FILED PURSUANT TO RULE 424(b)(5)
                                                             FILE NO. 333-120179

                                   PROSPECTUS
                             NIGHTHAWK SYSTEMS, INC.
                     OFFERING UP TO 52,864,500 COMMON SHARES


This  prospectus  relates  to the resale of up to 2,614,500 shares of our common
stock pursuant to a Special Warrant sale to individual accredited investors, the
resale  of  up  to  48,250,000  shares  of  our common stock by Dutchess Private
Equities  Fund,  II,  LP  pursuant  to  a  Debenture Agreement, a warrant and an
Investment  Agreement,  and  the  resale of up to 2,000,000 shares of our common
stock  by  U.S.  Euro  Securities, Inc. pursuant to the Investment Agreement. We
have  received  cash  proceeds  from  the  sale  of the Special Warrants and the
issuance  of  the  convertible  debentures  under  the  Debenture Agreement with
Dutchess,  and  expect  to receive cash proceeds from any "puts" pursuant to the
Investment  Agreement  we  have entered into with Dutchess. All costs associated
with  this  registration  will  be  borne  by  us.

Dutchess,  First  Associates  and U.S. Euro Securities are "underwriters" within
the  meaning  of  the Securities Act of 1933, as amended, in connection with the
resale  of  our common stock under the Investment Agreements. In connection with
the  Debenture  Agreement, U.S. Euro Securities received a cash commission of 5%
and  100,000  shares  of  our  restricted  common  stock. In connection with the
Investment  Agreement, U.S. Euro Securities will receive a cash commission of 5%
of cash provided under the agreement and 2,000,000 shares of common stock, which
are  being  registered  under  this  prospectus.  In connection with the Special
Warrants,  First Associates received a cash commission of 8%, or $18,592, of the
gross  proceeds from the sale of the Special Warrants and 12.5% of the amount of
Special  Warrants  sold  for  a  total  number  of  Special  Warrants  for First
Associates  of  145,250.

The  shares  of  common  stock  are  being  offered  for  sale  by  the  selling
stockholders  at prices established on the Over-the-Counter Bulletin Board or in
negotiated  transactions  during  the term of this offering. Our common stock is
quoted  on  the  Over-the-Counter  Bulletin  Board  under the symbol NIHK.OB. On
September 21, 2005, the last reported closing sale price of our common stock was
$0.09  per  share.

                 THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK.
     YOU SHOULD PURCHASE SECURITIES ONLY IF YOU CAN AFFORD A COMPLETE LOSS.
                     SEE "RISK FACTORS" BEGINNING ON PAGE 6.

You  should  rely  only  on  the  information provided in this prospectus or any
supplement to this prospectus and information incorporated by reference. We have
not  authorized  anyone  else to provide you with different information. Neither
the  delivery  of  this  prospectus nor any distribution of the shares of common
stock  pursuant  to  this  prospectus shall, under any circumstances, create any
implication  that there has been no change in our affairs since the date of this
prospectus.

Neither  the  Securities  and  Exchange  Commission  nor  any  state  securities
regulator  has  approved  or  disapproved of these securities or passed upon the
accuracy  or  adequacy  of this prospectus. It is a criminal offense to make any
representation  to  the  contrary.

                The date of this prospectus is September 23, 2005.

                         TABLE  OF  CONTENTS

PROSPECTUS  SUMMARY                                                           1
RISK  FACTORS                                                                 5
USE  OF  PROCEEDS                                                             8
DETERMINATION  OF  OFFERING  PRICE                                            9
DILUTION                                                                      9
SELLING  SECURITY  HOLDERS                                                   10
PLAN  OF  DISTRIBUTION                                                       11
LEGAL  PROCEEDINGS                                                           13
DIRECTORS,  EXECUTIVE  OFFICERS,  PROMOTERS  AND  CONTROL  PERSONS           13
SECURITY  OWNERSHIP  OF  CERTAIN  BENEFICIAL  OWNERS  AND  MANAGEMENT        14
INTEREST  OF  NAMED  EXPERTS  AND  COUNSEL                                   16
CAUTIONARY  STATEMENT  CONCERNING  FORWARD-LOOKING  STATEMENTS               17
DESCRIPTION  OF  BUSINESS                                                    17
MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OR  PLAN  OF  OPERATION             20
DESCRIPTION  OF  PROPERTY                                                    29
CERTAIN  RELATIONSHIPS  AND  RELATED  TRANSACTIONS                           30
MARKET  FOR  COMMON  EQUITY  AND  RELATED  STOCKHOLDER  MATTERS              30
EXECUTIVE  COMPENSATION                                                      30
FINANCIAL  STATEMENTS                                               F-1 -  F-25

PROSPECTUS  SUMMARY

The following information is a summary of the prospectus and it does not contain
all of the information you should consider before making an investment decision.
You  should  read  the  entire  prospectus  carefully,  including  the financial
statements  and  the  notes  relating  to  the  financial  statements.

OUR  COMPANY

We  design  and  manufacture  intelligent  remote  monitoring  and power control
products  that  are  easy to use, inexpensive and can remotely control virtually
any  device  from any location. Our products 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.  Currently,  most  commercial  control
applications  utilize  telephone  lines,  which  tether  the  system to a single
location  and  have  associated  installation  and monthly charges. Our wireless
products  eliminate  installation costs and monthly charges for telephone lines.
This  wireless  application  also  allows  businesses  and consumers to remotely
control  unmanned or remote locations that may operate on traditional electrical
power,  or  solar  or  battery  generated  power. By utilizing existing wireless
technology,  we  give  our  users the flexibility to move their application from
place  to  place,  without  re-engineering  their  network.

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 signs;
-  Turning  pumps  on  or  off;  and
-  Turn  on  heating  or  cooling  equipment.

Our  proprietary,  wireless  products  are  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 or in
pre-defined  groups for specified time periods with a simple click of a mouse or
by  dialing  a  telephone  number.

                                        1

We  are a publicly traded company, which trades on the Over-the-Counter bulletin
Board  of  the  National  Quotation  Service  under  the ticker symbol "NIHK.OB"

HOW  TO  CONTACT  US

Our  executive  offices  are  located at 10715 Gulfdale, Suite 200, San Antonio,
Texas  78216.  Our  phone  number is 210-341-4811. Our manufacturing facility is
located  at  8300  East  Pacific  Place,  Suite 204, Denver, Colorado 80231. Our
website  address  is  www.nighthawksystems.com.  Information  contained  on  our
website  does  not constitute part of this report and our website address should
not  be  used  as  a  hyperlink  to  our  website.

SALES  BY  OUR  SELLING  STOCKHOLDERS

This  prospectus  relates  to the resale of up to 2,614,500 shares of our common
stock pursuant to a Special Warrant sale to individual accredited investors, the
resale  of up to 48,250,000 shares of our common stock by Dutchess pursuant to a
Debenture Agreement, a warrant and an Investment Agreement, and the resale of up
to  2,000,000 shares of our common stock by U.S. Euro Securities pursuant to the
Investment  Agreement.

The  table  below  sets forth the shares that we are registering pursuant to the
Registration  Statement  to  which  this  prospectus  is  a  part:




                                                 

Stockholder                                         Number  of  Shares
---------------------------------------------       ------------------

Dutchess  Private  Equities  Fund  II,  LP          48,250,000  shares  (1)
U.S.  Euro  Securities                               2,000,000  shares
Christopher  Vorberg                                 1,100,000  shares
Rod  Saville                                           600,000  shares
Douglas  Hunter                                        500,000  shares
Fraser  Hindson                                        124,000  shares
First  Associates                                      290,500  shares  (2)

Total  common  stock  being  registered             52,864,500  shares

(1)  For the purpose of determining the number of shares subject to registration
with  the Securities and Exchange Commission, we have assumed that we will issue
not  more than 40,000,000 shares pursuant to the exercise of our put right under
the  Investment  Agreement,  although the number of shares that we will actually
issue  pursuant  to  that  put  right  may be more than or less than 40,000,000,
depending  on the trading price of our common stock. We currently have no intent
to  exercise the put right in a manner that would result in our issuance of more
than 40,000,000 shares, but if we were to exercise the put right in that manner,
we  would  be  required  to  file  a  subsequent registration statement with the
Securities  and  Exchange  Commission  and for that registration statement to be
deemed  effective prior to the issuance of any such additional shares. Under our
Debenture  Agreement  with Dutchess, we are also required to register for resale
four  times  the  number  of shares (2,000,000) that the $250,000 in convertible
debentures  would  be  convertible  into based upon the conversion price when we
signed  the  Debenture  Agreement  of  $0.125  per  share.  Therefore,  we  are
registering  8,000,000  shares of our common stock for resale in connection with
the  future  conversion of the convertible debentures with Dutchess. We are also
registering  250,000  shares of our common stock pursuant to a warrant issued to
Dutchess  which  gives  them  the right to purchase 250,000 shares of our common
stock  for  $0.125  per  share  for  a  period  of  five  years.

(2)  Our  Special  Warrant  offering  included an option for First Associates to
purchase  an  additional  12.5%,  or  145,250,  of  the  total number of Special
Warrants sold.  Each Special Warrant is convertible into one share of our common
stock  and  one  common stock purchase warrant to purchase a share of our common
stock  for  $0.30  per  share.  We  sold  1,162,000  Special  Warrants and First
Associates  has  not  exercised  its  right  to  purchase  any Special Warrants.



                                        2

THE  OFFERING

Common  stock  offered              52,864,500  shares

Use  of  proceeds                   We  will not  receive  any proceeds from the
                                    sale  by  the  selling  stockholders  of our
                                    common  stock.  We expect  to  receive  cash
                                    proceeds   from   any  "puts"  pursuant  to
                                    the  Investment  Agreement  we have  entered
                                    into  with   Dutchess.   The  proceeds  from
                                    our  exercise of  the put  right pursuant to
                                    the  Investment   Agreement   will  be  used
                                    for  working  capital  and general corporate
                                    expenses,  expansion of internal operations,
                                    and  potential acquisition  costs. See  "Use
                                    of  Proceeds."

Symbol  for  our  common  stock     Our  common  stock  trades  on  the
                                    OTCBB  Market  under  the  symbol  "NIHK.OB"






                         OUR  CAPITAL  STRUCTURE  AND  SHARES  ELIGIBLE  FOR  FUTURE  SALE


                                                                                            
Shares of common stock outstanding as of November 18, 2004                                      30,622,518(1)

Shares of common stock potentially issuable upon
exercise of the put right to Dutchess Private Equities Fund II                                   40,000,000

Shares of common stock issuable upon conversion of Convertible Debentures                         8,000,000
by Dutchess Private Equities Fund II

Shares of common stock issuable upon exercise of a warrant
By Dutchess Private Equities Fund II                                                                250,000

Shares of common stock issuable upon exercise of Special Warrants                                 2,614,500
                                                                                                 ----------

Total                                                                                            81,487,018

(1)  Assumes  no:

 -Exercise  of  vested  options  to  purchase  1,280,534  shares of common stock
  outstanding  as of November 18, 2004 under  the Nighthawk  Systems, Inc.  2003
  Stock Option  Plan.


 - Conversion of $150,000 convertible note into 750,000 shares as of November
   18, 2004.


-    Exercise  of  outstanding  vested  warrants  to  purchase  common  stock at
     November  18,  2004,  as  follows:
                                        

Holder             Shares of Common Stock  Exercise Price  Expiration  Date
-----------------  ----------------------  --------------  ---------------
Private  Placement                  75,000             .20       11/05/2004
-----------------  ----------------------  --------------  ---------------
Private  Placement                 150,000             .20       11/06/2004
-----------------  ----------------------  --------------  ---------------
Private  Placement               2,857,143             .07       03/31/2005
-----------------  ----------------------  --------------  ---------------
Private  Placement                 150,000             .25       04/01/2005
-----------------  ----------------------  --------------  ---------------
Private  Placement                  25,000             .25       06/06/2005
-----------------  ----------------------  --------------  ---------------
Private  Placement                 300,000             .25       11/07/2005
-----------------  ----------------------  --------------  ---------------
Private  Placement                 600,000             .25       12/01/2005
-----------------  ----------------------  --------------  ---------------
Private  Placement                 333,333             .25       01/16/2006
-----------------  ----------------------  --------------  ---------------
Private  Placement                  40,000             .25       01/18/2006
-----------------  ----------------------  --------------  ---------------
Private  Placement                 100,000             .25       01/19/2006
-----------------  ----------------------  --------------  ---------------
Private  Placement                  40,000             .25       01/22/2006
-----------------  ----------------------  --------------  ---------------
Private  Placement                  60,000             .25       02/18/2006
-----------------  ----------------------  --------------  ---------------
Private  Placement                 200,000             .25       02/23/2006
-----------------  ----------------------  --------------  ---------------
Private  Placement                  55,000             .25       03/04/2006
-----------------  ----------------------  --------------  ---------------
Private  Placement                  30,000             .25       03/25/2006
-----------------  ----------------------  --------------  ---------------
Note  Conversion                   375,000             .25       06/30/2006
-----------------  ----------------------  --------------  ---------------
Note  Conversion                   739,423             .25       08/23/2006
-----------------  ----------------------  --------------  ---------------
Total                           6,129,899
-----------------  ----------------------


                                        3

THE  SPECIAL  WARRANT  OFFERING
-------------------------------

We  completed  our  Special  Warrant  Offering on June 30, 2004. This prospectus
relates  to  the resale of up to 2,614,500 shares of our common stock by selling
shareholders  who  may  acquire  the shares pursuant to the sale of Common Stock
Units.  Under the terms of those sales, we sold Special Warrants for $0.20. Each
Special  Warrant  is  convertible  into a single share of our common stock and a
purchase  warrant  entitling  the  holder to purchase an additional share of our
common stock for $0.30. The Special Warrants may be exercised at any time before
the  expiration  date,  which  is  defined  as  the  earlier  of:

(a)  five  business  days  following  the  date  on which we receive the last of
(i)  the  SEC declares this registration statement effective, and (ii) the final
prospectus  is  filed  with  the  SEC  and

(b)  August  10,  2005

THE  DEBENTURE  OFFERING
------------------------

This  prospectus  also  relates  to  the resale of up to 8,250,000 shares of our
common  stock  by  Dutchess,  who  will  become  a  stockholder  pursuant to our
Debenture  Agreement.  Under the Debenture Agreement, Dutchess paid us $250,000.
Dutchess  also  received  a  common  stock  purchase  warrant  entitling them to
purchase  up  to  250,000 shares of common stock at a price of $0.125 per share.
The  warrant  expires  on  August  10,  2009.

We will pay an 8%annual coupon on the unpaid principal amount of the debentures.
Prior  to  the SEC declaring the registration statement effective for the shares
underlying  the debentures, we will make mandatory prepaid payments, in advance,
on  the  coupon  in  the amount of one-twelfth of the annual payment, per month,
pursuant  to each tranche. These coupon payments began on August 15th, 2004, and
all  subsequent  coupon  payments  are due on the fifteenth calendar day of each
month  thereafter.

When  the SEC has declared the Registration Statement effective, we must pay the
coupon  at the time of each conversion until the principal amount hereof is paid
in  full  or  has been converted into shares of our registered common stock. The
interest  paid in common stock, shall be delivered to Dutchess, or per Dutchess'
instructions,  within  three  business  days  of  the  date  of  conversion. The
debentures  are  subject  to automatic conversion at the end of three years from
the  date  of  issuance  at  which  time  all  debentures  outstanding  will  be
automatically  converted.

THE  INVESTMENT  AGREEMENT
--------------------------

This  prospectus  also  relates  to the resale of up to 40,000,000 shares of our
common  stock  by  Dutchess,  who  will  become  a  stockholder  pursuant to our
Investment Agreement. Under the Investment Agreement, we are allowed to "put" to
Dutchess  up  to  $10,000,000.  We  shall not be entitled to submit a put notice
until  after  the  previous  put  has been completed. The purchase price for the
common  stock  identified  in the put notice shall be equal to 95% of the lowest
closing  best  bid price of the common stock during the five consecutive trading
day  period immediately following the date of our notice to them of our election
to  put  shares.

As  part of the Investment Agreement with Dutchess, we paid a commission to U.S.
Euro  Securities, of 2,000,000 shares of our common stock. These shares are also
being  registered  under  this  prospectus.

We  can  only put shares to Dutchess under the Investment Agreement when we meet
the  following  conditions:

- A registration statement has been declared effective and remains effective for
the  resale  of  the  common  stock  subject  to  the  Equity  Line  of  Credit;

                                        4

-  Our  common  stock  has  not been suspended from trading for a period of five
consecutive  trading  days  and we have not have been notified of any pending or
threatened  proceeding  or  other  action to delist or suspend our common stock;

-  We  have complied with our obligations under the Investment Agreement and the
Registration  Rights  Agreement;

-  No  injunction has been issued and remains in force, or action commenced by a
governmental  authority  which has not been stayed or abandoned, prohibiting the
purchase  or  the  issuance  of  our  common  stock;  or

-  The  issuance  of  the common stock will not violate any shareholder approval
requirements  of  any  exchange  or  market  where  our  securities  are traded.

The  Investment Agreement will terminate when any of the following events occur:

-  Dutchess  Private  Equities Fund has purchased an aggregate of $10,000,000 of
our  common  stock;  or

-  36  months  after  the  SEC  declares  this registration statement effective.

                                  RISK FACTORS

An  investment  in  our  common stock involves a high degree of risk. You should
carefully  consider  the  following  risk factors, other information included in
this  prospectus  and information in our periodic reports filed with the SEC. If
any  of the following risks actually occur, our business, financial condition or
results  of  operations  could be materially and adversely affected, and you may
lose  some  or  all  of  your  investment.

                          RISKS RELATED TO OUR BUSINESS

WE  HAVE A HISTORY OF LOSSES SINCE INCEPTION AND IF WE CONTINUE TO INCUR LOSSES,
THE  PRICE  OF  OUR  SHARES  CAN  BE  EXPECTED  TO  FALL.

We  expect  to  continue  to incur losses in the foreseeable future as we expend
substantial  resources  on  sales, marketing and research and development of our
products.  From  the effective date of our reverse merger in February 2002 up to
the  end  of the second quarter of fiscal year 2005, we have incurred losses. If
we continue to incur losses, the price of our shares can be expected to fall. We
may  continue to incur substantial and continuing net losses beyond the next six
months.  We  may  never  generate  substantial  revenues or reach profitability.

OUR INDEPENDENT ACCOUNTANTS HAVE ISSUED A GOING CONCERN OPINION AND IF WE CANNOT
OBTAIN  ADDITIONAL  FINANCING,  WE  MAY  HAVE  TO  CURTAIL  OPERATIONS  AND  MAY
ULTIMATELY  CEASE  TO  EXIST.

Our auditors, GHP Horwath, PC, included an explanatory paragraph in their Report
of  Independent  Registered  Public  Accounting  Firm  on  our December 31, 2004
consolidated  financial  statements  indicating  that there is substantial doubt
about  our  ability  to  continue as a going concern. We will require additional
funds in the future, and any independent auditors report on our future financial
statements may include a similar explanatory paragraph if we are unable to raise
sufficient  funds  or generate sufficient cash from operations to cover the cost
of  our  operations.  The  existence  of the explanatory paragraph may adversely
affect  our  relationship  with  prospective  customers, suppliers and potential
investors,  and  therefore could have a material adverse effect on our business,
financial  condition  and  results  of  operations.

OUR  CONTINUED  EXISTENCE  IS  DEPENDENT  UPON  OUR  ABILITY TO RAISE ADDITIONAL
CAPITAL,  WHICH  MAY  NOT  BE  READILY  AVAILABLE.

There  is  currently  limited  experience upon which to assume that our business
will  prove  financially profitable or generate more than nominal revenues. From
inception,  we have generated funds primarily through the sale of securities. We
may  not  be  able to continue to sell additional securities. We expect to raise
funds in the future through sales of our debt or equity securities until a time,
if  ever,  that  we are able to operate profitably. We may not be able to obtain
funds  in  this  manner  or on terms that are beneficial to us. Our inability to
obtain  needed  funding can be expected to have a material adverse effect on our
operations  and  our  ability  to  achieve profitability. If we fail to generate
increased  revenues  or fail to sell additional securities you may lose all or a
substantial  portion  of  your  investment.

WE  DEPEND ON CERTAIN CUSTOMERS AND IF WE LOSE ONE OF OUR SIGNIFICANT CUSTOMERS,
OUR  REVENUES  MAY  SUBSTANTIALLY  DECREASE  AND  OUR  BUSINESS  MAY  FAIL.

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 customers represented the largest
percentage of sales in both 2004 and 2003. If either of these two customers stop
generating  orders  for  us  altogether,  and we are unable to obtain comparable
orders  from other customers, our revenues would decrease and our business could
fail.

                                        5

OUR  DEPENDENCE  ON  PROPRIETARY TECHNOLOGY AND A LIMITED ABILITY TO PROTECT OUR
INTELLECTUAL PROPERTY MAY ADVERSELY AFFECT OUR ABILITY TO COMPETE IN THE MARKET.

We  currently  have  two patent applications pending. We plan to file additional
patent  applications for future products or services, although we may not do so,
or  they  might not be approved. Our success is dependent in part on our ability
to obtain and maintain patent protection for our products, maintain trade secret
protections  and  operate without infringing the patent or proprietary rights of
others.  A  successful  challenge  to  our  ownership  of  our  technology could
materially  damage  our  business prospects. Our patent pending applications may
not be granted to us. We may not be able to develop additional products that are
patentable.  Any  patents  issued  to  us may not provide us with any commercial
advantage.  Any  of our products may infringe on the patent rights of others. If
any  of  our  products are found to infringe on any other patents, we may not be
able  to  obtain licenses to continue and manufacture and license these products
or we may have to pay damages as a result of an infringement. Even if our patent
applications  are  approved,  the  commercial application of the product may not
result  in  any  profits  to  us.

WE  DEPEND ON KEY PERSONNEL AND OUR BUSINESS COULD BE ADVERSELY AFFECTED IF THEY
WERE  TO  DEPART.

Our  success depends to a significant degree upon the continued contributions of
our  key  management,  marketing,  service  and  related product development and
operational  personnel.  Our business requires a highly skilled management team.
The  technical  nature  of  our  products requires an engineer proficient in the
provision of wireless systems and controlling electrical switches. Additionally,
we require a person with the understanding of the potential applications for our
products to a multitude of industries ranging from the electric utility industry
to  the  information  technology  industry.  Two  employees, Eric Berg and Myron
Anduri,  are  particularly  valuable  to  us  because  they  possess specialized
knowledge  about our company and operations and both have specialized skills for
our  operations  making  them very difficult to replace. Doug Saathoff currently
serves as our Chief Executive Officer, and has experience in raising capital for
small  cap  companies  and  providing  financial  oversight that is vital to our
ongoing  success.  We  do  not currently have employment agreements with Messrs.
Anduri,  Berg  and  Saathoff  that  prohibit  them  from  competing with us upon
termination  of their employment. Our business may not be successful if, for any
reason,  any  of  these  officers  ceased  to  be  active  in  our  management.

THE  LIMITED  PUBLIC MARKET FOR OUR SHARES MAY MAKE IT DIFFICULT TO TRANSFER OUR
SHARES.

Although  our  stock  is traded on the over-the-counter bulletin board, there is
limited  trading in our stock and thus no established market for our securities.
Holders  of  our  stock may find it difficult to trade their shares until a time
that  there  is  a  more  established  market  for  our  securities.

WE  DO  NOT ANTICIPATE DECLARING ANY DIVIDENDS IN THE FORESEEABLE FUTURE AND MAY
NEVER  DO  SO.

We  anticipate  that,  following  the  completion  of  this offering and for the
foreseeable  future,  earnings,  if any, will be retained for the development of
our  business and will not be distributed to shareholders as cash dividends. The
declaration  and  payment  of  cash dividends, if any, by us at some future time
will  depend  upon  our  results  of  operations,  financial  condition,  cash
requirements,  future  prospects,  limitations  imposed  by credit agreements or
senior  securities  and  any  other  factors  deemed  relevant  by  our Board of
Directors.

                          RISKS RELATED TO OUR INDUSTRY

WELL-FUNDED  COMPETITORS COULD ENTER THE MARKET WITH SIMILAR PRODUCTS AND, IF WE
CAN  NOT  EFFECTIVELY  COMPETE,  OUR  BUSINESS  MAY  FAIL.

To  our  knowledge, we are the only company to develop and market an easy to use
"plug  and  play"  intelligent  wireless  remote  control  device. While we have
extensive  knowledge  of  utilizing  a  paging network to provide remote control
services,  we  are  not the only company with this knowledge. If another company
enters  the  market,  we  may  have  to  lower our prices to compete which could
adversely  affect  our  revenues.  We  may  also  have  to increase our costs to
differentiate  our  products.  Even  if we lower our prices or differentiate our
products,  we  may  not  be  able  to compete effectively. If we can not compete
effectively,  our  business  may  fail.

IF THE COSTS OF CELLULAR SERVICE DECREASE, WE MAY HAVE TO ADAPT OUR PRODUCTS FOR
CELLULAR  TECHNOLOGY  WHICH  WOULD  INCREASE  OUR COSTS AND ADVERSELY AFFECT OUR
GROSS  PROFITS.

While  paging is a very low cost telecommunications medium that enjoys extensive
geographic  coverage  both in the United States and abroad, cellular service now
has  vast  geographic reach as well. Moreover, while the costs of using cellular
service  for  remote  control  currently  are  significantly higher than paging,
cellular  costs  may  eventually  come  down  to  an affordable price for remote
control.  In this case, to remain competitive, we would have to expend resources
to  adapt our products for cellular technology, or develop or acquire a cellular
product  of  our  own.

                                        6

WE  ARE  DEPENDENT  UPON THIRD-PARTY SUPPLIERS FOR PAGING AND SATELLITE SERVICES
AND  MAY  BE  UNABLE  TO  FIND  ALTERNATIVE  SUPPLIERS.

We  rely  on  other  companies  to  supply  key  components  of  our  network
infrastructure, including paging carriers and satellite providers, both of which
are critical to our ability to provide remote control services to our customers.
We  have  only a few long-term agreements governing the supply of many of paging
services  and  are  dependent upon a third party for several of the other paging
services  that serve our customers. Additionally, we have only one contract with
a  satellite carrier. If we were unable to continue to obtain these services, at
a  commercially  reasonable  cost,  it  would  adversely  affect  our  business,
financial  condition  and  results  of  operations.


IF  OUR  PRODUCTS  FAIL  TO  GAIN  WIDESPREAD  MARKET ACCEPTANCE, OUR ABILITY TO
GENERATE  SUFFICIENT  REVENUES  OR  PROFIT  MARGINS  WILL  BE  LIMITED.

There  may  not  be  sufficient  demand  for our products to enable us to become
profitable.  We  do  not  know  whether  any  of  our  products  will be sold in
sufficient  numbers  to  provide enough revenues to cover operating expenses. In
addition,  if the electric utility industry develops alternative conservation or
load  control  devices,  it  could  have  an  adverse  effect  on  our  sales.

                         RISKS RELATED TO THIS OFFERING

OUR  STOCK  PRICE  IS  VOLATILE  AND YOU MAY NOT BE ABLE TO SELL YOUR SHARES FOR
HIGHER  THAN  WHAT  YOU  PAID.

Our  common  stock  is  quoted  on  the "OTC - Bulletin Board Service" under the
symbol "NIHK.OB." The market price of our common stock has been and is likely to
continue  to  be highly volatile and subject to wide fluctuations due to various
factors,  many  of which may be beyond our control, including: annual variations
in  operating  results;  announcements  of  technological  innovations  or  new
software,  services  or  products  by  us  or  our  competitors;  and changes in
financial  estimates  and  recommendations  by securities analysts. In addition,
there  have  been large price and volume fluctuations in the stock market, which
have  affected  the  market prices of securities of many technology and services
companies,  often  unrelated  to  the  operating performance of these companies.
These  broad  market  fluctuations,  as  well  as general economic and political
conditions,  may  adversely  affect the market price of our common stock. In the
past,  volatility in the market price of a company's securities has often led to
securities  class action litigation. This litigation could result in substantial
costs  and diversion of our attention and resources, which could have a material
adverse  effect  on  our  business,  financial  condition and operating results.

EXISTING  STOCKHOLDERS  MAY  EXPERIENCE  SIGNIFICANT  DILUTION  FROM THE SALE OF
SECURITIES  PURSUANT  TO  OUR  INVESTMENT  AGREEMENT  WITH  DUTCHESS.
                                       
The sale of shares pursuant to our Investment Agreement with Dutchess may have a
dilutive impact on our stockholders. As a result, our net income per share could
decrease  in  future  periods  and  the  market  price of our common stock could
decline.  In  addition, the lower our stock price is at the time we exercise our
put  option,  the  more shares we will have to issue to Dutchess to draw down on
the  full  equity  line  with  Dutchess.  If our stock price decreases, then our
existing  stockholders  would  experience  greater dilution. At a stock price of
$0.12  or  less,  we  would have to issue all 40,000,000 shares registered under
this  offering  in  order  to  draw  down  on  the  full  equity  line.

DUTCHESS WILL PAY LESS THAN THE THEN-PREVAILING MARKET PRICE OF OUR COMMON STOCK
WHICH  COULD  CAUSE  THE  PRICE  OF  OUR  COMMON  STOCK  TO  DECLINE.

Our  common  stock  to  be  issued  under  our  agreement  with Dutchess will be
purchased  at a 5% discount to the lowest closing best bid price during the five
days  immediately  following  our notice to Dutchess of our election to exercise
our  put  right.  Dutchess  has  a  financial incentive to sell our common stock
immediately  upon  receiving  the  shares  to  realize  the  profit  between the
discounted  price  and the market price. If Dutchess sells our shares, the price
of  our  stock could decrease. If our stock price decreases, Dutchess may have a
further  incentive  to  sell  the  shares of our common stock that it holds. The
discounted  sales under our agreement with Dutchess could cause the price of our
common  stock  to  decline.

                                        7

WE  WILL NEED TO RAISE ADDITIONAL FUNDING AND IF WE ISSUE SUBSTANTIAL AMOUNTS OF
COMMON  STOCK,  CURRENT STOCKHOLDERS MAY EXPERIENCE DILUTION AND OUR STOCK PRICE
MAY  DECREASE.

We  will  need  to raise additional funding to implement our business plan. As a
result,  we may issue substantial amounts of common or preferred stock. Sales of
substantial  amounts  of  common  stock could have a material dilutive effect on
shareholders.  Additionally,  it  may  be  necessary  to offer warrants or other
securities to obtain strategic relationships or to raise additional capital. All
of  these  issuances  will  dilute the holdings of existing shareholders thereby
reducing  the  holder's  percentage ownership and possibly lowering the price of
our  common  stock.

WE  MUST COMPLY WITH PENNY STOCK REGULATIONS THAT COULD EFFECT THE LIQUIDITY AND
PRICE  OF  OUR  STOCK.

The  SEC  has  adopted rules that regulate broker-dealer practices in connection
with  transactions  in  "penny  stocks."  Penny  stocks  generally  are  equity
securities  with a price of less than $5.00, other than securities registered on
certain national securities exchanges or quoted on NASDAQ, provided that current
price and volume information with respect to transactions in these securities is
provided  by  the exchange or system. Prior to a transaction in a penny stock, a
broker-dealer  is  required  to:

-  deliver  a  standardized  risk  disclosure  document  prepared  by  the  SEC;

-  provide  the  customer  with  current  bid and offer quotations for the penny
stock;

-  explain  the  compensation  of  the  broker-dealer and its salesperson in the
transaction;

-  provide  monthly  account  statements  showing the market value of each penny
stock  held  in  the  customer's  account;

-  make  a  special  written  determination  that  the penny stock is a suitable
investment  for  the  purchaser  and  receive  the  purchaser's  executed
acknowledgement  of  the  same;  and

-  provide  a  written  agreement  to  the  transaction.

These requirements may have the effect of reducing the level of trading activity
in  the  secondary  market  for our stock. Because our shares are subject to the
penny  stock  rules,  you  may  find  it  more  difficult  to  sell your shares.

                                USE OF PROCEEDS

Up  to  2,614,500 shares of common stock covered by this prospectus will be sold
by  selling shareholders, who will receive the shares pursuant to the conversion
of  Special  Warrants  and  the exercise of the underlying common stock purchase
warrants.  The  selling  shareholders will receive all of the proceeds from such
sales.  We  received  $232,400  from the sale of 1,162,000 Special Warrants, and
paid  $43,625  in  related  expenses.  First  Associates  received  a warrant to
purchase  145,250 Special Warrants in return for sponsoring the placement of the
Special  Warrants.  We  will receive the proceeds from the exercise price of the
warrant  by  First  Associates  and from the exercise of any of the common stock
purchase  warrants,  if  they  are  exercised. The warrants can be exercised for
$0.30  per  share  of  common  stock  and  expire  two  years from their date of
issuance.  If  First  Associates  converts  their warrant, and all of the common
stock  purchase  warrants  are exercised, we will receive $421,225 in gross cash
proceeds. We do not know if we will receive any proceeds from the warrant issued
to  First  Associates  in  the near future, nor do we expect to receive proceeds
from  the  exercise  of  the common stock purchase warrants at $0.30 in the near
future  because,  as  of  November  18, 2004, the closing price of our stock was
$0.125.

Up  to  8,000,000 shares of common stock covered by this prospectus will be sold
by  Dutchess,  who will receive all of the proceeds from such sales. We received
$250,000  in  proceeds  from  the  sale  of  convertible  debentures.

Up  to 250,000 shares of common stock covered by this prospectus will be sold by
Dutchess,  who  will  receive  the  shares  pursuant to the exercise of warrants
issued by us along with the convertible debentures. Dutchess will receive all of
the  proceeds from such sales. We will receive the proceeds from the exercise of
the warrants. The warrants can be exercised for $0.125 per share of common stock
and  expire  on  August  10, 2009. If all of the warrants are exercised, we will
receive  $31,250  in  proceeds.

Up  to 40,000,000 shares of common stock covered by this prospectus will be sold
by  Dutchess,  who will receive all of the proceeds from such sales. However, we
could  receive  up to $10,000,000 in proceeds from the sale of our common shares
pursuant  to  our  Investment  Agreement  with  Dutchess.

For  illustrative purposes, we have set forth below our intended use of proceeds
for  the range of net proceeds received or expected to be received subsequent to
June  30,  2004.  The  gross  proceeds  shown  below consist of $31,250 from the
Dutchess  warrants,  and  a range of proceeds from the Investment Agreement. The
gross  proceeds  shown  below  do  not include proceeds from the issuance of any
additional  Special  Warrants  at $0.20 or from the exercise of the common stock
warrants underlying the Special Warrants at $0.30, because those prices are well
above  our  recent  closing  stock  prices.  Estimated  expenses of the Offering
include  a  5%  commission  on the proceeds from the Debenture Agreement and the
Investment  Agreement.

                                        8




                                                                                           

                                                 Proceed if 100%   Proceeds if 50%   Proceeds if 25%   Proceeds if 10%
                                                 of Investment     of Investment     of Investment     of Investment
                                                 Agreement         Agreement         Agreement         Agreement
                                      Priority   Sold              Sold              Sold              Sold

 Gross Proceeds                                       $10,031,250        $5,031,250        $2,531,250        $1,031,250
 Estimated expenses of the Offering                       525,000           275,000           150,000            75,000
                                                 ----------------  ----------------  ----------------  ----------------
Net proceeds                                           $9,506,250        $4,756,250        $2,381,250          $956,250
                                                 ================  ================  ================  ================


Working capital and general
corporate expenses                      1st            $3,000,000        $2,500,000        $2,000,000          $900,000
Expansion of internal operations        2nd            $2,000,000        $1,000,000          $381,250           $56,250
Potential acquisition costs(1)          3rd            $4,506,250        $1,256,250                $-                $-
                                                 ----------------  ----------------  ----------------  ----------------
                                                       $9,506,250        $4,756,250        $2,381,250          $956,250
                                                 ================  ================  ================  ================

(1)  From  time to time we evaluate opportunities to make acquisitions of assets or  businesses  that we believe would help us
achieve our goal of profitability, but  we  are  not  currently  planning  any  material  acquisitions.



                                     
Proceeds  of  the  offering  which are not immediately required for the purposes
described  above  will  be  invested  in  United  States  government securities,
short-term  certificates  of  deposit,  money market funds and other high-grade,
short-term  interest-bearing  investments.

                         DETERMINATION OF OFFERING PRICE

The  selling  stockholders  may  sell shares in any manner at the current market
price  or  through  negotiated  transactions  with  any  person  at  any  price.

                                    DILUTION

Our net tangible book value as of June 30, 2004 was ($1,001,870), or ($0.04) per
share  of  common  stock.  Net  tangible  book  value per share is determined by
dividing  our tangible book value (total tangible assets less total liabilities)
by the number of outstanding shares of our common stock. Net tangible book value
as  of  June  30,  2004 is calculated by subtracting our net intangible asset of
$8,658  from  net  total  book  value  (total  assets less total liabilities) of
($993,212). Since this offering is being made solely by the selling stockholders
and none of the proceeds will be paid to us, our net tangible book value will be
unaffected  by  this  offering.  Our  net  tangible book value, however, will be
impacted  by  the common stock to be issued to Dutchess Private Equities Fund II
under  the  Debenture  Agreement and Investment Agreement, and to any additional
purchasers  of  Special  Warrants  and  their  underlying  common stock purchase
warrants. The amount of dilution resulting from share issuances to Dutchess will
be  determined  by  our stock price at or near the time of the conversion of the
debentures  by  Dutchess  or  the put of shares to Dutchess by us. The amount of
dilution  resulting  from share issuances to purchasers of Special Warrants will
depend  on  how  many additional Special Warrants are sold by us and how many of
the  underlying  common  stock  purchase  warrants  are exercised. The following
example  shows  the dilution to new investors assuming i) no additional sales of
Special  Warrants  and  no  exercises  of  the  underlying common stock purchase
warrants;  ii)  The  conversion  of all $250,000 convertible debentures at $0.09
which  is  based on our closing bid price of $0.12 on October 29, 2004; iii) the
exercise  of  250,000 warrants at $0.125 issued with the convertible debentures,
and  iv)  the  issuance  of  100%,  50%, 25% and 10% of the 40,000,000 shares of
common  stock  to Dutchess Private Equities Fund at an assumed offering price of
$0.13  per  share  which  is  based  on the closing price of our common stock on
October  29,  2004  of $0.14 adjusted for the 5% discount at which we will issue
shares  under our agreement with Dutchess Private Equities Fund. The discount is
defined  as  95%  of the lowest closing bid price of our common stock during the
five consecutive trading day period immediately following our notice to Dutchess
Private  Equities  Fund  of  our  election  to  exercise  our  put  rights.

Using  the  above  assumptions,  less  $25,000  of offering expenses and 5% cash
commission,  our  pro  forma net tangible book value as of June 30, 2004 would
have  been  as  follows:

                                        9




                                                                                         

Pro Forma Effects of Dilution from Offering:
Assumed percentage of shares issued                             100%         50%          25%        10%
Number of shares issued (in millions)                           40           20           10          4
Assumed public offering price per share                        $0.13        $0.13        $0.13       $0.13
Stock discount recognized as interest expense                  $363,333     $223,333     $153,333    $111,333
Net tangible book value per share before this offering        ($0.04)      ($0.04)      ($0.04)     ($0.04)
Net tangible book value after this offering                    $3,932,547   $1,545,548   $352,049   ($364,050)
Net tangible book value per share after this offering          $0.06        $0.03        $0.01      ($0.01)
Dilution of net tangible book value per share to new investors $0.12        $0.11        $0.11       $0.9
Increase in net tangible book value per share to existing
shareholders                                                   $0.10        $0.07        $0.05       $0.03


You  should  be  aware  that  there is an inverse relationship between our stock
price  and  the  number of shares to be issued under the Debenture Agreement and
the  Investment  Agreement to Dutchess. That is, as our stock price declines, we
would  be  required  to  issue  a  greater  number of shares under the Debenture
Agreement  for  a  conversion  and  under  the  Investment Agreement for a given
advance.  This  inverse  relationship  is demonstrated by the table below, which
shows the number of shares to be issued under the Debenture Agreement at a price
of  $0.09  per share and the Investment Agreement at a price of $0.13 per share,
and  25%,  50%  and  75%  discounts  to  those  prices.

                                     



                                                          

% discount                0%           25%             50%             75%
Offering price(1)        $0.13        $0.10           $0.07           $0.03
Conversion price(2)      $0.09        $0.07           $0.05           $0.02
No of shares(3)           10,769,231   14,358,974      21,538,462      43,076,923
No of shares(4)           2,777,778    3,703,704       5,555,556       11,111,111
Total outstanding(5)      40,080,697   44,596,366      53,627,705      80,721,722
% outstanding(6)          34%          41%             51%             67%



(1)  Represents  sales  price  under  Investment  Agreement.

(2)  Represents  conversion  price  under  Debenture  Agreement.

(3)  Represents  the number of shares of common stock to be issued at the prices
set  forth  in  the  table  to generate $1.4 million in gross proceeds under the
Investment  Agreement.

(4)  Represents  the number of shares of common stock to be issued at the prices
set  forth  in  the table upon conversion of $250,000 in convertible debentures.

(5)  Represents the total number of shares of common stock outstanding after the
issuance of the shares from (3) and (4) above, assuming no issuance of any other
shares  of  common  stock.

(6)  Represents  the  shares of common stock to be issued as a percentage of the
total  number  shares  of  common  stock  outstanding  (assuming  no exercise or
conversion  of  any  options,  warrants  or  other  convertible  securities).



                            SELLING SECURITY HOLDERS

Based  upon  information  available to us as of November 18, 2004, the following
table  sets  forth  the  names of the selling stockholders, the number of shares
owned,  the  number  of  shares registered by this prospectus and the number and
percent  of  outstanding shares that the selling stockholders will own after the
sale  of  the  registered  shares,  assuming  all  of  the  shares are sold. The
information  provided  in the table and discussions below has been obtained from
the selling stockholders. The selling stockholders may have sold, transferred or
otherwise  disposed  of,  or  may sell, transfer or otherwise dispose of, at any
time  or from time to time since the date on which they provided the information
regarding  the  shares  beneficially  owned,  all  or a portion of the shares of
common  stock  beneficially  owned  in transactions exempt from the registration
requirements of the Securities Act of 1933. As used in this prospectus, "selling
stockholder"  includes  donees,  pledgees,  transferees  or  other
successors-in-interest  selling  shares  received  from  the  named  selling
stockholders as a gift, pledge, distribution or other non-sale related transfer.
Beneficial  ownership is determined in accordance with Rule 13d-3(d) promulgated
by  the  Commission  under the Securities Exchange Act of 1934. Unless otherwise
noted,  each  person  or  group  identified possesses sole voting and investment
power  with  respect  to  the  shares,  subject to community property laws where
applicable.

                                     10




                                                                                                                  

                                                                                                                       Percentage
                                                                                                                         Owned
                    Ownership Before Offering         Shares Being Offered        Shares after the Offering (1)        After the
                                                                                                                      Offering(2)
                  ----------------------------       -----------------------     -----------------------------       --------------
Dutchess Private Equities
Fund II, LP  (3)                            0                       48,250,000                              0                    0%
312 Stuart St., Third Floor
Boston, MA 02116

U.S. Euro Securities                2,100,000                        2,000,000                        100,000                     *
330 Washington Blvd,, Ste 706
Marina del Rey, CA 90292 (5)

Christopher Vorberg                 1,420,000                      1,100,000(4)                       320,082                    1%
7671 Abercrombie Drive,
Richmond, British Columbia, Canada

Rod Saville                           600,000                        600,000(4)                             0                    0%
7987 Wentworth Drive SW,
Calgary, Alberta, Canada

Douglas Hunter                        544,000                        500,000(4)                        44,000                     *
1420 Joliet, Ave., SW,
Calgary, Alberta, Canada

Fraser Hindson                        179,000                        124,000(4)                        55,000                     *
5099 Topaz Place,
Richmond, British Columbia, Canada

First Associates                            0                        290,500(4)                             0                     0
Suite 500, Bentall Five,
550 Burrard St.
Vancouver, BC V6C 2B5 (6)



* Less than 1%
(1)The  numbers  assume  that  the  selling  stockholder  have  sold  all of the
   shares  offered  hereby  prior  to  completion  of  this  offering.
(2)Based  on  30,622,518  shares  outstanding  as  of  November  18,  2004.
(3)Michael   Novielli   and   Douglas  Leighton  are  the  Managing  Members  of
   Dutchess   Capital  Management,  LLC,   which   is  the  General  Partner  of
   Dutchess Private  Equities  Fund  II,  LP.
(4)Shares  that  may  be acquired pursuant to our Special Warrant offering.  Our
   Special  Warrant  offering  resulted  in  the issuance of  1,162,000  Special
   Warrants  to  accredited  investors,  and   an  option  to  First  Associates
   Allowing them  to purchase an additional 12.5 percent,  or  145,250,  of  the
   Total number of Special  Warrants  sold. Each  Special Warrant is convertible
   into one share of our  common  stock  and one common stock  purchase  warrant
   to purchase a share of our  common  stock  for  $0.30  per  share. The number
   of shares reflects the underlying  shares  for both  the  Special Warrant and
   the purchase warrant.
(5)The  principals  of U.S. Euro Securities are Michael R. Fugler, Chairman, and
   Ray  Dowd,  President.
(6)The  principals  of  First Associates are William Packham, Chairman and Chief
     Executive  Officer,  and  Stuart  R.  Raftus, President and Chief Operating
     Officer.


                              PLAN OF DISTRIBUTION

The  selling  stockholders will act independently of us in making decisions with
respect  to  the  timing, manner and size of each sale. The selling stockholders
may  sell  the  shares  from  time  to  time:

-  in  transactions  on  the  Over-the-Counter Bulletin Board or on any national
securities  exchange  or  U.S.  inter-dealer  system  of  a  registered national
securities  association on which our common stock may be listed or quoted at the
time  of  sale;  or

-  in private transactions and transactions otherwise than on these exchanges or
systems  or  in  the  over-the-counter  market;

-  at  prices  related  to  prevailing  market  prices,  or

-  in  negotiated  transactions,  or

-  in  a  combination  of  these  methods  of  sale;  or

-  any  other  method  permitted  by  law.

                                      11

The  selling  stockholders  may be deemed underwriters. The selling stockholders
may  effect these transactions by offering and selling the shares directly to or
through  securities  broker-dealers,  and  these  broker-dealers  may  receive
compensation  in  the  form  of  discounts,  concessions or commissions from the
selling  stockholders  and/or  the  purchasers  of  the  shares  for  whom these
broker-dealers  may act as agent or to whom the selling stockholders may sell as
principal, or both, which compensation as to a particular broker-dealer might be
in  excess  of  customary  commissions.

Dutchess  Private  Equities  Fund, II, First Associates and U.S. Euro Securities
and any broker-dealers who act in connection with the sale of our shares will be
deemed  to  be  "underwriters" within the meaning of the Securities Act, and any
discounts,  concessions or commissions received by them and profit on any resale
of  the  shares  as  principal  will  be  deemed  to  be underwriting discounts,
concessions  and  commissions  under  the  Securities  Act.

On  or  prior  to  the effectiveness of the registration statement to which this
prospectus  is a part, we will advise the selling stockholders that they and any
securities  broker-dealers  or  others  who  may  be  deemed  to  be  statutory
underwriters  will be governed by the prospectus delivery requirements under the
Securities  Act.  Under  applicable  rules  and regulations under the Securities
Exchange  Act, any person engaged in a distribution of any of the shares may not
simultaneously  engage in market activities with respect to the common stock for
the  applicable  period  under  Regulation  M  prior to the commencement of this
distribution.  In  addition  and  without  limiting  the  foregoing, the selling
security  owners will be governed by the applicable provisions of the Securities
and  Exchange  Act,  and the rules and regulations thereunder, including without
limitation  Rules  10b-5 and Regulation M, which provisions may limit the timing
of  purchases and sales of any of the shares by the selling stockholders. All of
the  foregoing  may  affect  the  marketability  of  our  securities.

On  or  prior  to  the effectiveness of the registration statement to which this
prospectus  is  a  part,  we  will  advise  the  selling  stockholders  that the
anti-manipulation  rules under the Securities Exchange Act may apply to sales of
shares  in  the  market and to the activities of the selling security owners and
any of their affiliates. We have informed the selling stockholders that they may
not:

-  engage  in  any  stabilization activity in connection with any of the shares;

-  bid  for  or  purchase any of the shares or any rights to acquire the shares,

-  attempt  to  induce  any  person  to  purchase any of the shares or rights to
acquire the shares other than as permitted under the Securities Exchange Act; or

- effect any sale or distribution of the shares until after the prospectus shall
have  been  appropriately  amended or supplemented, if required, to describe the
terms  of  the  sale  or  distribution.


We  have  informed  the  selling stockholders that they must affect all sales of
shares  in  broker's  transactions,  through broker-dealers acting as agents, in
transactions  directly  with  market  makers,  or  in  privately  negotiated
transactions  where no broker or other third party, other than the purchaser, is
involved.

The  selling  stockholders  may indemnify any broker-dealer that participates in
transactions  involving  the  sale  of  the  shares against certain liabilities,
including  liabilities arising under the Securities Act. Any commissions paid or
any  discounts  or  concessions  allowed  to any broker-dealers, and any profits
received on the resale of shares, may be deemed to be underwriting discounts and
commissions  under  the  Securities Act if the broker-dealers purchase shares as
principal.

In the absence of the registration statement to which this prospectus is a part,
certain  of  the  selling  stockholders  would be able to sell their shares only
pursuant  to  the  limitations of Rule 144 promulgated under the Securities Act.

We  engaged  U.S.  Euro  Securities  as  our placement agent with respect to the
securities  to  be issued under the Equity Line of Credit. To our knowledge U.S.
Euro  Securities  has  no  affiliation  or  business  relationship with Dutchess
Private  Equities Fund II. U.S. Euro Securities is our exclusive placement agent
in  connection  with  the  Investment  Agreement.  We  agreed  to  pay U.S. Euro
Securities  5%  of  the  Put  Amount on each draw. The Placement Agent agreement
terminates  when our Investment Agreement with Dutchess Private Equities Fund II
terminates  pursuant  to  the  terms  of  that  Investment  Agreement.

We  engaged  First  Associates  as  the  underwriter with respect to the Special
Warrants.  To  our  knowledge, First Associates has no affiliation with Dutchess
Private Equities Fund, II. First Associates received a cash commission of 8%, or
$18,592,  of  the gross proceeds from the sale of the Special Warrants and 12.5%
of  the  amount  of Special Warrants sold for a total number of Special Warrants
for  First  Associates  of  145,250.


                                      12

                                LEGAL PROCEEDINGS

In  April  2004,  the  Company,  along with current officers, board members, and
several  of  the  Company's former directors, were sued in the Colorado District
Court  by  a former director (Larry Brady) and former member of management (Mark
Brady,  Larry's  son)  for,  among other things, breach of contract for unlawful
termination and failure to provide stock allegedly promised during their service
as  Company director and Chief Financial Officer, respectively, for part of 2001
and  part  of  2002.  The  Company  denied the allegations. Further, the Company
counter-sued  the  Bradys  for  non-performance  and breach of fiduciary duties.
Pursuant to a court order, dated June 23, 2005, the judge terminated the Bradys'
lawsuit,  dismissing  it,  outright.  In  July  of 2005, in an effort to bar the
Bradys  from raising these issues in the future, the Company engaged in a mutual
release  of  all  claims  and  issued  a total of 250,000 shares of unregistered
common  stock  and $10,000 to Lawrence Brady, Mark Brady, and their counsel. The
Company  recognized  $32,500  in expenses for the quarter ended June 30, 2005 in
relation  to  this  settlement.

     DIRECTORS, EXECUTIVE OFFICERS, SIGNFICANT EMPLOYEES AND CONTROL PERSONS

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.

                                       13

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.



         SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT




                                                                                            
                       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


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.


                                       14






                                                                                            
                       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%


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.







                                                                            
                                    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




                                       15

                           DESCRIPTION OF COMMON STOCK

Our  Certificate  of  Incorporation  authorizes us to issue 50,000,000 shares of
common  stock,  par  value $.001 per share. The number of shares of common stock
issued  and  outstanding  on  November 18, 2004 was 30,622,518 shares. We do not
have  enough  authorized  shares to issue all of the shares on this registration
statement. We intend to hold a special meeting for the purpose of increasing our
authorized  shares.

VOTING  RIGHTS.  The holders of shares of common stock are entitled to one vote,
either  in  person  or by proxy, per share on each matter submitted to a vote of
stockholders.  At each election of Directors, every stockholder entitled to vote
in  such  election shall have the right to vote in person or by proxy the number
of  shares  owned  by him or it for as many persons as there are directors to be
elected  and  for  whose  election  he  or  it  has  the  right to vote, but the
shareholder  shall  have  no right to accumulate his or its votes with regard to
such  election.  Holders  of  Common Stock have no preemptive or other rights to
subscribe  for  shares.

DIVIDEND POLICY. All shares of common stock are entitled to receive when, as and
if  declared  by  our  Board  of  Directors,  out of the funds legally available
thereof,  the  dividends  payable  in  cash,  common  stock,  or  otherwise.

                      INTEREST OF NAMED EXPERTS AND COUNSEL

No  expert  or  counsel  within  the  meaning  of  those terms under Item 509 of
Regulation  S-B will receive a direct or indirect interest in our company or was
a  promoter,  underwriter,  voting  trustee,  director, officer, or employee. No
expert  has  any  contingent based agreement with us or any other interest in or
connection  to  us.

                  INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The  consolidated  balance  sheet  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 included in
this  Prospectus, have been audited by GHP Horwath, P.C., independent registered
public  accounting  firm,  as  stated  in  their  report  appearing  herein.

                    INDEMNIFICATION OF DIRECTORS AND OFFICERS

Article X of our Amended and Restated Articles of Incorporation and Bylaws state
every  person who was or is a party or is threatened to be made a party to or is
involved  in  any  action,  suit  or  proceeding,  whether  civil,  criminal,
administrative  or  investigative,  by reason of the fact that he or a person of
whom  he  is  the  legal  representative  is or was a director or officer of the
corporation  or  is  or was serving at the request of the corporation or for its
benefit  as  a  director  or  officer  of  another  corporation,  or  as  its
representative in a partnership, joint venture, trust or other enterprise, shall
be indemnified and held harmless to the fullest extent legally permissible under
the General Corporation Law of the State of Nevada from time to time against all
expenses,  liability  and  loss (including attorneys' fees, judgments, fines and
amounts paid or to be paid in settlement) reasonably incurred or suffered by him
in  connection  therewith.  The  expenses  of officers and directors incurred in
defending  a  civil  or  criminal action, suit or proceeding must be paid by the
corporation  as they are incurred and in advance of the final disposition of the
action, suit or proceeding upon receipt of an undertaking by or on behalf of the
director  or  officer  to  repay  the amount if it is ultimately determined by a
court of competent jurisdiction that he is not entitled to be indemnified by the
corporation.  Such  right of indemnification shall be a contract right which may
be  enforced in any manner desired by such person. Such right of indemnification
shall  not  be  exclusive  of  any other right which such directors, officers or
representatives  may  have  or  hereafter  acquire  and,  without  limiting  the
generality  of such statement, they shall be entitled to their respective rights
of  indemnification  under any bylaw, agreement, vote of stockholders, provision
of  law  or  otherwise,  as  well  as  their  rights  under  this  Article.


The  Board  of  Directors  may  cause  the  corporation to purchase and maintain
insurance  on  behalf  of  any person who is or was a director or officer of the
corporation,  or  is  or  was  serving  at  the  request of the corporation as a
director  or  officer  of  another  corporation,  or  as its representative in a
partnership,  joint  venture,  trust  or  other enterprise against any liability
asserted against such person and incurred in any such capacity or arising out of
such  status,  whether  or not the corporation would have the power to indemnify
such  person.

Insofar  as indemnification for liabilities arising under the Securities Act may
be  permitted  to  our directors, officers and controlling persons in accordance
with  the  provisions contained in our Certificate of Incorporation and By-laws,
Nevada  law  or  otherwise,  we  have  been  advised that, in the opinion of the
Securities  and  Exchange  Commission,  this  indemnification  is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. If a
claim for indemnification against such liabilities (other than the payment by us
of expenses incurred or paid by a director, officer or controlling person in the
successful  defense  of  any  action,  suit,  or proceeding) is asserted by such
director,  officer  or controlling person, we will, unless in the opinion of our
counsel  the matter has been settled by controlling precedent, submit to a court
of  appropriate  jurisdiction the question whether such indemnification by us is
against  public policy as expressed in the Securities Act and we will follow the
court's  determination.

                                       16

           CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

This  prospectus  contains  forward-looking  statements  that  involve risks and
uncertainties. We generally use words such as "believe," "may," "could," "will,"
"intend,"  "expect,"  "anticipate,"  "plan," and similar expressions to identify
forward-looking  statements, including statements regarding our expansion plans.
You  should  not  place  undue reliance on these forward-looking statements. Our
actual  results  could  differ  materially  from  those  anticipated  in  the
forward-looking  statements  for  many reasons, including the risks described in
our  "Risk Factor" section and elsewhere in this report. Although we believe the
expectations  reflected  in  the forward-looking statements are reasonable, they
relate  only  to events as of the date on which the statements are made, and our
future  results,  levels  of  activity, performance or achievements may not meet
these  expectations.  Moreover,  neither  we  nor  any  other  person  assumes
responsibility  for  the  accuracy  and  completeness  of  the  forward-looking
statements.  We  do  not  intend to update any of the forward-looking statements
after the date of this document to conform these statements to actual results or
to  changes  in  our  expectations,  except  as  required  by  law.

                             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.

                                       17

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.

                                       18

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.

                                       19

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.

                                    EMPLOYEES

As  of  December 31, 2004,  we  had  eight  full time employees. We believe our
relations  with  all  of  our  employees  are  good.

            MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The  following  information  should  be  read  in conjunction with the Company's
audited  financial  statements  and the notes thereto for the fiscal years ended
December  31,  2004  and  2003.

                                       20

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:

                                       21

     -  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:

                                       22




                                                                   
                                                     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%
                                   ====================================================



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.


COMPARISON  OF  THE  THREE  MONTHS  ENDED  JUNE  30,  2005  AND  JUNE  30,  2004

Revenue

The  components  of  revenue and their associated percentages of total revenues,
for  the  three  months  ended  June  30,  2005  and  2004  are  as  follows:

                                       23




                                                 

                             THREE MONTHS ENDED JUNE 30,
                             ---------------------------
                                 2005         2004     CHANGE  %     CHANGE  $
                             -------------------------------------------------
Revenues:
Rebooting Products:
NH100,NH1, NH2 & NH8    $ 21,002   21%    $62,388  39%   -66%      $ (41,386)
Logic Boards: PT 1000,
PT1 LC & PT Boards        14,144   15%     47,618  30%   -70%        (33,474)
Utility Products: CEO 700 47,590   48%     41,174  25%    16%          6,416
Airtime sales             13,556   14%     10,207   6%    33%          3,349
Other products             1,282    1%          -   0%    n/a          1,282
Freight                      798    1%          -   0%    n/a            798
                        -----------------------------------------------------
Total revenues          $ 98,372  100%  $ 161,387 100%   -39%      $ (63,015)



Revenues for the three-month period ended June 30, 2005 were $98,372 as compared
to  $161,387  for  the corresponding period of the prior year, a decrease of 39%
between  periods.  During the three months ended June 30, 2004, the Company sold
approximately  $50,000  of  its  NH2  rebooting  device  to a single customer in
support  of that customer's primary contract with AT&T Wireless.  As a result of
the  AT&T  Wireless/Cingular  merger,  that  customers'  primary  contract  was
suspended  subsequent  to  June  30,  2004.  Because  the  Company  did not have
customers  to  replace the lost demand, sales of the Company's rebooting devices
declined  in  the  current  quarter  when compared to the quarter ended June 30,
2004.  In  an effort to improve the functionality of the NH2 and reduce its cost
of  production,  the  Company  replaced  the  NH2  with the NH100 in March 2005.
Although  revenues from rebooting products shipped during the quarter ended June
30,  2005  were  only  approximately  $21,000,  the  Company received additional
purchase  orders  during  the  quarter  for  approximately  $60,000 of rebooting
devices.  As  of  June  30,  2005,  the  Company  was  waiting  on customer site
information  before  those  units  could  be  produced  and  shipped.

The  Company  hired  two  salesmen in February 2005.  The initial focus of these
salesmen  has  been  on  selling  the  Company's  'plug  and  play' products for
rebooting  and  electric  utility  use.  During  the three months ended June 30,
2005,  the  Company  shipped three orders for its CEO 700 utility product to one
customer.  Revenues from these three orders represented approximately 32% of the
Company's total product revenues for the period.  Overall sales of the Company's
utility  products  increased  16%  between  the  periods  presented.

Sales  of  the Company's logic boards, which must be engineered into systems and
are  not  considered  'plug  and  play'  products, declined 70% between periods.
Airtime  sales,  which  consist  of  recurring  charges for access to customers'
units, increased 33% between periods due to the additional units sold during the
2005  period.  As  mentioned earlier, one of the Company's primary customers had
its  account  suspended  by  AT&T  Wireless/Cingular.  As  a result, should AT&T
Wireless/Cingular  choose  not  to  continue  its  program  with  the  Company's
customer,  airtime  revenues  could  decrease  going  forward.

Cost  of  goods  sold  includes  parts  and  pre-manufactured components used to
assemble our products as well as allocated overhead for production personnel and
facilities  costs. Cost of goods sold decreased by $22,958 or 21% to $85,099 for
the  three months ended June 30, 2005 from $108,057 for the corresponding period
of  the prior year and increased as a percentage of revenues between the periods
from 67% in the second quarter of 2004 to 87% in the second quarter of 2005. The
decrease in gross profit was due to lower sales volume and the decrease in gross
margin  was  due  to  poorer  utilization of our productive capacity. During the
quarter  ended  June  30, 2005, allocated overhead for production and facilities
cost  amounted  to  approximately  $19,000.

Selling, general and administrative expenses for the three months ended June 30,
2005 increased by $323,175 or 122% to $588,040 from $264,865 for the three-month
period ended June 30, 2004.  The Company spent approximately $138,000 in cash on
public  relations and promotional activity to increase its exposure to potential
investors  during  the  quarter  ended June 30, 2005 as opposed to $0 during the
previous year's quarter.  The Company incurred approximately $98,500 in non-cash
expenses  in  the second quarter of 2005 for consulting and other services. This
represents  an  increase  of  approximately  $58,000  in  non-cash expenses when
compared  to  the  quarter  ended  June  30,  2004.  During the 2005 period, the
Company  incurred  approximately  $64,000  in  cash expenses directly related to
sales  and marketing efforts, including compensation for the two salesmen hired,
trade  shows  and travel costs.  The Company also recognized $32,500 in expenses
during  the  quarter ended June 30, 2005 related to the settlement of a lawsuit.

                                       24

Interest  expense  increased  $319,810  or  829% between the three-month periods
presented.  The  increase  was  due primarily to interest expense related to the
Dutchess  notes, some of which have no stated interest rate but have a repayment
amount  greater  than  the funded amount.  The Company recognizes the difference
between  the  face amount of the notes and the amounts actually received in cash
as  interest  expense  over the life of the loans. In addition, the value of the
incentive  shares issued in conjunction with the notes is recognized as interest
expense  over the life of the loans.  Penalties on late payment of notes and any
interest  incurred during these periods are also recognized as interest expense.
In  total,  the  Company  recognized approximately $132,000 in non-cash expenses
related  to  the  amortization of these loan discounts, approximately $84,000 in
non-cash  expenses  related  to  incentive  shares  and approximately $86,000 in
penalties  on  late  payments  of  notes.

The  net  loss  for  the  three-month  period  ended  June 30, 2005 was $933,296
compared  to  $252,333  for  the  three-month  period  ended  June 30, 2004. The
increase  in  net loss from continuing operations was due primarily to increased
non-cash  expenses  for  consulting  and  other  services,  expenses  related to
fundraising  efforts,  and  increased  non-cash  interest expense from incentive
shares  and  the  amortization  of  discounts  on  notes  payable.

COMPARISON  OF  THE  SIX  MONTHS  ENDED  JUNE  30,  2005  AND  JUNE  30,  2004

Revenue

The  components  of  revenue and their associated percentages of total revenues,
for  the  six  months  ended  June  30,  2005  and  2004  are  as  follows:




                                                 

                              SIX MONTHS ENDED JUNE 30,
                              -------------------------
                              2005         2004        CHANGE  %     CHANGE  $
                            --------------------------------------------------
Revenues:
Rebooting Products: NH100,
NH1, NH2 & NH8             $ 42,606  16%  $119,246  45%  -64%       $ (76,640)
Logic Boards: PT 1000,
PT1 LC & PT Boards           39,997  15%    62,449  23%  -36%         (22,452)
Utility Products: CEO 700    78,815  29%    51,109  19%   54%          27,706
Hydro 1                      76,750  28%         -   0%   n/a          76,750
Airtime sales                27,789  10%    20,373   8%   36%           7,416
Other product                 1,637   1%     9,464   4%  -83%          (7,827)
Freight                       2,000   1%     1,584   1%   26%             416
                           ---------------------------------------------------
Total revenues           $  269,594 100% $ 264,225 100%    2%      $    5,369



Revenues  for the six-month period ended June 30, 2005 were $269,594 as compared
to  $264,255  for  the corresponding period of the prior year, an increase of 2%
between  periods.  During  the six months ended June 30, 2005, one customer, who
purchased  the  Company's  Hydro I product, represented approximately 28% of the
Company's  total  revenue.

Cost  of  goods  sold  includes  parts  and  pre-manufactured components used to
assemble our products as well as allocated overhead for production personnel and
facilities  costs.  Cost of goods sold increased by $9,000 or 5% to $189,623 for
the six months ended June 30, 2005 from $180,623 for the corresponding period of
the  prior  year  and  increased as a percentage of revenues between the periods
from  68%  to  70%.

Selling,  general  and administrative expenses for the six months ended June 30,
2005 increased by $608,755 or 113% to $1,149,700 from $540,945 for the six-month
period  ended  June  30,  2004.  The  Company incurred approximately $235,000 in
non-cash expenses in the six-month period ended June 30, 2005 for consulting and
other  services.  This  represents  an  increase  of  approximately  $161,000 in
non-cash  expenses  when  compared to the same period ended June 30, 2004. Other
SG&A  expense  increases  from  the six-month period ended June 30, 2004 to 2005
include:  non-manufacturing  related  employee  costs  increased  approximately
$57,000,  the  Company  spent approximately $49,000 more on sales, marketing and
travel,  incurred  approximately  $33,000  in  settling  a  lawsuit,  spent
approximately  $51,000 more on legal fees and incurred approximately $263,000 in
expenses  related  to  fundraising  activity.

Interest  expense  increased  $432,319  or  764%  between  the six-month periods
presented.  The  increase  was  due primarily to interest expense related to the
Dutchess  notes, some of which have no stated interest rate but have a repayment
amount  greater  than  the funded amount.  The Company recognizes the difference
between  the  face amount of the notes and the amounts actually received in cash
as  interest  expense  over the life of the loans. In addition, the value of the
incentive  shares issued in conjunction with the notes is recognized as interest
expense  over the life of the loans.  Penalties on late payment of notes and any
interest  incurred during these periods are also recognized as interest expense.
In  total,  the  Company  recognized approximately $198,000 in non-cash expenses
related  to  the amortization of these loan discounts, approximately $134,000 in
non-cash  expenses  related  to  incentive  shares  and approximately $86,000 in
penalties  on  late  payments  of  notes.

                                       25

The  net  loss  for  the  six-month  period  ended  June 30, 2005 was $1,559,576
compared  to $519,532 for the six-month period ended June 30, 2004. The increase
in  net  loss from continuing operations was due primarily to increased non-cash
expenses  for consulting and other services, increased fundraising expenditures,
and  increased  non-cash  interest  expense.

LIQUIDITY  AND  CAPITAL  RESOURCES

The  Company's  financial statements for the six months ended June 30, 2005 have
been  prepared  on  a going concern basis, which contemplates the realization of
assets and the settlement of liabilities and commitments in the normal course of
business.  The Company incurred a net loss of approximately $1.38 million during
the  year  ended December 31, 2004 and a net loss of approximately $1.56 million
during  the  six  months  ended  June 30, 2005.  The Company had a stockholders'
deficit  and working capital deficiency of approximately $1.24 million and $1.04
million,  respectively,  as  of  December  31,  2004 and $1.82 million and $1.77
million  respectively,  as  of  June  30,  2005.

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 six months ended June 30, 2005, cash used in operating activities was
approximately  $940,000.  The  net  loss  of approximately $1.56 million for the
six-month  period  was  partially  offset  by approximately $572,000 in non-cash
expenses  and  decreases  in accounts receivable and prepaids and an increase in
accrued  expenses.  Uses  of  cash  were  increases  in inventories as well as a
decline in accounts payable.  Cash used in operating activities in the six-month
period  ended  June  30,  2004 was approximately $413,000.  The net loss for the
period  of approximately $520,000 was partially offset by approximately $112,000
in  non-cash  expenses  and  increase  in accounts payable and accrued expenses.
Other  uses  of cash during the period were increases in accounts receivable and
inventories.

The  Company  purchased  approximately  $2,000  in  computer  equipment  in  the
six-month  period  ended June 30, 2005.  There were no cash flows from investing
activity  for  the  six-month  period  ended  June  30,  2004.

Net  cash  provided  by financing activities for the six-month period ended June
30,  2005 was approximately $901,000 and resulted primarily from the issuance of
notes  payable  to  Dutchess,  the  sale  of  common  stock and warrants and the
exercise  of  puts with Dutchess.  The Company issued 2,276,610 shares of common
stock  in  return  for  approximately  $362,000  in net cash proceeds during the
period.  The Company also received $1,113,500 from Dutchess during the six-month
period  in exchange for notes.  These cash inflows were offset to some degree by
payments on notes payable of approximately $575,000 during the period.  Net cash
provided  by financing activity for the six-month period ended June 30, 2004 was
approximately  $415,000  and  resulted  primarily from the sale of common stock,
preferred  stock,  special  warrants  and  notes  from related and other parties
offset  by  payments  on  notes  payable  and  other  related  party  payables.

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  had  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.

                                       26

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 matured
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 matured 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  six months ended June 30, 2005, Dutchess loaned the Company a total
of  $1,113,500  in the form of notes payable.  The notes have no stated interest
rate  but have a face amount greater than the funded amount.  This difference is
recognized  as  interest  expense over the life of the loan.  Under the terms of
the  notes,  Dutchess  is  also  issued  incentive shares, which are recorded as
prepaid  interest  and  expensed  over  the  life  of  the  loan.

                                       27

During the six months ended June 30, 2005, the Company exercised six (6) puts to
Dutchess  totaling  1,276,610 shares for net proceeds of $222,726.  Of the total
proceeds,  $125,633  was  used  to  repay portions of previously issued notes to
Dutchess  and  $67,838  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 and
accrued  interest.

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.

The  Company  used  the  proceeds  from the notes, puts and warrants to fund its
operating cash flow deficits and to repay outstanding notes and accrued interest
and  penalties  to  Dutchess.

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.

In  the  first  six  months  of 2005, the Company identified sales and marketing
objectives  and  implemented  a  sales and marketing plan utilizing the Dutchess
financing  agreement  designed  to  stimulate  revenue  growth.  This effort has
continued  throughout  2005,  and  as  of  August  18,  2005,  the  Company  has
established  relationships  and  business  opportunities  that  it believes will
result  in increased sales and revenues in the future.  While our customers have
identified needs that are substantial, our efforts have indicated that customers
are  more  likely to order our products in stages so that their installation and
utilization can be managed efficiently.  Historical results have shown that once
customers  have adopted the use of our products, they often order multiple times
thereafter in order to meet their overall needs.  As such, and in order to avoid
the concentration of risk among only a few customers, the Company's approach for
the  foreseeable  future  will  be  to  obtain  customers through test and trial
programs  if  necessary, in order to grow its overall customer base and increase
the  likelihood  of  future  sales  to  those  same customers.  Initial customer
contact is typically made through the use of lead generation programs offered by
third  parties, attendance at trade shows, mailers to targeted lists, and direct
customer  inquiries  through  our  website.

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. 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.

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.

                                       28

                             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.

                 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.

                                       29

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.

            MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

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:




                                            
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


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

EXECUTIVE  COMPENSATION

The  following  table  sets  forth  the  aggregate  compensation  paid by us for
services  rendered  during  the  periods  indicated:






                                                                                            
                                              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           -          -

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. Anduri.


                                       30

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.

EMPLOYMENT  CONTRACTS

We  do  not  have  employment  contracts  with  our  executive  officers.

STOCK  OPTION  PLANS

Nighthawk  Systems,  Inc.  2003  Stock  Option  Plan (the "Plan") authorized the
issuance  of  a  maximum  of  5,000,000  shares of common stock. Of that amount,
2,335,000  shares  of  common  stock  authorized to be issued under the Plan are
subject  to outstanding options already granted under the Plan and 1,235,000 are
available  for future grants thereunder. Participation in the Plan is limited to
those  employees,  directors and consultants of the Company and its subsidiaries
who  are  believed  by  the  Board  to  be  in  a position to make a substantial
contribution  to  our  success.




                                                                                       

                              NUMBER OF SECURITIES
                              REMAINING AVAILABLE FOR
                              FUTURE ISSUANCE UNDER
                              NUMBER OF SECURITIES       EQUITY COMPENSATION
                              TO BE ISSUED UPON          PLANS(EXCLUDING
                              EXERCISE OF                WEIGHTED AVERAGE                        SECURITIES REFLECTED IN
PLAN CATEGORY                 OUTSTANDING OPTIONS        EXERCISE PRICE OF OUTSTANDING OPTIONS   COLUMN (A)
----------------------------
                                       (a)                                     (b)                       (c)
                              -------------------------  --------------------------------------  ------------------------
Nighthawk Systems, Inc.
2003 Stock Option Plan
approved by security holders        2,335,000                                  $0.22                   1,235,000


DIRECTOR  COMPENSATION

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.

                             ADDITIONAL INFORMATION

Our  common  stock  is  registered  with  the  SEC  under  section  12(g) of the
Securities  Exchange Act of 1934. We file with the SEC periodic reports on Forms
10-KSB,  10-QSB  and  8-K,  and proxy statements, and our officers and directors
file  reports  of  stock ownership on Forms 3, 4 and 5. We intend to send annual
reports  containing  audited  financial  statements  to  our  shareholders.
Additionally,  we  filed  with  the  Securities  and  Exchange  Commission  a
registration  statement  on  Form  SB-2 under the Securities Act of 1933 for the
shares of common stock in the offering, of which this prospectus is a part. This
prospectus does not contain all of the information in the registration statement
and  the exhibits and schedules that were filed with the registration statement.
For  further  information  we  refer  you  to the registration statement and the
exhibits  and  schedules  that  were  filed  with  the  registration  statement.

                                       31

Statements  contained  in  this prospectus about the contents of any contract or
any other document that is filed as an exhibit to the registration statement are
not  necessarily  complete, and we refer you to the full text of the contract or
other  document filed as an exhibit to the registration statement. A copy of the
registration  statement  and the exhibits and schedules that were filed with the
registration  statement  may be inspected without charge at the Public Reference
Room  maintained  by the Securities and Exchange Commission at 450 Fifth Street,
N.W.,  Washington, D.C. 20549, and copies of all or any part of the registration
statement  may  be  obtained  from  the  Securities and Exchange Commission upon
payment of the prescribed fee. Information regarding the operation of the Public
Reference Room may be obtained by calling the Securities and Exchange Commission
at  1-800-SEC-0330.

The  Securities  and  Exchange  Commission  maintains  a  web site that contains
reports,  proxy  and  information  statements,  and  other information regarding
registrants  that  file  electronically with the SEC. The address of the site is
www.sec.gov.
  

                              FINANCIAL STATEMENTS






                                                                                              
                         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



             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

                                      F-1





                                        NIGHTHAWK SYSTEMS, INC.

                                      CONSOLIDATED BALANCE SHEET

                                          DECEMBER 31, 2004

        ASSETS

                                                                                                            
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.



                                      F-2




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


                                                                                    
                                                                                   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.



                                      F-3




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


                                                                                  
                                                          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)
                  ======  =======  ==========   ========   ==========   ==========   =========  ============  ============

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




                                      F-4





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


                                                                          
                                                            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                                                    -                     (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.


                                      F-5

                             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.

                                      F-6

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.

                                      F-7

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:

                                      F-8




                                                                                 
                                                                       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)
                                                                          ===========  ==========


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:





                                       
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


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.

                                      F-9

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:




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


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.

                                      F-10

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:





                                                       
                                                 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
                                                 ----------     ----------
                                                 $       -      $    -
                                                 ==========     ==========



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:




                                                                          
                                                          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%
                                                 =========================================


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:




                                                           
                                               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 . . . . . .               $          -
                                                  =============


                                      F-11

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




                                   

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
                                    ===========



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.


                                      F-12

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.

                                      F-13

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:




                                          
                                               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
                                   =========== ========



(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.


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.

                                      F-14

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.

                                      F-15

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:




                                                 
                                                      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
                                            =========


                                      F-16

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.

     REPORT  OF  INDEPENDENT  REGISTERED  PUBLIC  ACCOUNTING  FIRM

Board  of  Directors
Nighthawk  Systems,  Inc.

We  have  reviewed  the  accompanying  condensed  consolidated  balance sheet of
Nighthawk  Systems,  Inc.  and  subsidiary  as  of  June  30,  2005, the related
condensed  consolidated  statements  of  operations  for  the  three-month  and
six-month  periods  ended  June  30,  2005  and 2004, the condensed consolidated
statement of stockholders' deficit for the six-month period ended June 30, 2005,
and  the  condensed  consolidated  statements  of  cash  flows for the six-month
periods  ended  June  30,  2005  and  2004. These interim condensed consolidated
financial  statements  are  the  responsibility  of  the  Company's  management.

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

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

GHP  HORWATH,  P.C.

Denver,  Colorado
August  17,  2005




                            NIGHTHAWK SYSTEMS, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEET
                                  JUNE 30, 2005
                                                                                  
        ASSETS

Current assets:
     Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $    19,927
     Accounts receivable, net of allowance for doubtful accounts of $750. . . . . .       26,920
     Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       88,908
     Prepaids . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      143,920
                                                                                     ------------
               Total current assets . . . . . . . . . . . . . . . . . . . . . . . .      279,675
                                                                                     ------------

Furniture, fixtures and equipment, net. . . . . . . . . . . . . . . . . . . . . . .       11,877
Intangible and other assets. . . . . .. . . . . . . . . . . . . . . . . . . . . . .       14,762
                                                                                     ------------
                                                                                     $   306,314
                                                                                     ============

      LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
    Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $   339,701
    Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      331,658
    Line of credit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       19,792
    Notes payable:
        Related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       14,736
        Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    1,347,582
                                                                                     ------------
               Total current liabilities. . . . . . . . . . . . . . . . . . . . . .    2,053,469
                                                                                     ------------

Long-term liabilities:
   Convertible debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       72,014
                                                                                     ------------
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
    Common stock; $0.001 par value; 200,000,000 shares authorized;
    39,021,194 issued and outstanding . . . . . . . . . . . . . . . . . . . . . . .       39,022
    Additional paid- in capital . . . . . . . . . . . . . . . . . . . . . . . . . .    5,046,227
    Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   (6,916,918)
                                                                                     ------------
               Total stockholders' deficit. . . . . . . . . . . . . . . . . . . . .   (1,819,169)
                                                                                     ------------
                                                                                     $   306,314
                                                                                     ============


The accompanying notes are an integral part of these financial statements


                                      F-17




Nighthawk Systems, Inc.
Condensed Consolidated Statements of Operations
                                                                                                     
                                                                    Three months ended June 30,    Six months ended June 30,
                                                                         2005       2004                2005          2004
                                                                    -----------------------------  ---------------------------
Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $   98,372   $ 161,387         $   269,594   $   264,225
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . .      85,099     108,057             189,623       180,623
                                                                    -----------------------------  ---------------------------
     Gross profit. . . . . . . . . . . . . . . . . . . . . . . . .      13,273      53,330              79,971        83,602


Selling, general and administrative expenses . . . . . . . . . . .     588,040     264,865           1,149,700       540,945
                                                                    -----------------------------  ---------------------------
     Loss from operations. . . . . . . . . . . . . . . . . . . . .    (574,767)   (211,535)         (1,069,729)     (457,343)

 Interest expense:
     Related parties . . . . . . . . . . . . . . . . . . . . . . .         148       2,227                 839         5,600
     Other . . . . . . . . . . . . . . . . . . . . . . . . . . . .     358,381      38,571             489,008        56,589
                                                                    -----------------------------  ---------------------------
         Total interest expense. . . . . . . . . . . . . . . . . .     358,529      40,798             489,847        62,189
                                                                    -----------------------------  ---------------------------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    (933,296)   (252,333)         (1,559,576)     (519,532)
Less: preferred stock dividends. . . . . . . . . . . . . . . . . .        (221)       (197)               (440)         (197)
                                                                    -----------------------------  ---------------------------
Net loss to common stockholders. . . . . . . . . . . . . . . . . .  $ (933,517)  $(252,530)        $(1,560,016)  $  (519,729)
                                                                    =============================  ===========================
Net loss per basic and diluted common share. . . . . . . . . . . .  $    (0.03)  $   (0.01)        $     (0.04)  $     (0.02)
                                                                    =============================  ===========================
Net loss to common stockholders per basic and diluted common share  $    (0.03)  $   (0.01)        $     (0.04)  $     (0.02)
                                                                    =============================  ===========================
Weighted average common shares outstanding - basic and diluted . .  37,249,225  25,911,034          35,501,257    25,434,668



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





Nighthawk Systems, Inc.
Condensed Consolidated Statements of Stockholders' Deficit
Six months ended June 30, 2005
                                                                                                 
                                        Preferred Stock         Common stock
                                        --------------         --------------     Additional paid  Special   Accumulated
                                       Shares     Amount    Shares         Amount   in capital     Warrants    deficit    Total
                                    -----------------------------------------------------------------------------------------------
Balances, December 31, 2004. . . . .   5,000   $   12,500   31,959,247    $ 31,960 $3,884,516  $ 188,775 $(5,357,342)  $(1,239,591)
   Common stock issued, and puts
   and warrants exercised for cash                           2,276,610       2,277    359,526                              361,803
   Common stock issued as incentive
   on notes payable                                            900,000         900    167,600                              168,500
   Common stock and options issued
   for consulting and other services                         1,200,000       1,200    229,325                              230,525
   Conversion of accrued liabilities
   to common stock                                             313,100         313     56,307                               56,620
   Conversion of notes payable and
   accrued interest to common stock.                         1,400,000       1,400    161,150                              162,550
   Series A preferred dividend . . .                             2,487           2         (2)                                   -
   Exercise of Special Warrants. . .                           969,750         970    187,805   (188,775)                        -
   Net loss. . . . . . . . . . . .                                                                         (1,559,576)  (1,559,576)
                                    -----------------------------------------------------------------------------------------------
Balances, June 30, 2005. . . . . . .   5,000    $  12,500   39,021,194    $ 39,022 $5,046,227    $    -  $ (6,916,918) $(1,819,169)
                                    ===============================================================================================



The accompanying notes are an integral part of these financial statements


                                      F-18



Nighthawk Systems, Inc.
Condensed Consolidated Statements of Cash Flows
Six months ended June 30,
                                                                                              
                                                                                             2005        2004
                                                                                      -----------   ----------
Cash flows from operating activities:
      Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $(1,559,576)  $(519,532)
                                                                                      -----------   ----------
Adjustments to reconcile net loss to net cash used in operating activities:
   Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . .        3,163       3,854
   Bad debt expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        1,648
   Amortization of loan discounts and warrants . . . . . . . . . . . . . . . . . . .      198,013           -
   Common stock and options issued for consulting and other services . . . . . . . .       23,025      73,660
   Common stock and warrants issued for interest . . . . . . . . . . . . . . . . . .            -      34,500
   Amortization of shares issued as incentives on notes payable. . . . . . . . . . .      133,908           -
   Amortization of shares issued for prepaid consulting. . . . . . . . . . . . . . .      212,124           -
Changes in assets and liabilities, net of business acquisition:
   Decrease (increase) in accounts receivable. . . . . . . . . . . . . . . . . . . .       17,186     (11,357)
   (Increase) in inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . .      (62,199)    (39,189)
   Decrease in prepaids. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       26,810           -
   Decrease in other assets and liabilities. . . . . . . . . . . . . . . . . . . . .       (1,020)     (2,198)
   (Increase) decrease in accounts payable . . . . . . . . . . . . . . . . . . . . .      (82,553)     11,801
   Increase in accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . . .      149,434      35,313
                                                                                      ------------  ----------
Total adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      619,539     106,384
                                                                                      ------------  ----------
Net cash used in operating activities of continuing operations . . . . . . . . . . .     (940,037)   (413,148)
                                                                                      ------------  ----------

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

Cash flows from financing activities:
   Cash overdraft. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .            -      (3,902)
   Proceeds from the sale of preferred stock . . . . . . . . . . . . . . . . . . . .            -      12,500
   Proceeds from notes payable, related parties. . . . . . . . . . . . . . . . . . .          567      25,516
   Payments on notes payable, related parties. . . . . . . . . . . . . . . . . . . .       (1,233)    (34,655)
   Proceeds from notes payable, other. . . . . . . . . . . . . . . . . . . . . . . .    1,113,500      25,000
   Payments on notes payable, other. . . . . . . . . . . . . . . . . . . . . . . . .     (573,818)    (10,404)
   Payments on other related party payable . . . . . . . . . . . . . . . . . . . . .            -     (25,000)
   Proceeds from the issuance of special warrants. . . . . . . . . . . . . . . . . .            -     188,775
   Net proceeds from the sale of common stock, and the exercise of puts and warrants      361,803     237,350
                                                                                      ------------  ----------
Net cash provided by financing activities. . . . . . . . . . . . . . . . . . . . . .      900,819     415,180
                                                                                      ------------  ----------
Net (decrease) increase in cash. . . . . . . . . . . . . . . . . . . . . . . . . . .      (41,191)      2,032
Cash, beginning balance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       61,118           -
                                                                                      ------------  ----------
Cash, ending balance                                                                     $ 19,927       2,032
                                                                                      ============  ==========





Condensed Consolidated Statements of Cash Flows
(continued)
                                                                              
Supplemental disclosures of cash flow information:
                                                                              2005     2004
                                                                          --------  -------
Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . .  $ 49,722  $17,222
                                                                          ========  =======
Supplemental disclosure of non-cash investing and financing activities:

Common shares issued as incentives for notes payable . . . . . . . . . . $168,500
                                                                         ========
Common shares issued for prepaid consulting agreements . . . . . . . . . $207,500
                                                                         ========
Conversion of accrued expenses to common stock . . . . . . . . . . . . . $ 56,620
                                                                         ========
Conversion of notes payable and accrued interest to common stock
   Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $155,590  $71,640
   Accrued interest. . . . . . . . . . . . . . . . . . . . . . . . . . .     6,960    8,876
                                                                          --------  -------
Total amount converted . . . . . . . . . . . . . . . . . . . . . . . . .  $162,550  $80,516
                                                                          ========  =======
Preferred stock dividends issued in common stock . . . . . . . . . . . .  $    440  $   197
                                                                          ========  =======



                                      F-19

                             NIGHTHAWK SYSTEMS, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
            THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2005 AND 2004
                                   (unaudited)

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

Organization

Nighthawk  Systems,  Inc.  ("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.

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 a net loss of approximately $1.56 million during the
six  months  ended  June  30, 2005.  The Company had a stockholders' deficit and
working  capital  deficiency  of  approximately $1.24 million and $1.04 million,
respectively,  as  of  December  31,  2004  and  $1.82 million and $1.77 million
respectively,  as  of  June  30,  2005. 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.

ADDITIONAL  BORROWINGS  AND  EQUITY  FUNDRAISING:

In August 2004, the Company signed a financing arrangement with Dutchess Private
Equities,  II,  L.P.  ("Dutchess")  under which the Company received $250,000 in
exchange  for  a  convertible  debenture  during the third quarter of 2004.  The
Company  also  signed  an  investment  agreement  under which Dutchess agreed to
purchase  up to $10.0 million in common stock from the Company, at the Company's
discretion,  over the next three years, subject to certain limitations including
the  Company's  then  current trading volume.  Although the amount and timing of
specific  cash infusions available under the entire financing arrangement cannot
be predicted with certainty, the arrangement represents a contractual commitment
by  Dutchess  to  provide  funds  to  the  Company.

During  the  six months ended June 30, 2005, Dutchess loaned the company a total
of  $1,113,500  in the form of notes payable.  The notes have no stated interest
rate  but have a face amount greater than the funded amount.  This difference is
recognized  as  interest  expense over the life of the loan.  Under the terms of
the  notes,  Dutchess  is  also  issued  incentive shares, which are recorded as
prepaid  interest  and  expensed  over  the  life  of  the  loan.

During the six months ended June 30, 2005, the Company exercised six (6) puts to
Dutchess  totaling  1,276,610 shares for net proceeds of $222,726.  Of the total
proceeds,  $125,633  was  used  to  repay portions of previously issued notes to
Dutchess  and  $67,838  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 and
accrued  interest.

The  Company  used  the  proceeds  from the notes, puts and warrants to fund its
operating cash flow deficits and to repay outstanding notes and accrued interest
and  penalties  to  Dutchess.

For more information on the transactions with Dutchess, please see Note 5, Notes
payable.

Although  no  assurance  may be given that it will be able to do so, the Company
expects to be able to continue to access funds under this arrangement to help it
fund near-term and long-term sales and marketing efforts, and to cover cash flow
deficiencies.

                                      F-20

THE  SALES  AND  MARKETING  PLAN  FOR  2005  INCLUDES  THE  FOLLOWING:

-     Hiring  sales  and  marketing  personnel.  The Company increased its sales
force in the first quarter of 2005 with experienced salespeople with the goal of
effectively  targeting  existing  and  new  markets.

-     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  these  areas  to  attract  new  customers.

-     An  improved Internet presence.  The Company launched a new website in May
2005  to  improve  content and to make the site more friendly to search engines.
The  Company  has  plans  to  add  e-commerce  functionality  at  a future date.

-     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.

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

2.  BASIS  OF  PRESENTATION

The  accompanying  unaudited  condensed consolidated financial statements, which
include  the  accounts  of  Nighthawk  Systems,  Inc.  and  its  subsidiary  PCT
(collectively  referred  to  herein  as  "the  Company"),  have been prepared in
accordance with accounting principles generally accepted in the U.S. for interim
financial information. In the opinion of management, all adjustments (consisting
of  only  normal  recurring  items), which are necessary for a fair presentation
have  been  included.  The  results  for  interim  periods  are  not necessarily
indicative  of  results that may be expected for any other interim period or for
the  full year. These condensed consolidated financial statements should be read
in  conjunction  with the financial statements and notes thereto included in the
Company's  Annual  Report  on Form 10-KSB for 2004 filed with the Securities and
Exchange  Commission  (the  "SEC").

3.  SIGNIFICANT  ACCOUNTING  POLICIES

REVENUE  RECOGNITION

Revenue from product sales is recognized when all significant obligations of the
Company  have  been  satisfied.  Revenues  from  equipment  sales are recognized
either  on  the completion of the manufacturing process, or upon shipment of the
equipment  to  the customer, depending on the Company's contractual obligations.
The  Company  occasionally  contracts to manufacture items, bill for those items
and  then  hold  them  for  later shipment to customer-specified locations.  The
Company  had  no  bill  and  hold  sales  at December 31, 2004 or June 30, 2005.
Revenue  related to airtime billing is recognized when the service is performed.
Some  customers  pre-pay airtime on a quarterly or annual basis and the pre-paid
portion  is recorded as deferred revenue.  Deferred revenue, included in accrued
expenses  on  the  balance  sheet  at  June  30,  2005, is approximately $6,300.

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.

F-21

CONCENTRATIONS

Financial  instruments that potentially subject the Company to concentrations of
credit risk consist primarily of trade accounts receivable.  Receivables arising
from  sales  to  customers  are  not collateralized and, as a result, management
continually monitors the financial condition of its customers to reduce the risk
of  loss.  At  June  30, 2005, the Company had approximately $26,900 in accounts
receivable,  net  of the allowance for doubtful accounts.  Approximately $17,300
of  this  balance,  or 64%, was from four customers.  Each balance was collected
subsequent  to  June  30,  2005.

During  the  three month period ended June 30, 2005, two customers accounted for
approximately  45% of total revenue.  During the six month period ended June 30,
2005,  two  customers  accounted  for  approximately  44%  of  total  revenue.

During  the  three  and  six  month  periods  ended June 30, 2005, the Company's
largest  supplier  accounted for approximately 55% and 49%, 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.

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.

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 three and six month periods
ended  June  30,  2005  and  the year ended December 31, 2004, 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.

RECLASSIFICATIONS

Certain  amounts reported in the consolidated financial statements for the three
and six months ended June 30, 2004 have been reclassified to conform to the June
30,  2005  presentation.

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 the first six months of 2005, no compensation expense was
recognized  in either of the periods.  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:

                                      F-22




                                                                                   
                                                  Three months ended June 30,    Six months ended June 30,
                                                 ---------------------------------------------------------
                                                     2005           2004              2005        2004
                                                 -----------------------------  ---------------------------
Net loss applicable to common stockholders:
As reported . . . . . . . . . . . . . . . . .   $ (933,517)     $ (252,530)      $(1,560,016)  $(519,729)
Total stock-based employee compensation expense
determined under fair value based method for
all employee awards, net                            (6,148)         (3,341)          (12,296)     (6,795)
                                             -------------      -----------      -----------   ----------
Pro forma net loss. . . . . . . . . . . . . .   $ (939,665)     $ (255,871)      $(1,572,312)  $(526,524)
                                             =============      ===========      ============  ==========

Net loss per share:
As reported:
Basic and diluted . . . . . . . . . . . . . . . $    (0.03)     $    (0.01)      $     (0.04)  $   (0.02)
Pro forma:
Basic and diluted                               $    (0.03)     $    (0.01)      $     (0.04)  $   (0.02)



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:




                                                               
Black-Scholes Assumptions  Three months ended June 30,   Six months ended June 30,
                               2005        2004                2005         2004
                           ----------------------------  --------------------------
Dividend yield. . . . . .      0.00%       0.00%               0.00%        0.00%
Expected volatility . . .      1.31        1.122               1.31         1.122
Risk-free interest rate .      4.50%       4.50%               4.50%        4.50%
Expected life in years        2 years     3 years            2 years       3 years



The  weighted average fair value at date of grant for options granted during the
first  quarter  of 2005 was $0.132 per share using the above assumptions.  There
were  no  options  granted  to employees during the first and second quarters of
2004  or  the  second  quarter  of  2005.

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.

4.  RELATED  PARTY  TRANSACTIONS

During  the  year  ended  December 31, 2004, a business partner of the Company's
Chairman  billed the Company $20,000 for consulting services.  The liability was
settled for 175,000 shares of the Company's common stock in the first quarter of
2005.  During  the  second  quarter  of 2005, the Company sold 100,000 shares of
common stock to this same individual for $20,000.  We did not publicly offer the
securities  and  this  person  is  an accredited investor.  No underwriters were
involved  in  the  sale.

                                      F-23

5.  NOTES  PAYABLE




                                                                          
At June 30, 2005, notes payable consist of the following:

Related parties:
Note payable, officer; unsecured; interest at prime  . . . . . . . . . . .   $    9,824
rate plus 5.5% (10.75% at June 30, 2005); due on demand
Note payable, officer; unsecured; interest at 23.99%, revolving . . . . . .       4,912
                                                                             ----------
                                                                             $   14,736
                                                                             ==========
Other:
Convertible note payable to stockholder, 8% interest  . . . . . . . . . . .  $  160,000
rate, in default as of the date of this report (1)
Notes payable to stockholder, 8% interest rate, in . . . . . . . . . . . .      165,000
default as of the date of this report (1)
Unsecured note with a financial institution, 15.99% . . . . . . . . . . . .      21,694
interest rate, revolving
Note payable, $586,200 face amount,  no stated interest                         586,200
rate but with an implied annual rate of 387.95%, due June 7, 2005 (2)
Note payable, $120,000 face amount,  no stated interest
rate but with an implied annual rate of 73.70%, due December 12, 2005 (2)       104,571
Note payable, $240,000 face amount,  no stated interest
rate but with an implied annual rate of 71.55%, due December 19, 2005 (2)       207,926
Note payable, $120,000 face amount,  no stated interest
rate but with an implied annual rate of 65.16%, due January 8, 2006 (2)         102,191
                                                                              ---------
                                                                            $ 1,347,582
                                                                              =========
Long Term:

Convertible  debenture,  8%  interest  rate,  due  August  10,  2007  (2)     $  72,014
                                                                              =========



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. In April 2004, the
Company  reached  an  agreement  with Tomas Revesz, a 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.

2)     On  April 7, 2005, Dutchess loaned the Company $488,500.  The note had no
stated  interest  rate  but had a face amount of $586,200 and matured 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.
Under  the  terms  of  the note, Dutchess was issued 250,000 incentive shares of
common  stock.  The Company recorded the fair value of these incentive shares as
prepaid  interest,  and  will  expense  their  value  over the term of the note.
Dutchess  also  required  the  Company  to hire Edgarization, LLC for consulting
services  and  Nighthawk  issued the consulting company 300,000 shares of common
stock.  The  Company  recorded  the  fair  value  of  these  shares  as  prepaid
consulting  and  will  expense  their value over the term of the agreement.  The
implied annual rate of interest is 387.95%.  The note was repaid on July 8, 2005
with  a  partial  use  of  the  proceeds  of  a  new  note.

On  May  12, 2005, Dutchess loaned the Company $100,000.  The note had no stated
interest  rate  but  had  a  face amount of $120,000 and matures on December 12,
2005.  Under the terms of the note, Dutchess was issued 100,000 incentive shares
of  common stock.  The Company recorded the fair value of these incentive shares
as  prepaid  interest,  and  will expense their value over the term of the note.
The  implied  annual  rate  of  interest  is  73.70%.

On  May  19, 2005, Dutchess loaned the Company $200,000.  The note had no stated
interest  rate  but  had  a  face amount of $240,000 and matures on December 19,
2005.  A  portion  of the proceeds of this loan was used to repay the note dated
January  18, 2005 with a face amount of $270,000, which matured on May 18, 2005.
Under  the  terms  of  the note, Dutchess was issued 200,000 incentive shares of
common  stock.  The Company recorded the fair value of these incentive shares as
prepaid  interest,  and will expense their value over the term of the note.  The
implied  annual  rate  of  interest  is  71.55%.

On  June  8, 2005, Dutchess loaned the Company $100,000.  The note had no stated
interest  rate but had a face amount of $120,000 and matures on January 8, 2006.
Under  the  terms  of  the note, Dutchess was issued 100,000 incentive shares of
common  stock.  The Company recorded the fair value of these incentive shares as
prepaid  interest,  and will expense their value over the term of the note.  The
implied  annual  rate  of  interest  is  65.16%.

On  July  8, 2005, Dutchess loaned the Company $795,154.  The note had no stated
interest rate but had a face amount of $820,154 and matures on February 8, 2006.
A portion of the proceeds of this loan was used to repay the note dated April 7,
2005  with  a face amount of $586,200, which matured on June 7, 2005.  Under the
terms of the note, Dutchess was issued 285,000 incentive shares of common stock.
The  Company  recorded  the  fair  value  of  these  incentive shares as prepaid
interest,  and  will  expense  their  value  over  the  term  of  the  note.

                                      F-24

On August 3, 2005, Dutchess loaned the Company $130,000.  The note had no stated
interest  rate  but had a face amount of $156,000 and matures on August 3, 2006.
Under  the  terms  of  the note, Dutchess was issued 285,000 incentive shares of
common  stock.  The Company recorded the fair value of these incentive shares as
prepaid  interest,  and  will  expense  their  value  over the term of the note.

During  the  period  from  January  1,  2005  through June 30, 2005, the Company
exercised  six  (6)  puts  to Dutchess totaling 1,276,610 shares for proceeds of
$222,726  less  commissions of $9,673.  Of the total proceeds, $125,633 was used
to repay portions of previously issued notes to Dutchess and $67,838 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 and
accrued  interest.

Also  during  the  period  from  January 1, 2005 through June 30, 2005, Dutchess
elected  to  convert  a  total  of $162,550 of the 36-month convertible note for
1,400,000  shares  of  the  Company's  common  stock.

During  the period from July 1, 2005 through August 1, 2005, Dutchess elected to
convert  a  total of $51,767 of the 36-month convertible note for 680,000 shares
of  the  Company's  common  stock.


6.  STOCKHOLDERS'  DEFICIT

PREFERRED  STOCK

Preferred  stock  dividends of $440 were accrued in the form of a stock dividend
equal to 2,487 shares of common stock of the Company during the six months ended
June  30,  2005.

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.

During  the  first  quarter  of  2005,  the  Company  issued  463,100 shares for
consulting and other services, of which 175,000 shares were issued to a business
partner  of  the Company's Chairman to settle a $20,000 liability for consulting
services  performed  and  expensed  in  2004.

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 for proceeds of
$97,500.  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.

During  the  second  quarter  of 2005, the Company sold 100,000 shares of common
stock  to  a business partner of the Company's Chairman for $20,000.  We did not
publicly  offer  the  securities  and this person is an accredited investor.  No
underwriters  were  involved  in  the  sale.

During  the  second quarter of 2005, the Company issued 250,000 shares of common
stock  to  Prospect Hunter, Inc. for marketing services for a period of one year
beginning  in  April  2005.

Also  during  the  second quarter of 2005, the Special Warrant holders exercised
their  right  to  969,750  shares  of  the  Company's common stock.  The Special
Warrants  were  sold  in  2004 for net proceeds of $188,775 and consisted of the
right  to  one share of the Company's common stock and one warrant to purchase a
share  of the Company's common stock for $0.30.  The warrants remain unexercised
as  of  the  date  of  this  report.

7.  SUBSEQUENT  EVENTS

In  April  2004,  the  Company,  along with current officers, board members, and
several  of  the  Company's former directors, were sued in the Colorado District
Court  by  a former director (Larry Brady) and former member of management (Mark
Brady,  Larry's  son)  for,  among other things, breach of contract for unlawful
termination and failure to provide stock allegedly promised during their service
as  Company director and chief financial officer, respectively, for part of 2001
and  part  of  2002.  The  Company  denied the allegations. Further, the Company
counter-sued  the  Bradys  for  non-performance  and breach of fiduciary duties.
Pursuant to a court order, dated June 23, 2005, the judge terminated the Bradys'
lawsuit,  dismissing  it,  outright.  In  July  of 2005, in an effort to bar the
Bradys  from raising these issues in the future, the Company engaged in a mutual
release  of  all  claims  and  issued  a total of 250,000 shares of unregistered
common  stock  and $10,000 to Lawrence Brady, Mark Brady, and their counsel. The
Company  recognized  $32,500  in expenses for the quarter ended June 30, 2005 in
relation  to  this  settlement.

                                      F-25