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 September 30, 2004

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. PETERSBERG, 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)           25,921,562 as of January 31, 2005
Class B Common Stock
        (Par Value $0.001 per share)              150,000 as of January 31, 2005
Class C Common Stock
        (Par value $0.001 per share)                    2 as of January 31, 2005


<PAGE>



                           CYBER DEFENSE SYSTEMS, INC.


                                      INDEX



                                                                            Page
                                                                          Number


     PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets as of
     September 30, 2004 (Unaudited) and December 31, 2003....................  1
Consolidated Statements of Operations for the
     Three Months Ended September 30, 2004
     and September 30, 2003 (Unaudited)......................................  2
Consolidated Statements of Operations for the
     Nine Months Ended September 30, 2004
     and September 30, 2003 (Unaudited)......................................  3
Consolidated Statements of Cash Flows for the
     Nine Months Ended September 30, 2004
     and September 30, 2003 (Unaudited)......................................  4
Notes to the Consolidated Financial
     Statements (Unaudited)..................................................  6

Item 2. Management's Discussion and Analysis of
             Financial Condition and Plan of Operations...................... 12

Item 3. Controls and procedures.............................................. 16


     PART II. OTHER INFORMATION

Item 1. Legal Proceedings ................................................... 16

Item 2. Changes in Securities................................................ 16

Item 3. Defaults Upon Senior Securities...................................... 16

Item 4. Submission of Matters to a Vote of Security
             Security Holders...............................................  16

Item 5. Other Information ................................................... 16


Item 6. Exhibits and Reports on Form 8-K..................................... 16

Signatures................................................................... 17





<PAGE>



<TABLE>
<CAPTION>
                   CYBER DEFENSE SYSTEMS, INC. AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEETS


                                                                                September 30,      December 31,
                                                                                    2004               2003
                                                                                -------------      ------------
                                                                                 (unaudited)
<S>                                                                             <C>                <C>
                                        ASSETS
     CURRENT ASSETS:
      Cash and cash equivalents.............................................    $     137,764      $        319
      Restricted Cash.......................................................           36,422                 -
     Inventory.............................................................         1,175,000                 -
     Prepaid interest......................................................             6,211                 -
                                                                                -------------      ------------
      TOTAL CURRENT ASSETS..................................................        1,355,397               319
                                                                                -------------      ------------
     OTHER ASSETS
     Intangible assets, net of accumulated amortization of
               $99,291 and $14,494 respectively.............................          554,609            39,406
     Property and equipment, net of accumulated depreciation
               of $1,925 and $29,513 respectively...........................              148            14,278
              Deposits and costs of equipment                                         142,338                 -
              Loan Costs, net of accumulated amortization of $589
                  and -0- respectively.                                                13,552                 -
                                                                                -------------      ------------
     TOTAL ASSETS..........................................................     $   2,066,044      $     54,003
                                                                                =============      ============
                      LIABILITIES AND SHAREHOLDERS' DEFICIT
     CURRENT LIABILITIES:
     Accounts payable......................................................     $     343,659      $     95,056
     Accounts payable related parties........................................         283,964           184,506
     Assumed debt of affiliated companies..................................            41,337            98,972
     Accrued liabilities...................................................            30,951            11,787
     Notes payable - related parties.......................................         1,123,763           128,177
     Notes payable - Quebec, Inc...........................................           242,216                 -
                                                                                -------------      ------------
     TOTAL CURRENT LIABILITIES.............................................     $   2,065,890      $    518,498
                                                                                -------------      ------------
     Long-term notes payable - related parties.............................           200,000                 -
                                                                                -------------      ------------
     Total liabilities.....................................................         2,265,890           518,498
                                                                                -------------      ------------
     Minority interest in Cyber Aerospace, Corp. (6.2%)....................            12,791                 -

     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; 25,921,562
     and 18,750,000 shares issued and outstanding respectively.............            25,922            18,750
     Class B, $0.001 par value; 200,000,000 shares authorized; 150,000
     and -0- shares issued and outstanding respectively....................               150                 -
     Class C, $0.001 par value; 200,000,000 shares authorized;
     2 shares and -0- shares issued and outstanding, respectively..........                 -                 -
     Additional paid-in capital............................................           398,321                 -
     Accumulated other comprehensive loss..................................            (7,064)           (6,540)
     Accumulated deficit...................................................          (629,966)         (476,705)
                                                                                -------------      ------------
     Total shareholder's deficit...........................................          (212,637)         (464,495)
                                                                                -------------      ------------
     TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT                                $   2,066,044      $     54,003
                                                                                =============      ============
</TABLE>

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

                                       -1-
<PAGE>



<TABLE>
<CAPTION>
                   CYBER DEFENSE SYSTEMS, INC. AND SUBSIDIARY

                       CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)

                                                                       THREE MONTHS ENDED
                                                                         SEPTEMBER 30,

                                                                        2004         2003
                                                                        ----         ----
<S>                                                             <C>             <C>

Revenue................................................         $           -   $             -

General and administrative expenses....................               195,877           101,507
                                                                   ----------          --------

Loss from Operations...................................              (195,877)         (101,507)

Other Income (Expense)
Interest income........................................                 3,030                 -
Interest expense.......................................                (3,976)           (3,904)
Gain on forgiveness of debt............................                     -            22,807
                                                                   ----------          --------
Other Income (Expense), net............................                  (946)           18,903
                                                                   ----------          --------

Net Loss Before Income Tax and Minority Interest........             (196,823)          (82,604)
                                                                   ----------          --------

Provision for income tax................................                    -                 -
Minority interest.......................................                5,865                 -
                                                                   ----------          --------

Net loss...............................................         $    (190,958)  $       (82,604)

Basic and diluted loss per share.......................         $       (0.01)  $        (0.004)
                                                                   ==========          ========
Weighted average number of Class A
 common shares outstanding.............................            21,181,222        18,750,000
                                                                   ==========        ==========
</TABLE>



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

                                       -2-
<PAGE>



<TABLE>
<CAPTION>
                  CYBER DEFENSE SYSTEMS, INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)

                                                                       NINE MONTHS ENDED
                                                                         SEPTEMBER 30,

                                                                        2004         2003
                                                                        ----         ----
<S>                                                             <C>             <C>
Revenues

Service revenues......................................          $     315,000   $             -
Airship sales.........................................              2,700,000                 -
                                                                   ----------          --------
Total Revenues                                                      3,015,000                 -

Cost of product sold...................................            2,200,000
-
General and administrative expenses....................               929,577           195,060
                                                                   ----------          --------
Total Expenses.........................................             3,129,577           195,060
                                                                   ----------          --------

Loss from Operations...................................              (114,577)         (195,060)

Other Income (expense)

Interest income........................................                 8,581                 -
Interest expense.......................................               (22,269)           (6,342)
Gain on forgiveness of debt............................                     -            22,807
Write off of equipment.................................               (12,205)                -
Impairment of goodwill.................................                     -          (121,303)
                                                                   ----------          --------
Other Income (Expense), Net............................               (25,893)         (104,838)
                                                                   ----------          --------

Net Loss Before Income Tax and Minority Interest.......              (140,470)         (299,898)

Provision for income tax...............................                     -                 -
Minority interest......................................               (12,791)                -
                                                                   ----------          --------

Net loss ..............................................         $    (153,261)  $      (299,898)
                                                                   ==========          ========


Basic and diluted loss per share.......................         $       (0.01)  $         (0.02)
                                                                   ==========          ========

Weighted average number of Class A
  common shares outstanding............................            19,560,407         18,750,000
                                                                   ==========         ==========
</TABLE>



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


                                       -3-
<PAGE>



<TABLE>
<CAPTION>
                   CYBER DEFENSE SYSTEMS, INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

                                                                       NINE MONTHS ENDED
                                                                         SEPTEMBER 30,

                                                                        2004         2003
                                                                        ----         ----
<S>                                                             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net loss.................................................    $     (153,261) $     (299,898)
   Adjustments to reconcile net loss to net
   cash from operating activities:
     Minority interest......................................            12,791               -
     Depreciation and amortization..........................            87,311          10,472
     Impairment of goodwill.................................                 -         121,303
     Gain on forgiveness of debt............................                 -         (22,807)
     Loss on currency adjustment............................              (524)         (6,540)
     Write off of property and equipment....................            12,205               -
     Gain on sale of airship................................          (500,000)              -
     Changes in assets and liabilities:
       Prepaid interest.....................................           (6,211)
       Income tax receivable................................                -            53,391
       Accounts payable.....................................          275,858           (30,979)
       Accrued liabilities..................................           19,164           (65,555)
                                                                   ----------          --------
NET CASH FROM OPERATING ACTIVITIES..........................         (252,667)         (240,613)
                                                                   ----------          --------
CASH FLOWS FROM INVESTING ACTIVITIES
    Purchase of licenses....................................               -            (40,000)
    Deposits and costs of equipment.........................        (142,338)                 -
    Change in related party receivables/payables............          65,255            154,651
    Increase in investment in E-City........................         (51,300)           (40,000)
    Increase in restricted cash.............................         (36,422)                 -
                                                                    ---------         ---------
NET CASH FROM INVESTING ACTIVITIES..........................        (164,805)            74,651
                                                                    ---------         ---------

CASH FLOWS FROM FINANCING ACTIVITIES
    Payments on loan costs.................................          (14,141)                 -
    Proceeds from notes payable............................          332,216            167,379
    Proceeds from notes payable - related parties..........          400,059                  -
    Principal payments on notes payable....................          (90,000)           (20,000)
    Principal payments on notes payable - related parties..          (20,800)                 -
    Payments on debt assumed from subsidiary...............          (57,635)                 -
    Issuance of common stock...............................            5,218             18,750
                                                                    ---------          ---------
NET CASH FROM FINANCING ACTIVITIES.........................           554,917           166,129
                                                                    ---------          ---------
Net increase in cash.......................................           137,445               167
Cash and cash equivalents, beginning.......................               319                 -
                                                                    ---------          --------
Cash and cash equivalents, ending.......................        $     137,764   $           167
                                                                    =========          ========
</TABLE>



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


                                       -4-
<PAGE>



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



                                                                       NINE MONTHS ENDED
                                                                         SEPTEMBER 30,

                                                                        2004         2003
                                                                        ----         ----
<S>                                                             <C>             <C>

Supplemental disclosure of cash flow information:

Cash paid for interest                                          $       3,105   $          -
Cash paid for income taxes                                                  -              -

Supplemental disclosure of non-cash investing
        and financing information:
Issued stock for debt                                                 400,425              -
Accounts payable paid by related party                                 24,655              -
Retirement of fully depreciated assets                                 31,091              -
Deposits on inventory purchased with debt                             675,000              -
Subsidiary minority shareholders' stock issued
        for subscription receivable                                       166              -
Licenses purchased with debt                                          500,000              -
Plans and designs purchased with debt                                 100,000              -
Shares issued to E-City minority shareholders in merger                   335              -
Debt assumed in acquisition of E-City                                       -        126,972
                                                                -------------   ------------
</TABLE>








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

                                       -5-
<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 72.3% and 26.0% of the Class A common shares of
the Registrant respectively.  In addition, Cherokee also owns all 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.

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,  2004 and such
financial  statements  should be read in  conjunction  with the Company's  other
filings made with the Securities and Exchange Commission. -6-


                                      -6-
<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,  2003,  no  minority  interest is shown on the
balance sheet as the former  subsidiary,  E-city,  had generated losses that had
been borne by the Company. At September 30, 2004, minority interest was recorded
for the net income of Cyber Aerospace.

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 nine months ended  September 30, 2003, the Company
earned no revenue and incurred a net loss of $299,898. For the nine months ended
September  30,  2004,  the  Company  had  revenues,  but  incurred a net loss of
$153,261.  The lack of sufficient  operations 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.

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 September  30, 2004 and December 31,
2003 the Company had $37,764 and zero cash, respectively, in excess of federally
insured limits.

Inventory -- At September 30, 2004, inventory consists of deposits of $1,175,000
for the purchase of an airship being  manufactured  by Techsphere  International
Systems, Inc. Cyber Aerospace owns the airship and bears the risk of loss.

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 impairment  yearly.  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,  an impairment
of $12,205 for a reduction in the value of certain  equipment and $121,303 for a
reduction  in the value of goodwill  were  recorded  for the nine  months  ended
September 30, 2004, and 2003 respectively.



                                        -7-
<PAGE>



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


Income  Taxes -- No income  taxes have been paid or accrued  because the Company
had no net income for the nine months ended September 30, 2004 or for the period
ended  December  31,  2003.  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.

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.

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.

                                        -8-
<PAGE>



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


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.


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 has  accounts
payable and notes payable to Proxity of $184,506 and $107,011,  respectively. As
of September  30, 2004,  the Company has accounts  payable and notes  payable to
Proxity of $283,964 and $207,011, 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 - Cyber Aerospace has been  consolidated  with the Company as it
is a 93.8% owned  subsidiary.  All transactions and account balances between the
Company and Cyber Aerospace were eliminated during consolidation.

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, 2003, the Company had a note payable to Cherokee of $21,166.  As of
September 30, 2004,  the Company had a note payable to Cherokee in the amount of
$ 1,016,752.

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


NOTE 3 - INTANGIBLE ASSETS

The Company  purchased the rights to two licensing  agreements - the GDS license
on April 7, 2003 and the Traptec license on November 10, 2003 from Proxity.  The
GDS license is an exclusive  license for the Company to sell licensed  equipment
throughout  the  world.  The  Traptec  license  gives the  Company  the right to
represent  Traptec  Corporation as a marketing  representative  on the exclusive
basis to sell surveillance and security equipment and other such products to the
military and other federal agencies. The licensing agreements have been recorded
at the  historical  cost to Proxity.  Each license is being  amortized  over two
years which is the estimated life of each.  During 2004,  the Company  purchased
exclusive marketing rights from Techsphere  International  ("TSI"). These rights
were recorded at cost because TSI is a non-related party. These marketing rights
are being amortized over six years,  which is the life of the contract.  Monthly
amortization  expense is $1,667,  $579 and $6,944, for the GDS license,  Traptec
license,  and exclusive  marketing  rights,  respectively.  In 2004, the Company
purchased designs and plans for unmanned air vehicles (UAVs) which have a useful
life of 3 years. The monthly amortization is $2,777.


                                       -9-
<PAGE>



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


NOTE 4 - PROPERTY AND EQUIPMENT

At December 31,  2003,  property and  equipment  consisted of computer  software
recorded at a cost of $43,791 and accumulated  depreciation of $29,513;  the net
balance is $14,278.  In 2004,  computer  software  of $12,205  was written  off,
leaving a net  balance  of $148.  Depreciation  expense  for the  periods  ended
September 30, 2004 and December 31, 2003 was $1,925 and $3,351, respectively.

In  September  2004,  the Company put down  deposits and paid costs of equipment
that was being acquired.


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 September 30, 2004, amortization
expense of the loan costs was $589.

NOTE 6 - NOTES PAYABLE - RELATED PARTIES

<TABLE>
<CAPTION>
Current
                                                                                September 30,     December 31,
                                                                                    2004              2003
                                                                                -------------     ------------
<S>                                                                             <C>               <C>
Note payable - Proxity  Inc.-  interest  accrues  at 12% per
     annum and  principal  and accrued  interest  are due on
     December 5, 2005 , unsecured                                               $     91,562      $     91,562

Note payable - Proxity,  Inc. - interest  accrues at 10% per
     annum, due on demand and is unsecured                                            15,449            15,449

Note payable - Cherokee  Raiders -  interest  accrued at 12%
     per annum, due on demand and is unsecured                                     1,016,000            21,166
                                                                                -------------     ------------
                                                                                $  1,123,763      $    128,177
                                                                                -------------     ------------
Long-term

Note payable - Proxity,  Inc. - interest  accrues at 12% per
     annum,  due November 30, 2005,  unsecured;  convertible
     into 1,686,340 shares of common stock class A                              $    100,000                 -

Note payable - related  party,  James Alman,  a director and
     President  of the company - interest  accrued at 8% per
     annum, due December 5, 2005, unsecured                                          100,000                 -
                                                                                -------------     ------------
                                                                                $    200,000      $          -
                                                                                -------------     ------------
</TABLE>

                                      -10-
<PAGE>



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


NOTE 7 - STOCKHOLDERS' DEFICIT

Common Stock - At September 30, 2004, the Company had 25,921,333 shares of Class
A Common Stock,  150,000 shares of Class B Common Stock, and 2 shares of Class C
Common Stock issued and outstanding with 200,000,000 shares of Class A and Class
B Common Stock authorized, par value $.001, and 2 shares of Class C Common Stock
authorized,  par value $.001. In addition, the Company had 100,000,000 shares of
Class A Preferred Stock  authorized,  par value $.001, with no shares issued and
outstanding  and $398,322 in  additional  paid in capital.  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, 2003, the Company had 18,750,000 shares of Class A
Common  Stock and zero shares of Class B Common  Stock,  issued and  outstanding
with  200,000,000  shares of Class A and Class B 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 September  30, 2004 and December 30, 2003,  the Company had net  operating
loss carry  forwards for federal  income tax reporting  purposes of $601,232 and
$463,791,  respectively,  which if unused,  will  expire in 2024.  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.  The
net deferred tax asset consists of the following:

                                                September 30,       December 31,
                                                     2004               2003
                                                -----------        ------------
Deferred tax assets -
        operating loss carryforwards            $   230,076        $    177,680
Valuation allowance                                (230,076)           (177,680)
                                                -----------        ------------
Total Deferred Income Tax Asset                 $         -        $          -
                                                -----------        ------------

The following is a  reconciliation  of the income tax computed using the federal
statutory rate to the provision for income taxes:

                                                September 30,       December 31,
                                                     2004               2003
                                                -----------        ------------
Tax at Federal statutory rate (34%)             $     (47,760)     $   (162,080)
Non-deductible expenses                                     -               130
Change in valuation allowance                          52,395           177,680
State taxes, net of federal benefit                    (4,635)          (15,730)
                                                -------------      ------------
Provision for Income Taxes                      $           -      $          -
                                                -------------      ------------

NOTE 9 - SUBSEQUENT EVENTS

On December 10, 2004 the Company  entered into a loan  transaction  for $110,000
pursuant to which a promissory  note was issued to Joe  Theisman,  a shareholder
and a Company spokesperson.  Interest accrues on the note at the rate of 18% per
annum  and the note was  originally  due on or  before  February  28,  2005.  On
February  5, 2005,  the  repayment  terms were  amended to provide for six equal
monthly payments beginning on March 15, 2005.

On January 1, 2005,  the Company  entered into  employment  contracts  with five
individuals  to  provide  management  responsibilities  such  as  President  and
Director,  Senior Systems Engineer,  Vice President of Government  Sales,  Chief
Executive Officer, and Director of Research and Development.

                                      -11-
<PAGE>



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



On February  2, 2005,  the Company  and Laurus  Master Fund  ("LMF")  executed a
Proposal  Letter  Term Sheet  relative  to a  potential  Revolving  Fixed  Price
Convertible  Facility (the  "Facility")  of up to  $2,500,000  and a Fixed Price
Convertible Note (the "Note") of $500,000. The Facility and the Note will have a
three year term;  will carry an annual  interest rate of Prime, as quoted in the
Wall Street Journal,  plus 2 % and are to be  collateralized  by a first lien on
Accounts  Receivable and all other assets of the Company.  Both the Facility and
the Note are  convertible,  at the option of LMF,  into shares of the  Company's
common stock at a price per share equal to the average closing price for the ten
days  immediately  preceding the closing of the transaction not to exceed $ 1.90
per  share.  Such  closing  is  subject  to due  diligence  and other  terms and
conditions that are be negotiated and agreed upon.


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  which  amount will be advanced to the Company no later than
February 25, 2005.  Interest will accrue on the  Bedlington  Note at the rate of
18% per annum and repayment terms require six equal monthly payments  commencing
April 30,  2005 with the last  payment on  September  30,  2005 to  include  all
accrued interest.  Bedlington has 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  shall 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 has 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,  upon receipt of
the funds,  the  Company  will issue such number of shares of its Class A common
stock as are required by the calculation  described  above.  Such financing will
enable the Company to pursue and sustain its operating plan of operations for at
least four months.


NOTE 10 - COMMITMENTS AND CONTINGENCIES

The Company had commitments  with  independent  contractors for services such as
president of Cyber Aerospace, UAV specialist,  vice president, vice president of
business  development,  controller,  security  consultant,  and other consulting
services.  Several of the contracts state that payment was to be made in Proxity
capital  stock.  Most of the contracts had a six month term that is renewable by
the consent of both  parties.  At  September  30, 2004 all such  contracts  were
cancelled with no further liability to the Company.

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 September 30, 2004, no sales have
been made in connection with this license.

                                      -12-
<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-Q.

     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  September  30, 2004  Compared to the Three Months Ended
September 30, 2003

     General and  administrative  expenses totaled $195,877 for the three months
ended  September  30, 2004 as compared to $101,507  for the three  months  ended
September 30, 2003, a net increase of $94,370. The net increase is primarily due
to an increase in specialized consulting and legal fees as well as the inclusion
of the general and administrative expenses Cyber Aerospace,  Corp. in the amount
of $91,740.

     Other  income and expense for the three  months  ended  September  30, 2004
consisted  of interest  income of $3,030 and interest  expense of $3,976.  Other
income and expense for the three months ended  September  30, 2003 was comprised
of a gain of $20,407 on  forgiveness  of debt due to  negotiation  and  eventual
satisfaction  of an E-city  debt for less than its  recorded  value and a $2,400
forgiveness of debt on Cyber's books; interest expense of $3,904.

The Nine  Months  Ended  September  30, 2004  Compared to the Nine Months  Ended
September 30, 2003

     General and administrative  expenses totaled $929,577 for nine months ended
September  30, 2004 as compared to $195,060 for the nine months ended  September
30,  2003, a net  increase of  $734,517.  The  increase is  primarily  due to an
increase in specialized  consulting cost and legal fees as well as the inclusion
of the  general  and  administrative  expenses  of  Cyber  Aerospace,  Corp.  of
$603,077.

     Other  income and  expense  for the nine months  ended  September  30, 2004
consisted of a $12,205  write-off  that  occurred in the quarter ended March 31,
2004 of certain  equipment  of E-city that was deemed to be  impaired;  interest
income  of  $8,581  and  interest  expense  of  $22,269  due to  higher  average
outstanding  debt  balances.  Other income and expense for the nine months ended
September 30, 2003 was comprised of a gain of $20,407 on forgiveness of debt due
to  negotiation  and eventual  satisfaction  of an E-city debt for less than its
recorded  value and a $2,400  forgiveness  of debt on  Cyber's  books;  interest
expense of $6,342 and the impairment of goodwill that had been recorded upon the
acquisition of E-city of $121,303 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 $137,764 as of September 30,
2004 are not  sufficient to support  current  levels of operations  for the next
twelve  months  and it will be  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. -13-

     On February 2, 2005, the Company and Laurus Master Fund ("LMF")  executed a
Proposal  Letter  Term Sheet  relative  to a  potential  Revolving  Fixed  Price
Convertible  Facility (the  "facility")  of up to  $2,500,000  and a Fixed Price
Convertible Note (the "Note") of $500,000. The Facility and the Note will have a
three year term;  will carry an annual  interest rate of Prime (as quoted in the
Wall Street  Journal) plus 2 % and are to be  collateralized  by a first lien on
Accounts  Receivable and all other assets of the Company.  Both the Facility and
the Note are  convertible,  at the option of LMF,  into shares of the  Company's
common stock at a price per share equal to the average closing price for the ten
days  immediately  preceding the closing of the transaction not to exceed $ 1.90
per share.  Such  closing is subject to other terms and  conditions  that are be
negotiated and agreed upon.

     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  will be  advanced to the
Company no later than February 25, 2005.  Interest will accrue on the Bedlington
Note at the rate of 18% per annum and repayment  terms require six equal monthly
payments  commencing  April 30, 2005 with the last payment on September 30, 2005
to  include  all  accrued  interest.  Bedlington  has 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  shall 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 has 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  informed  Bedlington  that it intends to make
payment  in full  with  common  shares  and  Bedlington  submitted  a Notice  of
Conversion to the Company.  As a result,  upon receipt of the funds, the Company
will issue such number of shares of its Class A common  stock as are required by
the  calculation  described  above.  Such  financing  will enable the Company to
pursue and sustain its operating plan of operations for at least four months.

     Although  management  of the  Company  is  confident  that  the  LMF or CFC
financing  will  occur,  there can be no  assurance  that either of these or any
other additional  financing of a sufficient  amount to sustain the current level
of planned  business  operations  beyond the four  months  mentioned  above will
occur. In such case, the Company would have to curtail  certain  portions of its
operations.

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.

     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.

                                      -14-
<PAGE>



     Impairment of Investments.

     The  Company  reviews  estimates  of  the  value  of its  investments  each
reporting  period and records an impairment  loss to the extent that  management
believes that there has been an impairment to the carrying value.

     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 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.



                                      -15-
<PAGE>



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  7,171,562  shares of class A common
stock comprising 6,750,000 to Cherokee and 333,562 to E-City public shareholders
as part of the respective  transactions as well as 88,000 shares which were sold
to an independent third party by the Company.


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  September  15,  2004
regarding the mergers with E-City Software, Inc. and On Alert Systems, Inc.


                                     - 16 -
<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.


     February 23, 2005


                      By:   /s/ Billy Robinson
                            -------------------
                            Billy Robinson
                            Chief Executive Officer




                      By:   /s/ Billy Robinson
                            -------------------
                            Billy Robinson
                            Chief Financial Officer




                                     - 17 -