  financial statements do not include any adjustments
that  might  result  from  the  outcome  of  this  uncertainty.

GHP  Horwath,  P.C.

Denver,  Colorado
March  11, 2005, except for Notes 8 and 9 as to which the date is April 12, 2005


<TABLE>
<CAPTION>


                                        NIGHTHAWK SYSTEMS, INC.

                                      CONSOLIDATED BALANCE SHEET

                                          DECEMBER 31, 2004

        ASSETS

<S>                                                                                                            <C>
Current assets:
     Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $    61,118
     Accounts receivable, net of allowance for doubtful accounts of $134. . . . . . . . . . . . . . . . . . .       45,754
     Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       26,709
     Prepaids . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      140,762
                                                                                                               ------------
               Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      274,343

Furniture, fixtures and equipment, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       13,067
Intangible and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       13,742
                                                                                                               ------------
                                                                                                               $   301,152
                                                                                                               ============

      LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
    Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $   422,254
    Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      245,805
    Line of credit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       19,792
    Notes payable:
        Related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       15,401
        Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      613,012
                                                                                                               ------------
               Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    1,316,264
                                                                                                               ------------
Long-term liabilities:
   Note payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      224,479
                                                                                                               ------------
Commitments and contingencies

Stockholders' deficit:
    Preferred stock, $0.001 par value; 5,000,000 shares authorized; 5,000 issued and outstanding; liquidation
    preference $12,500 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    12,500
    Common stock; $0.001 par value; 50,000,000 shares authorized; 31,959,247 issued and outstanding . . . . .       31,960
    Special warrants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      188,775
    Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    3,884,516
    Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   (5,357,342)
                                                                                                               ------------
               Total stockholders' deficit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   (1,239,591)
                                                                                                               ------------
                                                                                                               $   301,152
                                                                                                               ============

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


<TABLE>
<CAPTION>

                                        NIGHTHAWK SYSTEMS, INC.
                                 CONSOLIDATED STATEMENTS OF OPERATIONS
                                       YEARS ENDED DECEMBER 31,


<S>                                                                         <C>           <C>
                                                                                   2004          2003
                                                                            ------------  ------------
Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $   610,180   $ 1,030,793
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . .      438,473       658,203
                                                                            ------------  ------------
     Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . .      171,707       372,590

Selling, general and administrative expenses . . . . . . . . . . . . . . .    1,311,824     1,290,143
Reversal of 2002 deferred compensation . . . . . . . . . . . . . . . . . .            -      (300,000)
Reversal of 2002 consulting expense. . . . . . . . . . . . . . . . . . . .            -       (33,000)
                                                                            ------------  ------------
     Loss from operations. . . . . . . . . . . . . . . . . . . . . . . . .   (1,140,117)     (584,553)
                                                                             ------------  ------------
 Interest expense:
    Related parties. . . . . . . . . . . . . . . . . . . . . . . . . . . .       44,656        15,036
    Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      191,978        30,839
                                                                            ------------  ------------
Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . .      236,634        45,875
                                                                            ------------   ------------

Loss from continuing operations. . . . . . . . . . . . . . . . . . . . . .   (1,376,751)     (630,428)
                                                                                          ------------
Discontinued operations:
   Loss from operations of discontinued segment. . . . . . . . . . . . . .                    (14,472)
   Gain on disposal of discontinued segment. . . . . . . . . . . . . . . .                     92,443
                                                                                          ------------
                                                                                               77,971
                                                                            ------------  ------------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   (1,376,751)     (552,457)
Less: preferred stock dividends. . . . . . . . . . . . . . . . . . . . . .         (644)
                                                                            ------------  ------------
Net loss applicable to common stockholders . . . . . . . . . . . . . . . .  $(1,377,395)  $  (552,457)
                                                                            ============  ============


Loss from continuing operations per basic and diluted common share . . . .  $     (0.05)  $     (0.03)
                                                                            ============  ============

Income from discontinued operations per basic and diluted common share . .                $         *
                                                                                          ============

Net loss to common stockholders per basic and diluted common share . . . .  $     (0.05)  $     (0.03)
                                                                            ============  ============

Weighted average common shares outstanding - basic and diluted . . . . . .   27,674,693    22,021,229
                                                                            ============  ============

* Less than $0.01 per share

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


<TABLE>
<CAPTION>

                             NIGHTHAWK SYSTEMS, INC.
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
                     YEARS ENDED DECEMBER 31, 2004 AND 2003


<S>               <C>     <C>      <C>          <C>       <C>          <C>          <C>        <C>           <C>
                                                          Addit-       Stock-
                                                          ional        holder       Special    Accum-        Total
                  Preferred Stock       Common Stock      paid-in      receiv-      Warrants   ulated
                  Shares  Amount   Shares       Amount    capital      able                    deficit
                  ------  ------   ---------   --------   ---------    ----------   ---------  -----------     --------
Balances,
 December 31,
 2002                              22,808,780   $22,809   $2,815,863    ($118,629)             ($3,428,134)    ($708,091)

Cancellation of
 consulting
 arrangement                         (300,000)     (300)    (32,700)                                             (33,000)

Common stock
 and warrants
 issued for
 cash, net
 of issuance
 costs of
 7,000                             1,575,000     1,575      261,425                                              263,000

Issuance of
 stock
 options to
 consultants                                                  6,825                                                6,825

Cancellation
 of agree-
 ments under
 deferred
 compen-
 sation                              (300,000)     (300)   (299,700)                                            (300,000)

Common
 stock
 issued for
 services                           1,116,667      1,117    233,633                                               234,750

Common
 stock
 issued
 for
 interest
 expense                               25,000        25      11,475                                                11,500

Shares
 received
 for sale
 of operat-
 ing segment                         (150,000)     (150)    (28,350)                                             (28,500)

Exchange of
 shares for
 shareholder
 receivable                          (454,545)     (455)   (113,182)      118,629                                  4,992

Net loss                                                                                          (552,457)     (552,457)
                    ------  ------   ---------   --------   ---------    ----------   ---------  -----------     --------

Balances,
 December 31,
 2003                              24,320,902   $24,321   $2,855,289                           ($3,980,591)  ($1,100,981)

Common stock
 and warrants
 issued and
 options
 exercised
 for cash                           1,488,333     1,488      235,863                $ 188,775                    426,126

Common stock
 and options
 issued
 for consult-
 ing  and
 other services                     2,345,000     2,345      323,228                                             325,573

Common
 stock
 issued for
 interest                              61,875        62       12,312                                              12,374

Conversion of
 notes payable
 to common
 stock and
 warrants                           1,439,423     1,440      311,413                                             312,853

Preferred
 stock
 issued
 for cash          5,000  $12,500                                                                                 12,500

Warrants
 issued
 for cash                                                     18,750                                              18,750


Common stock
 issued for
 investment
 agreements,
 placement fees
 & incentives                       2,350,000     2,350       35,150                                              37,500

Beneficial
 Conversion
 feature
 of convertible
 debt                                                         92,465                                              92,465

Cancellation
 of shares                            (50,000)      (50)          50                                                   -

Series A                                                                                                               -
 Preferred
 dividend                               3,714         4           (4)

Net loss                                                                                        (1,376,751)   (1,376,751)
                  ------  ------   ---------   --------   ---------    ----------   ---------  -----------     ----------

Balances,
 December 31,
 2004              5,000  $12,500  31,959,247   $31,960   $3,884,516   $        -   $ 188,775  ($5,357,342)  ($1,239,591)
                  ======  =======  ==========   ========   ==========   ==========   =========  ============  ============
<FN>
The  accompanying  notes  are  an  integral  part of these financial statements.



</TABLE>



<TABLE>
<CAPTION>

                             Nighthawk Systems, Inc.
                      Consolidated Statements of Cash Flows
                            Years ended December 31,


<S>                                                     <C>                     <C>
                                                            2004                         2003
                                                        ------------                -------------
Cash  flows  from  operating  activities:
                  Net loss                       $       (1,376,751)           $        (552,457)
                                                        ------------                -------------
Adjustments  to  reconcile  net  loss
to  net  cash  used  in  operating  activities:
   Loss  from  operations  of  discontinued
   segment                                                        -                        14,472
   Gain  on  disposition  of  operating
   Segment                                                        -                       (92,443)
   Depreciation and amortization                              7,707                         5,859
   Provision for bad debts                                      380                             -
   Settlement  of  other  related  party
   payable                                                       -                        (23,912)
   Amortization of loan discounts                            15,104                             -
   Beneficial conversion feature                             92,465                             -
   Common stock issued for services                         205,775                       234,750
   Common stock issued for interest                          78,658                        11,500
   Common  stock  issued  for  placement
   fees and incentives                                       37,500                             -
   Issuance  of  stock  options  to  consultants
   for services                                              119,798                         6,825
   Compensation  expense  on  settlement
   of receivable from shareholder                                 -                         4,992
   Reversal  of  2002  deferred  compensation                     -                      (300,000)
   Reversal of consulting agreement                               -                       (33,000)
Change  in  assets  and  liabilities:
   Decrease  (increase)  in  accounts  receivable            (4,217)                      160,232
   Decrease (increase) in inventories                        48,620                       (15,621)
   Increase in prepaids                                    (105,407)                      (35,355)
   Increase  in  intangible  and  other  assets              (5,084)                         (720)
   Increase  in accounts payable                             29,716                        53,659
   Increase  in accrued expenses                             67,396                         8,643
   Decrease in deferred revenue                                   -                      (432,600)
   Increase (decrease) in customer deposit                  (63,544)                       63,544
                                                        ------------                -------------
      Total adjustments                                     524,867                     (369,175)
                                                        ------------                -------------
Net  cash  used  in  operating  activities  of
      continuing operations                                (851,884)                   (921,632)
                                                        ------------                -------------

Cash  flows  from  investing  activities:
   Purchases  of  furniture,  fixtures
   and equipment                                                   -                     (18,124)
                                                        ------------                -------------
   Net cash used in investing activities                           -                     (18,124)
                                                        ------------                -------------

Cash  flows  from  financing  activities:
   Cash overdraft                                            (3,902)                      3,902
   Proceeds  from  the  sale  of
   preferred stock                                           12,500                           -
   Proceeds  from  notes  payable,
   related parties                                           26,261                      62,064
   Payments  on  notes  payable,
   related parties                                          (36,318)                    (49,302)
   Payments  made  on  factoring
   arrangement, net                                               -                     (82,502)
   Proceeds from notes payable, other                       335,000                     365,000
   Payments  on  notes  payable,
   other and line of credit                                 (71,664)                    (25,447)
   Proceeds  from  the  issuance  of
   convertible debt and warrants                            250,000                           -
   Net  proceeds  from  the  issuance
   of special warrants                                      188,775                           -
   Payments  on  other  related
   party payable                                            (25,000)                          -
   Net  proceeds  from  issuance  of
   common stock and warrants                                237,350                     263,000
                                                        ------------                -------------
Net  cash  provided  by
financing activities                                        913,002                    536,715
                                                        ------------                -------------
Cash used in discontinued operations                              -                    (25,636)
                                                        ------------                -------------
Net increase (decrease) in cash                              61,118                   (428,677)
Cash, beginning of year                                           -                    428,677
                                                        ------------                -------------
  Cash, end of year                            $              61,118           $             -
                                                        ============                =============

Supplemental  disclosures
of  cash  flow  information:

 Cash paid for interest                        $              26,228           $        22,408
                                                        ============                =============


Supplemental  disclosure
 of  non-cash  investing  and
 financing  activities:

Conversion  of  notes  payable
 and  accrued  interest  to  common  stock
   Notes  payable                              $            224,390
   Accrued  interest                                         22,179
                                                       -------------
Total  amount  converted                       $            246,569
                                                        ============

Preferred  stock  dividends
 issued  in  common  stock                     $                644
                                                               =====

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

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

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






                             NIGHTHAWK SYSTEMS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 2004 AND 2003

1.     Organization,  going  concern,  results  of  operations  and management's
plans:

Organization:

Nighthawk  Systems, Inc. ("Nighthawk" or "the Company") designs and manufactures
intelligent  remote power control products that are easy to use, inexpensive and
can  remotely  control  virtually  any  device from any location.  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 paging and satellite
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.

In  November 2001, the Company sold the assets and liabilities of its investment
in  a majority owned subsidiary to a major stockholder. On February 1, 2002, the
Company  acquired  Peregrine Control Technologies, Inc. ("PCT"). The transaction
represented  a  reverse  acquisition  of  the  Company  by  PCT, since PCT owned
approximately  76%  of  the  post  acquisition shares of the consolidated entity
immediately  after  the  completion  of  the  transaction.  At  the  date of the
transaction,  the Company was a shell company with no net assets. For accounting
purposes,  the  acquisition  was treated as an acquisition of the Company by PCT
and  a recapitalization of PCT.  The historical stockholders' deficit of PCT has
not  been  retroactively  restated since the shares exchanged in the transaction
were  on a one-for-one basis. The accompanying consolidated financial statements
include  the  accounts  of  Nighthawk  Systems,  Inc.,  and its subsidiary, PCT.

PCT  was incorporated as a Colorado corporation in 1992.  In September 2001, the
Company  purchased  certain  assets  and assumed certain liabilities of Vacation
Communication,  Inc. (dba Gotta Go Wireless), a Colorado corporation, engaged in
providing  wireless  paging  airtime  and  in  pager  sales.  Through  Vacation
Communication, the Company was able to provide paging services to customers that
purchase its remote control products and also provided paging services to retail
paging  customers.  Effective July 31, 2003, the Company sold back the remaining
assets  and  liabilities  of  the paging business to the original owners.  Since
that  date,  the  Company has provided paging services to customers by reselling
services  that  it  obtains  from  various  paging  airtime  vendors.

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

The  Company  incurred a net loss of approximately $1.38 million during the year
ended  December  31,  2004  and  had a stockholders' deficit and working capital
deficiency of approximately $1.24 million and $1.04 million, respectively, as of
December  31, 2004. 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:

1.     Raising  working  capital  through  additional  borrowings.
2.     Raising  equity  funding  through  sales  of  the Company's common stock.
3.     Implementation  of  a  sales  and  marketing  plan.

In August 2004, the Company signed a financing arrangement with Dutchess Private
Equities,  II,  L.P.  ("Dutchess")  which  was amended on August 26, 2004 and on
September  24,  2004.  Under  the  terms of the amended arrangement, the Company
received  $100,000  under a convertible debenture on August 11, 2004, $25,000 on
August  26,  2004,  and  $125,000  under  the  debenture  on September 27, 2004.
Interest  accrues on the debenture at an annual rate of 8%. The debenture can be
converted into common shares anytime prior to its maturity on August 10, 2007 at
the lesser of (i) 73% of the lowest closing bid price on the date of conversion,
or  (ii)  twelve  and  a  half cents ($0.125). Any portion of the debenture that
remains  outstanding  at  August 10, 2007 will automatically convert into common
shares.  The  number  of  shares  converted  at any time is limited so as not to
exceed 4.99% of the outstanding shares of Nighthawk common stock outstanding. In
addition,  Dutchess  was  issued  a  warrant to purchase up to 250,000 shares of
common  stock  at a price of twelve and a half cents ($0.125) for a period of up
to  five  years.  The  Company  also  signed an investment agreement under which
Dutchess  agreed  to  purchase  up  to  $10.0  million  in common stock from the
Company,  at  the  Company's  discretion,  over the next three years, subject to
certain  limitations  including  the  Company's  then current trading volume. On
December  3,  2004 Dutchess loaned the Company an additional $250,000.  The note
has  no stated interest rate but has a face amount of $300,000 and matured April
3,  2005  resulting in an implied annual rate of 72.8%.  The note is intended to
be  repaid  via  puts  exercised under the investment agreement with the Company
making payments of the greater of $75,000 every 30 days or 50% of each put until
the  note is paid in full.  In the event of default, the investor, Dutchess, has
the  right to convert the note to common stock at the lesser of (i) seventy-five
(75%)  of  the lowest closing bid price during the fifteen (15) days immediately
preceding default or (ii) one hundred percent (100%) of the lowest bid price for
the  twenty (20) trading days preceding default.  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.  Subsequent to December
31,  2004,  the  Company issued two additional notes, exercised a number of puts
and  Dutchess  elected  to  exercise  warrants  and  converted  a portion of the
long-term  note  payable  to  common  stock.  See  Notes  8  and  9.

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.

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.     Summary  of  significant  accounting  policies

Concentration  of  credit  risk

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 December 31, 2004, the Company had $45,754 in accounts receivable,
net  of  the  allowance  for  doubtful  accounts.  Approximately $14,700 of this
balance  was  from  one customer, which was collected subsequent to December 31,
2004.

During  2004,  three  customers  accounted for approximately 26%, 20% and 12% of
sales, respectively.  During 2003, two customers accounted for approximately 47%
and  31%  of  sales,  respectively.  The  same  customer represented the largest
percentage  of  sales  in  both  2004  and  2003.

During  2004,  the Company's three largest suppliers accounted for approximately
47%,  11%  and 11%, respectively, of the Company's purchases of pre-manufactured
component materials.  During 2003, the Company's two largest suppliers accounted
for  approximately  66%  and  15%,  respectively,  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.   Beginning on
the date of grant, the Company will 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  December  31,  2004.

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 December 31, 2004.  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 liabilities
on  the  balance  sheet  at  December  31,  2004,  is  approximately  $6,500.

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.

Advertising

Advertising  costs  are  expensed as incurred.  For the years ended December 31,
2004  and  2003,  advertising  costs  were  approximately  $9,200  and  $6,000,
respectively.

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.

Financial  instruments

The  carrying  amounts  of  cash,  accounts  receivable  and  accounts  payable
approximate  their  fair values due to their short duration. Notes with floating
or  fixed  interest  rates  approximate  their  fair values based on market rate
information  currently  available to the Company.  The fair values of notes with
related  parties  are  not  practicable to estimate based upon the related party
nature  of  the  underlying  transactions.

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 the years ended December 31, 2004
and  2003, the effect of the inclusion of dilutive shares would have resulted in
a  decrease  in  loss  per  share.  Accordingly,  the  weighted  average  shares
outstanding  have  not  been  adjusted  for  dilutive  shares.

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.

Shipping  and  handling  fees  and  costs

The  Company  records shipping and handling fees billed to customers as revenue,
and  shipping  and  handling costs incurred with the delivery of its products as
cost  of  sales.  For  the  years  ended December 31, 2004 and 2003, the Company
recognized  approximately  $6,900  and  $20,600,  respectively,  as revenue from
shipping and handling fees.  For the years ended December 31, 2004 and 2003, the
Company  recognized  approximately  $4,300 and $28,300, respectively, in cost of
sales  for  shipping  and  handling  fees.

Comprehensive  income

For the years ended December 31, 2004 and 2003, the Company had no components of
comprehensive  income  to  report.

Stock-based  compensation

The  Company  has  adopted  Statement of Financial Accounting Standards No. 123,
"Accounting  for  Stock-Based Compensation" ("SFAS 123"). The provisions of SFAS
123  allow companies to either expense the estimated fair value of stock options
or  to  continue  to  follow  the intrinsic value method set forth in Accounting
Principles  Bulletin  Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB  25") but disclose the pro forma effects on net income (loss) had the fair
value of the options been expensed. The Company has elected to continue to apply
APB  25  in  accounting  for  its  employee  stock  option  incentive  plans.

Under  APB  25, where the exercise price of the Company's employee stock options
equals  the  market  price  of  the  underlying  stock  on the date of grant, no
compensation  is  recognized.  As  all  employee options were issued at or above
market  during  2004  and 2003, no compensation expense was recognized in either
year.  If  compensation expense for the Company's stock-based compensation plans
had  been  determined  consistent  with SFAS 123, the Company's net loss and net
loss per share including pro forma results would have been the amounts indicated
below:

<TABLE>
<CAPTION>



<S>                                                                  <C>               <C>
                                                                       YEAR ENDED DECEMBER 31,
                                                                      -------------------------
                                                                                2004        2003
                                                                          -----------  ----------
Net loss applicable to common stockholders:
As reported                                                            $  (1,377,395)  $(552,457)
Total stock-based employee compensation expense determined
under fair value based method for all employee awards, net
                                                                             (68,703)    (13,685)
                                                                          -----------  ----------
Pro forma net loss                                                     $  (1,446,098)  $(566,142)
                                                                          ===========  ==========

Net loss per share:
As reported:
Basic and diluted                                                      $       (0.05)  $   (0.03)
                                                                          ===========  ==========
Pro forma:
Basic and diluted                                                      $       (0.05)  $   (0.03)
                                                                          ===========  ==========
</TABLE>

The  pro  forma  effect  on  net loss may not be representative of the pro forma
effect on net income or loss of future years due to, among other things: (i) the
vesting  period of the stock options and the (ii) fair value of additional stock
options  in  future  years.

For  the  purpose  of  the  above  table, the fair value of each option grant is
estimated  as  of the date of grant using the Black-Scholes option-pricing model
with  the  following  assumptions:

<TABLE>
<CAPTION>


<S>                          <C>             <C>
Black-Scholes Assumptions
                              2004              2003

Dividend yield. . . . . .     0.00%             0.00%
Expected volatility . . .     1.167     1.229 - 1.316
Risk-free interest rate .     4.50%             4.50%
Expected life in years. .   2 years      1 to 3 years
</TABLE>

The weighted average fair value at date of grant for options granted during 2003
ranged  from  $0.009  to $0.027 per share using the above assumptions.  The fair
value  at  grant date for options granted in 2004 was $0.055 per share using the
above  assumptions.

Recently  issued  accounting  pronouncements

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.

In December 2003, the FASB issued Interpretation No. 46R ("FIN 46R"), a revision
to  FASB  Interpretation  No.  46 ("FIN 46"), Consolidation of Variable Interest
Entities.  FIN  46R  clarifies  some  of  the  provisions  of FIN 46 and exempts
certain  entities  from  its requirements.  FIN 46R requires a variable interest
entity  to be consolidated by a company if that company is subject to a majority
of  the  risk  of  loss  from  the  variable  interest entity's activities or is
entitled  to  receive  a majority of the entity's residual returns or both.  FIN
46R also requires disclosures about variable interest entities that a company is
not required to consolidate but in which it had a significant variable interest.
FIN  46R  is effective for variable interest entities created after December 15,
2003  for  public  companies  and  is  effective for all other variable interest
entities  by  the beginning of the first annual reporting period beginning after
December  15, 2004 for public companies that are small business issuers.  As the
Company  does  not  currently have an interest in a VIE, the adoption of FIN 46R
did  not  have  an  impact  on  the  Company's  financial position or results of
operations.

In  May  2003,  the  FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments  With  Characteristics of both Liabilities and Equity." SFAS No. 150
establishes  new  standards  on  how  an  issuer classifies and measures certain
financial  instruments  with characteristics of both liabilities and equity. The
provisions of SFAS No. 150 are generally effective for all financial instruments
entered  into  or  modified  after  May  31,  2003,  except for those provisions
relating  to  manditorily  redeemable non-controlling interests, which have been
deferred.  The  Company  has  adopted  the applicable provisions of SFAS No. 150
which  did  not  have a material impact on the financial condition or results of
operations  of  the  Company. However, numerous provisions have been delayed and
will  be  adopted  in  the future.  Management believes that the adoption of the
delayed  provisions will not have a material impact on its results of operations
or  financial  condition.

Reclassifications

Certain amounts reported in the 2003 consolidated financial statements have been
reclassified  to  conform  to  the  2004  presentation.

3.     Discontinued  operations

On  September  30, 2001, the Company acquired certain assets and assumed certain
liabilities  of Vacation Communication, Inc. ("VCI"), a Colorado corporation, in
exchange  for  $50,000 cash, 150,000 shares of the Company's common stock valued
at  $150,000, and notes payable of $183,135, in a transaction accounted for as a
purchase.  The  Company  acquired  these  assets and liabilities to enable it to
market  and  sell  paging  airtime  to  customers  that  purchase its equipment.
Effective  July  31,  2003 the Company sold the remaining assets and liabilities
originally purchased with or originated as a result of the purchase of VCI. back
to the original owners of the operation. In return, the Company received 150,000
shares  of  its  common  stock,  and the owners of VCI facilitated the return of
approximately  $34,000  in  cash to the Company that had been held in an account
under  their control. In 2003, the Company recognized a gain on this transaction
of  $92,443,  and  has  presented  the financial results of this paging business
segment  as  discontinued  operations  in the accompanying financial statements.
Revenue  from  discontinued  operations  was  approximately $45,900 for the year
ended  December  31,  2003.

4.         Furniture,  fixtures  and  equipment

Furniture, fixtures and equipment consist of the following at December 31, 2004:

<TABLE>
<CAPTION>



<S>                            <C>
Equipment . . . . . . . . . .  $ 30,306
Furniture and fixtures. . . .     3,378
Software. . . . . . . . . . .     3,171
                               ---------
                                 36,855
Less accumulated depreciation   (23,788)
                               ---------
                               $ 13,067
                               =========
</TABLE>

5.     Commitments  and  contingencies

Leases

The  Company  leases  office  and warehouse space under month-to-month operating
leases in Denver, Colorado and San Antonio, Texas. Rent expense incurred for the
years  ended  December  31, 2004 and 2003 was approximately $29,600 and $26,000,
respectively.

Pending  litigation

In  May  2003,  the Company was sued by a former Board member, Charles McCarthy,
seeking  recovery for the value of 350,000 shares, or $209,500, and $120,000 due
his  law  firm  under  a  retainer  agreement  between the Company and his firm.
McCarthy  had previously signed a settlement agreement with the Company in which
he  agreed  to cancel all potential claims against the Company and its directors
in return for 150,000 unregistered shares trading at a value of $0.60 or higher.
In October 2004 we reached an agreement with him to settle the case for $55,000.
Under  the  Settlement Agreement and Release, we made a cash payment to McCarthy
of  $10,000  during  October 2004, a cash payment of $15,000 in January 2005 and
will  settle  the  remaining  balance  in  the  fourth  quarter  of  2005.

The  Company,  along  with  the  current  officers and board members and several
former directors, were sued by Lawrence Brady, a former director of the Company,
and  his  son  Mark  Brady,  who  served for a period of time as Chief Financial
Officer,  for,  among  other things, breach of contract for unlawful termination
and  failure to provide stock allegedly promised. The alleged breaches and other
claims  all  stem  from  their  service  as  director  of  the Company and chief
financial  officer,  respectively,  for  part  of  2001  and  part  of 2002. The
aggregate  amount of damages claimed is not specified. The case is proceeding in
the  state  court  in  Denver,  Colorado.  Several  of  the  individually-named
defendants  have been voluntarily dismissed by the plaintiffs. The Company plans
to  vigorously defend itself and its current directors and officers, and filed a
counterclaim  against the plaintiffs for non-performance and breach of fiduciary
duties. This counterclaim was allowed to proceed by the court over the objection
of  the  plaintiffs.  No  assurance  can  be  given, however, as to the ultimate
outcome  of  the  case.

Certain claims and lawsuits have arisen against the Company in its normal course
of  business.  The  Company believes that such claims and lawsuits have not had,
and  will  not  have,  a  material  adverse  effect  on  the Company's financial
position,  cash  flow  or  results  of  operations.

6.     Income  taxes

The  Company  accounts for income taxes using the liability method in accordance
with  SFAS  No.  109, Accounting for Income Taxes. The liability method provides
that  the  deferred  tax  assets  and  liabilities  are  recorded  based  on the
difference  between  the  tax bases of assets and liabilities and their carrying
amount  for  financial  reporting purposes, as measured by the enacted tax rates
and  laws  that  will be in effect when the differences are expected to reverse.
Deferred  tax  assets are carried on the balance sheet with the presumption that
they  will  be  realizable  in  future periods when pre-tax income is generated.
Predicting  the  ability  to  realize  these assets in future periods requires a
great  deal  of  judgment by management.   In management's judgment, the Company
cannot  predict  with  reasonable  certainty  that the tax assets resulting from
losses  will  be  fully  realized  in  future  periods.  SFAS No. 109 requires a
valuation  allowance to reduce the deferred tax assets reported if, based on the
weight  of  the evidence, it is more likely than not that some portion or all of
the deferred tax assets will not be realized.  After consideration of all of the
evidence,  both  positive  and negative, management determined that a $1,737,000
valuation  allowance  at  December 31, 2004 was necessary to reduce the deferred
tax assets to the amount that will more likely than not be realized.  The change
in  the  valuation allowance for the current year is a net increase of $513,000.
At  December 31, 2004, the Company has approximately $5,000,000 of net operating
loss carryforwards, which expire from 2014 through 2024.  The net operating loss
carryforwards  include  losses from the acquisition of PCT and may be subject to
certain  restrictions  in  the  future.

Income  tax  benefit  consists  of  the  following:

<TABLE>
<CAPTION>


<S>                              <C>                         <C>
                                                 YEARS ENDED DECEMBER 31,
                                                      2004        2003
Deferred tax benefit
  Federal . . . . . . . . . . .                  $(444,000)     $(233,000)
  State . . . . . . . . . . . .                    (69,000)       (42,000)
                                                 ----------     ----------
                                                  (513,000)      (275,000)
Increase in valuation allowance                    513,000        275,000
                                                 ----------     ----------
                                                 $       -      $    -
                                                 ==========     ==========

</TABLE>

The  difference  between  the  expected  tax  (benefit)  computed at the Federal
statutory  income tax rate of 34% and the effective tax rate for the years ended
December  31,  2004  and  2003  follows:

<TABLE>
<CAPTION>



<S>                                                    <C>          <C>      <C>      <C>
                                                          YEARS ENDED DECEMBER 31,
                                                        2004                  2003
                                                       AMOUNT         %      AMOUNT    %

Computed "expected" tax (benefit) .                   (469,000)      34%   (188,000)   34%
State income taxes, net of federal
income tax benefit. . . . . . . . .                    (46,000)       3%    (18,000)    3%
Increase in valuation allowance . .                    513,000      -37%    275,000   -50%
Non-deductible expenses and other .                      2,000        0%    (69,000)   13%
                                                 -----------------------------------------
                                                     $       -        0%   $      -     0%
                                                 =========================================
</TABLE>

Significant  deferred  tax assets and liabilities represent the future impact of
temporary  differences  between  the financial statement and tax bases of assets
and  liabilities  and  are  as  follows:

<TABLE>
<CAPTION>



<S>                                  <C>                         <C>
                                               YEAR ENDED DECEMBER 31,
                                                       2004
Deferred tax assets:
  Net operating loss carry forwards               $  1,737,000
  Valuation allowance . . . . . . .                 (1,737,000)
                                                  -------------
Net deferred tax assets . . . . . .               $          -
                                                  =============
</TABLE>

7.     Line  of  credit

The  Company  has  $19,792  outstanding  at  December  31,  2004 under a $20,000
unsecured  line of credit with a bank.  Borrowings under the line of credit bear
interest  at  the  Wall  Street  Journal's  published  prime rate plus 3% (8% at
December  31,  2004); interest due monthly.  The line of credit is guaranteed by
three  stockholders  and  an  officer  of  the  Company.


8.     Notes  payable

<TABLE>
<CAPTION>



<S>                                   <C>

At December 31, 2004, notes
 payable consist of the following:

Related parties:
Note payable, officer; unsecured;
 interest at prime rate plus 5.5%
(10.5% at December 31, 2004);
due on demand. . . . . . . . . . . .  $ 10,107
Note payable, officer; unsecured;
 interest at 23.99%, due on demand .     5,294
                                    -----------
                                      $ 15,401
                                    ===========

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, 14.99% interest rate,
 interest and principal due monthly
 through November 2008 . . . . . . .    24,912
Note payable to stockholder, 10%
 interest rate, in default . . . . .       600
Note payable, $300,000 face
amount, no stated interest rate
but with an implied annual rate
of 72.8%, due April 3, 2005 (2). . .   262,500
                                    -----------
                                      $613,012
                                    ===========

Long Term:
Convertible debenture, 8%
interest rate, due
July 11, 2007 (2). . . . . . . . . .  $224,479
                                    ===========
<FN>


1)     The  Company  is  currently in discussions with Mr. Revesz, the holder of
the  notes  that  are  in  default  as of the date of this report and expects to
extend  the  maturity  dates  on  those  notes  as  it  has  done  several times
previously.  In  April 2004, the Company reached an agreement with Tomas Revesz,
its  largest  creditor  and  former  board member, 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.  The Company also agreed to pay the
creditor cash interest at an annual rate of 8% retroactive to the signing of the
notes,  and  monthly  at  an  annual  rate of 8% on the new total of $375,000 in
notes,  with  $750  of  the  monthly  interest  due  being  paid in cash and the
remainder  being paid in stock at a rate of $0.20 per share. In August 2004, the
creditor  extended  the  maturity  dates  of  the notes to October 31, 2004, and
converted  $50,000 of the convertible notes to 250,000 shares of common stock of
the  Company.  For  the  period  of  March through December of 2004, the Company
issued  61,875  shares  to  the creditor for $12,750 of interest owed under this
arrangement.  In  December  of 2004, the creditor extended the maturity dates of
the  notes  to  March  31,  2005.

2)     On  January 18, 2005, Dutchess loaned the Company an additional $225,000.
The  note  has  no  stated  interest  rate but has a face amount of $270,000 and
matures  on  May  18,  2005.  In  connection  with the note, Dutchess was issued
250,000  shares  of  common  stock as an incentive and the Company also signed a
consulting agreement with a company in which an employee of Dutchess is a member
of  management.  Under  the consulting agreement, the company was issued 500,000
shares  of  Company  common  stock.
</TABLE>

On  April 7, 2005, Dutchess loaned the Company an additional $488,500.  The note
has  no  stated  interest  rate but has a face amount of $586,200 and matures on
June 7, 2005.  A portion of the proceeds of this loan was used to repay the note
dated December 3, 2004 with a face amount of $300,000, which matured on April 3,
2005.  In connection with the note, Dutchess was issued 250,000 shares of common
stock  as  an  incentive  and  the  Company signed a consulting agreement with a
company  in  which  an employee of Dutchess is a member of management. Under the
consulting  agreement,  the  company was issued 300,000 shares of Company common
stock.

During  the  period  from  January  1,  2005 through April 12, 2005, the Company
exercised  six  (6)  puts  to Dutchess totaling 1,276,610 shares for proceeds of
$222,726.  Of  the  total  proceeds,  $142,635  was  used  to  repay portions of
previously  issued  notes  to  Dutchess  and  $80,091  went  to  the  Company.

On  March 9, 2005, Dutchess exercised 250,000 warrants at $0.125 each, for total
proceeds  of  $31,250,  $15,000  of  which  was  applied  to  outstanding notes.

Also  during  the  period  from January 1, 2005 through April 12, 2005, Dutchess
elected  to  convert  at  total  of $75,000 of the 36-month convertible note for
600,000  shares  of  the  Company's  common  stock.

9.     Stockholders'  deficit

Preferred  stock:

The  Company  has  authorized  5,000,000  shares  of $0.001 par value, preferred
stock.  In  2001,  PCT  issued  391,200 shares of its common stock in return for
$391,200  in  cash  proceeds.  Based on a review of Company records during 2003,
Company  management  determined  that  associated  warrants  to purchase 391,200
shares of common stock at $1.50 per share were never delivered to the purchasers
subsequent  to  their  investment. Company management also determined this to be
the case with 255,000 shares issued by the Company between January and June 2002
in  return for $255,000 in cash proceeds, for which warrants to purchase 255,000
shares  at  $1.50  per  share  should  have been delivered. According to Company
records,  all  such  warrants  should  have been exercisable for a period of two
years  from  their  date  of issuance; therefore, the warrants owed to investors
from  2001 expired without being delivered to the investors. In order to fulfill
the  terms of their investment, in January 2004 the Company offered new warrants
to  each of the investors whose funds were received in 2001 and during the first
six months of 2002 in order to permanently replace those that were never issued.
Terms  of the new warrants allowed the investors to purchase one share of Series
A Preferred Stock (Preferred Stock) for $2.50 per share for every $10 originally
invested in the Company. The Preferred Stock will pay a 7% annual dividend, on a
quarterly  basis,  in  the  form of Company common stock. The Preferred Stock is
convertible  into  common  shares of the Company on a 1 for 10 basis at any date
through  June  30,  2005.  On  that  date,  all outstanding Preferred Stock will
convert  to  common  stock  on  a  1  for 10 basis. The new warrants to purchase
Preferred  Stock  were  to  be exercised on or before April 30, 2004. A total of
5,000  shares of Series A Preferred Stock were purchased through the exercise of
the  warrants.  Preferred  stock dividends of $644 were accrued in the form of a
stock  dividend  equal  to  3,714  shares  of  common  stock  of  the  Company.

Common  stock:

The  Company  held  a  special shareholders' meeting on January 6, 2005 where an
amendment  to  the  Amended  and Restated Articles of Incorporation of Nighthawk
Systems,  Inc.  was  approved to increase the number of authorized shares of our
common  stock  from  50,000,000  to  200,000,000.

In  October  2002,  the  Company  issued  300,000  shares  of  common stock to a
consultant  for  services  rendered,  and  to  be  rendered.  At the date of the
commitment,  the total consulting cost was calculated to be $33,000 based on the
fair value of the Company's common stock on that day.  During the second quarter
of  2003,  the  Company  canceled  the  share  issuance  and  recorded a $33,000
reduction  in  consulting  expense.  The Company's board of directors determined
that  the  shares  had not been properly authorized for issuance, and that there
was  a  lack  of  sufficient  evidence  that  any  services  had been performed.

During  the  fourth  quarter  of  2003,  the Company issued a total of 1,116,667
shares  of  its  common  stock  in  exchange  for $234,750 of consulting expense
incurred  during  2003.  This  included  a  total  of  450,000  shares  to  five
independent  directors.

During  2003, the Company issued a total of 1,575,000 shares of its common stock
and 1,575,000 warrants with an exercise price of $0.25 per share in exchange for
net cash proceeds of $263,000.  The warrants are exercisable within two years of
the  date  of  each  grant.

During  2004,  the Company received $127,850, net of offering costs of $900, for
the  issuance of 858,333 shares of common stock and warrants to purchase 858,333
additional  shares  for  $0.25  per  share.  In  addition,  the Company received
$109,500  in  cash  proceeds  upon  the  exercise  of  630,000 options issued to
consultants  during the period.  A total of 50,000 shares, which had been issued
to  a  consultant  in  previous  periods,  were  cancelled  during  2004.

Also  during  2004,  in  order  to  provide  the Company with working capital, a
Canadian  brokerage  firm  sponsored  a  private  placement of up to $300,000 in
Special  Warrants,  which  are  convertible  into  shares of common stock of the
Company  at  $0.20  per  share, and also provide the purchaser with a warrant to
purchase  an  equal number of shares of common stock of the Company for a period
of two years at $0.30 per share. The Special Warrants will automatically convert
at  the  earlier  of  i)  an  effective  registration  statement  filed with the
Securities  and  Exchange  Commission  or receipt of a qualified prospectus by a
Canadian provincial authority, whichever comes later; or ii) one year from their
date  of issue. As of December 31, 2004, the Special Offering was closed and the
Company  had  issued  $188,775  in  Special  Warrants,  net of issuance costs of
$43,625  for  a total of 1,162,000 Special Warrants to the investors and 145,250
Special  Warrants  to  the  brokerage  firm.

A  total  of  2,345,000  shares  of  common  stock  were  issued  during 2004 to
consultants and others in return for $325,573 in services.  One million of these
shares were issued to consultants in relation to the Dutchess funding agreement.
In  addition, Dutchess received 250,000 warrants to purchase common stock of the
Company  at  $0.125  per  share.

A  total  of  $312,853 in notes payable and accrued interest were converted into
1,439,423  shares  of common stock, 739,423 warrants to purchase common stock at
$0.20 per share and 375,000 warrants to purchase common stock at $0.25 per share
during  2004.

A  total  of  61,875  shares of common stock were issued during 2004 as interest
payments  on  notes  payable.

A  total  of  2,350,000 shares of common stock were issued as part of investment
agreements,  incentives  and  placement  fees related to the Dutchess equity and
debt  agreements  during  2004.


Common  stock  warrant  transactions  during 2004 and 2003 are summarized below:

<TABLE>
<CAPTION>



<S>                                <C>          <C>
                                               WEIGHTED
                                               AVERAGE
                                               EXERCISE
                                   WARRANTS     PRICE
                                   ----------- --------
Outstanding at January 1, 2003. .   2,695,200   $ 0.53
Granted . . . . . . . . . . . . .   1,575,000     0.25
Exercised . . . . . . . . . . . .           -        -
Forfeited . . . . . . . . . . . .    (391,200)    1.50
                                   ----------- --------
Outstanding at December 31, 2003.   3,879,000     0.32
Granted . . . . . . . . . . . . .   3,530,006     0.26
Exercised . . . . . . . . . . . .           -        -
Forfeited . . . . . . . . . . . .  (2,304,000)    0.45
Other (a) . . . . . . . . . . . .   1,510,050     0.10
                                  ----------- --------
Outstanding at December 31, 2004.   6,615,056   $ 0.19
                                   =========== ========
<FN>


(a)  During  2003,  the Company issued a total of 1,575,000 shares of its common
stock  and  1,575,000  warrants  with  an  exercise  price of $0.25 per share in
exchange for net cash proceeds of $263,000.  The warrants are exercisable within
two  years  of the dates of each grant.  During 2004, the Company issued a total
of  3,530,006  warrants  with  an  average exercise price of $0.26 and 2,304,000
warrants were forfeited.  Up to $200,000 in warrants could be exercised prior to
March 31, 2005 at the lesser of $2.00 per share or 50% of the consecutive 10-day
average  closing  price  prior  to  the election to exercise the warrant.  As of
December  31,  2004,  this gave the holder the right to exercise up to 2,010,050
warrants  at  $0.0995  each.  500,000  were  included  in the number of warrants
outstanding  at December 31, 2003, resulting in the net addition of 1,510,050 in
2004.  The  warrants  expired  unexercised  on  April  1,  2005.
</TABLE>

During  the  first  quarter  of  2005,  the  Company  issued  463,100 shares for
consulting  and  other  services  or for the settlement of liabilities and 8,603
shares  for  accrued  interest  on  notes  payable  and  preferred  dividends.

During  the  first  quarter  of  2005, the Company sold 650,000 shares of common
stock  to  an  investor  for  cash  at  a price of $0.15 per share.  Warrants to
purchase  650,000 shares of common stock at an exercise price of $0.25 per share
were  also  included  in the sale.  We did not publicly offer the securities and
the  investor  is  an accredited investor.  No underwriters were involved in the
sale.

10.     Related  party  transactions

During  the fourth quarter of 2003, the Company canceled the issuance of 300,000
shares  of its common stock originally issued to outside directors for services,
as  it  determined  that  no  associated  services  had  been  performed.

During 2003, the Company made payments of $25,504 to Arlen Felsen while he was a
director  and employee to reduce amounts owed to him for the purchase of certain
assets and liabilities of Vacation Communications.  Effective July 31, 2003, the
Company  sold  back to Mr. Felsen the assets and liabilities associated with the
original  purchase  and  recognized  a  gain  of  $92,443  on  this transaction.

During  2003, the Company paid a total of $12,678 to Myron Anduri, the Company's
current  President  and  then  Vice  President  of  Sales,  for amounts owed for
commissions  and  salary  earned  in  previous periods.  During 2003, Mr. Anduri
loaned  the  Company  $7,964  under short-term notes, of which $4,203 was repaid
during  2003.  During  the  year ended December 31, 2004, Mr. Anduri was paid an
additional  $2,289  in  cash and $22,278 in Company common stock, 181,416 shares
and  181,416  warrants  to purchase Company common stock at $0.25 per share, for
amounts  outstanding  under these short-term notes.  Based on calculations using
Black-Scholes,  the  fair value of the warrants issued to Mr. Anduri was $9,454.
This  amount is reflected in interest expense and additional paid-in capital for
the  period  ended  December  31,  2004.


At  a  meeting  of  the  Board  of  Directors held on March 26, 2003, H. Douglas
Saathoff  was  named  Chief  Executive Officer of the Company.  During 2003, Mr.
Saathoff loaned the Company $54,100 under short-term notes, of which $45,100 was
repaid  by  December  31,  2003.  The  remaining  $9,000  was  repaid  in  2004.

At  a  meeting  of  the  Board  of  Directors  held on March 26, 2003, the Board
accepted  the  resignation  of  Steve  Jacobson  as chief executive officer, but
remained as an employee of the Company. On July 9, 2003, Steve Jacobson resigned
as  a  member  of  the  Company's  board of directors. On September 8, 2003, the
Company  entered  into  a  separation agreement with Steve Jacobson under which,
among  other  things,  he  agreed to a) resign as an employee of the Company; b)
return  545,454  shares  of  stock  held by him to the Company in payment of the
$118,629  he owed the Company as of that date; and c) transfer voting rights for
shares owned or held in trust by him to Myron Anduri, an employee of the Company
for  five years. Under the agreement, the Company agreed to issue Steve Jacobson
450,000  options  to  purchase shares of the Company's common stock at $0.22 per
share,  with  such options vesting over a three-year period at a rate of 150,000
shares  per  year.  As  a  result  of  the  transaction, the Company recorded an
additional $39,933 in compensation expense to Steve Jacobson for amounts owed by
him  to the Company upon his resignation. The Company retired the 545,454 shares
returned  to  the  Company  under  the  agreement.

During  2004, the Company entered into an agreement with Steve Jacobson in which
it  allowed  him  to  transfer  up  to 600,000 shares of his stock, which he was
contractually  restricted from selling under his separation agreement until June
2005, to various consultants who had agreed to perform services for the Company.
As  of  December  31,  2004,  200,000  of these shares had been distributed to a
consultant  and the Company recognized $20,000 in consulting expenses related to
this  transaction.  The  remaining  400,000 shares were not distributed, and are
not  included in the issued and outstanding shares of the Company as of December
31,  2004.  As  part  of  the  agreement,  the  Company  agreed  to  replace Mr.
Jacobson's  600,000  shares  with  730,000  shares  of  stock  that would not be
eligible  for  resale  until  November  2005.  The  Company  recorded $13,000 in
consulting  expense  associated  with  this agreement.  In addition, the Company
amended  Mr.  Jacobson's separation agreement to allow him to sell 50,000 shares
of  common  stock  in  each  of  the  months of March, April, May and June 2005.

On December 19, 2003 the Company entered into a settlement and release agreement
with  a  former  director,  Herb  Jacobson,  and  his  wife.  Under terms of the
agreement,  Mr.  &  Mrs.  Jacobson and the Company agreed to dismiss any and all
claims  against each other in return for, among other things, payment of a total
of  $25,000  over  a  four-month  period  from the Company to Mr. Jacobson.  The
Company  paid  this  amount  during  2003  and  2004.  In addition, Mr. and Mrs.
Jacobson,  along with their son Steven Jacobson, agreed to refrain from selling,
transferring,  conveying  or  otherwise  disposing  of  their  remaining  share
ownership  for a period of eighteen months subsequent to selling an aggregate of
850,000  shares.  As  a  result of the agreement, the Company recorded a gain of
$23,912  due  to a reduction in the amount previously recorded by the Company as
owed  to  Mr.  Jacobson.

During  the  year  ended December 31, 2004, the Company also borrowed and repaid
approximately  $25,000  from  a  company  in  which  its  Chairman is a partner.

In  August  2004,  in  an  effort  to  improve its working capital position, the
Company  issued  558,007  common  shares and warrants to purchase 558,007 common
shares  at  $0.20  per  share  to  an  individual  and a company in exchange for
approximately  $88,700  in  notes payable plus accrued interest owed them by the
Company.  The individual is a business partner of the Company's Chairman and the
company  is  affiliated  with  the  father  of  the Company's Chairman. Based on
calculations  using  Black-Scholes, the fair value of the warrants issued to the
two  parties  was  $29,079.  This  amount  is  reflected in interest expense and
additional  paid-in  capital  for  the  period  ended  December  31,  2004.

During  the  twelve  months  ended  December 31, 2004, a business partner of the
Company's  Chairman  billed  the  Company  $20,000  for  consulting  services.

11.     Stock  options

Upon  the  reverse  acquisition of Peregrine, Inc. on February 1, 2002, the 2000
Performance  Stock Option Plan (the "Plan") of PCT was automatically terminated.
As  such,  no options were outstanding as of December 31, 2002. This option plan
was  subsequently  adopted by the Company's Board effective January 1, 2003. The
Company  may issue a maximum of 4,000,000 shares of common stock under the Plan.
The  Plan  provides for awards in the form of options, including incentive stock
options  and  non-qualified stock options.  Under the plan, options granted vest
at  a  rate  set  by  the board of directors or committee appointed by the board
directors,  options are exercisable up to 10 years from the date of grant at not
less  than  100%  of the fair value of the common stock on the date of grant. If
the  option  holder  owns 10% or more of the Company's common stock, the options
are  exercisable  at not less than 110% of the fair value of the common stock on
the date of grant. At the Company's Annual Shareholders meeting held in November
2003,  the  shareholders  approved  a  name change for the plan to the Nighthawk
Systems, Inc. 2003 Stock Option Plan and increased the number of shares eligible
for  distribution  under  the  plan  to  5,000,000.

During  2003,  the  Company granted options to purchase 375,000 shares of common
stock of the Company to non-employees, 325,000 of which vested immediately.  The
remaining  50,000  vest  over a three-year period.  In accordance with SFAS 123,
the Company recognized approximately $6,800 in expense related to the portion of
the  options  vesting  during 2003.  A total of 1,935,000 options were issued to
employees  during  2003,  all  of  which vest in thirds on the first, second and
third  anniversary  dates of their issue.  During 2004, 1,000,000 options, which
vested  immediately,  were granted to the Directors of the Company.  Also during
2004,  630,000  options  were  granted  for  consulting  services,  which vested
immediately.  The Company recognized $26,460 in expenses related to the issuance
of  the  options  issued  for  consulting  services.

The  following summarizes the stock option activity for the years ended December
31,  2004  and  2003:

<TABLE>
<CAPTION>



<S>                                         <C>        <C>
                                                      WEIGHTED
                                                       AVERAGE
                                                      EXERCISE
                                            OPTIONS     PRICE
                                            ---------  ------
             2003
Outstanding at beginning of year . . . . .          -  $    -
Options granted. . . . . . . . . . . . . .  2,310,000    0.22
Options exercised. . . . . . . . . . . . .          -       -
Options forfeited or expired . . . . . . .     25,000    0.22
                                            ---------  ------
Outstanding at end of year . . . . . . . .  2,285,000    0.22
                                            =========  ======

Options exercisable at year end. . . . . .    325,000    0.22
                                            =========  ======

Options available for grant at end of year  2,715,000
                                            =========

             2004
Outstanding at beginning of year . . . . .  2,285,000  $ 0.22
Options granted. . . . . . . . . . . . . .  1,630,000    0.11
Options exercised. . . . . . . . . . . . .    630,000    0.18
Options forfeited or expired . . . . . . .    250,000    0.22
                                            ---------  ------

Outstanding at end of year . . . . . . . .  3,035,000  $ 0.17
                                            =========  ======

Options exercisable at year end. . . . . .  1,995,000  $ 0.14
                                            =========  ======

Options available for grant at end of year  1,335,000
                                            =========
</TABLE>

Options  outstanding at December 31, 2004 which have not yet vested will vest on
the  second  and  third  anniversary dates of their issuance as follows: 370,000
shares  in  January  2005  and 370,000 shares in January 2006; 150,000 shares in
September  2005  and  150,000  shares  in  September  2006.





SIGNATURES

Pursuant  to  the requirements of Section 13 or 15(d) of the Securities Exchange
Act  of  1934,  as amended, the Registrant has duly caused this Annual Report on
Form  10-KSB  to  be  signed  on  its  behalf by the undersigned, thereunto duly
authorized.

Date:  April  15,  2005     NIGHTHAWK  SYSTEMS,  INC.

        By:  /s/  H.  DOUGLAS  SAATHOFF
        H.  Douglas  Saathoff,
        Chief  Executive  Officer

        By:  /s/  DANIEL  P.  McREDMOND
        Daniel  P.  McRedmond
        Principal  Accounting  and  Financial  Officer


POWER  OF  ATTORNEY

KNOW  ALL  PERSONS  BY  THESE PRESENTS, that each person whose signature appears
below  constitutes  and  appoints  H.  Douglas  Saathoff  his  true  and  lawful
attorney-in-fact  and agent, with full power of substitution and resubstitution,
to  sign any and all amendments to this Annual Report on Form 10-KSB and to file
the same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and  agent  full  power  and  authority to do and perform each and every act and
thing  requisite  and  necessary to be done in connection therewith, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming  all  that  said  attorney-in-fact  and  agent,  or his substitute or
substitutes,  or  any  of  them,  shall do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this  report  has  been  signed  below by the following persons on behalf of the
Registrant  and  in  the  capacities  and  on  the  dates  indicated:

Signature               Title            Date
---------               -----            ----
/s/  Max  Polinsky     Director     April  15,  2005
------------------
Max  Polinsky

/s/  Patrick  Gorman   Director     April  15,  2005
--------------------
Patrick  Gorman