**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **Washington
        D. C. 20549**
 
 **Amendment
            No. 2 to**
 **FORM
        10-QSB**
 
 S QUARTERLY
        REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
        1934
 For
        the
        quarterly period ended March 31, 2007
 
 £ TRANSITION
        REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
        1934
 For
        the
        transition period from
 Commission
        file number 333-79405
 
 **Tactical
        Air Defense Services, Inc.**
 (Exact
        name of small business issuer as specified in its charter)
 Nevada
              **88-0455809**(State
                  or other jurisdiction of
                incorporation
                  or organization)
              (I.R.S.
                  Employer
                Identification
                  No.)
 
 **5501
        Airport Drive**
 **Denison,
        TX 75020**
 (Address
        of principal executive offices)
 
 **(903)
        786-5300**
 (Issuer's
        telephone number)
 
 Check
        whether the issuer (1) has filed all reports required to be filed by Section
        13
        or 15(d) of the Exchange Act during the past 12 months (or for such shorter
        period that the registrant was required to file such reports), and (2) has
        been
        subject to such filing requirements for the past 90 days. Yes S  No £
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act): Yes £ No S
 
 The
          number of shares of the issuer's outstanding common stock on June 13, 2007
          was
          34,421,390 .
  Transitional
        Small Business Disclosure Format (check one): Yes £ No S
 
 
  **INDEX**
 
 Page
                  No.Part
                  IItem
                  1.  Financial Statements.
 Condensed
                      Consolidated Balance Sheet (Unaudited) at March 31, 2007
                  F-2Condensed
                      Consolidated Statements Of Operations (Unaudited)
                  F-3For
                      the Three Months Ended March 31, 2007 and 2006and
                      For the Period from Inception (January 1, 2006) to March 31,
                      2007Condensed
                      Consolidated Statement Of Stockholders' Equity (Unaudited)
                  F-4For
                      the Three Months Ended March 31, 2007Condensed
                      Consolidated Statements Of Cash Flows (Unaudited)
                  F-5For
                      the Three Months Ended March 31, 2007 and 2006and
                      For the Period from Inception (January 1, 2006) to March 31,
                      2007Notes
                      To Condensed Consolidated Financial Statements (Unaudited)
                  F-6
 Item
                  2.  Management's Discussion and Analysis or Plan of
                  Operations.
              3Item
                  3.  Controls and Procedures.
              7Part
                  IIItem
                  1.  Legal Proceedings.
              8Item
                  2.  Unregistered Sale of Equity Securities and Use of
                  Proceeds
              8Item
                  3.  Defaults Upon Senior Securities
              8Item
                  4.  Submission of Matters to a Vote of Security Holders.
              8Item
                  5.  Other Information
              8Item
                  6. Exhibits.
              8Signatures.
              8
  
 
 **PART
        I - FINANCIAL INFORMATION**
 
 **Item
        1. Financial Statements**
 
 
 F-1
  **TACTICAL
          AIR DEFENSE SERVICES, INC.**
 **(A
          Development Stage Company, Commencing January 1, 2006)**
 **CONDENSED
          CONSOLIDATED BALANCE SHEET**
 **MARCH
          31, 2007**
 **(Unaudited)**
 
 ASSETSCurrent
                    Assets:Cash
                
                $
                960Property
                    and Equipment, net
                
                
                7,154,985TOTAL
                    ASSETS
                
                
                7,155,945LIABILITIES
                    AND STOCKHOLDERS' EQUITYCurrent
                    Liabilities:Accounts
                    payable
                
                
                7,762Accrued
                    liabilities
                
                
                837,798Convertible
                    Debentures, including accrued interest, net of debt discount
                    of $2,038,441
                
                
                3,953,599Total
                    Current Liabilities
                
                
                4,799,159Convertible
                    Notes Payable, net of discount of $3,084,752 , includes related
                    party of
                    $1,330,729
                
                
                776,503TOTAL
                    LIABILITIES
                
                
                5,575,662COMMITMENTSSTOCKHOLDERS'
                    EQUITY:Series
                    A Preferred stock-$.001 par value; 50,000,000 shares authorized;
                    - shares
                    issued and outstanding - 6,400,000
                
                
                6,400Common
                    stock-$.001 par value; 300,000,000 shares authorized; - 23,248,960
                    shares
                    issued and outstanding
                
                
                23,249Additional
                    paid-in-capital
                
                
                19,985,739Unearned
                    compensation
                
                
                (128,750
                )Deficit
                    accumulated during the development stage
                
                
                (18,306,355
                )TOTAL
                    STOCKHOLDERS' EQUITY
                
                
                1,580,283TOTAL
                    LIABILITIES AND STOCKHOLDERS' EQUITY
                
                $
                7,155,945
 
 The
          accompanying notes are an integral part of these condensed consolidated
          financial statements.
 F-2
 **TACTICAL
          AIR DEFENSE SERVICES, INC.**
 **(A
          Development Stage Company, Commencing January 1, 2006)**
 **CONDENSED
          CONSOLIDATED STATEMENTS OF OPERATIONS**
 **Three
          Months Ended March 31, 2007 and 2006**
 **(Unaudited)**
 **Item
          1. Financial Statements**
  For
                      the Period From January 1, 2006 (Commencement as a Development Stage
                      Company) to March 31,2007
                  
                  2006
                  
                  2007REVENUES
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  -Operating
                      costs
                  
                  
                  108,722
                  
                  
                  71,342
                  
                  
                  446,068General
                      and administrative, including compensatory element of stock
                      issuance of
                      $16,514,845 and $144,773 for the three months ended March 31,
                      2007 and
                      2006, respectively, and for the period January 1, 2006 to March 31,
                      2007
                  
                  
                  16,854,091
                  
                  
                  186,913
                  
                  
                  18,512,719TOTAL
                      COSTS
                  
                  
                  16,962,813
                  
                  
                  258,255
                  
                  
                  18,958,787OPERATING
                      LOSS
                  
                  
                  (16,962,813
                  )
                  
                  (258,255
                  )
                  
                  (18,958,787
                  )OTHER
                      (EXPENSE) INCOME:Derivative
                      loss on derivative liabilities
                  
                  
                  -
                  
                  
                  (1,802,668
                  )
                  
                  (27,599,597
                  )Forgiveness
                      of liquidated damages
                  
                  
                  -
                  
                  
                  -
                  
                  
                  1,074,188Interest
                      expense
                  
                  
                  (1,191,728
                  )
                  
                  (380,413
                  )
                  
                  (2,658,318
                  )Other
                  
                  
                  
                  
                  
                  (2,406
                  )
                  
                  (2,386
                  )TOTAL
                      EXPENSES
                  
                  
                  (1,191,728
                  )
                  
                  (2,185,487
                  )
                  
                  (29,186,113
                  )NET
                      LOSS
                  
                  $
                  (18,154,541
                  )
                  $
                  (2,443,742
                  )
                  $
                  (48,144,900
                  )Preferred
                      stock dividend
                  
                  
                  (7,441
                  )
                  
                  -NET
                      LOSS APPLICABLE TO COMMON STOCKHOLDERS
                  
                  $
                  (18,161,982
                  )
                  $
                  (2,443,742
                  )Loss
                      per common share - basic and diluted
                  
                  $
                  (0.91
                  )
                  $
                  (0.17
                  )Weighted
                      average number of shares outstanding - basic and diluted
                  
                  
                  19,863,704
                  
                  
                  14,252,805
  The
          accompanying notes are an integral part of these condensed consolidated
          financial statements.
 
 F-3
 
 **TACTICAL
          AIR DEFENSE SERVICES, INC.**
 **(A
          Development Stage Company, Commencing January 1, 2006)**
 **CONDENSED
            CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY**
 **For
          the Three Months Ended March 31, 2007**
  Common
                      Stock
                  
                  Series
                      A Preferred Stock
                  
                  AdditionalPaid-in
                  
                  Unearned
                  
                  Deficit
                      Accumulated
                    During
                      Development
                  
                  Total
                      Stockholders'Shares
                  
                  Amount
                  
                  Shares
                  
                  Amount
                  
                  Capital
                  
                  Compensation
                  
                  Stage
                  
                  EquityBALANCE-
                      January 1, 2007
                  
                  
                  18,915,655
                  
                  $
                  18,916
                  
                  
                  -
                  
                  $
                  -
                  
                  $
                  2,563,950
                  
                  
                  -
                  
                  $
                  (144,373
                  )
                  $
                  2,438,493Stock-based
                      compensation issued to employees-$1.03 - $1.05 per share
                  
                  
                  1,980,000
                  
                  
                  1,980
                  
                  
                  5,200,000
                  
                  
                  5,200
                  
                  
                  12,727,823
                  
                  
                  (128,750
                  )
                  
                  -
                  
                  
                  12,606,253Stock
                      - based compensation issued to consultants- $1.05-$2.40 per
                      share
                  
                  
                  900,000
                  
                  
                  900
                  
                  
                  1,200,000
                  
                  
                  1,200
                  
                  
                  3,596,492
                  
                  
                  
                  
                  
                  -
                  
                  
                  3,598,592Stock
                      issued for services-$1.05 per share
                  
                  
                  320,000
                  
                  
                  320
                  
                  
                  -
                  
                  
                  -
                  
                  
                  335,680
                  
                  
                  
                  
                  
                  -
                  
                  
                  336,000Issuance
                      of common stock upon conversion of debentures
                  
                  
                  503,394
                  
                  
                  503
                  
                  
                  -
                  
                  
                  -
                  
                  
                  72,100
                  
                  
                  
                  
                  
                  
                  
                  
                  72,603Issuance
                      of common stock under private placement
                  
                  
                  629,911
                  
                  
                  630
                  
                  
                  
                  
                  
                  
                  
                  
                  345,821
                  
                  
                  
                  
                  
                  
                  
                  
                  346,451
 Fair
                      value of warrants issued with convertible debt
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  257,789
                  
                  
                  
                  
                  
                  
                  
                  
                  257,789
 Beneficial
                      conversion feature under convertible debt
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  86,084
                  
                  
                  
                  
                  
                  
                  
                  
                  86,084Dividend
                      to preferred stockholders
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (7,441
                  )
                  
                  (7,441
                  )Net
                      loss
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (18,154,541
                  )
                  
                  (18,154,541
                  )Balance
                      -March 31, 2007
                  
                  
                  23,248,960
                  
                  $
                  23,249
                  
                  
                  6,400,000
                  
                  $
                  6,400
                  
                  $
                  19,985,739
                  
                  $
                  (128,750
                  )
                  $
                  (18,306,355
                  )
                  $
                  1,580,283
 
 The
          accompanying notes are an integral part of these condensed consolidated
          financial statements.
  F-4
   **TACTICAL
          AIR DEFENSE SERVICES, INC.**
 **(A
          Development Stage Company, Commencing January 1, 2006)**
 **CONDENSED
          CONSOLIDATED STATEMENTS OF CASH FLOWS**
 **(Unaudited)**
 
 **For
                      the Period From****January
                      1 2006****(Commencement
                      as****A
                      Development Stage****Company)
                      to****Three
                      Months Ended March 31,**
                  
                  **March
                      31,****2007**
                  
                  **2006**
                  
                  **2007**CASH
                      FLOWS FROM OPERATING ACTIVITIESNet
                      (loss)
                  
                  $
                  (18,154,541
                  )
                  $
                  (2,443,742
                  )
                  $
                  (48,144,900
                  )Adjustments
                      to reconcile net loss to net cash
                    used
                      in operating activities:Loss
                      on derivative liabilities
                  
                  
                  -
                  
                  
                  1,802,668
                  
                  
                  27,599,597(Forgiveness)
                      provision of liquidated damages
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (1,074,188
                  )Stock-based
                      compensation
                  
                  
                  16,514,845
                  
                  
                  144,773
                  
                  
                  16,659,617Excess
                      of initial derivative liability over debt
                    discount
                  
                  
                  -
                  
                  
                  175,384
                  
                  
                  175,384Debt
                      discount amortization
                  
                  
                  977,574
                  
                  
                  116,548
                  
                  
                  1,616,362Changes
                      in operating assets and liabilities:Accounts
                      payable
                  
                  
                  -
                  
                  
                  -
                  
                  
                  7,762Accrued
                      liabilities
                  
                  
                  209,151
                  
                  
                  (80,293
                  )
                  
                  1,725,928Net
                      Cash Used in Operating Activities
                  
                  
                  (452,971
                  )
                  
                  (284,662
                  )
                  
                  (1,609,822
                  )CASH
                      USED IN INVESTING ACTIVITIESPurchase
                      of property and equipment
                  
                  
                  (26,000
                  )
                  
                  (58,000
                  )
                  
                  (326,985
                  )Cash received from the reverse acquisition
                  
                  
                  -
                  
                  
                  -
                  
                  
                  150,744Net
                      Cash Used in Investing Activities
                  
                  
                  (26,000
                  )
                  
                  (58,000
                  )
                  
                  (176,241
                  )CASH
                      FLOWS FROM FINANCING ACTIVITIES:Due
                      to related parties, net
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (67,484
                  )Proceeds
                      from convertible debentures
                  
                  
                  343,873
                  
                  
                  342,215
                  
                  
                  1,854,507Net
                      Cash Provided by Financing Activities
                  
                  
                  343,873
                  
                  
                  342,215
                  
                  
                  1,787,023Increase
                      (Decrease) in cash
                  
                  
                  (135,098
                  )
                  
                  (447
                  )
                  
                  960Cash
                      - Beginning of period
                  
                  
                  136,058
                  
                  
                  720
                  
                  
                  -Cash
                      - End of period
                  
                  $
                  960
                  
                  $
                  273
                  
                  
                  960Interest
                      paid
                  
                  
                  -
                  
                  
                  -Taxes
                      paid
                  
                  
                  -
                  
                  
                  -Non-cash
                      Transactions:Stock
                      issued to settle accrued compensation
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  390,000Liabilities
                      not assumed in reverse acquisition
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  4,505,560Reclassification
                      of derivative liability
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  29,930,094Conversion
                      of debt plus accrued interest to equity
                  
                  $
                  72,643
                  
                  $
                  -
                  
                  $
                  72,643Common
                      stock issued for leasehold improvements
                  
                  $
                  26,000
                  
                  $
                  -
                  
                  $
                  26,000Acquisition
                      of assets for issuance of debt
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  6,740,000Beneficial
                      conversion feature under convertible debt
                  
                  $
                  86,084
                  
                  $
                  -
                  
                  $
                  4,139,209Fair
                      value of warrants issued with convertible debt
                  
                  $
                  257,789
                  
                  $
                  -
                  
                  $
                  934,318Distribution
                      to stockholder
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  311,525
 
 
 The
          accompanying notes are an integral part of these condensed consolidated
          financial statements.
  F-5
  **TACTICAL
          AIR DEFENSE SERVICES, INC.**
 **(A
          Development Stage Company)**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(Unaudited)**
 
 **NOTE
          1 - COMPANY AND BASIS OF PRESENTATION**
 
 **General**
 
 Tactical
          Air Defense Services, Inc. (“TADS” and the “Company”), a development stage
          company ,which was incorporated in Nevada in 1998 under the name Natalma
          Industries, Inc. Originally, TADS operated as a junior mining company with
          minimal operations. In 2005, the former management of TADS commenced seeking
          potential operating businesses and business opportunities with the intent
          to
          complete a merger with an operating business.
 
 On
          December 15, 2006 (the “Closing Date”), TADS and three of its wholly-owned
          subsidiaries, Resource Financial Aviation Holdings Inc., OneSource Aviation
          Acquisition Inc. and Genesis Aviation Acquisition Inc., each a Nevada
          corporation (the “TADS Subsidiaries” and, collectively with TADS,”) acquired
          substantially all of the assets of AeroGroup Incorporated (“Aero or AeroGroup”),
          a Utah corporation, and its three wholly-owned subsidiaries, OneSource
          Acquisition, Inc., Genesis Acquisition, Inc. and Resource Financial Holding
          Acquisition, Inc., each a Delaware corporation (the “AeroGroup Subsidiaries”
and, collectively with AeroGroup Incorporated, “AeroGroup”), pursuant to an
          Asset Purchase Agreement dated July 14, 2006, as amended (the “Asset Purchase
          Agreement”) and in consideration of the acquisition issued stock and assumed
          certain indebtedness and other obligations under various
          warrants, a real property sublease, government and non-government
          aviation contracts and certain other contracts of AeroGroup (the
“AeroGroup Acquisition”). As a result of the asset purchase, the
          Company intends to be a provider of outsourced military fighter jet pilot
          training to military personnel, including certain flight support services.
 
 Since
          the
          AeroGroup Acquisition was settled through the issuance of a controlling
          interest
          in TADS common stock, AeroGroup is deemed to be the acquirer for accounting
          purposes. Furthermore, since TADS is deemed to be a shell company prior
          to the
          acquisition, purchase accounting was not applied. Therefore, the transaction
          was
          accounted for as a reverse acquisition and recapitalization of AeroGroup.
          Accordingly, the historical financial statements presented in the financial
          statements are those of AeroGroup as adjusted to reflect the recapitalization
          and elimination of certain assets and liabilities that were not assumed
          by TADS.
          The net liabilities not assumed by TADS was recorded as a contribution
          to
          capital totaling $4,505,560. These liabilities substantially consisted
          of
          indebtedness due to Aero’s controlling stockholder, Mark Daniels (“Daniels”).
 
 The
          accompanying share information for AERO has been retroactively restated
          to
          reflect the recapitalization transactions, including the exchange of common
          stock and common stock equivalents of AERO for common stock and common
          stock
          equivalents of TADS based on the exchange ratio of 50 to 1.
  F-6
  **TACTICAL
          AIR DEFENSE SERVICES, INC.**
 **(A
          Development Stage Company)**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(Unaudited)**
 
 **NOTE
          1 - COMPANY AND BASIS OF PRESENTATION-Continued**
 
 In
          connection with the reverse acquisition, the consideration paid to Aero
          Group
          for the assets consisted of:
 
 ·
                14,989,900
                    shares of restricted common stock of TADS, constituting a majority
                    of the
                    then outstanding common stock of TADS.
 
 ·
                Assumption
                    by TADS of Aero’s' obligations under its convertible debentures totaling
                    approximately $5.6 million, inclusive of accrued interest, all
                    convertible
                    into shares of TADS common stock at prices ranging $0.15 to $1.00
                    per
                    share.
 
 ·
                Assumption
                    by TADS of Aero’s' obligation under a convertible note issued in
                    connection with a settlement agreement in the principal amount
                    of
                    $250,000, with an interest rate of 12%, payable in 36 equal monthly
                    installments of principal, plus interest. The note has a maturity
                    date of
                    April 13, 2011. The note is convertible into shares of common
                    stock at a
                    rate of $.50 per share.
 
 ·
                Assumption
                    by TADS of Aero’s obligation under an assumed secured note payable to
                    Daniels in the principal amount of $1,100,000, plus interest,
                    at the rate
                    of 12% per annum. The outstanding principal and interest is convertible
                    into shares of TADS common stock at a conversion price of $.0.50
                    per
                    share.
 
 ·
                Assumption
                    by TADS of Aero’s' obligation under a note assumed by the Company in
                    connection with its June 2006 asset purchase (Note 3) in the
                    principal
                    amount of $2.2 million, plus interest at the rate of 8% per annum.
                    The
                    outstanding principal and interest is convertible into shares
                    of TADS
                    common stock at a conversion price of $0.50 per share.
 
 ·
                Assumption
                    by TADS of Aero’s obligations under certain outstanding warrants to
                    purchase 23,968,315 shares of common stock exercisable at $0.15
                    per share.
 
 ·
                Assumption
                    by TADS of Aero’s obligations under government contracts and
                    subcontracts and of leases relating to its Grayson Airport
                    facilities, a $300,000 consulting contract and property leases.
 
 ·
                Assumption
                    by TADS of Aero’s obligations for accrued expenses totaling $136,000.
 
 Effective
          January 1, 2006, the Company is in the development stage and its operations
          principally involve research and development, market analysis, and other
          business planning activities, and minimal revenue has been generated to
          date.
 
 Aero
          is a
          Utah corporation, which was incorporated on July 31, 1984 under the name
          Diversified Resources Group, Inc. Aero was a provider of outsourced
          military fighter jet pilot training to military personnel, including certain
          flight support services. Effective January 1, 2006, Aero became a development
          stage company as it was devoting all of its present efforts to securing
          and
          establishing a new business.
  F-7
  **TACTICAL
          AIR DEFENSE SERVICES, INC.**
 **(A
          Development Stage Company)**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(Unaudited)**
 
 **NOTE
          1 - COMPANY AND BASIS OF PRESENTATION-Continued**
 
 **Basis
          of Presentation**
 
 The
          results for the first quarter of 2007 are not necessarily indicative of
          the
          results to be expected for the full fiscal year and have not been audited.
          In
          the opinion of management, the accompanying unaudited condensed consolidated
          financial statements contain all adjustments, consisting of normal recurring
          accruals, necessary for a fair statement of the results of operations and
          cash
          flows for the periods presented and the condensed consolidated balance
          sheet at
          March 31, 2007. Certain information and footnote disclosures normally included
          in financial statements prepared in accordance with accounting principles
          generally accepted in the United States of America have been condensed
          or
          omitted pursuant to the SEC rules and regulations. These financial statements
          should be read in conjunction with the financial statements and notes thereto
          that were included in the Company’s latest annual report within its Form 10-KSB
          for the year ended December 31, 2006.
 
 **Going
          Concern and Management's Plan**
 
 The
          accompanying condensed consolidated financial statements have been prepared
          in
          conformity with accounting principles generally accepted in the United
          States of
          America, which contemplate the continuation of the Company as a going concern.
          However, as shown in the accompanying condensed consolidated financial
          statements, the Company has incurred losses from operations since inception
          and
          has a significant working capital deficiency as of March 31, 2007.
 
 As
            discussed above, on December 15, 2006, TADS acquired all of the assets
            of Aero
            and assumed certain contracts in exchange for the assumption by TADS
            of certain
            liabilities of Aero. Management believes the Company can raise adequate
            capital
            for the Company’s required working capital needs for 2007 including additional
            modifications to its aircrafts necessary to make them operational. Management
            also believes that it still needs substantial capital in order to carry
            out its
            business plan, which is to become a civilian provider of outsourced military
            aviation services which includes fighter jet pilot training, operational
            deployment training, aviator combat support and close air support for
“Forward
            Controllers,”.
 
 No
          assurance can be given that the Company can obtain the required estimated
          additional working capital, or if obtained, that such funding will not
          cause
          substantial dilution to stockholders of the Company. Being a development
          stage
          company, the Company is subject to all the risks inherent in the establishment
          of a new enterprise and the marketing of a new product, many of which risks
          are
          beyond the control of the Company. All of the factors discussed above raise
          substantial doubt about the Company's ability to continue as a going concern.
 
 These
          condensed consolidated financial statements do not include any adjustments
          relating to the recoverability of recorded asset amounts that might be
          necessary
          as a result of the above uncertainty.
  F-8
  **TACTICAL
          AIR DEFENSE SERVICES, INC.**
 **(A
          Development Stage Company)**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(Unaudited)**
 
 
 **NOTE
          2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**
 
 **Principals
          of Consolidation**
 
 The
          condensed consolidated financial statements include the accounts of the
          Company
          and its wholly-owned subsidiaries, Genesis Acquisition, Inc., Resource
          Financial
          Holding Acquisition, Inc. and OneSource Acquisition, Inc. All significant
          intercompany transactions have been eliminated.
 
 **Use
          of Estimates**
 
 The
            preparation of the condensed consolidated financial statements in conformity
            with accounting principles generally accepted in the United States of
            America
            requires management to make estimates and assumptions that affect the
            reported
            amounts of assets and liabilities and disclosure of contingent assets
            and
            liabilities in the condensed consolidated financial statements and accompanying
            notes. The most significant estimates relate to the estimated useful
            lives and
            assessment for impairment of the Company’s property and equipment,
            contingencies, revenue recognition and valuation of derivative instruments.
            Actual results could differ from those estimates.
 
 **Property
          and Equipment**
 
 Property
          and equipment are recorded at cost. Property and equipment acquired by
          Aero
          pursuant to the June 2006 Asset Purchase Agreement (Note 3) was recorded
          at its
          then net carrying value due to the entities being controlled by Aero's
          majority
          stockholder. The provision for depreciation of operating equipment is computed
          on the straight line method applied to each unit of property over the estimated
          useful lives, generally five to ten years, commencing when the assets are
          placed
          into service.
 
 Leasehold
          improvements shall be amortized over the shorter of their useful life or
          the
          remaining lease term. Upon retirement or other disposition of these assets,
          the
          cost and related accumulated depreciation of these assets are removed from
          the
          accounts and the resulting gains or losses are reflected in the results
          of
          operations.
 
 As
          of
          March 31, 2007 and 2006, the Company did not have any assets placed into
          service. As a result, there was no depreciation expense for the three months
          ended March 31, 2007 and 2006.
 
 The
            Aircraft acquired pursuant to the June 2006 Asset Purchase Agreement
            (Note 3)
            are stationed in the Ukraine awaiting for disassembly and shipment to
            the United
            States of America. Additional modifications are necessary to make them
            operational for use within the United States of America. The Company
            estimates
            that it will cost approximately $200,000 to ship the MIGs to the United
            States
            of America, and approximately $420,000 to get the MIGs fully operational.
 
 Maintenance
          and repair costs for owned and leased flight equipment are charged to operating
          expense as incurred.
 
  F-9
  **TACTICAL
          AIR DEFENSE SYSTEMS, INC.**
 **(A
          Development Stage Company)**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(Unaudited)**
 
 **NOTE
          2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES- Continued**
 
 **Revenue
          Recognition**
 
 Revenue
          is recognized once four criteria are met: (1) the Company must have
          persuasive evidence that an arrangement exists; (2) services have been
          performed and accepted by the Customer, (3) the price must be fixed and
          determinable; and (4) collectibility must be reasonably assured.
  **Convertible
          Notes and Warrants**
 
 The
          Company accounts for conversion options embedded in convertible notes in
          accordance with SFAS No. 133 "Accounting for Derivative Instruments and
          Hedging
          Activities" (" **SFAS
          133** ")
          and
          Emerging Issues Task Force (" **EITF** ")
          00-19,
          "Accounting for Derivative Financial Instruments Indexed to, and Potentially
          Settled in, a Company's Own Stock" (" **EITF
          00-19** ").
          SFAS
          133 generally requires companies to bifurcate conversion options embedded
          in
          convertible notes from their host instruments and to account for them as
          free
          standing derivative financial instruments in accordance with EITF 00-19.
          SFAS
          133 provides for an exception to this rule when convertible notes, as host
          instruments, are deemed to be conventional as that term is described in
          the
          implementation guidance under Appendix A to SFAS 133 and further clarified
          in
          EITF 05-2 "The Meaning of "Conventional Convertible Debt Instrument" in
          Issue
          No. 00-19.”
 
 The
            Company accounts for convertible notes deemed conventional and conversion
            options embedded in non-convertible notes which qualify as equity under
            EITF
            00-19, in accordance with the provisions of Emerging Issues Task Force
            Issue (" **EITF** ")
            98-5
            "Accounting for Convertible Securities with Beneficial Conversion Features,"
            and
            EITF 00-27 "Application of EITF 98-5 to Certain Convertible Instruments".
            Accordingly, the Company records, as a discount to convertible notes,
            the
            intrinsic value of such conversion options based upon the differences
            between
            the fair value of the underlying common stock at the commitment date
            of the note
            transaction and the effective conversion price embedded in the note.
            Debt
            discounts under these arrangements are amortized over the term of the
            related
            debt.
 
 As
            of
            March 31, 2007, the Company had no derivative financial instruments.
 
 The
          Company accounts for embedded conversion options in non-conventional convertible
          notes which do not qualify as equity under EITF 00-19, as derivative
          liabilities. Accordingly, the Company determines the fair value (as determined
          through a lattice model) of these embedded derivatives (usually conversion
          options and redemption rights). Such fair value is recorded as a debt discount
          up to the proceeds of the debt and any amount in excess of the proceeds
          of the
          debt is charged to operations at the security issuance date.
  F-10
  **TACTICAL
          AIR DEFENSE SYSTEMS, INC.**
 **(A
          Development Stage Company)**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(Unaudited)**
 
 **NOTE
          2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES- Continued**
 
 The
          Company accounts for the issuance of common stock purchase warrants issued
          and
          other free standing derivative financial instruments in accordance with
          the
          provisions of EITF 00-19. Based on the provisions of EITF 00-19, the Company
          classifies as equity any contracts that (i) require physical settlement or
          net-share settlement or (ii) gives the Company a choice of net-cash settlement
          or settlement in its own shares (physical settlement or net-share settlement).
          The Company classifies as assets or liabilities any contracts that (i)
          require
          net-cash settlement (including a requirement to net cash settle the contract
          if
          an event occurs and if that event is outside the control of the Company)
          and
          (ii) give the counterparty a choice of net-cash settlement or settlement
          in
          shares (physical settlement or net-share settlement). The Company determines
          the
          fair value of these free standing instruments under the Black-Scholes Pricing
          Model using the following range of assumptions:
 
 ·
                expected
                    volatility -   350%-450%
 
 ·
                expected
                    dividend - none
 
 ·
                risk-free
                    interest rate - 4.75%-5.00%
 
 ·
                contractual
                    term - 3-5 years
 
 **Non-Employee
          Stock Based Compensation**
 
 The
          Company accounts for stock based compensation awards issued to non-employees
          for
          services, as prescribed by SFAS No. 123R, at either the fair value of the
          services rendered or the instruments issued in exchange for such services,
          whichever is more readily determinable, using the measurement date guidelines
          enumerated in EITF 96-18, "Accounting for Equity Instruments That Are Issued
          to
          Other Than Employees for Acquiring, or in Conjunction with Selling, Goods
          or
          Services."
  **Recently
          Adopted Accounting Policies**
  Effective
          January 1, 2007, the Company adopted Financial Accounting Standards Board
          (“FASB”) Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an
          interpretation of FASB Statement No. 109" ("FIN48"). FIN 48 prescribes
          a single,
          comprehensive model for how a company should recognize, measure, present
          and
          disclose in its financial statements uncertain tax positions that the Company
          has taken or expects to take on its tax returns. Differences between tax
          positions taken or expected to be taken in a tax return and the benefit
          recognized and measured pursuant to the interpretation are referred to
          as
          "unrecognized benefits". A liability is recognized (or amount of net operating
          loss carry forward or amount of tax refundable is reduced) for an unrecognized
          tax benefit because it represents an enterprise's potential future obligation
          to
          the taxing authority for a tax position that was not recognized as a result
          of
          applying the provisions of FIN 48.
   In
          accordance with FIN 48, interest costs related to unrecognized tax benefits
          are
          required to be calculated (if applicable) and would be classified as "Interest
          Expense, net" in the condensed consolidated statements of operations. Penalties
          would be recognized as a component of "General and administrative expenses".
          No
          interest or penalties were required to be recorded during the period ended
          March
          31, 2007.
   The
          Company files income tax returns in the United States of America (federal)
          and
          in various state and local jurisdictions. The Company is delinquent in
          its
          filings of its 2004 and 2005 tax returns. The Company is subject to federal,
          state and local income tax examinations by tax authorities for years after
          December 31, 2003.
   F-11
  **TACTICAL
          AIR DEFENSE SYSTEMS, INC.**
 **(A
          Development Stage Company)**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(Unaudited)**
 
 **NOTE
          2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES- Continued**
  The
            adoption of the provisions of FIN 48 did not have a material impact on
            the
            Company's condensed consolidated financial position and results of operations.
            As of January 1, 2007 and March 31, 2007, no liability for unrecognized
            tax
            benefits was required to be recorded.
   Effective
            in the first quarter of 2007 the Company adopted FASB Staff Position
            No EITF
            00-19-2 "Accounting for Registration Payment Arrangements" issued on
            December
            21, 2006 ("FSP 00-19-2"). FSP 00-19-2 specifies that the contingent obligation
            to make future payments or otherwise transfer consideration under a registration
            payment, whether issued as a separate agreement or included as a provision
            of a
            financial instrument or other agreement, should be separately recognized
            and
            measured in accordance with FASB Statement No. 5, "Accounting for Contingencies.
            For registration payment arrangements and financial instruments subject
            to those
            arrangements that were entered into prior to the issuance of FSP 00-19-2,
            this
            guidance is effective for financial statements issued for fiscal years
            beginning
            after December 15, 2006 and interim periods within those fiscal years.
            The
            adoption of FSP 00-19-2 did not have a material impact on the Company’s
            condensed consolidated financial position and results of operations.
  **Net
          Loss Per Share of Common Stock**
 
 Basic
          net
          loss per share of common stock is computed by dividing net loss available
          to
          common stockholders by the weighted average number of shares of common
          stock
          outstanding during the periods presented.
 
 Diluted
            net loss per share reflects per share amounts that result if dilutive
            common
            stock equivalents are converted to common stock. Common stock equivalents,
            consisting of convertible debt, options and warrants were not included
            in the
            calculation of diluted loss per share for the three months ended March
            31, 2007
            and 2006 because their inclusion would have had been anti-dilutive.
  **NOTE
          3- ASSETS PURCHASED BY AERO**
 
 **Assets
          Purchased By Aero**
 
 In
          June
          of 2006, Aero, through its subsidiaries, acquired certain assets from three
          entities (“the Selling Entities”) owned 100% by Aero's controlling
          stockholder, Mark Daniels. The Selling Entities acquired these assets on
          December 29, 2005 from an unrelated entity in exchange for assets with
          a fair
          value of $4,540,000 and a promissory note of $2,200,000. The assets acquired
          included two MIG29 Aircrafts and four flight simulators and certain intellectual
          assets. The Selling Entities obtained appraisals from certified independent
          appraisers dated December 2005, which valued the aircrafts and simulators
          at
          $6,740,000.
 
 As
          consideration for the purchase of these assets, Aero (i) assumed
          indebtedness of $1.1 million owed to Daniels by the Selling Entities, (ii)
          assumed obligations under a promissory note in the principal amount of $2.2
          million, with interest at 8% per annum, which was originally issued in
          December
          2005, in connection with the acquisition of aircraft and simulators by
          the
          Selling Entities, and (iii) issued a $3,440,000 unsecured promissory note
          to
          Daniels. The $1.1 million due to Daniels is collateralized by TADS assets
          and is guaranteed by its subsidiaries.
  F-12
 
 **TACTICAL
          AIR DEFENSE SERVICES, INC.**
 **(A
          Development Stage Company)**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(Unaudited)**
 
 **NOTE
          3- ASSETS PURCHASED BY AERO-Continued**
 
 In
          reviewing the above transaction, Management determined that it had purchased
          a
          group of assets, rather than acquiring a business. Since Aero and the Selling
          Entities are commonly controlled, the recorded value of the assets purchased
          for
          accounting purposes is limited to the Selling Entities carrying value of
          the
          assets, which totaled $6,740,000 in June of 2006. The difference between
          the
          considerations provided to the Selling Entities of $7,051,255, inclusive
          of
          accrued interest assumed of $311,255, and the carrying value of the assets
          sold
          of $6,740,000 was $311,255. This amount was recorded as a distribution
          in June
          of 2006. Prior to this asset purchase, Aero did not have any business
          transactions with the Selling Entities.
 
 In
          connection with the reverse acquisition, TADS assumed the notes payable
          of $2.2
          million and $1.1 million and did not assume the note payable to Daniels
          of
          $3,440,000.
 
 **NOTE
          4 - CONVERTIBLE DEBENTURES**
 
 As
          part
          of the reverse acquisition, the Company assumed Convertible Debentures
          issued by
          Aero. During the period May 2002 through December 31, 2006, Aero sold 4,715,895
          Convertible Debentures (“Debentures”), along with Debenture Warrants to purchase
          23,968,315 shares of common stock of Aero which were assumed by the Company
          at
          exercise prices ranging from $.15 to $1.00.
 
 Debentures
          and Debenture Warrants as of March 31, 2007 consist of the following:
 
 **Year
                    Ended**
                
                **Debentures**
                
                **Debenture
                    Warrants**2002
                
                $
                250,000
                
                
                1,666,6672003
                
                
                1,091,199
                
                
                7,141,3292004
                
                
                487,265
                
                
                3,248,4332005
                
                
                1,376,797
                
                
                9,645,311Total
                    principal at December 31, 2005
                
                
                3,205,261
                
                
                21,701,7402006
                
                
                1,510,634
                
                
                2,266,575Total
                    principal at December 31, 2006
                
                
                4,715,895
                
                
                23,968,315First
                    quarter of 2007 - Issued
                
                
                343,873
                
                
                1,013,999First
                    quarter of 2007 - Converted
                
                
                (50,000
                )
                
                24,982,314Total
                    principal at March 31, 2007
                
                
                5,009,768Accrued
                    interest
                
                
                982,272Unamortized
                    debt discount
                
                
                (2,038,441
                )Net
                    Carrying Value at March 31, 2007
                
                $
                3,953,599
 
 Included
          in principal at March 31, 2007 is $366,602 due to the Company's majority
          stockholder which was converted in 2005 from shareholder loans to
          Convertible Debentures.
  F-13
  **TACTICAL
          AIR DEFENSE SERVICES, INC.**
 **(A
          Development Stage Company)**
 **NOTES
          TO CONDENSED FINANCIAL STATEMENTS**
 **(Unaudited)**
  **First
          Quarter of 2007**
 
 Between
          January 1, 2007 and March 31, 2007, the Company received proceeds of loans
          totaling $343,873. The Debentures are convertible into TADS common stock
          at
          conversion prices ranging from $.25 to $1.00 per share and provide for
          warrants
          to purchase 1,013,999 shares of TADS common stock at exercise prices ranging
          from $.25 to $1.00. The Debentures bear interest of 12% and are due three
          years
          from the date of issuance. The Debenture Warrants are exercisable at per
          share
          exercise prices of $.25 to $1.00 per share of common stock, are exercisable
          immediately up until the fifth anniversary of the initial warrant date,
          and such
          exercise price is subject to adjustment for subsequent lower price issuances
          by
          the Company and other customary events including stock splits, reverse
          stock
          splits, issuance of convertible securities, sale of common stock and spin-offs.
 
 The
            gross
            proceeds of the $343,873 were allocated 25% or $86,084 to the Debentures
            and 75%
            or $257,789 to the Warrants. The effective conversion price of the Debentures
            was below the market price of TADS common stock at the date the various
            notes
            were issued, which resulted in a beneficial conversion feature of $86,084.
            In
            accordance with EITF 00-27 the amount allocated to the beneficial conversion
            feature was limited to the net proceeds of the offering.
 
 As
          of
          March 31, 2007, all of the principal and accrued interest related to the
          Debentures have been classified as a current liability as they are either
          in default or due within one year.
 
 **Registration
          Rights**
 
 In
          connection with the issuance of the Debentures, the Company is required to
          file a Registration Statement to register the shares of common stock issuable
          upon the conversion of the Debentures and the exercise of the Debenture
          Warrants. The Company will be obligated to the pay the holders of the
          Debentures certain liquidated damages in the event the shares are not registered
          within sixty days of the date of issuance. The Company has not filed the
          Registration Statement and therefore must pay the holders of the Debentures
          liquidated damages in the aggregate amount equal to two percent (2%) for
          each
          (thirty) days (or part thereof) per month until such Registration Statement
          is
          filed and declared effective. In June of 2007 Debenture holders agreed
          to
          postpone the registration requirement through August 31, 2007.
  **NOTE
          5 - INCOME TAXES**
 
 There
          is
          no provision for income taxes for the three months ended March 31, 2007
          and
          2006.
 
 The
          Company has minimal net operating loss carry forwards for income tax purposes
          at
          March 31, 2007. The deferred tax asset primarily attributable to the Company’s
          net operating loss carryforwards has been offset by a full valuation allowance.
  F-14
  **TACTICAL
          AIR DEFENSE SERVICES, INC.**
 **(A
          Development Stage Company)**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **** **(Unaudited)**
 
 **NOTE
          6 - STOCKHOLDERS' EQUITY**
 
 **Preferred
          Stock**
 
 On
          March
          21, 2007, the Company filed a Certificate of Designation of Series A Preferred
          Stock (the “Series A Certificate of Designation”) with the Secretary of State of
          the State of Nevada, designating a series of 50,000,000 shares of Preferred
          Stock of the Company, $.001 par value (the “Series A Preferred Stock”). Pursuant
          to the Series A Certificate of Designation, holders are entitled to:
 
 ·
                elect
                    one director to the Company’s board of directors
 
 ·
                vote
                    on all other matters on a 25 votes per share common stock basis.
 
 ·
                The
                    Series A Preferred Stock shall, with respect to dividend rights,
                    rights on
                    redemption, rights on conversion and rights on liquidation, winding
                    up and
                    dissolution, rank senior to all common stock, warrants and options
                    to
                    purchase common stock established by the Board or the Stockholders
                    (all of
                    such equity securities of the Corporation to which the Series
                    A Preferred
                    Stock ranks senior are collectively referred to herein as “JUNIOR STOCK”).
 
 ·
                Each
                    share of Series A Preferred Stock is initially convertible into
                    2 shares
                    of the Common Stock of the Company, subject to adjustment for
                    stock
                    splits, recapitalization or other reorganizations.
 
 In
          addition, the Series A Preferred Stock:
 
 ·
                have
                    broad-based weighted average antidilution protection that will
                    cause the
                    conversion price to adjust downward in the event that the Company
                    issues
                    shares of common stock or securities convertible into common
                    stock at a
                    price of less than the conversion price of the Series A Preferred
                    Stock
                    then in effect.
 
 ·
                The
                    shares of Series A Preferred Stock may be converted into common
                    stock at
                    the option of the holder. In addition, at any time after the
                    closing bid
                    price for the Company’s common stock on the NASDAQ OTCBB or the primary
                    United States exchange on which the common stock is then traded
                    exceeds
                    $5.00 during any five consecutive trading days, the Company may,
                    at its
                    sole option, convert the Series A Preferred and any accrued but
                    unpaid
                    dividends into common shares at the then-applicable conversion
                    price by
                    providing written notice of such conversion to the holders of
                    the Series A
                    Preferred; provided that there is an effective registration statement
                    under the Securities Act registering the resale of the common
                    stock to be
                    issued upon such conversion.
  F-15
  **TACTICAL
          AIR DEFENSE SERVICES, INC.**
 **(A
          Development Stage Company)**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **** **(Unaudited)**
 
 **NOTE
          6 - STOCKHOLDERS' EQUITY** - **Continued**
 
 Each
            share of Series A Preferred Stock is entitled to receive a per share
            dividend of
            $.07 per annum ($7,441 for the 1st quarter of 2007). The dividend begins
            to
            accrue on January 1, 2007 and will be payable quarterly thereafter. The
            dividend
            is cumulative. In the event of a liquidation or acquisition of the Company,
            the
            holders of the Series A Preferred Stock will be entitled to receive an
            amount
            equal to any accrued and unpaid dividend prior and in preference to any
            distributions to the holders of the common stock. Thereafter, the holders
            of the
            Series A Preferred Stock will be entitled to participate in distributions
            on an
            as converted to common stock basis.
 
 ·
                Shares
                    of Series A Preferred may be redeemed, in whole or in part, by
                    the Company
                    out of funds lawfully available therefore from the holders of
                    then
                    outstanding shares of Series A Preferred on a pro rata basis,
                    at any time
                    by providing written notice to the holders of the Series A Preferred
                    owned
                    by each holder, that number of outstanding shares of Series A
                    Preferred
                    owned by each holder, that number of outstanding shares of Series
                    A
                    Preferred that the Company has elected to purchase for the following
                    consideration: (i) an amount equal to a price per share equal
                    to the $4.00
                    plus any accrued and unpaid dividends multiplied by the number
                    of shares
                    of Series A Preferred being redeemed from such holder and (ii)
                    the
                    issuance of the number of shares of common stock equal to seventeen
                    and
                    one-half percent (17.5%) of the shares of common stock then issuable
                    upon
                    conversion of the shares of Series A Preferred being redeemed
                    from such
                    holder. A cash payment will be provided in lieu of any fractional
                    shares
                    of common stock.
 
 **Stock
          Issuances - First Quarter of 2007**
 
 A
          holder
          of Debentures converted $50,000 plus accrued interest of $22,603 into 503,394
          shares of common stock in accordance with the Debentures agreement.
 
 The
            Company issued 900,000 shares of common stock and 1,200,000 of its Series
            A
            Preferred Stock to various consultants and recorded a charge of $3,598,592
            representing the fair value of the issued capital stock on the date of
            issuance.
 
 The
          Company issued 320,000 of shares of common stock for services valued at
          336,000
          of which $26,000 was charged to lease hold improvements and the remaining
          $310,000 was charged as non-employee stock-based compensation.
  The
            Company issued 1,980,000 shares of common stock and 5,200,000 shares
            of its
            Series A Preferred Stock to various officers and directors for compensation
            due
            under various employment agreements. The Company recorded a charge of
            approximately $12,606,000 (the approximate fair value of the issued capital
            stock on the date of issuance) and deferred compensation of  $129,000
            which will be amortized over the period such services are
            rendered.
 
 **Sale
          of Units**
 
 Pursuant
          to a 2006 Private Placement, on March 2, 2007, TADS sold to eleven investors
          an
          aggregate 629,911 units, each a “unit” at a purchase price of $0.55 per unit.
          Each unit is comprised of (i) one share of common stock, (ii) a Class A
          Warrant
          to purchase one share of common stock at $1.00 per share and expiring on
          March
          2, 2008 and (iii) a Class B Warrant to purchase one share of common stock
          at
          $1.50 per share and expiring on March 2, 2010. The gross proceeds of this
          offering totaled $346,451. During 2006, TADS received the full advance
          from this
          financing.
  F-16
  **TACTICAL
          AIR DEFENSE SERVICES, INC.**
 **(A
          Development Stage Company)**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(Unaudited)**
 
 **NOTE
          6 - STOCKHOLDERS' EQUITY-Continued**
 
 **Warrants**
 
 At
          March
          31, 2007 the Company has outstanding warrants to purchase common stock
          as
          follows:
 
 **No.
                    of**
                  **Warrants**
                
                **Weighted**
                  **Average
                    Price**Balance
                    at January 1, 2005
                
                
                12,056,428
                
                $
                0.15Issued-
                    2005
                
                
                9,645,312
                
                $
                0.15Balance
                    - December 31, 2005
                
                
                21,701,740
                
                $
                0.15Issued-2006
                
                
                2,266,575
                
                $
                0.67Balance
                    -December 31, 2006
                
                
                23,968,315
                
                $
                0.20Issued-
                    First quarter of 2007
                
                
                1,013,999
                
                $
                0.34Balance
                    at March 31, 2007
                
                
                24,982,314
                
                
                0.20Potential
                    Proceeds Assuming all Exercised atMarch
                    31, 2007
                
                $
                5,110,307
 
 **Earnings
          per Share**
 
 Securities
          that could potentially dilute basic earnings per share (" **EPS** ")
          in the
          future that were not included in the computation of diluted EPS because
          to do so
          would have been anti-dilutive for the periods presented consist of the
          following
          at March 31, 2007 and 2006:
 
 March
          31,
          2007:
 
 **Principal
                      and Interest**
                  
                  **Additional
                      Number of Potential Common Shares if Converted/Exercised**Debentures
                  
                  $
                  5,992,040
                  
                  
                  31,114,918Convertible
                      notes
                  
                  $
                  4,133,191
                  
                  
                  8,266,382Warrants
                      to purchase common stock
                  
                  
                  N/A
                  
                  
                  24,982,314Accrued
                      consulting fees
                  
                  $
                  300,000
                  
                  
                  600,000Total
                      at March 31, 2007
                  
                  
                  
                  
                  
                  64,963,614
 
  F-17
  **TACTICAL
          AIR DEFENSE SERVICES, INC.**
 **(A
          Development Stage Company)**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(Unaudited)**
 
 **NOTE
          6 - STOCKHOLDERS' EQUITY-Continued**
 
 March
          31,
          2006:
 
 **Principal
                      and Interest**
                  
                  **Additional
                      Number of Potential Common Shares if Converted/Exercised**Debentures
                  
                  
                  3,903,965
                  
                  $
                  26,026,434Warrants
                      to purchase common stock
                  
                  
                  N/A
                  
                  
                  23,566,646Accrued
                      consulting fees
                  
                  $
                  300,000
                  
                  
                  600,000Total
                      at March 31, 2006
                  
                  
                  
                  
                  
                  50,193,080
 
 Issuances
          after March 31, 2007:
  Common
                        Stock issued and issuable to consultants
                    845,000Common
                        Stock issued as compensation
                    2,360,000Exercise
                        of warrants
                    6,234,238Conversion
                        of convertible debentures into Common Stock
                    1,733,918New
                        Convertible Debt
                    1,372,212Warrants
                        issued with new convertible debt
                    1,372,212
 
 **NOTE
          7- COMMITMENTS**
  **Periodic
          Filings**
 
 Under
          a
          2005 rule change, OTC Bulletin Board ("OTCBB") issuers that are cited for
          filing
          delinquent three times in a 24-month period and those removed for failure
          to
          file two times in a 24-month period will be ineligible for quotation by
          an NASD
          member. Following removal under this new rule, an issuer's securities would
          again become eligible for quotation on the OTCBB when the issuer has filed
          periodic reports for one year in a timely manner.
 
 The
          Company has been late two times during the last six months. If the Company
          is
          late in its future filings over the next two years, TADS common stock will
          be
          ineligible to remain quoted on the OTCBB and will become listed on the
          pink
          sheets.
  F-18
  **TACTICAL
          AIR DEFENSE SERVICES, INC.**
 **(A
          Development Stage Company)**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(Unaudited)**
 
 **NOTE
          8 - SUBSEQUENT EVENTS**
 
 **Debt
          Issuances Subsequent to March 31, 2007**
 
 During
          the period April 1, 2007 through June 8, 2007, the Company received loan
          proceeds of $343,053 from one unrelated party. The loans provide for interest
          at
          an annual rate of 12%. The loans are due within three years of issuance.
          The
          loans are convertible into common stock at a conversion rate of $0.25 per
          share
          and provide for warrants to purchase 1,372,212 shares of common stock at
          an
          exercise price $0.25 per share.
 
 **Common
            Stock Issuances Subsequent to March 31, 2007**
 
 During
          the period April 1, 2007 through June 8, 2007 various holders of warrants
          exercised its warrants to purchase 6,234,238 shares of the Company’s common
          stock on a converted basis.
 
 During
          the period April 1, 2007 through June 8, 2007 various holders of Debentures
          converted $224,060 plus accrued interest of $35,918 into 1,733,192 shares
          of
          common stock.
 
 During
            the period April 1, 2007 through May 31, 2007, the Company issued 2,360,000
            shares of common stock to various officers and directors for compensation
            due
            under various employment agreements.
 
 During
          the period April 1, 2007 through May 31, 2007, the Company issued 845,000
          shares
          of common stock to various consultants.
 F-19
 
 **Item
        2. Management’s Discussion and Analysis or Plan of
        Operation**
 
 **CAUTIONARY
        STATEMENT REGARDING FORWARD LOOKING STATEMENTS**
 
 This
          Quarterly Report on Form 10-QSB, and, specifically the Management's Discussion
          and Analysis may contain "forward-looking statements." The terms "believe,"
          "anticipate," "intend," "goal," "expect," and similar expressions may identify
          forward-looking statements. These forward-looking statements represent
          the
          Company's current expectations or beliefs concerning future events. The
          matters
          covered by these statements are subject to certain risks and uncertainties
          that
          could cause actual results to differ materially from those set forth in
          the
          forward-looking statements. The Company disclaims any obligation subsequently
          to
          revise any forward-looking statements to reflect events or circumstances
          after
          the date of such statements, or to reflect the occurrence of anticipated
          or
          unanticipated events. In light of the significant uncertainties inherent
          in the
          forward-looking information included herein, the inclusion of such information
          should not be regarded as a representation that the strategy, objectives
          or
          other plans of the Company will be achieved. The Company wishes to caution
          readers not to place undue reliance on any such forward-looking statements,
          which speak only as of the date made. We undertake no duty to update this
          information. More information about potential factors that could affect
          our
          business and financial results is included in the section entitled "Risk
          Factors" of our Annual Report on Form 10-KSB for the year ended December
          31,
          2006 filed with the Securities and Exchange Commission on June 14, 2007.
          The
          following discussion should be read in conjunction with our condensed
          consolidated financial statements provided in this quarterly report on
          Form
          10-QSB.
 
 **Recent
        Developments**
 
 **Acquisition
        of AeroGroup Assets and Change of Control in December of
        2006**
 
 On
        December 15, 2006, TADS and three of its wholly-owned subsidiaries, Resource
        Financial Aviation Holdings Inc., OneSource Aviation Acquisition Inc. and
        Genesis Aviation Acquisition Inc., each a Nevada corporation acquired
        substantially all of the assets (the “AeroGroup Assets”) of AeroGroup
        Incorporated, a Utah corporation, and of its three wholly-owned subsidiaries,
        OneSource Acquisition, Inc., Genesis Acquisition, Inc. and Resource Financial
        Holding Acquisition, Inc., each a Delaware corporation (the “AeroGroup
        Subsidiaries” and, collectively with AeroGroup Incorporated, “AeroGroup”),
        pursuant to an Asset Purchase Agreement dated July 14, 2006, as amended (the
        “Asset Purchase Agreement”) and in consideration of the acquisition issued stock
        and assumed certain indebtedness and other obligations under various
        warrants, a real property sublease, government and non-government
        aviation contracts and certain other contracts of AeroGroup (the
“AeroGroup Acquisition”).
 
 As
        a
        result of this transaction there was a change of control of TADS effective
        as of
        December 15, 2007 and, we are deemed to be the legal surviving acquirer in
        the
        AeroGroup Acquisition and therefore, the assets and liabilities and historical
        operations of AeroGroup prior to the Closing Date of the acquisition is
        reflected in our financial statements and will be recorded at the historical
        cost basis of AeroGroup.
 
 Prior
        to
        the acquisition we were a development stage company without any material
        revenues from operations. The business of AeroGroup acquired by us has not
        had
        any material revenues in 2006 or 2005 and for most of 2004. The business
        we
        acquired from AeroGroup was commenced in 2002 by Mark Daniels, our Chief
        Executive Officer and a director, with the intention of becoming an outsourced
        provider of military flight training, research and flight support services.
        We
        will require substantial additional capital in order to implement our business
        plan and commence operations.
 
 As
        a
        result of the AeroGroup Acquisition, on December 15, 2006 TADS ceased to
        be a
        shell corporation as such term is defined in Rule 12b-2 of the Security and
        Exchange Act of 1934, as amended, resulting in a change of control. A
        description of our business after the acquisition follows in the “Business”
section below.
 
 Pursuant
        to the terms of the AeroGroup Acquisition, AeroGroup acquired a majority
        of our
        issued and outstanding Common Stock as constituted at the time of the
        transaction. A majority of AeroGroup’s common stock is beneficially owned by
        Mark Daniels. In addition, on August 22, 2006 Messrs. Daniels was appointed
        as a
        board member and Lt. Gen. (Ret) Charles Searock was appointed as President
        and
        Mr. John R. Farley was appointed as Vice President to facilitate the process
        of
        obtaining the government licenses described in this report. General (Ret)
        Searock has resigned from all positions with the Company as of December 31,
        2006
        and Mr. Fred Daniels and Mr. Victor Miller were appointed as directors as
        of
        January 8, 2007. Information relating to current and previous management
        is set
        forth under the “Management” section of our annual report on Form 10-KSB.
  3
  **Series
        A Preferred Stock**
 
 On
          March
          21, 2007, the Company filed a Certificate of Designation of Series A Preferred
          Stock (the “Series A Certificate of Designation”) with the Secretary of State of
          the State of Nevada, designating a series of 50,000,000 shares of Preferred
          Stock of the Company, $.001 par value (the “Series A Preferred Stock”). The
          Series A Preferred Stock provisions provide for a $.07 per share preferred
          dividend per annum and are granted super voting rights of 25 votes for
          each
          share of common stock voting at a meeting and contain liquidation preference
          rights. Additionally, the holders of the Series A Preferred Stock are entitled
          to appoint a director by vote of a majority of the Series A Preferred Stock
          holders. An aggregate of 6,400,000 shares of Series A Preferred Stock have
          been
          issued to certain officers and directors and a consultant in lieu of cash
          compensation under their respective employment or consulting agreements,
          resulting in control of the Company by Mr. Mark Daniels.
 
 **Private
        Placement**
 
 On
        March
        2, 2007, pursuant to binding Unit Purchase Agreements (the “Purchase Agreement”)
        with 11 accredited investors submitted by such investors in 2006, we accepted
        subscriptions for, and sold to such Investors, an aggregate of 629,911 Units
        (each, a “Unit”) at a purchase price of $.55 per Unit. Each Unit is comprised of
        (i) one share of our common stock, par value $.001 per share (the “Common
        Stock”), (ii) a Class A Warrant to purchase one share of Common Stock at $1.00
        per share and expiring on March 2, 2008 (the “Class A Warrant”) and (iii) a
        Class B Warrant to purchase one share of Common Stock at $1.50 per share
        and
        expiring on March 2, 2010 (the “Class B Warrant”). The gross proceeds to the
        Company of the offering was $346,451.
 
 **Plan
        of Operation**
 
 **Liquidity
        and Capital Resources**
 
 Our
        business involves the ownership, operation and maintenance of jet aircraft,
        which typically require significant amounts of capital. Some of our anticipated
        one time and ongoing expenses are discussed below.
 
 Our
        predecessor, AeroGroup, has had no revenues during 2006. We had no revenues
        during the first quarter of 2007. We anticipate that our current cash on
        hand of
        $19,000 as of May 31, 2007 is sufficient to satisfy our cash requirements
        only
        through the end of June of 2007. We do not have any financing commitments
        and no assurance can be made that we will be obtaining financing at the times
        and terms needed. Therefore, there is substantial doubt that we will be able
        to
        continue as a going concern. In addition, we will need substantial additional
        capital during the next 12 months in order to complete our business plan.
 
 We
        have
        funded our operations and met our capital expenditures requirements primarily
        from the issuance of convertible debt securities and warrants.
 
 As
        of
        December 31, 2006, AeroGroup had a negative working capital deficiency
        in the amount of $4,621,385. Cash used by operating activities were $1,157,571
        for the year ended December 31, 2006 compared to cash used by operating
        activities for the year ended December 31, 2005 of $967,573.
 
 As
        of
        March 31, 2007, AeroGroup had negative working capital deficiency in the
        amount of $4,798,199 .
        Cash
        used in operating activities was $452,971 for the three months ended March
        31,
        2007 as compared to $284,662 during the three month period ended March 31,
        2006.
  4
  Net
          cash
          provided by financing activities for the quarter ended March 31, 2007 of
          $343,873 remained relatively even as compared to $342,215 for the three
          months
          ended March 31, 2006 primarily as a result of continued capital raising
          efforts
          of the Company.
 
 The
        factors that predominantly impact working capital and therefore cash flows
        from
        operations are operating expenses.
 
 During
        the year ended December 2007, the Company believes that it will expend funds
        on
        the following:
 
 ·
              Completion
                  of development of the safety, parts and maintenance programs which
                  we
                  anticipate will cost a minimum of another $1,000,000 to complete,·
              Import
                  and modification of the MiG 29 Aircraft, currently in the Ukraine,
                  which
                  we anticipate will cost approximately
                  $620,000,
 ·
              Acquisition
                  or leasing of new fourth generation military aircraft and/or tanker
                  aircraft.·
              Hiring
                  of a Chief Financial Officer and dispatch and other personnel with
                  military aviation experience.
  **Financing
              Activities Since March 31, 2007**
 
 During
              the period April 1, 2007 through June 8, 2007, the Company received
              loan
              proceeds of $343,053 from one unrelated party. The loans provide for
              interest at
              an annual rate of 12% and are due within three years of issuance. The
              loans are
              convertible into common stock at a conversion rate of $0.25 per share
              and
              provide for warrants to purchase 1,372,212 shares of common stock at
              an exercise
              price $0.25 per share.
  We
          anticipate that if we are able to raise sufficient capital that we will
          be able
          to complete our programs and import our MiG 29 aircraft by fourth quarter
          of
          2007. If we are not able to do so, we will not be able to perform under
          the F-16
          Training Contract or to bid under newer contracts.
  **Immediate
        Need for Additional Capital and Cost of Equipment**
 
 We
          will
          be required to make significant additional expenditures to acquire F-16,
          F-15,
          SU-27 or additional MiG 29 fighter jet aircraft in order to perform our
          contracts. Alternatively, we may lease these aircraft if sufficient financing
          alternatives are not available. Additionally, we will be required to allocate
          capital towards completion of our parts, maintenance and safety programs.
          We do
          not have any commitments for capital. Our near term anticipated costs is
          listed
          below.
 
 *Cost
        of Importing our Existing Aircraft*
 
 Our
        MiG
        29 aircraft are located in the Ukraine and must be disassembled for delivery
        to
        the United States, where they will be reassembled and modified to an airworthy
        condition suitable for use in our business. We intend to use these aircraft
        in
        connection with our air-to-air training of pilots who fly NATO aircraft,
        such as
        the F-16.
 
 We
          estimate that it will cost $200,000 to import our MiG 29 aircraft that are
          in the Ukraine and $420,000 to modify these aircraft for use in military
          training. Presuming that we are able to finance this shipment promptly,
          we
          anticipate that these two aircraft will become fully operational in the
          United
          States no sooner then September of 2007. We estimate that it will take
          no less
          than 50 days from the closing of a financing, if any, to ship such aircraft
          to
          the United States.
  *Cost
        of Developing Parts, Maintenance and Safety Programs*
 
 Our
        F-16
        Training Contract and most of our existing subcontracts, as well as those
        we may
        bid for in the future, will require us to develop and maintain a formal safety
        program, a formal maintenance program and a formal parts program. We anticipate
        that it will cost us approximately $1,000,000 through December of 2007 to
        complete these programs.
  5
  *Cost
        of Acquisition or Lease of Fourth Generation Military
        Aircraft*
 
 In
        order
        to for us to be eligible to be called upon to do work under our contracts,
        we
        must acquire at least two F-16 fighter jet aircraft with no less then seven
        of
        such aircraft being the optimum number of F-16 fighter jet aircraft. We do
        not
        have formal agreements to acquire or lease these aircraft, but based on recent
        negotiations, we anticipate that these aircraft will cost at least $5,500,000
        each, or a total of $11 Million to $38.5 Million in order to be fully
        operational. We may also utilize other fourth generation military aircraft
        for
        our F-16 Training Contract which we anticipate will cost less then the F-16
        aircraft based on the purchase price paid for the MiG 29 aircraft in December
        of
        2005. Alternatively, if we do not have the capital to acquire or finance
        these
        aircraft we will have to lease these aircraft. We have not yet entered into
        any
        formal arrangements to lease these or any other aircraft and are not aware
        if
        these aircraft are available for lease from third parties. Even if we are
        able
        to identify leasing agents, we anticipate that a lease arrangement will also
        entail a capital commitment.
 
 We
          do not
          have adequate capital to purchase or lease these aircraft at this time
          or any
          financing commitments for the foregoing. If traditional acquisition financing
          cannot be found we will seek alternatives including a possible sale of
          debt or
          equity securities.
 
 **Employees**
 
 We
        currently have nine full time and six **** part
        time
        employees. From time to time we have retained a number of independent
        consultants to assist us in developing our safety, maintenance and parts
        programs and to develop our curricula. We do not anticipate the hiring of
        new
        employees until we complete the acquisition of the F-16 aircraft and we are
        prepared to accept tasking orders under our contracts. However, we anticipate
        retaining consultants from time to time in order to complete development
        of our
        parts, maintenance and safety programs. We anticipate that after such time
        in
        order to operate our business of providing flight training and aircraft services
        relating to F-16 fighter jet aircraft, we will need to hire new employees
        and
        members of management. These new management personnel will include a director
        of
        logistics, a chief of maintenance, a director of administration, and a security
        director. We will also need certified flight instructors, maintenance and
        line
        personnel sufficient to manage our aircraft flight operations and program
        managers with military experience.
 
 While
        we
        have interviewed and met with multiple candidates for the these positions,
        we do
        not intend to hire anyone until the needs of our operations require such
        expenditures. We believe that the annual number of retiring military flight
        instructors and mechanics is sufficient to enable us to find qualified training
        and maintenance personnel.
 
 **Off
        Balance Sheet Arrangements**
 
 As
          of
          June 1, 2007, we do not have any off balance sheet arrangements, as defined
          in
          Section 303(c) of Regulation S-B, other then as specifically disclosed
          in this
          report. Off balance sheet arrangements include, without limitation, contractual
          arrangements with any entity whose financial information is not consolidated
          with our own, under which we have:
 
 ·
              Guaranteed
                  any obligation of such other entity;·
              A
                  retained or contingent interest in assets transferred to such
                  unconsolidated entity or similar arrangement that serves as credit,
                  liquidity or market risk support to that entity for such
                  assets;
 ·
              Any
                  obligation under certain derivative instruments;·
              Any
                  obligation under a material variable interest held by the registrant
                  in an
                  unconsolidated entity that provides financing, liquidity, market
                  risk or
                  credit risk support to the registrant, or engages in leasing, hedging
                  or
                  research and development services with the registrant.
 
 Additionally,
        we do not have any relationships or transactions with persons or entities
        that
        derive benefits from any non-independent relationships other than related
        party
        transactions discussed herein.
  6
  **Item
        3. Controls and Procedures**
 
 (a) **Evaluation
        of Disclosure Controls and Procedures**
 
 As
        of May
        2007, we do not have a full time internal chief financial officer. Based
        on an
        evaluation of our disclosure controls and procedures (as defined in
        Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of
        1934, as amended) required by paragraph (b) of Rule 13a-15 or
        Rule 15d-15, as of March 31, 2007, our Principal Executive Officer and
        Principal Financial Officer believe that, our disclosure controls and procedures
        were not effective in ensuring that information required to be disclosed
        by us
        in the reports that we file or submit under the Exchange Act is recorded,
        processed, summarized and reported. Our auditors, Marcum & Kliegman, LLP in
        performing their audit for the years ended December 31, 2006 and 2005,
        discovered conditions which they deemed to be a material weakness in the
        Company’s internal control related to financial reporting. Specifically, they
        noted a lack in timeliness in financial statement reporting as well as
        deficiencies related to disclosures in the notes to financial statements
        (2006
        and 2005) and adjusting journal entries in accounting for derivative instruments
        (2005). Our Principal Executive Officer and Principal Financial Officer believe
        that the lack of a full time chief financial officer has been instrumental
        in
        leading to delays in the company’s filings and in the prompt gathering and
        analysis of financial information. Management believes that hiring a full
        time
        chief financial officer is crucial to maintaining the integrity of its financial
        information and reports and intends to do so as funds permit.
 
 (b) **Changes
        in Internal Controls**
 
 During
        the period ended March 31, 2007, there were no changes in our internal control
        over financial reporting identified in connection with the evaluation required
        by paragraph (d) of Rule 13a-15 or Rule 15d-15 that has materially affected,
        or
        is reasonably likely to materially affect, our internal control over financial
        reporting. ****
  7
  **PART
        II - OTHER INFORMATION**
 
 **Item
        1. Legal Proceedings**
 
 Mr.
        Jeffrey Peer, a former executive officer of AeroGroup, has threatened litigation
        in Florida as a result of AeroGroup’s failure to pay his salary and other
        expenses under his employment terms, which terms are at dispute. We believe
        that
        this claim is without merit and are working towards resolution of the same.
 
 TADS
        is
        not a party to any pending litigation or legal proceeding that is not in
        the
        ordinary course of business. To our knowledge, no such proceedings are
        threatened other than a threat of a lawsuit from Mr. Peer, as described above.
 
 **Item
        2. Unregistered Sales of Equity Securities and Use of Proceeds**
 
 *Conversion
        of Notes and Exercise of Warrants*
 
 During
          the period January 1, 2007 through June 8, 2007 the issuances of unregistered
          securities were made as a result of various warrant exercises and note
          conversions. In all, during this period, various holders of warrants exercised
          warrants to purchase 6,234,238 shares of the Company’s Common Stock. These
          warrants were exercisable at $.15 per share and were exercised through
          cashless
          exercise method. In addition, during this period, various holders of the
          convertible debentures converted $274,060 of debentures plus accrued interest
          of
          $58,521 at conversion price of $.15 per share, resulting in the issuance
          of
          2,236,586 shares of Common Stock.
 
 *Issuance
        of Convertible Debt*
 
 During
          the period January 1, 2007 through June 8, 2007, the Company received loan
          proceeds of approximately $687,000 from four unrelated parties. The loans
          provide for interest at an annual rate of 12%. The loans are due within
          three
          years of issuance. The loans are convertible into TADS Common Stock at
          a
          conversion rate of $.25 to $1.00 per share and provide for warrants to
          purchase
          shares of TADS Common Stock at an exercise price of $.25 to $1.00 per
          share.
 
 *Issuance
        of Common Stock to ZA Consulting*
 
 The
        Company issued an aggregate of 250,000 restricted shares of Common Stock
        to ZA
        Consulting Group in the first quarter of 2007, as compensation for investor
        relations services and related consulting services. No registration rights
        were
        issued in connection with these shares.
  *Issuance
        of Shares of Common Stock for Services*
  Between
        March and April of 2007, the Company issued an aggregate of 1,465,000 shares
        in
        satisfaction of invoices to various services providers. These shares are
        restricted and no registration rights were granted in connection with these
        issuances.
  *Series
        A Preferred Stock Issuances*
 
 On
        March
        21, 2007, the Company filed a Certificate of Designation of Series A Preferred
        Stock (the “Series A Certificate of Designation”) with the Secretary of State of
        the State of Nevada, designating a series of 50,000,000 shares of Preferred
        Stock of the Company, $.001 par value (the “Series A Preferred Stock”). Pursuant
        to the Series A Certificate of Designation, holders of the Company’s Series A
        Preferred Stock are entitled to:
 
 ·
              elect
                  one director to the Company’s board of directors·
              vote
                  on all other matters on a 25 votes per share Common Stock
                  basis.
 ·
              with
                  respect to dividend rights, rights on redemption, rights on conversion
                  and
                  rights on liquidation, winding up and dissolution, rank senior
                  to all
                  Common Stock, warrants and options to purchase Common Stock established
                  by
                  the Board or the Stockholders (all of such equity securities of
                  the
                  Corporation to which the Series A Preferred Stock ranks senior
                  are
                  collectively referred to herein as “Junior Stock”).·
              Each
                  share of Series A Preferred Stock is initially convertible into
                  2 shares
                  of the Common Stock of the Company, subject to adjustment for stock
                  splits, recapitalization or other
                  reorganizations.
  8
  In
        addition, the Series A Preferred Stock:
 
 ·
              has
                  weighted average antidilution protection that will cause the conversion
                  price to adjust downward in the event that the Company issues shares
                  of
                  Common Stock or securities convertible into Common Stock at a price
                  of
                  less than the conversion price of the Series A Preferred Stock
                  then in
                  effect.·
              may
                  be converted into Common Stock at the option of the holder.
 
 In
        addition, at any time after the closing bid price for the Company’s Common Stock
        on the NASDAQ OTCBB or the primary United States exchange on which the Common
        Stock is then traded exceeds $5.00 during any five consecutive trading days,
        the
        Company may, at its sole option, convert the Series A Preferred and any accrued
        but unpaid dividends into common shares at the then-applicable conversion
        price
        by providing written notice of such conversion to the holders of the Series
        A
        Preferred; provided that there is an effective registration statement under
        the
        Securities Act registering the resale of the Common Stock to be issued upon
        such
        conversion.
 
 Each
        share of Series A Preferred Stock is entitled to receive a dividend of 7%
        per
        annum. The dividend begins to accrue on January 1, 2007 and will be payable
        quarterly thereafter. The dividend is cumulative. In the event of a liquidation
        or acquisition of the Company, the holders of the Series A Preferred Stock
        will
        be entitled to receive an amount equal to any accrued and unpaid dividend
        prior
        and in preference to any distributions to the holders of the Common Stock.
        Thereafter, the holders of the Series A Preferred Stock will be entitled
        to
        participate in distributions on an as converted to common stock
        basis.
 
 Shares
        of
        Series A Preferred may be redeemed, in whole or in part, by the Company out
        of
        funds lawfully available therefore from the holders of then outstanding shares
        of Series A Preferred on a pro rata basis, at any time by providing written
        notice to the holders of the Series A Preferred owned by each holder, that
        number of outstanding shares of Series A Preferred owned by each holder,
        that
        number of outstanding shares of Series A Preferred that the Company has elected
        to purchase for the following consideration: (i) an amount equal to a price
        per
        share equal to the $4.00 plus any accrued and unpaid dividends multiplied
        by the
        number of shares of Series A Preferred being redeemed from such holder and
        (ii)
        the issuance of the number of shares of Common Stock equal to seventeen and
        one-half percent (17.5%) of the shares of Common Stock then issuable upon
        conversion of the shares of Series A Preferred being redeemed from such holder.
        A cash payment will be provided in lieu of any fractional shares of Common
        Stock.
 
 *Issuance
        of Preferred Securities*
 
 During
        the period January 1, 2007 through May 31, 2007, the Company issued 2,065,000
        of
        shares of Common Stock and 1,200,000 of its Series A Preferred Stock for
        services. (See “Series A Preferred Stock Issuances” above).
 
 During
        the period January 1, 2007 through May 31, 2007, the Company issued 4,340,000
        shares of Common Stock and 5,200,000 shares of its Series A Preferred Stock
        to
        various officers and directors for compensation due under various employment
        agreements. (See “Series A Preferred Stock Issuances” above).
 
 **Item
        3. Defaults Upon Senior Securities**
 
 None.
 
 9
 
 **Item
        4. Submission of Matters to a Vote of Security Holders**
 
 None.
 
 **Item
        5. Other Information**
 
 None.
 
 **Item
        6. Exhibits**
 
 a.
        Exhibit Index
  3.2
              Certificate
                  of Designation, with Respect to Series A Preferred Stock, dated
                  March 21,
                  2007.*
 
 10.1
              Employment
                  Agreement, dated as of January 3, 2007, between the Company and
                  Mark
                  Daniels.*
 
 10.2
              Employment
                  Agreement, dated as of January 3, 2007, between the Company and
                  Victor
                  Miller.*
 
 31.1
              Certification
                  by Chief Executive Officer and Principal Financial Officer, required
                  by
                  Rule 13a- 14(a) orRule
                  15d-14(a) of the Exchange Act, promulgated pursuant to Section
                  302 of the
                  Sarbanes-Oxley Act of2002.
 
 32.1
              Certification
                  by Chief Executive Officer and Principal Financial Officer, required
                  by
                  Rule 13a-14(b) orRule
                  15d-14(b) of the Exchange Act and Section 1350 of Chapter 63 of
                  Title 18
                  of the United States Code,promulgated
                  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
        Incorporated by reference to the Issuer’s Form 10-KSB filed on June 14,
        2007.
 
 **SIGNATURES**
 
 In
        accordance with the requirements of the Exchange Act, the registrant caused
        this
        report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 **TACTICAL
                    AIR DEFENSE SERVICES,**
                  **INC.**June
                    21, 2007By:
                /s/
                    Mark DanielsName:
                    Mark DanielsTitle:
                    President and Chairman (Principal
                  Executive
                    and Principal Accounting
                  Officer)
 
 10