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

                   Quarterly Report Under Section 13 or 15(d)
                     of the Securities Exchange Act of 1934

                                  FORM 10-QSB/A

                  For the Quarterly Period Ended March 31, 2005

                        Commission File Number: 333-46424

                           CYBER DEFENSE SYSTEMS, INC.
             (Exact name of registrant as specified in its charter)

              FLORIDA                                           55-0876130
              -------                                           ----------
(State or other jurisdiction of                               (I.R.S. Employer
  incorporation or organization)                             Identification No.)

      10901 ROOSEVELT BOULEVARD
       ST. PETERSBURG, FLORIDA                                           33716
      -------------------------                                          -----
(Address of principal executive offices)                              (Zip code)

                   Registrant's telephone number: 727-577-0878

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports); and (2) has been subject to such filing
requirements for the past 90 days. YES |X| NO |_|

Indicate by check mark whether the registrant is an accelerated Filer (as
defined in Rule 12-b-2 of the Exchange Act). YES [_] NO [X]

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the latest practical date.

       Title of Class           Number of Shares Outstanding
----------------------------   -----------------------------
Class A Common Stock
(par value $0.001 per share)   28,019,414 as of May 18, 2005
Class B Common Stock
(Par Value $0.001 per share)      300,000 as of May 18, 2005
Class C Common Stock
Par value $0.001 per share)             2 as of May 18, 2005

The Registrant, by this Form 10-QSB/A amends the Form 10-QSB filed on May 20,
2005 including changes to the unaudited financial statements, the unaudited
notes thereto, signature pages and the certifications made by our CEO and CFO.
The remaining information in this Form 10-QSB/A has not been changed or updated
to reflect any changes in information that may have occurred subsequent to the
date of the reporting period that this Form 10-QSB/A relates.


<PAGE>

                                      INDEX

                                                                           Page
                                                                          Number

                          PART I. FINANCIAL INFORMATION

Item 1.    Financial Statements
Consolidated Balance Sheets as of
    March 31, 2005 (unaudited) and December 31, 2004...................       1
Consolidated Statements of Operations for the
    Three Months Ended March 31, 2005 and 2004 (unaudited).............       2
Consolidated Statements of Cash Flows for the
    Three Months Ended March 31, 2005 and 2004 (unaudited).............      3-4
Notes to the Consolidated Financial Statements (Unaudited).............     5-15

Item 2.    Management's Discussion and Analysis of
             Financial Condition or Plan of Operations.................      16

Item 3.    Controls and procedures.....................................      20

                           PART II. OTHER INFORMATION

Item 1.    Legal Proceedings ..........................................      20

Item 2.    Unregistered Sales of Equity Securities.....................      20

Item 3.    Defaults Upon Senior Securities.............................      21

Item 4.    Submission of Matters to a Vote of Security Holders.........      21

Item 5.    Other Information ..........................................      21

Item 6.    Exhibits and Reports on Form 8-K............................      21

Signatures.............................................................      22

<PAGE>

                   CYBER DEFENSE SYSTEMS, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                               December 31,
                                                               March 31,2005       2004
                                                               -------------   ------------
                                                                (Unaudited)
                                    ASSETS
<S>                                                              <C>            <C>
CURRENT ASSETS:
Cash and cash equivalents ..................................     $     1,424    $   206,270
Accounts receivable ........................................         770,205        747,155
Inventory ..................................................         383,679          --
                                                                 -----------    -----------
TOTAL CURRENT ASSETS .......................................       1,155,308        953,425

OTHER ASSETS
     Intangible assets, net of accumulated amortization
        of $122,914 and $99,291 respectively ...............         477,086        506,252
Property and equipment, net of accumulated depreciation
  of $2,445 and $29,513 respectively .......................           5,296          5,603
Deposits and costs of equipment ............................         150,976        150,976
Deposits on airships .......................................       1,175,000      1,175,000
Loan Costs, net of accumulated amortization of $9,828
   and $5,292 respectively .................................           8,313         12,849
Security deposits ..........................................           7,156          7,156
                                                                 -----------    -----------
TOTAL ASSETS ...............................................     $ 2,979,135    $ 2,811,261
                                                                 ===========    ===========

                      LIABILITIES AND SHAREHOLDERS' DEFICIT

CURRENT LIABILITIES:
Accounts payable and accrued liabilities ...................     $ 1,615,717    $ 1,319,772
Accounts payable related parties ...........................         474,959        468,176
Assumed debt of subsidiary .................................          29,337         33,337
Notes payable - related parties ............................         992,868      1,137,768
Note payable - Quebec, Inc. ................................         242,216        242,216
                                                                 -----------    -----------
     TOTAL CURRENT LIABILITIES .............................     $ 3,355,097    $ 3,201,269
                                                                 -----------    -----------
     Total liabilities .....................................       3,355,097      3,201,269
                                                                 -----------    -----------
Minority interest in Cyber Aerospace, Corp. (6.2%) .........          26,581

Commitments and contingencies ..............................            --             --

 SHAREHOLDERS' DEFICIT:

Class A Preferred stock, $0.001 par value; 100,000,000
   Shares authorized; none issued and outstanding ..........            --             --
Common stock:
Class A, $0.001 par value; 200,000,000 shares authorized;
28,019,414 and 25,921,562 shares issued and outstanding
respectively ...............................................          28,019         25,921
Class B, $0.001 par value; 200,000,000 shares authorized;
300,000 and 150,000 shares issued and outstanding
respectively ...............................................             300            150
Class C, $0.001 par value; 200,000,000 shares authorized;
2 shares issued and outstanding ............................            --             --
Additional paid-in capital .................................       6,191,288        461,762
Accumulated other comprehensive loss .......................          (7,064)        (7,064)
Accumulated deficit ........................................      (6,588,505)      (897,358)
                                                                 -----------    -----------
Total shareholders' deficit ................................        (375,962)      (416,589)
                                                                 -----------    -----------
     TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT ...........     $ 2,979,135    $ 2,811,261
                                                                 ===========    ===========
</TABLE>

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


                                       -1-

<PAGE>

                   CYBER DEFENSE SYSTEMS, INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)

                               THREE MONTHS ENDED
                                    MARCH 31,

                                                  2005           2004
                                               -----------   ------------

Revenues ...................................   $        --     $       --
Expenses
General and administrative .................       561,628        113,739
Write off of computer software .............        --             12,205
Impairment of goodwill .....................     4,577,069         --
                                               -----------   ------------
Total expenses .............................     5,138,697        125,944
Loss from Operations .......................    (5,138,697)      (125,944)
Other Income (Expense)
Interest income ............................        --              1,850
Interest expense ...........................      (552,450)        (3,540)
                                               -----------   ------------
Other Income (Expense), net ................      (552,450)        (1,690)
                                               -----------   ------------
Net Loss Before Income Tax and
 Minority Interest .........................    (5,691,147)      (127,634)
                                               -----------   ------------
Provision for income tax ...................        --             --
Minority interest ..........................        --             --
                                               -----------   ------------
Net loss ...................................   $(5,691,147)   $  (127,634)
                                               ===========   ============
Basic and diluted loss per share ...........   $     (0.22)   $     (0.01)
                                               ===========   ============
Weighted average number of Class A
 common shares outstanding .................    25,921,562     18,750,000
                                               ===========   ============

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


                                       -2-

<PAGE>

                   CYBER DEFENSE SYSTEMS, INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

                               THREE MONTHS ENDED
                                    MARCH 31,

                                                        2005        2004
                                                    -----------   -----------
CASH FLOWS FROM OPERATING ACTIVITIES
   Net loss .....................................   $(5,691,147)  $  (127,634)
   Adjustments to reconcile net loss to net
   cash from operating activities:
     Interest expense on beneficial conversion ..       517,000          --
     Impairment of goodwill .....................     4,577,069          --
     Issuance of stock for services .............       244,124          --
     Depreciation and amortization ..............        34,009        14,863
     Write off of property and equipment ........          --          12,205
     Gain on currency adjustment ................          --             414
   Changes in assets and liabilities
    Inventory ...................................      (383,679)         --
    Accounts payable and accrued liabilities ....       302,945        (1,184)
                                                    -----------   -----------
NET CASH FROM OPERATING ACTIVITIES ..............      (399,679)     (101,336)
                                                    -----------   -----------
CASH FLOWS FROM INVESTING ACTIVITIES
   Change in related party receivables/payables .       (16,267)      115,809
                                                    -----------   -----------
NET CASH FROM INVESTING ACTIVITIES ..............       (16,267)      115,809
                                                    -----------   -----------
CASH FLOWS FROM FINANCING ACTIVITIES

  Proceeds from notes payable, related parties ..          --           1,050
  Principal payments on notes payable
    related parties .............................       (34,900)         --
  Payments on debt assumed from subsidiary ......        (4,000)      (15,000)
  Issuance of common stock ......................       250,000          --
                                                    -----------   -----------
NET CASH FROM FINANCING ACTIVITIES ..............       211,100       (13,950)
                                                    -----------   -----------
Net (decrease) increase in cash .................      (204,846)          523
Cash and cash equivalents, beginning ............       206,270           319
                                                    -----------   -----------
Cash and cash equivalents, ending ...............   $     1,424   $       842
                                                    ===========   ===========

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


                                       -3-

<PAGE>

                   CYBER DEFENSE SYSTEMS, INC. AND SUBSIDIARY
                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
                                   (Unaudited)

                               THREE MONTHS ENDED
                                    MARCH 31,

                                                            2005       2004
                                                         ----------   ------

Supplemental disclosure of cash flow information:

Cash paid for interest ...............................   $    7,000   $ --
Cash paid for income taxes ...........................        --        --
Supplemental disclosure of non-cash investing
  and financing information:
Common Stock issued for debt .........................      117,000     --
Common Stock issued for shares of Cyber Aerospace ....    4,603,650     --
Retirement of fully depreciated assets ...............        --      29,513
                                                         ----------   ------

The accompanying notes are an integral part of these financial statements


                                       -4-

<PAGE>

                   CYBER DEFENSE SYSTEMS, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)

NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization, Acquisitions and Mergers and Controlling Shareholder --Cyber
Defense Systems, Inc. ("the Registrant" or "Cyber Defense" or "the Company") was
incorporated on August 19, 2004 in Florida. E-City Software, Inc. ("E-City") was
organized in Nevada on May 12, 2000. On Alert Systems, Inc. ("On Alert") was
incorporated on March 17, 2003 in Nevada and acquired a control position in
E-City in May of 2003 and in Cyber Aerospace Corp. ("Cyber Aerospace") in March
2004. On Alert was merged with and into Cyber Defense on September 1, 2004. On
September 1, 2004 E-City was also merged with and into Cyber Defense following
the On Alert merger. As a result of the aforementioned, Cyber Defense is the
successor to E-City and its shares of class A common stock began trading on the
Over the Counter Bulletin Board ("OTC:BB") under the symbol CYDF on September 7,
2004. Due to the nature of the mergers, the fiscal year end of the Registrant
has been changed to December 31 effective for Fiscal 2003 and the historical
financial statements of the Registrant are now those of On Alert and will
include results of operations for Cyber Aerospace from its date of inception in
March 2004, as it was previously a subsidiary of On Alert, and will also include
the results of operations of E-City from it's date of merger, September 1, 2004.

The majority and controlling shareholders of the company are Proxity, Inc.
("Proxity"), a publicly traded company ("PRXT") and Cherokee Raiders, a
partnership, ("Cherokee") owning 66.9% and 24.1% of the Class A common shares of
the Registrant respectively as at March 31, 2005. In addition, Cherokee also
owns 150,000 of the issued and outstanding shares of Class B common stock, which
allow for 1,000 votes per share, and Cherokee and Proxity each own one share of
the two shares of Class C common stock issued and outstanding. The Chief
Executive Officer of both Proxity and Cherokee is Mr. Robinson, the Chief
Executive Officer of the Registrant. As a result of the above, Cherokee is the
controlling shareholder of the Company.

Basis of Presentation -- The unaudited financial statements included in the Form
10-QSB have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-QSB and Item 310(b) of Regulation SB of the Securities and Exchange Act of
1934. The financial information furnished herein reflects all adjustments,
which, in the opinion of management, are necessary for a fair presentation of
the Company's financial position, the results of operations and cash flows for
the periods presented.

Certain information and footnote disclosures normally contained in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted, pursuant to such rules and regulations.

Condensed Interim Financial Statements -- The accompanying unaudited condensed
consolidated financial statements include the accounts of Cyber Defense Systems,
Inc. and its subsidiary, collectively ("Cyber" or the "Company"). These
financial statements are condensed and, therefore, do not include all
disclosures normally required by accounting principles generally accepted in the
United States of America. In the opinion of management, all adjustments
necessary for a fair presentation have been included in the accompanying
condensed consolidated financial statements and consist of only normal recurring
adjustments. The results of operations presented in the accompanying condensed
consolidated financial statements are not necessarily indicative of the results
that may be expected for the full year ending December 31, 2005 and such
financial statements should be read in conjunction with the Company's Form
10-KSB/A for the year ended December 31, 2004 and other filings made with the
Securities and Exchange Commission.


                                       -5-

<PAGE>

                   CYBER DEFENSE SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

Consolidation - The accompanying consolidated financial statements include the
accounts and transactions of Cyber Defense Systems, Inc. for all periods
presented and the accounts and transactions of its subsidiary from the date of
its acquisition. Intercompany accounts and transactions have been eliminated in
consolidation. At December 31, 2004, the minority interest of $26,581 shown on
the balance sheet represents the shareholdings of stockholders of Cyber
Aerospace other than Cyber Defense, of approximately 6.2% multiplied by the then
cumulative net income of the Cyber Aerospace subsidiary. The acquisition of the
minority interest by the Company was effective as of March 31, 2005 and such
minority interest was therefore eliminated at that date (see Note 3).

Use of 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, disclosure of contingent assets and
liabilities and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Business Condition - The accompanying financial statements have been prepared on
a going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. As shown in the
financial statements for the three months ended March 31, 2005, the Company
recorded no revenue and incurred a net loss of $5,691,147,including a charge for
impairment of goodwill in the amount of $4,577,069, and for the year ended
December 31, 2004, the Company recorded revenues of $3,026,287, but incurred a
net loss of $420,653. The lack of sufficient revenues and the loss from
operations raise substantial doubt about the Company's ability to continue as a
going concern for a reasonable period of time. The financial statements do not
include any adjustments relating to the recoverability and classification of
recorded assets or the amount and classification of liabilities which might be
necessary should the Company be unable to continue as a going concern. The
Company's continuation as a going concern is dependent upon its ability to
generate sufficient cash flows to meet its obligations on a timely basis, to
obtain additional financing as may be required, and ultimately to attain
successful operations (see Notes 9 and 11).

Cash and Cash Equivalents -- Cash equivalents include highly liquid short-term
investments with original maturities of three months or less, readily
convertible to known amounts of cash. At March 31, 2005 and December 31, 2004
the Company had $0 and $106,270 of cash, respectively, in excess of federally
insured limits.

Inventory -- At March 31, 2005, inventory of $383,679 primarily consists of
parts for the airships that the Company sells and services.

Property and Equipment -- Property and equipment consists of computer software.
The software is recorded at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets. Expenditures
for maintenance, repairs, and renewals are charged to expense as incurred.
Expenditures for major renewals and betterments that extend the useful lives of
existing equipment are capitalized and depreciated. On retirement or disposition
of property and equipment, the cost and accumulated depreciation are removed and
any resulting gain or loss is recognized in the statement of operations.

Long-lived assets are reviewed for recoverability whenever events or changes in
circumstances indicate that it may be impaired and its carrying amount may not
be recoverable. Recoverability of assets to be held and used is measured by
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount that the carrying amount
of the assets exceeds the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs to sell.
Based on the evaluation at March 31, 2004, an impairment of $12,205 for a
reduction in the value of certain equipment was recorded for the three month
period then ended and based on a valuation at March 31, 2005, goodwill of
$4,577,069 was impaired.

                                       -6-

<PAGE>

                    CYBER DEFENSE SYSTEMS INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

Certain marketing rights, designs and plans which have been acquired by the
Company, which are more fully described in Note 5 have not been impaired. The
Company concluded, based on industry sales forecasts and internally generated
sales and cash forecasts, that the cost of these assets was likely to be
recoverable in full.

Income Taxes -- No income taxes have been paid or accrued because the Company
has had no net taxable income since inception. The Company recognizes the amount
of income taxes payable or refundable for the current year and recognizes
deferred tax assets and liabilities for the future tax consequences attributable
to differences between the financial statement amounts of certain assets and
liabilities and their respective tax bases. Deferred tax assets and deferred
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years those temporary differences are expected to be recovered or
settled. Deferred tax assets are reduced by a valuation allowance to the extent
that uncertainty exists as to whether the deferred tax assets will ultimately be
realized.

Loss Per Share -- Basic loss per share is calculated by dividing loss available
to Class A common shareholders by the weighted-average number of Class A common
shares outstanding during each period.

Revenue Recognition - The Company recognizes service revenues when the services,
as specified by the customer and agreed to by the Company, have been performed
and the customer accepts the services, and the services are billed. Airship
sales are recognized when contract specifications are met, the price is
determined, title passes to the customer and the customer is billed.
Reasonableness of collectibility of all revenue transactions is a key element
before the transactions are recorded.

Research and Development -- Research and development revenue includes receipts
related to the testing of airships on cost plus fixed fee contracts net of the
related expenses.

Recent Accounting Pronouncements -- In April 2003, the FASB issued SFAS No. 149,
"Amendment of Statement 133 on Derivative Instruments and Hedging Activities."
The Statement amends and clarifies accounting for derivative instruments,
including certain derivative instruments embedded in other contracts entered
into or modified after June 30, 2003. The guidance should be applied
prospectively. The provisions of this Statement that relate to SFAS 133
Implementation Issues that have been effective for fiscal quarters that began
prior to June 15, 2003, should continue to be applied in accordance with
respective effective dates. In addition, certain provisions relating to forward
purchases or sales of when-issued securities or other securities that do not yet
exist, should be applied to existing contracts as well as new contracts entered
into after June 30, 2003. The adoption of SFAS No. 149 had no impact on the
Company's financial statements.

In May 2003, the FASB issued Statement of Accounting Standards No. 150
"Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity" (SFAS No. 150). SFAS No. 150 establishes standards for
classification and measurement in the statement of financial position of certain
financial instruments with characteristics of both liabilities and equity. It
requires classification of a financial instrument that is within its scope as a
liability (or an asset in some circumstances). SFAS No. 150 is effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period beginning after June
15, 2003. The adoption of SFAS No. 150 had no impact on the Company's financial
statements.


                                       -7-

<PAGE>

                    CYBER DEFENSE SYSTEMS INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

In May 2003, the consensus on EITF Issue No. 01-08, "Determining Whether an
Arrangement Contains a Lease," was issued. The guidance in the consensus applies
to the purchase or sale of goods and services under various types of contracts,
including outsourcing arrangements. Based on the criteria in the consensus, both
parties to an arrangement are required to determine whether the arrangement
includes a lease within the scope of SFAS No. 13, "Accounting for Leases." The
new requirement applies prospectively to new or modified arrangements for
reporting periods beginning after May 28, 2003. Accordingly, as of August 1,
2003, the company accounted for new or modified arrangements based on this
guidance. Adoption of this standard did not have an impact on the Company's
financial statements.

In December 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities
which was originally issued in January 2003. FIN 46 or revised provides guidance
on the consolidation of certain entities when control exists through other
entities created after January 31, 2003. The Company does not hold a variable
interest in any enterprise. Accordingly, the Company does not expect the
provisions of FIN 46 to have a material effect on future interim or annual
financial statements.

On December 18, 2003 the SEC issued Staff Accounting Bulletin No. 104, Revenue
Recognition ("SAB 104"), which supersedes SAB 101, Revenue Recognition in
Financial Statements. SAB 104's primary purpose is to rescind accounting
guidance contained in SAB 101 related to multiple element revenue arrangements,
which was superseded as a result of the issuance of EITF 00-21, Accounting for
Revenue Arrangements with Multiple Deliverables. The adoption of SAB 104 did not
have a material impact the Company's financial position or results of
operations.

In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based
Payment, which is an amendment to SFAS No. 123, Accounting for Stock-Based
Compensation and supersedes APB Opinion No. 25, Accounting for Stock Issued to
Employees. This new standard eliminates the ability to account for share-based
compensation transactions using Accounting Principles Board (APB) No. 25,
Accounting for Stock Issued to Employees (APB 25) and requires such transactions
to be accounted for using a fair-valued-based method, with the resulting cost
recognized in the Company's financial statements. This new standard is effective
for annual periods beginning after June 15, 2005. The Company has not awarded or
granted any share-based compensation to date and, therefore, the adoption of
this standard is not expected to have any effect on the Company's financial
position or results of operations until such time as share-based compensation is
granted.

In December 2004, the FASB issued SFAS No. 153, Exchange of Non-monetary Assets.
SFAS No. 153 amends APB Opinion No. 29, Accounting for Non-monetary
Transactions, to eliminate the exception for non-monetary exchanges of similar
productive assets. The Company will be required to apply this statement to
non-monetary exchanges after December 31, 2005. The adoption of this standard is
not expected to have a material effect on the Company's financial position or
results of operations.

Fair Values of Financial Instruments -- The carrying amounts reported in the
balance sheet for notes payable approximate their fair values because the
interest rates approximate current interest rates to be charged on similar
borrowings.


                                       -8-

<PAGE>

                   CYBER DEFENSE SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

NOTE 2 - RELATED PARTY TRANSACTIONS

Proxity, Inc. ("Proxity") - Proxity owned 100% of the stock of On Alert Systems,
Inc. at December 31, 2003. On Alert purchased the GDS and Traptec licenses from
Proxity at Proxity's cost. As of December 31, 2003, On Alert had accounts
payable and notes payable to Proxity of $184,506 and $107,011, respectively. As
of March 31, 2005, the Company had accounts payable and notes payable to Proxity
of $474,959 and $-0- respectively.

On Alert Systems - On Alert was incorporated on March 17, 2003 in Nevada and
acquired a control position in E-City in May of 2003 and in Cyber Aerospace in
March 2004. On Alert was merged with and into Cyber Defense on September 1,
2004.

E-City Software - On May 23, 2003, the Company paid $40,000 for 35,000,000
shares of common stock of E-city Software, Inc., representing 77.6% of the total
shares outstanding. On September 1, 2004, the Company issued 333,562 shares of
Cyber Common Stock Class A for the remaining shares of E-City. E-City Software,
Inc. is a public company incorporated in Nevada on May 12, 2000. The Company
acquired E-City for its status as a public entity.

Cyber Aerospace - Prior to the three month period ended March 31, 2005, Cyber
Aerospace had previously been consolidated with the Company as it was a 93.8%
owned subsidiary. All transactions and account balances between the Company and
Cyber Aerospace were eliminated during consolidation. On March 31, 2005, the
Company purchased the minority interest so that Aerospace became a wholly owned
subsidiary and was then merged with and into the Company (see Note 3).

Cherokee Raiders - Cherokee's general partner is William C. Robinson. Cherokee
and Mr. Robinson also own control positions with proxies in Proxity. As of
December 31, 2004, the Company had a note payable to Cherokee of $21,166. As of
March 31, 2005, the Company had a note payable to Cherokee in the amount of
$868,079.

William C. Robinson - Mr. Robinson has ownership in Proxity and Cherokee
Raiders. He is also the CEO and CFO of the Company.

NOTE 3 - ACQUISITION OF MINORITY INTEREST IN SUBSIDIARY

On March 31, 2005, the Company acquired the 6.19% minority interest in its
majority owned subsidiary, Cyber Aerospace Corporation ("Aerospace"), and merged
Aerospace into Cyber. The merger was accounted for by the purchase method of
accounting and was completed in order to consolidate operations into one
company, with one name, and one group of shareholders, as well as to avoid what
had become unnecessary bookkeeping expenses associated with maintaining
Aerospace as a separate entity. For each share of Aerospace, the beneficial
owner received one share of Cyber Defense. As a result, 1,650,000 shares of
class A common stock were issued for the 6.19% ownership, along with 150,000
shares of class B common stock.

Aerospace had been a majority owned subsidiary of On Alert from the date of its
inception in March 2004 through September 1, 2004 at which time it became a
majority owned subsidiary of Cyber pursuant to the Domicile merger between
Cyber, On Alert and E-City.


                                       -9-

<PAGE>

                   CYBER DEFENSE SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

The purchase price for the acquisition of the Aerospace minority interest was
$4,603,650, comprised of 1,650,000 shares of common stock valued at $2.79 per
share. The share price was determined by the average price for shares sold in
the market for the months of February and March discounted at 10% for a block
sale. A nominal value was given to the 150,000 Class B shares issued.

The purchase price was accounted for in accordance with FAS 141, "Business
Combinations". Subsequent to the acquisition and merger, the goodwill was
impaired. Cyber allocated all but $24,593 of the purchase price, to goodwill. As
a result of the losses incurred through March 31, 2005, the minority interest
had been eliminated. There were no net assets attributable to the minority
shareholders. All shares of Class A common stock and Class B common stock that
comprise the purchase price have been shown in these financial statements as if
they were issued at March 31, 2005.

The assets acquired and liabilities assumed were as follows:

Assets Acquired
Accounts receivable                          $   13,386
Deposits on airships for resale                  21,051
Intangible assets:
               Plans & designs                    1,145
               Techsphere marketing rights        7,403
                                             ----------
               Net Intangibles                    8,548
Goodwill                                      4,577,069
                                             ----------
Total Assets Acquired                        $4,620,054
                                             ----------
Liabilities Assumed
Accounts payable & accrued expenses          $   14,168
Notes payable - related parties                   2,236
                                             ----------
Total Liabilities Assumed                        16,404
                                             ----------
Net Assets Acquired                          $4,603,650
                                             ----------

NOTE 4 - INTANGIBLE ASSETS

During 2004, the Company purchased exclusive marketing rights from Techsphere
International ("TSI"). These rights were recorded at their cost of $500,000
because TSI is a non-related party. These marketing rights are being amortized
over six years, which is the life of the contract and the monthly amortization
expense is $6,944. In 2004, the Company purchased designs and plans for unmanned
air vehicles (UAVs) which have a useful life of 3 years. The cost was $100,000
and the monthly amortization is $2,777. Amortization expense was $29,166 for the
three months ended March 31, 2005.


                                      -10-

<PAGE>

                    CYBER DEFENSE SYSTEMS INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)

NOTE 5 - NOTE PAYABLE - QUEBEC

On August 23, 2004, the Company and Quebec, Inc., ("Quebec") a Canadian
corporation, executed a Secured Commercial Promissory Note pursuant to the terms
of which the Company borrowed $242,216 from Quebec. Prepaid interest of $9,316
for 61 days was withheld from the initial funding and thereafter interest
accrues at an annual rate of 24%. The Note is secured by securities owned by Mr.
Robinson, the company's Chief Executive Officer, and will be further secured by
equipment purchased by the Company which was the subject Equipment upon which
deposits were paid from a portion of the loan proceeds. Prepayment was required
from any equity or loan funds raised by the Company and full payment of all
remaining principle and accrued interest is due February 18, 2005. Payment terms
were amended on February 8, 2005 to provide for payment of one half the
principal and all accrued interest through March 10, 2005, as well as
transaction costs and extension fees, through the sale of a portion of the
securities owned by Mr. Robinson. All funds paid to the lender from such
securities sales constitute a loan by Mr. Robinson to the Company. If the
Company does not raise equity or loan funds sufficient to repay the remaining
balance due within the 45 day period immediately following the payment of the
first half of the loan, then the remainder of the loan will be repaid, with
interest, from continued sales of securities pledged by Mr. Robinson, which
payments would constitute additional loans by Mr. Robinson to the Company. Costs
incurred in connection with the loan were capitalized and are being amortized
over the life of the loan. For the period ended March 31, 2005, amortization
expense of the loan costs was $4,536.

On April 11, 2005, the Company and Quebec executed another amendment to the
payment terms whereby an extension fee of $25,000 was paid and Quebec agreed to
obtain payment of a portion of the loan by selling, at the earliest time
available to it, and by any legal means available, sufficient shares of the
collateral to re-pay $116,450 of principal and $28,997 for interest through May
10, 2005. Amounts remaining due after the aforementioned shall be payable from
any equity or loan proceeds obtained by the Company from the date of this
amendment until the repayment of all amounts due under the loan; the proceeds of
the second traunche of loan proceeds from the Millenium Group et al pursuant to
the SB-2 filing requirement or from corporate cash flow and resources as
available during the 45 days subsequent to this amendment.


                                      -11-

<PAGE>

                    CYBER DEFENSE SYSTEMS INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)

NOTE 6 - NOTES PAYABLE - RELATED PARTIES

<TABLE>
<CAPTION>
                                                               March 31,   December 31,
                                                                  2005        2004
                                                               ---------   ------------
<S>                                                             <C>         <C>
Note payable - Joe Theisman - interest accrues at 18%
  per annum, due April 30 through September 30, 2005,
  in equal monthly installments, unsecured .................    $   --      $  110,000

Note payable - Cherokee Raiders - interest accrues at 12%
  per annum, due on demand and is unsecured ................      24,789        58,993

Note payable - Cherokee Raiders - interest accrues at 12%
  per annum, due November 30, 2005 and is unsecured ........     868,079       868,775

Note payable - Jim Alman - interest accrues at 8% per
  Annum, due December 5, 2005 ..............................     100,000       100,000
                                                                --------    ----------
                                                                $992,868    $1,137,768
                                                                --------    ----------
</TABLE>

NOTE 7 - STOCKHOLDERS' DEFICIT

Common Stock - At March 31, 2005, the Company had 28,019,414 shares of Class A
Common Stock, 300,000 shares of Class B Common Stock, and 2 shares of Class C
Common Stock issued and outstanding with 200,000,000 shares of each of Class A,
B and C authorized with a par value of $0.001. In addition, the Company had
100,000,000 shares of Class A Preferred Stock authorized, par value$0.001, with
no shares issued and outstanding. The Company had $6,191,288 in additional paid
in capital and an accumulated deficit of $6,588,505 of which $4,577,069 was for
impairment of goodwill. Class B Common Stock allows for 1000 votes per share.
Class C Common Stock allows for one vote per share and entitles the holder to
receive the net assets of the Company upon dissolution. At December 31, 2004,
the Company had 25,921,562 shares of Class A Common Stock, 150,000 shares of
Class B Common Stock issued and outstanding and 2 shares of Class C common stock
issued and outstanding with 200,000,000 shares of each of Class A, Class B and
Class C Common Stock authorized, par value $.001.

NOTE 8 - INCOME TAXES

The Company has paid no federal or state income taxes since its incorporation.
As of March 31, 2005 and December 31, 2004, the Company had net operating loss
carry forwards for federal income tax reporting purposes of approximately
$6,537,000 and $875,000 respectively, which if unused, will expire through 2025.
Deferred tax assets are reduced by a valuation allowance to the extent that
uncertainty exists as to whether the deferred tax assets will ultimately be
realized.


                                      -12-

<PAGE>

                    CYBER DEFENSE SYSTEMS INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

NOTE 9 - WORKING CAPITAL FINANCINGS

On February 16, 2005 the Company and Commerce Funding Corporation (CFC) executed
a Working Capital Financing Proposal relative to a potential secured financing
of up to $3,000,000 for a two year term. All borrowings under this potential
financing would be collateralized by a first security UCC-1 filing on all assets
related to accounts receivable and a Cross Corporate Guaranty by Proxity, Inc.,
the Company's major shareholder and parent. In addition, CFC requires a Limited
Guaranty of certain provisions in the loan agreement by the Company's Chief
Executive Officer. The interest rate on borrowings would be Prime, as quoted in
the Wall Street Journal, plus 1/2 % and there will be a one time facility fee of
1% of the total credit line payable out of the first funding. In addition, all
borrowings are subject to eligibility as defined and determined by CFC and the
advance rate on eligible receivables, as defined, is 90% for direct Government
accounts and 80% for Commercial Accounts. Closing of this transaction is subject
to acceptable documentation, due diligence by CFC and other terms which are to
be negotiated amongst the parties.

On February 18, 2005, the Company and Bedlington Securities, Ltd. ("Bedlington")
executed a Convertible Promissory Note (the "Bedlington Note") for the principal
amount of $250,000 was advanced to the Company on February 25, 2005. Interest
was to accrue on the Bedlington Note at the rate of 18% per annum and repayment
terms required six equal monthly payments commencing April 30, 2005 with the
last payment on September 30, 2005 to include all accrued interest. Bedlington
had the right to convert the outstanding amount of the Bedlington Note into
Class A common shares of the Company at any time upon five days notice and such
conversion was to be calculated at 50% of the average closing price of the Class
A common shares for the 30 days preceding the date of conversion. All amounts so
converted were not to be subject to any accrual of interest. In addition, the
Company had the right to pay amounts due under the Bedlington Note at any time
with shares of its Class A common stock pursuant to the same formula by
notifying Bedlington of its intent to do so and requesting a Notice of
Conversion from Bedlington. On February 22, 2005, the Company informed
Bedlington that it would make payment in full with common shares and Bedlington
submitted a Notice of Conversion to the Company. As a result, the Company issued
217,391 shares of its Class A common stock pursuant to the calculation described
above.

NOTE 10 - COMMITMENTS AND CONTINGENCIES

On January 1, 2005, we entered into an employment agreement with our Chief
Executive Officer, William Robinson. The term of this agreement is for a period
of one year, subject to renewal for successive one year periods, unless 14 days
prior written notice is provided by either party. Mr. Robinson will receive an
annual salary of not less than $250,000. In addition, we will issue Mr. Robinson
250,000 shares of our Class A Common Stock on the first anniversary of the
effective date of the agreement and every anniversary thereafter. The agreement
may be terminated for due cause, upon death, upon disability, voluntary
termination by him, or us, without due cause by providing 14 days prior written
notice. Mr. Robinson is subject to a non-compete and non-solicitation provision
during the employment term and during a specified Post-Employment Period (as
defined in the employment agreement).


                                      -13-

<PAGE>

                    CYBER DEFENSE SYSTEMS INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

On January 1, 2005, we entered into an employment agreement with our President,
James D. Alman. The term of this agreement is for a period of one year, subject
to renewal for successive one year periods, unless 14 days prior written notice
is provided by either party. Executive will receive an annual salary of not less
than $120,000. In addition, we will issue Mr. Alman 50,000 shares of our Class A
Common Stock on the first anniversary of the effective date of the agreement and
every anniversary thereafter. The Agreement may be terminated for due cause,
upon death, upon disability, voluntary termination by him, or us without due
cause by providing 14 days prior written notice. Mr. Alman is subject to a
non-compete and non-solicitation provision during the employment term and during
a specified Post-Employment Period.

On January 1, 2005, we entered into an employment agreement with our
Vice-President, Barry Nelsen. The term of this agreement is for a period of one
year, subject to renewal for successive one year periods, unless 14 days prior
written notice is provided by either party. Mr. Nelsen will receive an annual
salary of not less than $120,000. In addition, we will issue Mr. Nelsen 40,000
shares of our Class A Common Stock on the first anniversary of the effective
date of the agreement and every anniversary thereafter. The agreement may be
terminated for due cause, upon death, upon disability, or voluntary termination
by him. Mr. Nelsen is subject to a non-compete and non-solicitation provision
during the employment term and during a specified Post-Employment Period.

On January 1, 2005, we entered into an employment agreement with Jaffray
Stephens. The term of this agreement is one year, subject to renewal for
successive one year periods, unless 14 days prior written notice is provided by
either party. Mr. Stephens will receive an annual salary of not less than
$65,000. In addition, we will issue Mr. Stephens 25,000 shares of our Class A
Common Stock on the first anniversary of the effective date of the agreement and
every anniversary thereafter. The Agreement may be terminated for due cause,
upon death, upon disability, voluntary termination by him, or us without due
cause by providing 14 days prior written notice. Mr. Stephens is subject to a
non-compete and non-solicitation provision during the employment term and during
a specified Post-Employment Period.

The Company has an exclusive agreement with Traptec Corporation to represent
Traptec Corporation as a marketing representative. The parties have agreed to
divide equally the before tax net profits generated from any such sales as
generated under the agreement. However, the parties have agreed that if their
efforts have not generated over $200,000 in net sales profits, to be divided
equally, by the end of the 2005, the total license fee for that year shall be at
least $100,000 to Traptec Corporation. As of March 31, 2005, no sales have been
made in connection with this license.


                                      -14-

<PAGE>

                    CYBER DEFENSE SYSTEMS INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

NOTE 11 - SUBSEQUENT EVENTS

On April 1, 2005, the Company entered into a Securities Purchase Agreement,
dated as of April 1, 2005, by and among the Company, and AJW Partners, LLC
("Partners"), AJW Offshore, Ltd. ("Offshore"), AJW Qualified Partners
("Qualified") and New Millenium Capital Partners, II, LLC ("Millenium").
Partners, Offshore, Qualified and Millenium are collectively referred to as the
"Purchasers". We authorized the sale to the Purchasers of Secured Convertible
Term Notes in the aggregate principal amount of Four Million Dollars
($4,000,000). The $4.0 million is to be funded in three traunches ($1.5 million
on April 4, 2005, $1.2 million upon filing the Registration Statement and $1.3
million upon effectiveness of the Registration Statement). The offering was made
pursuant to Section 4(2) of the Securities Act of 1933, as amended. The Notes
bear interest at 8% per annum, unless the common stock of the Company is greater
than $4.25 per share for each trading day of a month, in which event no interest
is payable during such month. The notes are convertible into common stock of the
Company at a 40% discount to the average of the three lowest trading prices of
the common stock during the 20 trading day period prior to conversion.

In connection with the offering, the Company issued an aggregate of 4,000,000
warrants to purchase common stock at a price of $4.25 per share. The warrants
are exercisable for a period of five years. The conversion of the notes are
subject to an effective Registration Statement. The Company has the right to
redeem the notes under certain circumstances and the notes are secured by all of
the Company's assets, except for its accounts receivable and proceeds of
inventory. The proceeds of the offering will be used to repay certain
indebtedness and for working capital. The initial funding of $1.5 million was
received on April 4, 2005.

Affiliated Business Services, Inc. earned a finders fee of 75,000 shares for
introducing the Company to the lending group.

On April 13, 2005, Proxity, our majority shareholder, announced its intention to
grant a dividend of shares of our common stock, owned by Proxity, to its holders
of record. For each 500 shares of Proxity common stock held by a Proxity
shareholder on the record date, Proxity will grant a dividend of one share of
common stock of Cyber Defense. Proxity intends to distribute a total of
approximately 560,000 shares of Cyber Defense to its holders. We have agreed to
register such shares under the Securities Act of 1933, as amended. Mr. Robinson,
our CEO and CFO owns approximately 33% of the outstanding shares of capital
stock of Proxity.


                                      -15-

<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
LIQUIDITY AND CAPITAL RESOURCES

                                     GENERAL

The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
Form 10-QSB.

This management's discussion and analysis of financial conditions and results of
operations contains certain "forward-looking statements" as defined in the
Private Securities Litigation Reform Act of 1995. Such statements relating to
future events and financial performance are forward-looking statements that
involve risks and uncertainties, detailed from time to time in the Company's
various SEC filings. No assurance can be given that any such matters will be
realized.

                              RESULTS OF OPERATIONS

The Three Months Ended March 31, 2005 Compared to the Three Months Ended March
31, 2004

General and administrative expenses totaled $561,628 for the three months ended
March 31, 2005 as compared to $113,739 for the three months ended March 31,
2004, a net increase of $447,889. The increase is primarily due to increased
payroll, specialized consulting and legal fees as well as the inclusion of the
general and administrative expenses of Cyber Aerospace for the full quarter in
the amount of $32,067 whereas in the 2004 period such expenses were from March
15, 2004 (the date of inception) through March 31, 2004 and totaled $7,200.

In addition, there was a charge for the three months ended March 31, 2005 of
$4,577,069 for the impairment of goodwill that was recorded as a result of the
acquisition of the 6.2% minority interest in Cyber Aerospace on March 31, 2005
for which no prior year comparable expense exists. The Company had previously
owned 93.8%. For the three months ended March 31, 2004, there was the write off
for an impairment in the value of computer software of $12,205 for which no
current year comparable expense exists.

Other income and expense for the three months ended March 31, 2005 consists of
interest expense of $552,450 which is comprised of interest expense of $35,450
on notes payable and $517,000 of interest expense pursuant to the beneficial
conversion feature of certain exchanges of debt to common stock. Other income
and expense for the three months ended March 31, 2004 was comprised of interest
income of $1,850 and interest expense of $3,540.

                         LIQUIDITY AND CAPITAL RESOURCES

The Company's primary needs for liquidity and capital resources are the funding
of salaries and other administrative expenses related to the management of the
Company as well as for payment of the cost of products sold and inventory.

The Company's cash and cash equivalents of $1,424 as of March 31, 2005 is not
sufficient to support current levels of operations for the next twelve months
and it is therefore necessary for the Company to seek additional financing.

The Company has entered into agreements with Equipment Depot, Inc., of Deerfield
Beach, Florida, to acquire approximately $8,100,000, as valued, of aerospace R &
D and production equipment to further the fulfillment of the companies'
anticipated contracts and purchase orders. The transactions are expected to
close upon the completion of the financing institution's due diligence and legal
review. The Company is paying approximately $5.4 million, in a combination of
cash and the exchange of newly issued common stock of the Company, valued at
$2.50 a share for the purposes of the transactions, to complete the purchase.


                                      -16-

<PAGE>

On February 16, 2005 the Company and Commerce Funding Corporation (CFC) executed
a Working Capital Financing Proposal relative to a potential secured financing
of up to $3,000,000 for a two year term. All borrowings under this potential
financing would be collateralized by a first security UCC-1 filing on all assets
related to accounts receivable and a Cross Corporate Guaranty by Proxity, Inc.,
the Company's major shareholder and parent. In addition, CFC requires a Limited
Guaranty of certain provisions in the loan agreement by the Company's Chief
Executive Officer. The interest rate on borrowings would be Prime, as quoted in
the Wall Street Journal, plus 1/2 % and there will be a one time facility fee of
1% of the total credit line payable out of the first funding. In addition, all
borrowings are subject to eligibility of accounts receivable as defined and
determined by CFC and the advance rate on eligible receivables, as defined, is
90% for direct Government accounts and 80% for Commercial Accounts. Closing of
this transaction is subject to acceptable documentation, due diligence by CFC
and other terms which are to be negotiated amongst the parties.

On February 18, 2005, the Company and Bedlington Securities, Ltd. ("Bedlington")
executed a Convertible Promissory Note (the "Bedlington Note") for the principal
amount of $250,000 which amount was advanced to the Company on February 25,
2005. Interest was to accrue on the Bedlington Note at the rate of 18% per annum
and repayment terms required six equal monthly payments commencing April 30,
2005 with the last payment on September 30, 2005 to include all accrued
interest. Bedlington had the right to convert the outstanding amount of the
Bedlington Note into Class A common shares of the Company at any time upon five
days notice and such conversion would be calculated at 50% of the average
closing price of the Class A common shares for the 30 days preceding the date of
conversion. All amounts so converted will not be subject to any accrual of
interest. In addition, the Company had the right to pay any amounts due under
the Bedlington Note at any time with shares of its Class A common stock pursuant
to the same formula by notifying Bedlington of its intent to do so and
requesting a Notice of Conversion from Bedlington. On February 22, 2005, the
Company notified Bedlington of its intention to make payment in full with common
shares and Bedlington submitted a Notice of Conversion to the Company. As a
result, the Company issued 217,391 shares of its Class A common stock pursuant
to the calculation described above.

On April 1, 2005, the Company entered into a Securities Purchase Agreement,
dated as of April 1, 2005, by and among the Company, and AJW Partners, LLC
("Partners"), AJW Offshore, Ltd. ("Offshore"), AJW Qualified Partners
("Qualified") and New Millennium Capital Partners, II, LLC ("Millennium").
Partners, Offshore, Qualified and Millennium are collectively referred to as the
"Purchasers". We authorized the sale to the Purchasers of Secured Convertible
Term Notes in the aggregate principal amount of Four Million Dollars
($4,000,000). The $4.0 million is to be funded in three traunches ($1.5 million
on April 4, 2005, $1.2 million upon filing the Registration Statement and $1.3
million upon effectiveness of the Registration Statement). The offering was made
pursuant to Section 4(2) of the Securities Act of 1933, as amended. The Notes
bear interest at 8% per annum, unless the common stock of the Company is greater
than $4.25 per share for each trading day of a month, in which event no interest
is payable during such month.


                                      -17-

<PAGE>

The notes are convertible into common stock of the Company at a 40% discount to
the average of the three lowest trading prices of the common stock during the 20
trading day period prior to conversion.

In connection with the offering, the Company issued an aggregate of 4,000,000
warrants to purchase common stock at a price of $4.25 per share. The warrants
are exercisable for a period of five years. The conversion of the notes are
subject to an effective Registration Statement. The Company has the right to
redeem the notes under certain circumstances and the notes are secured by all of
the Company's assets, except for its accounts receivable and proceeds of
inventory. The proceeds of the offering will be used to repay certain
indebtedness and for working capital. The $1.5 million initial funding was
received on April 4, 2005.

Subject to realization of the balance of the above described financing and the
financing available from CFC, if we generate eligible receivables to finance, we
anticipate being in a position to fund the anticipated level of operations for
at least one year.

Critical Accounting Policies

The Company's discussion and analysis of its financial condition and results of
operations are based upon Cyber Defense's financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires the use of
estimates that affect the reported amounts of assets, liabilities and expenses.
The Company evaluates its estimates on an ongoing basis, including estimates for
Income tax assets and liabilities and the impairment of the value of
investments. The Company bases its estimates on historical experience and on
actual information and assumptions that are believed to be reasonable under the
circumstances at that time. Actual results may differ from these estimates under
different assumptions or conditions. The Company believes that the following
critical accounting policies affect its more significant estimates used in the
preparation of its financial statements.

Revenue Recognition

The Company recognizes service revenues when the services, as specified by the
customer and agreed to by the Company, have been performed and the customer
accepts the services, and the services are billed. Airship sales are recognized
when contract specifications are met, the price is determined, title passes to
the customer and the customer is billed. Reasonableness of collectibility of all
revenue transactions is a key element before the transactions are recorded.

Accounting for Income Taxes.

The Company currently records a full valuation allowance against the deferred
tax benefit for net operating losses generated, since in management's opinion
the net operating losses do not meet the more likely than not criteria for
future realization.

Long Lived Assets

Long-lived assets are reviewed for recoverability whenever events or changes in
circumstances indicate that it may be impaired and its carrying amount may not
be recoverable. Recoverability of assets to be held and used is measured by
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount that the carrying amount
of the assets exceeds the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs to sell.

Recent Accounting Pronouncements

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." The Statement amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts entered into or modified after June 30,
2003.


                                      -18-

<PAGE>

The guidance should be applied prospectively. The provisions of this Statement
that relate to SFAS 133 Implementation Issues that have been effective for
fiscal quarters that began prior to June 15, 2003, should continue to be applied
in accordance with respective effective dates. In addition, certain provisions
relating to forward purchases or sales of when-issued securities or other
securities that do not yet exist, should be applied to existing contracts as
well as new contracts entered into after June 30, 2003. The adoption of SFAS No.
149 is not expected to have an impact on the Company's financial statements.

In May 2003, the FASB issued Statement of Accounting Standards No. 150
"Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity" (SFAS No. 150). SFAS No. 150 establishes standards for
classification and measurement in the statement of financial position of certain
financial instruments with characteristics of both liabilities and equity. It
requires classification of a financial instrument that is within its scope as a
liability (or an asset in some circumstances). SFAS No. 150 is effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period beginning after June
15, 2003. The Company has not yet determined the impact, if any, of the adoption
of SFAS on its financial position or results of operations.

In May 2003, the consensus on EITF Issue No. 01-08, "Determining Whether an
Arrangement Contains a Lease," was issued. The guidance in the consensus applies
to the purchase or sale of goods and services under various types of contracts,
including outsourcing arrangements. Based on the criteria in the consensus, both
parties to an arrangement are required to determine whether the arrangement
includes a lease within the scope of SFAS No. 13, "Accounting for Leases." The
new requirement applies prospectively to new or modified arrangements for
reporting periods beginning after May 28, 2003. Accordingly, as of August 1,
2003, the company accounted for new or modified arrangements based on this
guidance. Adoption of this standard did not have an impact on our company's
financial statements.

In December 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities
which was originally issued in January 2003. FIN 46 or revised provides guidance
on the consolidation of certain entities when control exists through other
entities created after January 31, 2003. The Company does not hold a variable
interest in any enterprise. Accordingly, the Company does not expect the
provisions of FIN 46 to have a material effect on future interim or annual
financial statements.

On December 18, 2003 the SEC issued Staff Accounting Bulletin No. 104, Revenue
Recognition ("SAB 104"), which supersedes SAB 101, Revenue Recognition in
Financial Statements. SAB 104's primary purpose is to rescind accounting
guidance contained in SAB 101 related to multiple element revenue arrangements,
which was superseded as a result of the issuance of EITF 00-21, Accounting for
Revenue Arrangements with Multiple Deliverables. The adoption of SAB 104 did not
have a material impact the Company's financial position or results of
operations.

In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based
Payment, which is an amendment to SFAS No. 123, Accounting for Stock-Based
Compensation and supersedes APB Opinion No. 25, Accounting for Stock Issued to
Employees. This new standard eliminates the ability to account for share-based
compensation transactions using Accounting Principles Board (APB) No. 25,
Accounting for Stock Issued to Employees (APB 25) and requires such transactions
to be accounted for using a fair-valued-based method, with the resulting cost
recognized in the Company's financial statements.


                                      -19-

<PAGE>

This new standard is effective for annual periods beginning after June 15, 2005.
The Company has not awarded or granted any share-based compensation to date and,
therefore, the adoption of this standard is not expected to have any effect on
the Company's financial position or results of operations until such time as
share-based compensation is granted.

In December 2004, the FASB issued SFAS No. 153, Exchange of Non-monetary Assets.
SFAS No. 153 amends APB Opinion No. 29, Accounting for Non-monetary
Transactions, to eliminate the exception for non-monetary exchanges of similar
productive assets. The Company will be required to apply this statement to
non-monetary exchanges after December 31, 2005. The adoption of this standard is
not expected to have a material effect on the Company's financial position or
results of operations.

ITEM 3. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures.

Our chief executive officer who is also our chief financial officer, after
evaluating our "disclosure controls and procedures" (as defined in the
Securities Exchange Act of 1934 (the "Exchange Act") Rules 13a-14(c) and
15d-14(c) have concluded that as of a date within 90 days of the filing date of
this report (the "Evaluation Date") our disclosure controls and procedures are
effective to ensure that information we are required to disclose in reports that
we file or submit under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in Securities and Exchange Commission
rules and forms.

Changes in internal controls

Subsequent to the Evaluation Date, there were no significant changes in our
internal controls or in other factors that could significantly affect our
disclosure controls and procedures, nor were there any significant deficiencies
or material weaknesses in our internal controls. As a result, no corrective
actions were required or undertaken.

                            PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None

ITEM 2. CHANGES IN SECURITIES

During the quarter the Company issued 2,097,852 shares of its class A common
stock comprising 1,650,000 shares pursuant to the acquisition of the minority
interest of Cyber Aerospace and its merger with and into Cyber Defense; 217,391
shares to Bedlington Securities as full payment of a Note Payable in the amount
of $250,000; 100,000 shares to an attorney in consideration of services valued
at $150,000, 100,000 shares to a lender in full payment of a Note Payable in the
amount of $117,000, 25,000 shares to a consultant for services valued at $77,250
and 5,461 shares to another consultant who provided services valued at $16,874.

The Company also issued 150,000 shares of its Class B common stock pursuant to
the acquisition of the minority interest in Cyber Aerospace and the merger of
Cyber Aerospace into Cyber Defense.


                                      -20-

<PAGE>

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

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

None

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

                                    EXHIBITS

31.1 * Certification of the Chief Executive Officer / Chief Financial Officer
       pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 * Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
       Section 906 of the Sarbanes-Oxley Act of 2002.

REPORTS ON FORM 8-K

The Company filed a Current Report on Form 8-K on February 18, 2005 regarding
the change in fiscal year pursuant to the domicile merger of E-City, On Alert
and Cyber Defense.

The Company filed a Current Report on Form 8-K on February 23, 2005 regarding
the execution of the $250,000 principal amount convertible note issued to
Bedlington Securities, Ltd. (the "Bedlington Note").

The Company filed a Current Report on Form 8-K on March 1, 2005 amending our
Current Report on Form 8-K filed on February 23, 2005, whereby the Bedlington
Note was repaid with the issuance of 217,391 shares of our Class A Common Stock.

The Company filed a Current Report on Form 8-K on March 3, 2005 regarding a
press release concerning the Company's participation in the Warfare in Low
Intensity Conflict Conference in Tel Aviv, Israel.

The Company filed a Current Report on Form 8-K on March 11, 2005 regarding the
payment in full of the convertible promissory note issued to Joseph Theismann,
in the amount of $117,000, with the issuance of 100,000 shares of the Company's
Class A Common Stock.


                                      -21-

<PAGE>

                                   SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                        CYBER DEFENSE SYSTEMS, INC.

                                        June 22, 2006


                                        By: /s/ William C. Robinson
                                            ------------------------------------
                                            William C. Robinson
                                            Chief Executive Officer


                                        By: /s/ David M. Barnes
                                            ------------------------------------
                                            David M. Barnes
                                            Chief Financial Officer


                                      -22-