Good news and bad news - profit is not where we would like but there have been dramatic improvements year over year.

Nighthawk Systems Reports Second Quarter Results

Business Wire

SAN ANTONIO (Business Wire) -- Nighthawk Systems, Inc. (OTCBB: NIHK) ("Nighthawk"), a leading provider of wireless and IP-based control devices and solutions, today reported financial results for three and six months ended June 30, 2008. Revenues continued to grow as compared to previous years and the Company implemented initiatives to lower the production costs of both its set top box and power control products which it feels will allow it to generate positive cash flows and income from operations.

The Company reported revenues for the second quarter of $736,356, a 117% increase over the second quarter of 2007 revenue of $339,684 and reported revenues for the six months ended June 30, 2008 of approximately $1.6 million, a 183% increase over revenues for the six months ended June 30, 2007 of approximately $552,000. These increases could have been substantially larger, as the Company shifted the production of 3,911 set top box units from the second quarter to the third quarter of 2008 in order to implement cost savings reductions in the production of set top boxes. As a result, the Company expects a significant increase in revenues, margins and cash flows associated with the production of set top boxes beginning in the third quarter of

2008 and continuing for the foreseeable future.

Despite the shift in production of set top boxes to the third quarter of 2008, overall revenues still more than doubled from the second quarter of 2007 to the second quarter of 2008, and nearly tripled from the first six months of 2007 to the first six months of 2008. The Company experienced significant growth in its general power control products as it completed the remaining 410 units from an order of 600 power control units by a provider of photo traffic and electronic toll enforcement services. Sales of the Company's utility products decreased slightly as the Company began marketing new utility products capable of 2-way communications capabilities and additional functionality. The Company expects to begin producing these products during the third or fourth quarter of this year.

Due to the increase in overall revenues generated, the Company produced approximately twice the gross profit in the three and six-month periods ending in 2008 than in the comparable periods in 2007. Gross margins declined from 2007 to 2008 due to the addition of previously lower margin set top box revenues to the overall product mix, but as mentioned previously, going forward the Company expects margins on set top boxes to improve significantly and more closely match those of its traditional power control products. Selling, general and administrative expenses declined slightly from the 2007 periods to the 2008 periods.

Improvements in gross profit were offset by increases in depreciation and amortization expense recognized during 2008 related to the acquisition of the set top box business in October 2007. As a result, and also as a result of the recognition of approximately $200,000 in noncash interest expense associated with the early payoff of debt during the second quarter of 2008, the net loss increased from

$592,651 during the second quarter of 2007 to $732,110 during the second quarter of 2008. However, the net loss for the six months periods improved from $1,709,953 in 2007 to $1,502,308 in 2008.

"As the latter half of 2008 unfolds, we believe that many of the initiatives identified and in some cases, achieved during the first six months of the year, will have a significant positive impact on our financial results going forward. We were successful in finding alternative cost structures for the set top box product and this should accelerate the improvement not only to the Company's top line going forward, but to the bottom line and to cash flows as well," commented H. Douglas Saathoff, CEO of Nighthawk Systems, Inc. Mr.

Saathoff, added, "The commitment we made during the second quarter of this year slowed down the production, and therefore the revenue growth, that I expected to realize during the quarter and as a result, the Company will not reach some of the revenue targets that I anticipated we would reach during 2008. However, I feel the changes provide the Company with a much more realistic opportunity to achieve profitable near term growth earlier than expected."

About Nighthawk Systems, Inc.

Nighthawk is a leading provider of intelligent devices and systems that allow for the centralized, on-demand management of assets and processes. Nighthawk products are used throughout the United States in a variety of mission critical applications, including remotely turning on and off and rebooting devices, activating alarms, and emergency notification, including the display of custom messages. Nighthawk's IPTV set top boxes are utilized by the hospitality industry to provide in-room standard and high definition television and video on demand.

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