**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**





**FORM
      10-Q**





(Mark
      One)





**o**
            **QUARTERLY
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT
                OF
                1934**


**FOR
      THE QUARTER ENDED SEPTEMBER 30, 2008**





**o**
            **TRANSITION
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT**











Commission
      File No. 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.)








1515
      Perimeter Rd


West
      Palm
      Beach, FL 33406


**** (Address
      of principal executive offices)





(561)
      398-8196


**** (Issuer's
      telephone number)




Securities
      registered under Section 12(b) of the Exchange Act:


None





Securities
      registered under Section 12(g) of the Exchange Act:


Common
      Stock, $0.001 par value per share


(Title
      of
      Class)





**Securities
      registered under Section 12(b) of the Exchange Act:**


**None**


**Securities
      registered under Section 12(g) of the Exchange Act:**


**Common
      Stock, $0.001 par value per share**


**(Title
      of Class)**




Indicate
      by check mark whether the Registrant (1) has filed all reports required by
      Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
      preceding 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 x No  ̈





Indicate
      by check mark whether the Registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one):





Large
      accelerated filer  ̈ Accelerated
      filer  ̈ Non-Accelerated
      filer  ̈   Small
      Business Issuer x




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).  Yes  ̈ No x





Indicate
      the number of shares outstanding of each of the issuer’s classes of Common
      Stock, as of the latest practicable date.




**Class**
            
            **Outstanding
                at November 19, 2008**Common
                Stock, $0.001 par value****
            
            396,950,323











**INDEX**Page No.Part
                I
            
            
            F-1Item
                1.  Financial Statements.
            
            
            F-1Condensed
                Consolidated Balance Sheet (Unaudited) at September 30, 2008 and
                December
                31, 2007
            
            
            F-2Condensed
                Consolidated Statements Of Operations (Unaudited) For the Three and
                Nine
                Months Ended September 30, 2008 and 2007
            
            
            F-3Condensed
                Consolidated Statements Of Cash Flows (Unaudited) For the Three and
                Nine
                Months Ended September 30, 2008 and 2007
            
            
            F-4Notes
                To Condensed Consolidated Financial Statements (Unaudited)
            
            
            F-5Item
                2.  Management's Discussion and Analysis or Plan of
                Operations.
            
            
            3Item
                3. Quantitative and Qualitative Disclosures About Market
                Risk
            
            
            4Item
                4. Controls and Procedures
            
            
            5Part
                II. Other Information
            
            
            5Item
                1. Legal Proceedings
            
            
            5Item
                1A. Risk Factors
            
            
            6Item
                2. Changes in Securities and Small Business Issuer Purchases of Equity
                Securities
            
            
            8Item
                3. Defaults Upon Senior Securities
            
            
            9Item
                4. Submission of Matters to a Vote of Security Holders
            
            
            9Item
                5. Other Information
            
            
            9Item
                6. Exhibits
            
            
            9Signatures
            
            
            10








**PART
      I FINANCIAL INFORMATION**





General





The
      accompanying reviewed financial statements have been prepared in accordance
      with
      the instructions to Form 10-Q. Therefore, they do not include all information
      and footnotes necessary for a complete presentation of financial position,
      results of operations, cash flow, and stockholders' equity in conformity with
      generally accepted accounting principles. Except as disclosed herein, there
      has
      been no material change in the information disclosed in the notes to the
      financial statements included in the Company's registration statement on Form
      10-KSB for the year ended December 31, 2007 (audited). In the opinion of
      management, all adjustments considered necessary for a fair presentation of
      the
      results of operations and financial position have been included and all such
      adjustments are of a normal recurring nature. Operating results for the quarter
      ended September 30, 2008 are not necessarily indicative of the results that
      can
      be expected for the year ending December 31, 2008.




**Item
      1. Financial Statements**


F-1





**TACTICAL
      AIR DEFENSE SERVICES, INC.**


**CONDENSED
      CONSOLIDATED BALANCE SHEET**




September 30,
              2008
            
            DECEMBER 31, 2007ASSETSCurrent
                Assets:Cash
            
            $
            143,156
            
            
            0Property
                and Equipment, net
            
            
            88,000
            
            
            88,000TOTAL
                ASSETS
            
            
            231,156
            
            
            88,000LIABILITIES
                AND STOCKHOLDERS' EQUITYCurrent
                Liabilities:Accounts
                payable
            
            
            7,762
            
            
            7,762Accrued
                liabilities
            
            
            2,123,454
            
            
            1,755,829Convertible
                Debentures, including accrued interest, net of debt discount of
                $2,590,041
            
            
            4,950,853
            
            
            4,483,651Total
                Current Liabilities
            
            
            7,082,069
            
            
            4,799,159Convertible
                Notes Payable
            
            
            -0-
            
            
            2,514,4126TOTAL
                LIABILITIES
            
            
            7,082,069
            
            
            8,761,668COMMITMENTSSTOCKHOLDERS'
                EQUITY:Series
                A Preferred stock-$.001 par value; 50,000,000 shares authorized;
                - shares
                issued and outstanding - 6,400,000
            
            
            6,400
            
            
            6,400Common
                stock-$.001 par value; 1,000,000,000 shares authorized; - 396,950,323
                shares issued and outstanding
            
            
            396,950
            
            
            45,248Additional
                paid-in-capital
            
            
            
            
            
            26,650,808Unearned
                compensation
            
            
            30,286,231Deficit
                accumulated during the development stage
            
            
            (37,540,494
            )
            
            (35,376,124
            )TOTAL
                STOCKHOLDERS' EQUITY
            
            
            (6,850,913
            )
            
            (8,673,668
            )TOTAL
                LIABILITIES AND STOCKHOLDERS' EQUITY
            
            $
            231,156
            
            
            88,000





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**


**For
      the Three and Nine Months Ended September 30, 2008 and
      2007**


**(Unaudited)**





Three Months Ended
              September 30,
            
            Nine Months Ended
              September 30,2008
            
            2007
            
            2008
            
            2007REVENUES
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -Operating
                costs
            
            
            
            
            
            1,073
            
            
            
            
            
            170,335General
                and administrative, including compensatory element of stock issuance
                of
                $2,339,397, $-, $18,867,439, $144,773 for the three and Nine Months
                ended
                September 30, 2008 and 2007, respectively, and $18,999,015 for the
                period
                January 1, 2006 to September 30, 2008
            
            
            620,746
            
            
            2,201,783
            
            
            1,612,770
            
            
            22,000,833TOTAL
                COSTS
            
            
            620,746
            
            
            2,202,856
            
            
            1,612,770
            
            
            22,171,168OPERATING
                LOSS
            
            
            (620,746
            )
            
            (2,202,856
            )
            
            (1,612,770
            )
            
            (22,171,168
            )OTHER
                (EXPENSE) INCOME:Derivative
                loss on derivative liabilities
            
            
            -
            
            
            
            
            
            -Write-down
                of fixed assets
            
            
            
            
            
            (326,985
            )
            
            -
            
            
            (326,985
            )Forgiveness
                of liquidated damages
            
            
            -
            
            
            -
            
            
            -
            
            
            -Interest
                expense
            
            
            -
            
            
            (1,483,218
            )
            
            (551,600
            )
            
            (3,927,743
            )Other
            
            
            -
            
            
            
            
            
            -TOTAL
                OTHER EXPENSES
            
            
            -
            
            
            (1,810,203
            )
            
            (551,600
            )
            
            (4,254,728
            )NET
                LOSS
            
            $
            (620,746
            )
            $
            (4,013,059
            )
            $
            (2,164,370
            )
            $
            (26,425,896
            )Preferred
                stock dividend
            
            
            
            
            
            (111,693
            )
            
            
            
            
            (230,827
            )NET
                LOSS APPLICABLE TO COMMON STOCKHOLDERS
            
            $
            (620,746
            )
            $
            (4,124,752
            )
            $
            (2,164,370
            )
            $
            (26,656,723
            )Loss
                per common share - basic and diluted
            
            $
            (.004
            )
            $
            (0.11
            )
            $
            (.014
            )
            $
            (1.06
            )Weighted
                average number of shares outstanding - basic and diluted
            
            
            134,044,183
            
            
            36,045,321
            
            
            110,743,326
            
            
            25,256,199




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


F-3




**TACTICAL AIR DEFENSE SERVICES, INC.**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**(Unaudited)**




**Nine Months Ended September 30,****2008**
            
            **2007**CASH
                FLOWS FROM OPERATING ACTIVITIESNet
                (loss)
            
            $
            (2,164,370
            )
            $
            (26,425,896
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Stock-based
                compensation
            
            
            1,828,589
            
            
            20,774,533Write-down
                of fixed assets
            
            
            -
            
            
            326,985Excess
                of initial derivative liability over debt discount
            
            
            -
            
            
            -Debt
                discount amortization
            
            
            -0-
            
            
            3,234,533Changes
                in operating assets and liabilities:Other
                Assets
            
            
            
            
            
            (85,836
            )Accounts
                payable
            
            
            -
            
            
            -Accrued
                liabilities
            
            
            367,625
            
            
            871,644Net
                Cash Used in Operating Activities
            
            
            (31,844
            )
            
            (1,303,711
            )CASH
                USED IN INVESTING ACTIVITIESNet
                Cash Used in Investing Activities
            
            
            (-0-
            )
            
            -CASH
                FLOWS FROM FINANCING ACTIVITIES:Proceeds
                from sale of common stock
            
            
            175,000
            
            
            114,781Proceeds
                from convertible debentures
            
            
            -0-
            
            
            1,066,958Net
                Cash Provided by Financing Activities
            
            
            175,000
            
            
            1,181,739Increase
                (Decrease) in cash
            
            
            143,156
            
            
            (121,972
            )Cash
                - Beginning of period
            
            
            -0-
            
            
            136,058Cash
                - End of period
            
            $
            143,156
            
            $
            14,086Interest
                paid
            
            
            -
            
            
            -Taxes
                paid
            
            
            -
            
            
            -Non-cash
                Transactions:Stock
                issued to settle accrued compensation
            
            $
            467,000
            
            $
            -Dividend
                to preferred stockholders
            
            
            
            
            
            230,827Conversion
                of debt plus accrued interest to equity
            
            
            2,706,224
            
            $
            1,036,959Common
                stock issued for leasehold improvements
            
            
            
            
            $
            26,000Acquisition
                of assets for issuance of debt
            
            
            
            
            $
            -Beneficial
                conversion feature under convertible debt
            
            
            
            
            $
            275,209Fair
                value of warrants issued with convertible debt
            
            
            
            
            $
            791,749Distribution
                to stockholder
            
            $
            -
            
            $
            -





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




F-4




**TACTICAL
      AIR DEFENSE SERVICES, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**




**NOTE
      1 - COMPANY AND BASIS OF PRESENTATION:**





**General**





Tactical
      Air Defense Services, Inc. (“TADS”) is a Nevada public corporation that offers
      air combat training, mid-air refueling, ground-threat support, aerial
      fire-fighting, and specialty aerial services to the U.S. and Foreign Militaries
      and other Federal and State Agencies. TADS is certified by the United States
      Government as a private-sector military contractor and has been granted the
      required security clearances.




TADS
      was
      incorporated in the State of Nevada on July 9, 1998 under the name Natalma
      Industries, Inc. Originally, TADS operated as a junior mining company engaged
      in
      the exploration of mining properties. We were unsuccessful in locating a joint
      venture partner to assist us in the development of our mining claims. As a
      result, TADS was unable to pay for and perform the exploration and development
      required in its agreement with the owners of its properties and lost our rights
      to the mining claims. Our management at the time, therefore determined that
      it
      was in the best interest of our shareholders that we seek potential operating
      businesses and business opportunities with the intent to acquire or merge with
      another business, which led to the purchase substantially all of the assets
      of
      AeroGroup Incorporated (the “AeroGroup Acquisition”).





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 were 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.





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 5) 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.




F-5




·
            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. Accordingly, the accompanying consolidated
      financial statements for 2008 represent the cumulative financial statements
      from
      the commencement of the development stage through September 30,
      2008





**Basis
      of Presentation**





The
      results for the third quarter of 2008 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
      September 30, 2008. 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, 2007.





**Going
      Concern and Management's Plan**





The
      accompanying 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 consolidated financial statements, the Company
      has
      incurred losses from operations since inception and has a significant working
      capital deficiency as of September 30, 2008 of $6,850,913.





December
      15, 2006, TADS acquired substantially 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. During 2006, Aero raised from various stockholders
      approximately $1,510,634 through the issuance of convertible debt securities
      and
      warrants. During 2007, the Company has raised from various financing
      sources approximately $1,353,677 through the issuance of convertible debt.
      Also,
      the Company received proceeds totaling $346,450 from the sale of 629,911 units
      comprising of one share of common stock and warrants to purchase common stock.
      In addition, the Company received proceeds totaling $114,781 from the sales
      of
      382,663 shares of the Company’s common stock.





These
      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.





**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.




F-6




**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
      September 30, 2008 and 2007, the Company did not have any assets placed into
      service. As a result, there was no depreciation expense for the three and nine
      months ended September 30, 2008 and 2007.





The
      Aircraft acquired pursuant to the June 2006 Asset Purchase Agreement (Note
      5)
      were stationed in the Ukraine awaiting for disassembly and shipment to the
      United States of America. Additional modifications would be necessary to make
      them operational for use within the United States of America. The Company
      estimates that it would cost cost approximately $200,000 to ship the MIGs to
      the
      United States of America, and approximately $420,000 to get the MIGs fully
      operational. In December 2007, the Company was notified by the note holder
      of
      the note issued in connection with the June 2006 Asset Purchase Agreement,
      that
      the Company was in default of the agreement and that the holder was exercising
      their right to repossess the equipment. As a result, the Company recorded a
      charge of $6,740,000 which is included a write-down of fixed assets in the
      accompanying consolidated statement of operations. The note associated with
      this
      purchase was settled in the second quarter of 2008. The note balance including
      accrued interest and principle was for approximately $2.7 million was settled
      for 50 million shares of common stock. This settled all demands between the
      Company and the Company the asset was acquired from.





Maintenance
      and repair costs for owned and leased flight equipment are charged to operating
      expense as incurred.





**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.





**Fair
      Value of Financial Instruments**





The
      recorded carrying values of accounts payable and accrued liabilities and
      interest bearing indebtedness approximate the fair value of such financial
      instruments. The derivative liabilities are recorded at fair value and are
      marked-to-market at each balance sheet date.




**Cash
      and Cash Equivalents**





For
      purposes of the statement of cash flows, the Company considers all short-term
      investments with original maturities of three months or less when purchased
      to
      be cash equivalents. The Company had no cash equivalents as of December 31,
      2007.





**Concentration
      of Credit Risk**





The
      Company places its cash in what it believes to be creditworthy financial
      institutions. However, cash balances may exceed FDIC insured levels at various
      times during the year.





**Net
      (Loss) Income Per Share of Common Stock**





Basic
      net
      (loss) income per share of common stock are computed by dividing net (loss)
      income available to common stockholders by the weighted average number of
      shares of common stock outstanding during the periods presented.





Diluted
      net (loss) income 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, discussed
      in
      Note 7, were not included in the calculation of diluted (loss) income per share
      for the years ended December 31, 2007 and 2006 because their inclusion would
      have had been anti-dilutive.




F-7




**Impairment
      of Long-Lived Assets**





In
      accordance with Statement of Financial Accounting Standards ("SFAS") No. 144,
      "Accounting for the Impairment or Disposal of Long-Lived Assets," the Company
      reviews the carrying amount of long-lived assets on a regular basis for the
      existence of facts or circumstances, both internally and externally, that
      suggest impairment. The Company determines if the carrying amount of a
      long-lived asset is impaired based on anticipated undiscounted cash flows before
      interest from the use of the asset. In the event of impairment, a loss is
      recognized based on the amount by which the carrying amount exceeds the fair
      value of the asset. Fair value is determined based on appraised value of the
      assets or the anticipated cash flows from the use of the asset, discounted
      at a
      rate commensurate with the risk involved.




**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
      September 30, 2008, 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.





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**




In
      February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
      Assets and Financial Liabilities. SFAS No. 159 permits entities to choose to
      measure eligible financial instruments at fair value. The unrealized gains
      and
      losses on items for which the fair value option has been elected should be
      reported in earnings. The decision to elect the fair value options is determined
      on an instrument by instrument basis, it should be applied to an entire
      instrument, and it is irrevocable. Assets and liabilities measured at fair
      value
      pursuant to the fair value option should be reported separately in the balance
      sheet from those instruments measured using another measurement attribute.
      SFAS
      No. 159 is effective as of the beginning of the first fiscal year that begins
      after November 15, 2007. The Company is currently analyzing the potential impact
      of adoption of SFAS No. 159 to its financial statements.




F-8




In
      December 2007, the FASB issued SFAS No. 141(R), *“Business
      Combinations,”* which
      replaces SFAS No. 141, *“
      Business Combinations,”* which,
      among other things, establishes principles and requirements for how an acquirer
      entity recognizes and measures in its financial statements the identifiable
      assets acquired, the liabilities assumed (including intangibles) and any
      noncontrolling interests in the acquired entity. SFAS No. 141(R) applies
      prospectively to business combinations for which the acquisition date is on
      or
      after the beginning of the first annual reporting period beginning on or after
      December 15, 2008. We are currently evaluating what impact our adoption of
      SFAS No. 141(R) will have on our financial statements.





In
      December 2007, the FASB issued SFAS No. 160, “ *Noncontrolling
      Interests in Consolidated Financial Statements, an amendment of ARB
      No. 51.”* SFAS
      No. 160 amends ARB 51 to establish accounting and reporting standards for
      the noncontrolling interest in a subsidiary and for the deconsolidation of
      a
      subsidiary. It also amends certain of ARB 51’s consolidation procedures for
      consistency with the requirements of SFAS No. 141(R). SFAS No. 160 is
      effective for fiscal years, and interim periods within those fiscal years,
      beginning on or after December 15, 2008. We are currently evaluating what
      impact our adoption of SFAS No. 160 will have on our financial
      statements.





In
      December 2007, the Securities and Exchange Commission (SEC) issued
      Staff Accounting Bulletin (SAB) No. 110. This guidance allows
      companies, in certain circumstances, to utilize a simplified method in
      determining the expected term of stock option grants when calculating the
      compensation expense to be recorded under Statement of Financial Accounting
      Standards (SFAS) No. 123(R), *Share-Based Payment* . The
      simplified method can be used after December 31, 2007 only if a company’s
      stock option exercise experience does not provide a reasonable basis upon which
      to estimate the expected option term. Through 2007, we utilized the simplified
      method to determine the expected option term, based upon the vesting and
      original contractual terms of the option. On January 1, 2008, we began
      calculating the expected option term based on our historical option exercise
      data. This change did not have a significant impact on the compensation expense
      recognized for stock options granted in 2008.





In
      March
      2008, the FASB issued SFAS No. 161, "Disclosures about Derivative
      Instruments and Hedging Activities" ("SFAS No. 161"). SFAS No. 161
      amends and expands the disclosure requirement for FASB Statement No. 133,
      "Derivative Instruments and Hedging Activities" ("SFAS No. 133"). It
      requires enhanced disclosure about (i) how and why an entity uses
      derivative instruments, (ii) how derivative instruments and related hedged
      items are accounted for under SFAS No. 133 and its related interpretations,
      and (iii) how derivative instruments and related hedged items affect an
      entity’s financial position, financial performance, and cash flows. SFAS
      No. 161 is effective for the Company as of January 1,
      2009.





In
      April 2008, FASB Staff Position No. 142-3, Determination of the Useful Life
      of Intangible Assets (FSP 142-3) was issued. This standard amends the factors
      that should be considered in developing renewal or extension assumptions used
      to
      determine the useful life of a recognized intangible asset under FASB Statement
      No. 142, Goodwill and Other Intangible Assets. FSP 142-3 is effective for
      financial statements issued for fiscal years beginning after December 15,
      2008, and interim periods within those fiscal years. Early adoption is
      prohibited. The Company has not determined the impact on its financial
      statements of this accounting standard.





In
      May
      2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
      Accounting Principles.” SFAS No. 162 identifies the sources of accounting
      principles and provides entities with a framework for selecting the principles
      used in preparation of financial statements that are presented in conformity
      with GAAP. The current GAAP hierarchy has been criticized because it is directed
      to the auditor rather than the entity, it is complex, and it ranks FASB
      Statements of Financial Accounting Concepts, which are subject to the same
      level
      of due process as FASB Statements of Financial Accounting Standards, below
      industry practices that are widely recognized as generally accepted but that
      are
      not subject to due process. The Board believes the GAAP hierarchy should be
      directed to entities because it is the entity (not its auditors) that is
      responsible for selecting accounting principles for financial statements that
      are presented in conformity with GAAP. The adoption of FASB 162 is not expected
      to have a material impact on the Company’s consolidated financial position and
      results of operations.





*Settled
      in Cash upon Conversion (Including Partial Cash Settlement).* ”
APB
      14-1 requires the issuer to separately account for the liability and equity
      components of convertible debt instruments in a manner that reflects the
      issuer’s nonconvertible debt borrowing rate. The guidance will result in
      companies recognizing higher interest expense in the statement of operations
      due
      to amortization of the discount that results from separating the liability
      and
      equity components. APB 14-1 will be effective for financial statements issued
      for fiscal years beginning after December 15, 2008, and interim periods within
      those fiscal years. The Company is currently evaluating the impact of adopting
      APB 14-1 on its consolidated financial statements.





Other
      accounting standards that have been issued or proposed by the FASB or other
      standards-setting bodies that do not require adoption until a future date are
      not expected to have a material impact on the consolidated financial statements
      upon adoption.





Reclassifications





Certain
      prior periods' balances have been reclassified to conform to the current
      period's financial statement presentation. These reclassifications had no impact
      on previously reported results of operations or stockholders' equity.




F-9




**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.





**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.





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 – SALE OF STOCK**





Pursuant
      to a 2007 Securities Purchase Agreement, in September 2007, the Company sold
      to
      four investors 382,663 shares in the aggregate of restricted Common Stock at
      a
      purchase price of $0.30 per share. The gross proceeds of this offering totaled
      $114,781. Under the terms of the Securities Purchase Agreement, TADS offered
      to
      sell a total of 3,333,333 shares, which could be increased to 4,000,000 shares
      at the sole discretion of the Company. The share purchase price carries certain
      anti-dilution rights whereby the share purchase price may be amended as follows:
      if the average closing price, as quoted in the Wall Street Journal, of the
      shares, during the 30-day period following the closing of the offering, is
      less
      than the share purchase price, then the new share purchase price shall become
      the anti-dilution reference price, and additional shares shall be issued to
      reflect the new share purchase price. Notwithstanding any of the above, the
      new,
      share purchase price shall not be less than $0.15. As a result of a decline
      in
      the price of the Company’s Common Stock, the anti-dilution rights kicked in and
      an additional 382,663 were issued in January 2008. Subsequently, pursuant to
      certain protective rights granted to the Investors in the Share Purchase
      Agreement, on January 23, 2008, and additional 382,666 shares of Common Stock
      was issued to the Investors, which effectively changed the purchase price of
      the
      Common Stock to $0.15 per share. Additionally, a fee of $14,500 and 114,800
      shares of Common Stock was paid to an introducing agent as an introduction
      and
      expense fee.





Pursuant
      to a Securities Purchase Agreement, in May, 2008, the Company sold 2,500,000
      shares of restricted Common Stock in the aggregate to two investors at a
      purchase price of $0.01 per share. The gross proceeds of the offering totaled
      $25,000.





Pursuant
      to a Securities Purchase Agreement, in September 2008, the Company sold
      30,000,000 shares of restricted Common Stock in the aggregate to two investors
      at a purchase price of $0.01 per share. The gross proceeds of the offering
      totaled $300,000.





*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 $346,450. During 2006, TADS received the full advance from
      this
      financing.





**Convertible
      Debentures**





*2006
      Debentures*





During
      2006, Aero issued to investors $200,060 aggregate principal amount of its 12%
      Convertible Debentures convertible into 1,333,733 shares of TADS Common Stock
      and warrants to purchase 1,333,733 shares of Common Stock at a per share
      exercise price of $.15 per share. The terms of these securities are the same
      as
      the securities issued in 2005. The Debentures mature three years from the issue
      date.




F-10




During
      2006, Aero issued to an investor $422,176 aggregate principal amount of 8%
      Convertible Debentures convertible into 939,369 shares of TADS Common Stock
      at a
      conversion price of $.45 per share. The Debentures mature on April 18, 2009.
      Under the terms of the Debentures, the Company is prohibited from making any
      distribution to its Stockholders without the Debenture holders'
      consent.





During
      2006, Aero issued to an investor $20,000 aggregate principal amount of its
      12%
      Convertible Debentures and warrants to purchase 40,000 shares of TADS Common
      Stock at an exercise price of $.50 per share. The Debentures are convertible
      into TADS shares of Common Stock on a converted basis at $.50 per share. The
      terms of these securities are substantially the same as the securities issued
      in
      2005. The Debentures mature three years from the issuance date.





The
      gross
      proceeds of the total convertible debt issued by Aero in 2006 of $642,236 were
      recorded net of a debt discount of $358,417. The Debenture Warrants were
      initially valued at $178,413 and the embedded derivatives were valued at
      $180,004. The debt discount is being amortized over the term of the
      debt.





*First
      Quarter of 2007*





Between
      January 1, 2007 and March 31, 2007, the Company received proceeds from 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.





*Second
      Quarter of 2007*





Between
      April 1, 2007 and June 30, 2007, the Company received proceeds from loans
      totaling $493,851. The Debentures are convertible into 1,974, 486 shares of
      TADS
      Common Stock at a conversion price of $.25 per share and provide for warrants
      to
      purchase 1,974,486 shares of TADS Common Stock at an exercise price of $.25.
      The
      Debentures bear interest of 12% and are due three years from the date of
      issuance. The Debenture Warrants are exercisable at a per share exercise prices
      of $.25 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 $493,851 were allocated 24.2% or $120,731 to the Debentures
      and
      75.8% or $373,120 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
      $120,731. In accordance with EITF 00-27 the amount allocated to the beneficial
      conversion feature was limited to the net proceeds of the offering.





*Third
      Quarter of 2007*





Between
      July 1, 2007 and September 30, 2007, the Company received proceeds from loans
      totaling $229,234. The Debentures are convertible into 1,053,620 shares of
      TADS
      Common Stock at a conversion price range of $.20 to $.25 per share and provide
      for warrants to purchase 1,053,620 shares of TADS Common Stock at an exercise
      price in the range of $.20 to $.25. The Debentures bear interest of 12% and
      are
      due three years from the date of issuance. The Debenture Warrants are
      exercisable at a per share exercise prices at a range of $.20 to $.25 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 $229,234 were allocated 30.0% or $68,394 to the Debentures
      and
      70.0% or $160,840 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
      $160,840. In accordance with EITF 00-27 the amount allocated to the beneficial
      conversion feature was limited to the net proceeds of the offering.




*Fourth
      Quarter of 2007*





Between
      October 1, 2007 and December 31, 2007, the Company received proceeds from loans
      totaling $286,719. The Debentures are convertible into TADS Common Stock at
      a
      conversion price of $.05 per share and provide for warrants to purchase
      5,734,385 shares of TADS Common Stock at an exercise price of $.05. The
      Debentures bear interest of 12% and are due three years from the date of
      issuance. The Debenture Warrants are exercisable at a per share exercise prices
      of $.05 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.




F-11




The
      gross
      proceeds of the $286,719 were allocated 26.0% or $74,657 to the Debentures
      and
      74.0% or $212,062 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
      $212,062. 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
      December 31, 2007, all of the principal and accrued interest related to the
      Debentures has been classified as a current liability as they are either in
      default or due within one year.





*First
      Quarter of 2008*





Between
      January 1, 2008 and March 31, 2008, the Company received proceeds of loans
      totaling $343,873. The Debentures are convertible into TADS 6,877,460 shares
      of
      Common Stock at a conversion price of $0.05 per share and provide for
      warrants to purchase 6,877,460 shares of TADS Common Stock at an exercise
      price of $0.05. The Debentures bear interest of 12% and are due three years
      from
      the date of issuance. The Debenture Warrants are exercisable at a per share
      exercise price of $.05 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 at the market price of TADS Common Stock at the date the various notes
      were
      issued.





*Second
      Quarter of 2008*





Between
      April 1, 2008 and June 30, 2008, the Company received proceeds of loans totaling
      $357,151. The Debentures are convertible into TADS 17,857,252 shares of Common
      Stock at a conversion price of $0.02 per share and provide for warrants to
      purchase 17,857,252 shares of TADS Common Stock at an exercise price of
      $0.02. The Debentures bear interest of 12% and are due three years from the
      date
      of issuance. The Debenture Warrants are exercisable at a per share exercise
      price of $0.02 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 $357,151 were allocated 30% or $107,145 to the Debentures and
      70% or $250,006 to the Warrants. The effective conversion price of the
      Debentures was at the market price of TADS Common Stock at the date the various
      notes were issued.





*Third
      Quarter of 2008*





Between
      July 1, 2008 and September 30, 2008, the Company received proceeds of loans
      totaling $95,489. The Debentures are convertible into TADS 4,774,450 shares
      of
      Common Stock at a conversion price of $0.02 per share and provide for
      warrants to purchase 17,857,252 shares of TADS Common Stock at an exercise
      price of $0.02. The Debentures bear interest of 12% and are due three years
      from
      the date of issuance. The Debenture Warrants are exercisable at a per share
      exercise price of $0.02 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 $95,489 were allocated 25% or $23,872 to the Debentures and
      70%
      or $71,617 to the Warrants. The effective conversion price of the Debentures
      was
      at the market price of TADS Common Stock at the date the various notes were
      issued.





**Additional
      Indebtedness**





Between
      July 1, 2008 and October 15, 2008, the Company received proceeds of Short-Terms
      loans totaling $477,145. The Short-Term loans carry a term of one year, an
      interest rate of 12%, and 100% stock coverage with a reference price equal
      to
      the lowest purchase price of Common Stock of the Company sold by the Company
      between the date of the Short-Term loans and repayment of the Short-Term loans,
      which reference price is currently $0.01 and is equal to 47,714,500 shares
      of
      the Company’s Common Stock.





F-12





**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 7,611,480 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.





In
      the
      second quarter of 2008, the Company issued 496,617 shares of restricted Common
      Stock to Jack Ramsden in connection with the conversion of a Convertible
      Promissory Note of the Company in the aggregate amount of $74,492, including
      $55,000 of principle and $19,494 of accrued interest, at a conversion price
      of
      $0.15.





*Agreement
      to Convert All Outstanding Convertible Promissory Notes*





In
      the
      second quarter of 2008, the Company reached an agreement with holders of all
      of
      its Convertible Promissory Notes to convert all Convertible Promissory Notes
      and
      cancel all associated Warrants, in exchange for a reduction in the conversion
      price to $0.02 of all outstanding Convertible Promissory Notes.





**Cancellation
      of Indebtedness and Return of Assets**





On
      May
      29, 2008, the Company and Cambar & Associates (“Cambar”) executed a
      Settlement and Release Agreement. In December, 2006, TADS assumed from AeroGroup
      an indebtedness owed to Cambar (the “Cambar Note”) of a principle amount of
      $2,200,000 for the purchase of two MiG-29 aircraft and four flight simulators
      (the “Cambar Assets”), which indebtedness included interest to be paid on the
      principle.





With
      this
      Settlement and Release Agreement, the Company agreed to relinquish the Cambar
      Assets to Cambar, and issue to Cambar 50,000,000 Shares, as payment in full
      and
      final settlement for any claims Cambar may have against the Company, and Cambar
      agreed to reclaim the Cambar Assets, cancel the Cambar Note including any
      accrued and unpaid interest, and return to the Company for retirement the
      1,000,000 Shares issued in the aggregate to Cambar and NATA as compensation
      for
      interest due on the Cambar Note in 2007, as payment in full and final settlement
      for any claims the Company may have against Cambar.





**Issuance
      of Common Stock**





*Issuance
      of Common Stock to Cambar & Associates and NATA*





The
      Company issued 500,000 restricted shares of Common Stock to NATA in the second
      quarter of 2007 and 500,000 restricted shares of Common Stock to Cambar &
Associates in the third quarter of 2007, as compensation for interest due on
      the
      Cambar Note. Notwithstanding the above, NATA and Cambar & Associates have
      agreed to retire the shares as per the Settlement and Release Agreement
      described above. The Company issued an additional 40,000,000 restricted shares
      of Common Stock to NATA and 10,000,000 restricted shares of Common Stock to
      Cambar & Associates in the third quarter of 2008, as per the terms of the
      Settlement and Release Agreement described above. No registration rights were
      issued in connection with these shares.




*Issuance
      of Common Stock to Fred Daniels*





The
      Company issued an aggregate of 405,000 restricted shares of Common Stock to
      Mr.
      Fred Daniels in the first and third quarters of 2007, as compensation for
      service as an Officer of the Company. The Company issued an additional 1,100,000
      restricted shares of Common Stock to Mr. Fred Daniels in the third quarter
      of
      2008 as further compensation for service as an Officer and Director of the
      Company. No registration rights were issued in connection with these
      shares.





*Issuance
      of Common Stock to Mark Daniels*





The
      Company issued an aggregate of 1,600,000 restricted shares of Common Stock
      to
      Mr. Mark Daniels in the second quarter of 2007, as compensation in lieu of
      accrued and unpaid salary for his service as President and Chief Executive
      Officer of the Company. No registration rights were issued in connection with
      these shares.





*Issuance
      of Common Stock to Mark Daniels Irrevocable Trust III*





The
      Company issued an aggregate amount of 105,000,000 restricted shares of Common
      Stock to Mark Daniels Irrevocable Trust III in the 3 rd quarter
      of 2008, notwithstanding the above, however, 52,500,000 of these shares were
      issued in error and have been noted by the Company’s transfer agent for
      retirement upon tender to the transfer agent. The shares were issued in
      consideration for Mr. Daniels executing a long-term employment agreement with
      the Company. No registration rights were issued in connection with these
      shares.





*Issuance
      of Common Stock to Victor Miller*





The
      Company issued an aggregate of 810,000 restricted shares of Common Stock to
      Mr.
      Victor Miller in the second quarter of 2007, as compensation in lieu of accrued
      and unpaid salary for his service as an Officer of the Company. The company
      issued an additional 2,400,000 restricted shares of Common Stock to Victor
      Miller in the 1 st quarter
      of 2008 in consideration of Mr. Miller retiring his 2,400,000 Series A Preferred
      shares, notwithstanding the above, however, the 2,400,000 shares of Common
      Stock
      remain in the possession of the Company and will be cancelled because as of
      October 15, 2008, it has not yet received confirmation from the transfer agent
      of the Company of the retirement 2,400,000 Series A Preferred shares. No
      registration rights were issued in connection with these shares.




F-13




*Issuance
      of Common Stock to Alexis Korybut*





The
      Company issued an aggregate of 30,000,000 restricted shares of Common Stock
      to
      Mr. Alexis Korybut in the first quarter of 2008, as compensation for serving
      as
      additional President, Chief Executive Officer, Treasurer, and Principle
      Accounting Officer of the Company. No registration rights were issued in
      connection with these shares.





*Issuance
      of Common Stock to John Farley*





The
      Company issued an aggregate of 150,000 restricted shares of Common Stock to
      Mr.
      John Farley in the first and third quarters of 2007, as compensation for his
      service as an Officer of the Company. The Company issued an additional 100,000
      restricted shares of Common Stock to Mr. John Farley in the first quarter of
      2008, as compensation as an independent provider of services to the Company.
      The
      Company issued an additional 300,000 restricted shares of Common Stock to Mr.
      John Farley in the third quarter of 2008, as compensation as an independent
      provider of services to the Company. No registration rights were issued in
      connection with these shares.





*Issuance
      of Common Stock to Lawrence Cusack*





The
      Company issued 600,000 restricted shares of Common Stock to Mr. Lawrence Cusack
      in the first quarter of 2008, as additional compensation for serving as an
      employee of the Company. The Company issued an additional 400,000 restricted
      shares of Common Stock to Mr. Lawrence Cusack in the third quarter of 2008,
      as
      consideration for accrued and unpaid salary for serving as an employee of the
      Company. No registration rights were issued in connection with these
      shares.





*Issuance
      of Common Stock to Pete Maffitt*





The
      company issued 500,000 restricted shares Common Stock to Peter Maffitt, a
      Director of the Company, in the 2 nd quarter
      of 2008 as compensation for acting as a Director of the Company. The company
      issued an additional 1,000,000 restricted shares of Common Stock to Peter
      Maffitt in the 3 rd quarter
      of 2008 as further compensation for acting as a Director of the Company. No
      registration rights were issued in connection with these shares.





*Issuance
      of Common Stock to Charles DeAngelo*





The
      company issued 250,000 restricted shares of Common Stock to Charles DeAngelo,
      a
      Director of the Company, in the 2 nd quarter
      of 2008 as compensation for acting as a Director of the Company. The company
      issued an additional 250,000 restricted shares of Common Stock to Charles
      DeAngelo in the 3 rd quarter
      of 2008 as further compensation for acting as a Director of the Company. No
      registration rights were issued in connection with these shares.





*Issuance
      of Common Stock to ZA Consulting*





The
      Company issued 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. The Company issued an additional aggregate
      of
      6,000,000 restricted shares of Common Stock to ZA Consulting Group in the third
      quarter of 2008 in connection with a Settlement and Release Agreement reached
      between the parties in the third quarter of 2008 and in connection with future
      consulting services to the Company. No registration rights were issued in
      connection with these shares.





*Issuance
      of Common Stock to Gary Corley*





The
      Company issued 200,000 restricted shares of Common Stock to Mr. Gary Corley
      Esq.
      in the fourth quarter of 2007, as compensation for legal services. The Company
      issued an additional 3,000,000 restricted shares of Common Stock to Mr. Gary
      Corley Esq. in the third quarter of 2008 as compensation for legal services.
      No
      registration rights were issued in connection with these shares.




*Issuance
      of Common Stock to Economic Advisors, Inc.*





The
      Company issued an aggregate of 114,800 restricted shares of Common Stock to
      Economic Advisors, Inc. in the fourth quarter of 2007 and the first quarter
      of
      2008, as compensation for introducing certain accredited investors to the
      Company. The Company issued an additional 18,000,000 restricted shares of Common
      Stock to Economic Advisors, Inc. in the third quarter of 2008 in connection
      with
      a Settlement and Release Agreement reached between the parties in the third
      quarter of 2008. No registration rights were issued in connection with these
      shares.





*Issuance
      of Common Stock to Federal Financial Partners, LLC*





The
      Company issued an aggregate of 1,600,000 shares of restricted Common Stock
      to
      Federal Financial Partners, LLC in the first and third quarters of 2007 as
      compensation for consulting services to the Company. The Company issued an
      additional 4,000,000 shares of restricted Common Stock to Federal Financial
      Partners, LLC in the 1 st quarter
      of 2008 in lieu of accrued and unpaid compensation. No registration rights
      were
      issued in connection with these shares.




F-14




*Issuance
      of Common Stock to Northrop Defense Consulting Corp.*





The
      Company issued an aggregate of 2,800,000 shares restricted shares of Common
      Stock to Northrop Defense Consulting Corp in the third quarters of 2007,
      notwithstanding the above, Northrop Defense Consulting Corp has returned said
      shares to the Company for further retirement. No registration rights were issued
      in connection with these shares.





*Issuance
      of Common Stock to Joint Strategy Group, LLC*





The
      Company issued 5,000,000 restricted shares of Common Stock to Joint Strategy
      Group, LLC in the first quarter of 2008, as compensation for consulting services
      to the Company. The Company issued an additional 20,000,000 restricted shares
      of
      Common Stock to Joint Strategy Group, LLC in the third quarter of 2008, as
      consideration for executing a long-term consulting services agreement with
      the
      Company. No registration rights were issued in connection with these
      shares.





*Issuance
      of Common Stock to Thomas Pierson*





The
      Company issued 100,000 restricted shares of Common Stock to Thomas Pierson
      in
      the first quarter of 2008 as compensation for consulting services to the
      Company. No registration rights were issued in connection with these
      shares.





*Issuance
      of Common Stock to Charles Pearlman*





The
      Company issued 50,000 restricted shares of Common Stock to Charles Pearlman
      in
      the second quarter of 2008 as compensation for consulting services to the
      Company. No registration rights were issued in connection with these
      shares.





*Issuance
      of Common Stock to Plumtree Capital Management LLC*





The
      Company issued 4,000,000 restricted shares Common Stock to Plumtree Capital
      Management LLC in the third quarter of 2008 as compensation for accrued and
      unpaid consulting fees and expenses. No registration rights were issued in
      connection with these shares.





*Issuance
      of Common Stock to M&A Advisors LLC*





The
      Company issued 2,000,000 restricted shares of Common Stock to M&A Advisors
      LLC in the third quarter of 2008 as compensation for consulting services to
      the
      Company. No registration rights were issued in connection with these
      shares.





*Issuance
      of Common Stock to TCI Global Trading Ltd*





The
      Company issued 30,000,000 restricted shares of Common Stock to TCI Global
      Trading Ltd in the third quarter of 2008 as consideration for executing a
      long-term consulting services agreement with the Company. No registration rights
      were issued in connection with these shares.





*Issuance
      of Common Stock to Eurotrust Capital SPA*





The
      company issued 1,500,000 restricted shares of Common Stock to Eurotrust Capital
      SPA in the third quarter of 2008 as compensation for consulting services to
      the
      Company. No registration rights were issued in connection with these
      shares.





*Issuance
      of Common Stock to Marc Brannigan*





The
      company issued 7,000,000 restricted shares of Common Stock to Marc Brannigan
      in
      the third quarter of 2008 as compensation for accrued and unpaid consulting
      services to the Company. No registration rights were issued in connection with
      these shares.





*Issuance
      of Common Stock to Brad Baker*





The
      company issued 250,000 restricted shares of Common Stock to Brad Baker in the
      third quarter of 2008 as compensation for serving on the board of advisors
      of
      the Company. No registration rights were issued in connection with these
      shares.





*Issuance
      of Common Stock to Donald Goldstein*





The
      company issued 1,000,000 restricted shares of Common Stock to Donald Goldstein
      in the third quarter of 2008 as compensation for prior service on the Board
      of
      Directors of the Company. No registration rights were issued in connection
      with
      these shares.





*Issuance
      of Common Stock to the Sassin Law Firm*





The
      Company issued 666,667 restricted shares of Common Stock to the Sassin Law
      Firm
      in the third quarter of 2008 as compensation for legal services. No registration
      rights were issued in connection with these shares.





**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”). Pursuant
      to the Series A Certificate of Designation, holders of the Company’s Series A
      Preferred Stock are entitled to:




F-15




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.




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.




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 and nine months ended
      September 30, 2008 and 2007 because their inclusion would have had been
      anti-dilutive.




**NOTE
      5 - 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 September 30, 2008 consist of the
      following:




Year
                Ended
            
            Debentures
            
            Debenture
              Warrants2002
            
            $
            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
            
            
            23,968,3152007 
                - Issued
            
            
            1,353,677
            
            
            9,776,4942007 -
                Converted/Exercised
            
            
            (754,660
            )
            
            (8,530,755
            )Total
                principal at December 31, 2007
            
            
            5,314,912
            
            $
            25,274,054Accrued
                interest
            
            
            1,712,761Unamortized
                debt discount
            
            
            (2,076,820
            )Net
                Carrying Value at September 30, 2008
            
            $
            4,950,853




F-16





**Issuance
      of Preferred Securities**





During
      fiscal 2007, the Company issued an aggregate of 6,400,000 shares of its Series
      A
      Preferred Stock; 2,400,000 shares to Mr. Victor Miller, and 4,000,000 shares
      to
      Mr. Mark Daniels, both of whom were Officers and Directors at the time of
      issuance of the shares. Because the Company contends that the shares of its
      Series A Preferred Stock were issued to Mr. Miller and Mr. Daniels without
      consideration, the Company has been seeking to rescind said 6,400,000 Series
      A
      Preferred shares, and have Mr. Miller and Mr. Daniels waive any accrued and
      unpaid dividends associated with said Series A Preferred shares. Mr. Mark
      Daniels has agreed to rescind the 4,000,000 Series A Preferred shares issued
      to
      him and to waive any accrued and unpaid dividends associated with said 4,000,000
      Series A Preferred shares, contingent upon Mr. Miller agreeing to rescind the
      2,400,000 Series A Preferred shares issued to him and to waive any accrued
      and
      unpaid dividends associated with said 2,400,000 Series A Preferred shares.
      However, due to the Company’s inability to have Mr. Miller agree to rescind the
      2,400,000 shares of its Series A Preferred Stock issued to him and to waive
      any
      accrued and unpaid dividends associated with said 2,400,000 Series A Preferred
      shares, the Company is currently preparing a legal action against Mr. Miller
      in
      connection with the issuance of said 2,400,000 shares of its Series A Preferred
      Stock.. The Company believes that its contention, that the 2,400,000 shares
      of
      its Series A Preferred Stock were issued to Mr. Miller without consideration,
      is
      with merit, and that it will be successful in its suit to have said shares
      rescinded, have any accrued and unpaid dividends waived, and have any costs
      and
      damages to the Company in connection with the issuance of and the rescission
      of
      said 2,400,000 shares of Series A Preferred Stock repaid to the Company by
      Mr.
      Miller.




**NOTE
      6 - CONVERTIBLE NOTES PAYABLE:**





The
      following table summarizes the Convertible Notes Payable at December 31, 2007
      and September 30, 2008:





Promissory
                note(1)
            
            $
            2,200,000Secured
                promissory note(2)
            
            
            1,100,000Accrued
                interest on assumed notes
            
            
            542,6543,842,654Less:
                current portion
            
            
            -Long-term
                portion
            
            
            3,842,654Less:
                Unamortized discount(3)
            
            
            (1,096,829
            )Balance
                at December 31, 2007
            
            
            2,745,825Settlement
                of debt in exchange for common stock
            
            $
            (2,745,825
            )Balance
                at September 30, 2008
            
            
            -0-





In
      connection with the Asset Purchase Agreement entered into in June 2006, Aero
      incurred the following debt:





(1)
            A
                $2,200,000 promissory note that was assumed by Aero in connection
                with the
                June 2006 acquisition by Aero of the two MIG 29 aircraft and flight
                simulators that were ultimately acquired by Tactical Air Defense
                Systems.
                Under the terms of the note, it has a principal balloon payment in
                thirty-nine months of the original agreement which was dated December
                31,
                2005. Interest is payable at a rate of eight percent per annum. There
                is
                no penalty for payment before the maturity date. This note was assumed
                by
                TADS as part of the acquisition by TADS (Note 3) and the debt is
                convertible into TADS common stock at a price of $0.50 per share
                during
                the one month period prior to the maturity date. In December 2007,
                the
                Company was notified by the note holder of the note issued in connection
                with the June 2006 Asset Purchase Agreement that the Company was
                in
                default of the agreement and that the holder was exercising their
                right to
                repossess the equipment. As a result, the Company recorded a charge
                of
                $6,740,000 which is included as a write-down of fixed assets in the
                accompanying consolidated statement of
                operations.


F-17





(2)
            A
                $1,100,000 secured promissory note reflecting indebtedness assumed
                by Aero
                in connection with the June 2006 acquisition of assets by Aero. This
                note
                is payable to Daniels and under the terms of the note, the note is
                due in
                installments beginning on July 1, 2008, and monthly thereafter, to
                and
                including June 30, 2011 (“the “Maturity Date”), the Company shall pay to
                the note holder a total of thirty-six (36) monthly installments of
                principal, each in the amount of $30,555, each installment of principal
                to
                be accompanied by payment of accrued and unpaid interest on the then
                unpaid principal balance of the Note. Interest is payable at a rate
                of 12%
                percent per annum. The note is guaranteed by the Company's subsidiaries
                and collateralized by all of the Company's assets. This note was
                assumed
                by TADS and the debt is convertible into TADS common stock at $.50
                per
                share.




(3)
            In
                accordance with EITF 98-5 commencing on December 15, 2006, the Company
                recorded a debt discount of $3,861,255 related to the intrinsic value
                of
                the beneficial conversion option of the above described debt. The
                embedded
                conversion options qualified as equity and their recorded value was
                limited to the gross proceeds of the debt pursuant to EITF 98-5.
                The debt
                discount is being amortized to interest expense over the term of
                the debt.
                Amortization of such debt discount totaled $2,695,318 and $69,107
                for the
                years ended December 31, 2007 and 2006,
                respectfully.





The
      note
      associated with this purchase was settled in the second quarter of 2008. The
      note balance including accrued interest and principle was for approximately
      $2.7
      million was settled for 50 million shares of common stock. This settled all
      demands between the Company and the Company the asset was acquired
      from.





**NOTE
      7 - INCOME TAXES:**





There
      is
      no provision for income taxes for the years December 31, 2007 and 2006. The
      Company has minimal net operating loss carry forwards for income tax purposes
      at
      September 30, 2008. The deferred tax asset primarily attributable to the
      Company’s net operating loss carryforwards has been offset by a full valuation
      allowance.




The
      reconciliation of the federal statutory rate to the effective tax rate is as
      follows:





Quarter Ended June 30,2008Federal
                statutory rate
            
            
            (34
            )%Permanent
                differences(derivative
                gains and losses and non-deductible interest)
            
            
            34
            %Effective
                Tax Rate
            
            
            -





**NOTE
      7 - STOCKHOLDERS' EQUITY:**





Effective
      as of December 20, 2006, the Company filed an amendment to its Articles of
      Incorporation (the “Amendment”) to increase the Company’s authorized capital
      stock from 100,000,000 shares of common stock, par value $.001 per share only,
      to 350,000,000 shares, par value $.001 per share, of which 300,000,000 shares
      are common stock and the remaining 50,000,000 shares are a newly created class
      of “blank check” preferred stock. As of December 31, 2006, the Company has no
      shares of preferred stock issued or reserved for issuance, and the Company’s
      board of directors has never designated the rights, preferences or privileges
      of
      a preferred stock.




On
      the
      effective date of the reverse acquisition (December 15, 2006), the Company
      reclassified $45,737,637 of accumulated deficits to paid-in-capital. This amount
      represented Aero’s accumulated deficit on December 15, 2006 which was not
      transferred to TADS as part of reverse acquisition.





**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”).


F-18





**Warrants**





At
      December 31, 2007 and September 30, 2008 the Company has outstanding warrants
      to
      purchase common stock as follows:




No. of
              Warrants
            
            Weighted
              Average
              PriceBalance
                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
                - 2007 - Debenture Warrants
            
            
            9,776,494
            
            $
            0.14Issued
                - 2007 - Financing Warrants
            
            
            1,259,822
            
            $
            1.25Exercised
                - 2007
            
            
            (8,530,755
            )
            $
            (0.15
            )Balance
                at December 31, 2007 and September 30, 2008
            
            
            26,473,876
            
            $
            0.20Potential
                Proceeds Assuming all Exercised at September 30, 2008
            
            $
            5,340,000





**NOTE
      8 – COMMITMENTS:**





**Compensation
      Agreements**





On
      September 1, 2007, the Company entered into an agreement with Joint Strategy
      Group, Inc. , a related party, to perform long-term strategic planning, and,
      in
      such capacity, to provide general advice to TADS on business and financial
      matters. The term of the agreement is for two years. The agreement provides
      for
      a total fee of 500,000 restricted shares of the Company’s common stock. The
      common stock shall have piggy-back registration rights and full-ratchet
      anti-dilution rights in connection with a share reference price of $0.50 per
      share. The President of Joint Strategy Group, Inc., Jamie Goldstein is the
      son
      of Don Goldstein, a director of the Company. In December 2007, the Company
      terminated the agreement with Joint Strategy Group, Inc.




Pursuant
      to a compensation agreement dated August 17, 2007, the Company’s Chief Executive
      Officer is being paid a salary of $300,000 per annum, subject to increase up
      to
      $450,000 once certain performance targets are achieved. The agreement is for
      a
      period of two years. In addition, as a signing bonus, the Chief Executive
      Officer is vested in 3,000,000 shares of restricted shares of the Company’s
      common stock. The common stock shall have piggy-back registration rights and
      full-ratchet anti-dilution rights in connection with a share reference price
      of
      $0.50 per share.




**Consulting
      Agreement**





On
      September 11, 2007,  Mr. Mark Daniels, the Company's former Chief Executive
      Officer and director and founder of the Company's business, entered into a
      Consulting Services Agreement (the "Daniels Agreement") with the Company which
      was amended and restated in early November of 2007. The Daniels Agreement as
      amended, provides, in relevant part, that Mr. Daniels shall assign or cause
      any
      entity he owns or is in control of to assign, all government contracts
      (including, without limitation, the CRTC Contract relating to fourth generation
      fighter aircraft training) relating to flight services, flight support
      services or firefighting services, to the Company.  In addition, Mr.
      Daniels agreed to introduce to the Company, on an exclusive and first right
      basis, any and all potential customers or contracting parties (whether
      government or private sector) for services provided by the Company, and to
      continue making introductions of potential contracting parties to the Company
      during the one year term of the
      agreement.





In
      addition, the Daniels Agreement provides that Mr. Daniels shall cause AeroGroup
      Incorporated, the seller of certain assets acquired by the Company, to pledge
      all shares of the Company owned by it through the sooner of delivery of the
      CRTC Contract or September 11, 2008, to secure the Company's rights under
      the Daniels Agreement.  Finally, the agreement provides for
      strict confidentiality provisions with respect to Mr. Daniels as well
      as three year non-disclosure and non-compete covenants with respect to Mr.
      Daniel's activities.




The Daniels
      Agreement provides that, in consideration for the provision of continued
      advisory services by Mr. Daniels to the Company, Mr. Daniels shall be
      compensated (i) the amount of $12,000 per month (paid in arrears) through
      September 11, 2008, (ii) a success fee of five (5%) percent of gross proceeds,
      minus any accrued or paid monthly payments in (i) above, and (iii) reimbursement
      of reasonable expenses.  In the event that the foregoing compensation is
      not made, the Daniels Agreement provides that Mr. Daniel's remedy is limited
      to
      collection of the above amounts and that the confidentiality and non-compete
      provisions shall still remain binding as against Mr. Daniels.




F-19




**Agreement**





On
      October 29, 2007, the Company signed an exclusive lease agreement with Air
      Support Systems, LLC., for the use of its ILyushin IL-76 aircraft, an aerial
      firefighting supertanker. The agreement with Air Support Systems, LLC for the
      exclusive use of its IL-76, is for an initial five year term, renewable for
      two
      subsequent and exclusive five year terms. The Agreement provides for hourly
      usage payments of $8,000 per hour of engine usage to Air Support Systems, LLC
      in
      connection with contracts that do not call for a fixed fee to make the aircraft
      available, or, for contracts that do entail a fixed availability fee (an
“Availability Fee Contract”), the Company shall pay to Air Support Systems, LLC
      half of such availability fee, and, after deducting and retaining for the
      Company the first $2,000 of any hourly usage fees received in addition to the
      availability fee, the Company shall pay to AirSupport Systems, LLC half of
      the
      remaining hourly usage fee. Air Support Systems, LLC is required to cover the
      cost of spare parts, with ordinary operational maintenance costs, fuel, oil,
      landing fees, and similar operational expenses paid for by the
      Company.




**NOTE
      9 - OTHER EVENTS:**





**Departures
      of Directors or Principal Officers; Elections of Directors; Appointments of
      Principal Officers**





On
      March
      4, 2008, Mr. Peter C. Maffitt was appointed to serve on the Board of Directors
      of TADS ,by the majority of the Series A Preferred shares, to fill the vacancy
      left by the departure of Mr. Donald Goldstein. Mr. Maffitt joined Mr. Alexis
      Korybut and Mr. Fred Daniels as Directors of TADS.




On
      March
      4, 2008, Mr. Alexis Korybut resigned as President, Chief Executive Officer
      and
      Principal Accounting Officer, and as a Director of TADS. Mr. Korybut continues
      to serve the Company as its director of finance and administration.




On
      March
      4, 2008, a majority of the Board of Directors of TADS appointed Mr. Michael
      Cariello as President and a Director of the Company, and appointed Mr. Fred
      Daniels as Treasurer of the Company in addition to his role as Secretary and
      Director of the Company.





On
      March
      4, 2008, a majority of the Board of Directors of the Company appointed Mr.
      Mark
      Daniels as Chief Executive Officer and a Director, Chairman of the Board of
      TADS. Mr. Mark Daniels is the founder of AeroGroup Incorporated, was previously
      the President and Chief Executive Officer of TADS, and is the son of Mr. Fred
      Daniels, a Director of the Company.




On
      April
      14, 2008, Mr. Charles DeAngelo was appointed by the Board of Directors of TADS
      to serve on the Board of Directors of TADS, to fill the vacancy left by the
      departure of Mr. Alexis Korybut. Mr. DeAngelo joined Mr. Peter C. Maffitt,
      Mr.
      Michael Cariello, Mark Daniels and Mr. Fred Daniels as a Director of
      TADS.




**Debt
      Issuances**





During
      the period January 1, 2008 through April 15, 2008, the Company received loan
      proceeds of $xxx in connection with various loans, entered into with an
      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
      shares of common stock at a conversion rate of $0.05 per share and provide
      for
      warrants to purchase shares of common stock at an exercise price $0.05 per
      share.




**Common
      Stock Issuances**





On
      June
      25, 2008, the Company, pursuant to a resolution adopted by its Board of
      Directors, has amended its Articles of Incorporation. Article Three is hereby
      deleted in its entirety and replaced as follows:




The
      number of shares of common stock with $0.001 par value per share that the
      corporation is authorized to issue is one billion and the number of
      shares of preferred stock with $0.001 par value per share that the
      corporation is authorized to issue is fifty million.




**Recent
      Share Pledges**




The
      company has been exploring various secured and unsecured indebtedness and equity
      financing opportunities as well as joint ventures.




During
      the nine months ended December 31, 2007, the Company has conditionally placed
      into escrow 45,000,000 shares in the name of International Tactical
      Training Center, Inc., an entity affiliated with Mr. Daniels, the Company’s
      former executive officer and director, in contemplation of a proposed joint
      venture, 30,000,000 of which shares were deposited for purposes of
      negotiating and collateralizing a possible secured financing
      transaction.  As the Company has not received any proceeds from financing
      or a financing commitment yet from any prospective investors, or otherwise
      entered into definitive transaction documents that require such a pledge, the
      Company intends to rescind this issuance.  No definitive agreement has
      been entered into with respect to this transaction and no assurance can be
      made
      that one will be entered into.




F-20





In
      addition, the Company issued 10,000,000 shares into escrow with
      Pegasus Defense Corporation in anticipation of, among other things, an
      acquisition of a partial ownership interest in Pegasus Defense Corporation,
      and to facilitate a possible financing transaction and joint venture with
      them which was also conditioned on consummation of a financing.  No
      definitive agreement has been entered into with respect to this transaction
      and
      no assurance can be made that one will be entered into.




All
      of the foregoing issuances will be approved by the Company’s board
      only upon consummation of a financing transaction and joint venture and
      fulfillment of all conditions required by the board.


F-21





**Item
      2. Management’s Discussion and Analysis or Plan of
      Operation**





**CAUTIONARY
      STATEMENT REGARDING FORWARD LOOKING STATEMENTS**





This
      Quarterly Report on Form 10-Q, 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,
      2007 filed with the Securities and Exchange Commission on April 15, 2008. The
      following discussion should be read in conjunction with our condensed
      consolidated financial statements provided in this quarterly report on Form
      10-Q.




**Corporate
      History**





Tactical
      Air Defense Services, Inc. (TADS) is a Nevada public corporation that offers
      air
      combat training, mid-air refueling, ground-threat support, aerial fire-fighting,
      and specialty aerial services to the U.S. and Foreign Militaries and other
      Federal and State Agencies. TADS is certified by the United States Government
      as
      a private-sector military contractor and has been granted the required security
      clearances.





TADS
      was
      incorporated in the State of Nevada on July 9, 1998 under the name Natalma
      Industries, Inc. Originally, TADS operated as a junior mining company engaged
      in
      the exploration of mining properties. We were unsuccessful in locating a joint
      venture partner to assist us in the development of our mining claims. As a
      result, TADS was unable to pay for and perform the exploration and development
      required in its agreement with the owners of its properties and lost our rights
      to the mining claims. Our management at the time, therefore determined that
      it
      was in the best interest of our shareholders that we seek potential operating
      businesses and business opportunities with the intent to acquire or merge with
      another business, which led to the purchase substantially all of the assets
      of
      AeroGroup Incorporated (the “AeroGroup Acquisition”).




*AeroGroup
      Corporate History*





AeroGroup
      Incorporated commenced its operations and business plan as a contractor of
      military flight training as AeroGroup International Corporation in January
      2002, **** and
      eventually merged with and acquired AeroGroup Incorporated, which was, prior
      to
      such time, a non-operating entity called Diversified Resources Group,
      Inc.





In
      June
      of 2006, AeroGroup, through its subsidiaries, acquired two MiG 29 aircraft
      in
      Ukraine, and four flight simulators (which we then purchased from AeroGroup
      in
      the AeroGroup Acquisition) from three entities controlled by Mark Daniels,
      a
      Director, majority beneficial shareholder, and an Officer of TADS.
      AeroGroup also acquired various government licenses and permits that enable
      it
      to trade, own and operate military class aircraft and to bid for government
      contracts. Specifically, AeroGroup acquired the following intellectual property
      from Mark Daniels:




·
            Copyrights
                to a specialized F-16 Fighter Aircraft training course syllabus,
                specially
                created by AeroGroup in training pilots to use this aircraft’s Flight
                Control Navigation Panel; and




·
            Assignments
                of Provisional applications for utility patents****filed relating to methods of operational training uses of fighter
                aircraft
                by civilian corporations of these types of military aircraft for
                training
                of military personnel, specifically F-16, Pat. Pend. 60805870; Kfir,
                Pat.
                Pend. 60805885; A-4 Skyhawk, Pat Pend. 60805877; and MiG 29, Pat
                Pend.
                60805888.




AeroGroup
      has provided operational training support for F-16 Flight training with the
      Royal Netherlands Air Force in Melbourne Florida in 2003 and in Jacksonville
      Florida in 2004.





3





**Plan
      of Operation**





NINE
      MONTHS ENDED SEPTEMBER 30, 2008


COMPARED
      TO NINE MONTHS ENDED SEPTEMBER 30, 2007





There
      was
      no revenue or operating costs for the nine months ended September 30, 2008.
      For
      the same nine months ended September 30, 2007 the Company had no revenue and
      had
      operating costs of $170,335.





Selling,
      general and administrative expenses decreased from $22,000,833 for the nine
      month period ended September 30, 2007 to $1,612,770 for the nine month period
      ended September 30, 2008 due to costs in 2007 issued for consulting and
      professional services via issuance of common stock.





Other
      income (expenses) for the nine months ended September 30, 2008 decreased to
      $551,600 from $4,254,728 for the nine month period ended September 30, 2007.
      The
      change was due to less interest expense for loans that were either converted
      or
      cancelled in the current period.





Net
      loss
      decreased from $2,164,370 for the nine month period ended September 30, 2007
      to
      $26,656,723 for the nine month period ended September 30, 2008, due to the
      above
      analysis of Income and Expenses.





Current
      Assets





Cash
      increased from $-0- at December 31, 2007 to $143,156 at September 30, 2008,
      primarily as a result of the sale of common stock and loans in the current
      period.





Total
      assets increased from $88,000 at December 31, 2007 to $231,156 at September
      30,
      2008, primarily as a result of the increase in cash discussed
      above.





Current
      liabilities decreased from $8,761,668 at December 31, 2007 to $7,082,069 at
      September 30, 2008, due to the conversion of a notes payable in the current
      year.





THREE
      MONTHS ENDED SEPTEMBER 30, 2008


COMPARED
      TO NINE MONTHS ENDED SEPTEMBER 30, 2007





There
      was
      no revenue or operating costs for the three months ended September 30, 2008.
      For
      the same three months ended September 30, 2007 the Company had no revenue and
      had operating costs of $1,073.





Selling,
      general and administrative expenses decreased from $2,201,783 for the three
      month period ended September 30, 2007 to $620,746 for the three month period
      ended September 30, 2008 due to costs in 2007 issued for consulting and
      professional services via issuance of common stock.





Other
      income (expenses) for the three months ended September 30, 2008 decreased to
      $-0- from $1,810,203 for the nine month period ended September 30, 2007. The
      change was due to less interest expense for loans that were either converted
      or
      cancelled in the current period.





Net
      loss
      decreased from $4,124,752 for the three month period ended September 30, 2007
      to
      $620,746 for the three month period ended September 30, 2008, due to the above
      analysis of Income and Expenses.





**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 year 2007 and year to date 2008. We anticipate that our current
      cash
      on hand of $143,000 as of September 30, 2008 is sufficient to satisfy our cash
      requirements only through the end of 2008. 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.




**ITEM 3.** **QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK**




We
      do not
      hold any derivative instruments and do not engage in any hedging
      activities.




4




**ITEM
      4. CONTROLS AND PROCEDURES**




a)
      Evaluation of Disclosure Controls and Procedures





Our
      Chief
      Executive Officer and Chief Financial Officer evaluated the effectiveness of
      our
      disclosure controls and procedures as of the end of the period covered by this
      report. Based on that evaluation, Chief Executive Officer and Chief Financial
      Officer concluded that our disclosure controls and procedures as of the end
      of
      the period covered by this report were effective such that the information
      required to be disclosed by us in reports filed under the Securities Exchange
      Act of 1934 is (i) recorded, processed, summarized and reported within the
      time
      periods specified in the SEC's rules and forms and (ii) accumulated and
      communicated to the Chief Executive Officer and Chief Financial Officer, as
      appropriate to allow timely decisions regarding disclosure. A controls system
      cannot provide absolute assurance, however, that the objectives of the controls
      system are met, and no evaluation of controls can provide absolute assurance
      that all control issues and instances of fraud, if any, within a company have
      been detected.





Our
      Chief
      Executive Officer and Chief Financial Officer is responsible for establishing
      and maintaining adequate internal control over financial reporting (as defined
      in Rule 13a-15(f) under the Exchange Act). Our internal control over financial
      reporting is a process designed to provide reasonable assurance regarding the
      reliability of financial reporting and the preparation of financial statements
      for external purposes in accordance with accounting principles generally
      accepted in the United States.




Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. Therefore, even those systems determined to
      be
      effective can provide only reasonable assurance of achieving their control
      objectives. Furthermore, smaller reporting companies face additional
      limitations. Smaller reporting companies employ fewer individuals and find
      it
      difficult to properly segregate duties. Often, one or two individuals control
      every aspect of the Company's operation and are in a position to override any
      system of internal control. Additionally, smaller reporting companies tend
      to
      utilize general accounting software packages that lack a rigorous set of
      software controls.




Our
      Chief
      Executive Officer and Chief Financial Officer evaluated the effectiveness of
      the
      Company's internal control over financial reporting as of September 30, 2008.
      In
      making this assessment, our Chief Executive Officer and Chief Financial Officer
      used the criteria set forth by the Committee of Sponsoring Organizations of
      the
      Treadway Commission (COSO) in Internal Control -- Integrated Framework. Based
      on
      this evaluation, our Chief Executive Officer and Chief Financial Officer,
      concluded that, as of September 30, 2008, our internal control over financial
      reporting was effective.




b)
      Changes in Internal Control over Financial Reporting.





During
      the Quarter ended September 30, 2008, there was no change in our internal
      control over financial reporting (as such term is defined in Rule 13a-15(f)
      under the Exchange Act) that has materially affected, or is reasonably likely
      to
      materially affect, our internal control over financial reporting.





**LACK
      OF INDEPENDENT BOARD OF DIRECTORS AND AUDIT COMMITTEE**





Management
      is aware that an audit committee composed of the requisite number of independent
      members along with a qualified financial expert has not yet been established.
      Considering the costs associated with procuring and providing the infrastructure
      to support an independent audit committee and the limited number of
      transactions, Management has concluded that the risks associated with the lack
      of an independent audit committee are not justified. Management will
      periodically reevaluate this situation.





**LACK
      OF SEGREGATION OF DUTIES**





Management
      is aware that there is a lack of segregation of duties at the Company due to
      the
      small number of employees dealing with general administrative and financial
      matters. However, at this time management has decided that considering the
      abilities of the employees now involved and the control procedures in place,
      the
      risks associated with such lack of segregation are low and the potential
      benefits of adding employees to clearly segregate duties do not justify the
      substantial expenses associated with such increases. Management will
      periodically reevaluate this situation





**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.




5




Sichenzia
      & Ross LLP is pursuing a claim against the Company for unpaid services. We
      believe that this claim is without merit and are working towards resolution
      of
      the same.





Mr.
      Charlie Searock, a former executive officer of our company, has brought a laws
      suit in the District Court of the 336 th Judicial
      District of Grayson County, Texas against us and seven other defendants on
      February 6, 2007, on claims of breach of an employment agreement between Searock
      and International Tactical Training Center, Inc. (“ITTC”). (Charles J. Searock,
      Jr., vs. Tactical Air Defense Services, Inc., International Tactical training
      Center, Inc., Mark Daniels, Victor Miller, John Farley, Gary Fears, Jamie
      Goldstein, and Joel Ramsden, Cause No.07-0322-336). ITTC and the Company are
      the
      only two corporate defendants named in the Searock lawsuit. Of the six
      individuals named as defendants, three are former ITTC management.  
Searock asserts that the Company is liable for ITTC’s breach of employment
      agreement because he alleges that the Company acquired ITTC’s assets, and that
      ITTC was a former subsidiary of AeroGroup, Inc., an entity not named as a
      defendant in the Searock lawsuit. In addition to his claim for breach of the
      ITTC employment contract, Searock also asserts theories of tort liability
      against the defendants.   The Company denies any liability to Searock on
      his claim for breach of the ITTC employment contract and denies Searock has
      any
      factual basis to impose liability on the Company under any of his theories
      of
      tort liability. Specifically, the Company denies that it acquired, owns or
      controls ITTC’s former assets. The Company believes that this claim is without
      merit and is 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 lawsuits from Mr. Peer, Sichenzia &Ross,
      and General Searock.




**ITEM 1A
      -** **RISK FACTORS**




***POSSIBLE
      “PENNY STOCK” REGULATION***




Any
      trading of our Common Stock in the Pink Sheets or on the OTC Bulletin Board
      may
      be subject to certain provisions of the Securities Exchange Act of 1934,
      commonly referred to as the “penny stock” rule.




Our
      Common Stock is deemed to be “penny stock” as that term is defined in Rule
      3a51-1 promulgated under the Securities Exchange Act of 1934. Penny stocks
      are
      stock:




•
            
            With
                a price of less than $5.00 per
                share;




•
            
            That
                are not traded on a “recognized” national
                exchange;




•
            
            Whose
                prices are not quoted on the Nasdaq automated quotation system (Nasdaq
                listed stock must still have a price of not less than $5.00 per share);
                or




•
            
            In
                issuers with net tangible assets less than $2.0 million (if the issuer
                has
                been in continuous operation for at least three years) or $5.0 million
                (if
                in continuous operation for less than three years), or with average
                revenues of less than $6.0 million for the last three
                years.




Broker/dealers
      dealing in penny stocks are required to provide potential investors with a
      document disclosing the risks of penny stocks. Moreover, broker/dealers are
      required to determine whether an investment in a penny stock is a suitable
      investment for a prospective investor. These requirements may reduce the
      potential market for our Common Stock by reducing the number of potential
      investors. This may make it more difficult for investors in our Common Stock
      to
      sell shares to third parties or to otherwise dispose of them. This could cause
      our stock price to decline.




***BECAUSE
      WE ARE QUOTED ON THE OTCBB INSTEAD OF AN EXCHANGE OR NATIONAL QUOTATION SYSTEM,
      OUR INVESTORS MAY HAVE A TOUGHER TIME SELLING THEIR STOCK OR EXPERIENCE NEGATIVE
      VOLATILITY ON THE MARKET PRICE OF OUR STOCK.***




Our
      Common Stock is traded on the OTCBB. The OTCBB is often highly illiquid, in
      part
      because it does not have a national quotation system by which potential
      investors can follow the market price of shares except through information
      received and generated by a limited number of broker-dealers that make markets
      in particular stocks. There is a greater chance of volatility for securities
      that trade on the OTCBB as compared to a national exchange or quotation system.
      This volatility may be caused by a variety of factors, including the lack of
      readily available price quotations, the absence of consistent administrative
      supervision of bid and ask quotations, lower trading volume, and market
      conditions. Investors in our Common Stock may experience high fluctuations
      in
      the market price and volume of the trading market for our securities. These
      fluctuations, when they occur, have a negative effect on the market price for
      our securities. Accordingly, our stockholders may not be able to realize a
      fair
      price from their shares when they determine to sell them or may have to hold
      them for a substantial period of time until the market for our Common Stock
      improves.





6




***RISKS
      RELATING TO OWNERSHIP OF OUR COMMON STOCK***




Although
      there is presently a market for our Common Stock, the price of our common stack
      may be extremely volatile and investors may not be able to sell their shares
      at
      or above their purchase price, or at all. We anticipate that the market may
      be
      potentially highly volatile and may fluctuate substantially because
      of:




•
            
            Actual
                or anticipated fluctuations in our future business and operating
                results;




•
            
            Changes
                in or failure to meet market
                expectations;




•
            
            Fluctuations
                in stock market price and volume




***FAILURE
      TO ACHIEVE AND MAINTAIN EFFECTIVE INTERNAL CONTROLS IN ACCORDANCE
      WITH SECTION 404 OF THE SARBANES-OXLEY ACT COULD HAVE A MATERIAL
      ADVERSE EFFECT ON OUR BUSINESS AND OPERATING
      RESULTS.***





It
      may be
      time consuming, difficult and costly for us to develop and implement the
      additional internal controls, processes and reporting procedures required by
      the
      Sarbanes-Oxley Act. We may need to hire additional financial reporting, internal
      auditing and other finance staff in order to develop and implement appropriate
      additional internal controls, processes and reporting procedures. If we are
      unable to comply with these requirements of the Sarbanes-Oxley Act, we may
      not
      be able to obtain the independent accountant certifications that the
      Sarbanes-Oxley Act requires of publicly traded companies.





If
      we
      fail to comply in a timely manner with the requirements of Section 404 of the
      Sarbanes-Oxley Act regarding internal control over financial reporting or to
      remedy any material weaknesses in our internal controls that we may identify,
      such failure could result in material misstatements in our financial statements,
      cause investors to lose confidence in our reported financial information and
      have a negative effect on the trading price of our Common Stock.





Pursuant
      to Section 404 of the Sarbanes-Oxley Act and current SEC regulations, beginning
      with our annual report on Form 10-KSB for our fiscal period ending December
      31,
      2007, we will be required to prepare assessments regarding internal controls
      over financial reporting and beginning with our annual report on Form 10-K
      for
      our fiscal period ending December 31, 2008, furnish a report by our management
      on our internal control over financial reporting. We have begun the process
      of
      documenting and testing our internal control procedures in order to satisfy
      these requirements, which is likely to result in increased general and
      administrative expenses and may shift management time and attention from
      revenue-generating activities to compliance activities. While our management
      is
      expending significant resources in an effort to complete this important project,
      there can be no assurance that we will be able to achieve our objective on
      a
      timely basis. There also can be no assurance that our auditors will be able
      to
      issue an unqualified opinion on management's assessment of the effectiveness
      of
      our internal control over financial reporting. Failure to achieve and maintain
      an effective internal control environment or complete our Section 404
      certifications could have a material adverse effect on our stock
      price.





In
      addition, in connection with our on-going assessment of the effectiveness of
      our
      internal control over financial reporting, we may discover “material weaknesses”
in our internal controls as defined in standards established by the Public
      Company Accounting Oversight Board, or the PCAOB. A material weakness is a
      significant deficiency, or combination of significant deficiencies, that results
      in more than a remote likelihood that a material misstatement of the annual
      or
      interim financial statements will not be prevented or detected. The PCAOB
      defines “significant deficiency” as a deficiency that results in more
      than a remote likelihood that a misstatement of the financial statements
      that is more than inconsequential will not be prevented or
      detected.





In
      the
      event that a material weakness is identified, we will employ qualified personnel
      and adopt and implement policies and procedures to address any material
      weaknesses that we identify. However, the process of designing and implementing
      effective internal controls is a continuous effort that requires us to
      anticipate and react to changes in our business and the economic and regulatory
      environments and to expend significant resources to maintain a system of
      internal controls that is adequate to satisfy our reporting obligations as
      a
      public company. We cannot assure you that the measures we will take will
      remediate any material weaknesses that we may identify or that we will implement
      and maintain adequate controls over our financial process and reporting in
      the
      future.





Any
      failure to complete our assessment of our internal control over financial
      reporting, to remediate any material weaknesses that we may identify or to
      implement new or improved controls, or difficulties encountered in their
      implementation, could harm our operating results, cause us to fail to meet
      our
      reporting obligations or result in material misstatements in our financial
      statements. Any such failure could also adversely affect the results of the
      periodic management evaluations of our internal controls and, in the case of
      a
      failure to remediate any material weaknesses that we may identify, would
      adversely affect the annual auditor attestation reports regarding the
      effectiveness of our internal control over financial reporting that are required
      under Section 404 of the Sarbanes-Oxley Act. Inadequate internal controls could
      also cause investors to lose confidence in our reported financial
 information, which could have a negative effect on the trading price of
      our Common Stock.




7




***THE
      MARKET PRICE FOR OUR COMMON SHARES IS PARTICULARLY VOLATILE GIVEN OUR STATUS
      AS
      A RELATIVELY UNKNOWN COMPANY WITH A SMALL AND THINLY TRADED PUBLIC FLOAT,
      LIMITED OPERATING HISTORY AND LACK OF PROFITS WHICH COULD LEAD TO WIDE
      FLUCTUATIONS IN OUR SHARE PRICE.***




The
      market for our common shares is characterized by significant price volatility
      when compared to seasoned issuers, and we expect that our share price will
      continue to be more volatile than a seasoned issuer for the indefinite future.
      The volatility in our share price is attributable to a number of factors. First,
      as noted above, our common shares are sporadically and thinly traded. As a
      consequence of this lack of liquidity, the trading of relatively small
      quantities of shares by our shareholders may disproportionately influence the
      price of those shares in either direction. The price for our shares could,
      for
      example, decline precipitously in the event that a large number of our common
      shares are sold on the market without commensurate demand, as compared to a
      seasoned issuer which could better absorb those sales without adverse impact
      on
      its share price. Secondly, we are a speculative or “risky” investment due to our
      limited operating history and lack of profits to date, and uncertainty of future
      market acceptance for our potential products. As a consequence of this enhanced
      risk, more risk-adverse investors may, under the fear of losing all or most
      of
      their investment in the event of negative news or lack of progress, be more
      inclined to sell their shares on the market more quickly and at greater
      discounts than would be the case with the stock of a seasoned issuer. Many
      of
      these factors are beyond our control and may decrease the market price of our
      common shares, regardless of our operating performance. We cannot make any
      predictions or projections as to what the prevailing market price for our common
      shares will be at any time, including as to whether our common shares will
      sustain their current market prices, or as to what effect that the sale of
      shares or the availability of common shares for sale at any time will have
      on
      the prevailing market price.




Shareholders
      should be aware that, according to SEC Release No. 34-29093, the market for
      penny stocks has suffered in recent years from patterns of fraud and abuse.
      Such
      patterns include (1) control of the market for the security by one or a few
      broker-dealers that are often related to the promoter or issuer;
      (2) manipulation of prices through prearranged matching of purchases and
      sales and false and misleading press releases; (3) boiler room practices
      involving high-pressure sales tactics and unrealistic price projections by
      inexperienced sales persons; (4) excessive and undisclosed bid-ask
      differential and markups by selling broker-dealers; and (5) the wholesale
      dumping of the same securities by promoters and broker-dealers after prices
      have
      been manipulated to a desired level, along with the resulting inevitable
      collapse of those prices and with consequent investor losses. Our management
      is
      aware of the abuses that have occurred historically in the penny stock market.
      Although we do not expect to be in a position to dictate the behavior of the
      market or of broker-dealers who participate in the market, management will
      strive within the confines of practical limitations to prevent the described
      patterns from being established with respect to our securities. The occurrence
      of these patterns or practices could increase the volatility of our share
      price.




***VOLATILITY
      IN OUR COMMON SHARE PRICE MAY SUBJECT US TO SECURITIES LITIGATION, THEREBY
      DIVERTING OUR RESOURCES THAT MAY HAVE A MATERIAL EFFECT ON OUR PROFITABILITY
      AND
      RESULTS OF OPERATIONS.***




As
      discussed in the preceding risk factors, the market for our common shares is
      characterized by significant price volatility when compared to seasoned issuers,
      and we expect that our share price will continue to be more volatile than a
      seasoned issuer for the indefinite future. In the past, plaintiffs have often
      initiated securities class action litigation against a company following periods
      of volatility in the market price of its securities. We may in the future be
      the
      target of similar litigation. Securities litigation could result in substantial
      costs and liabilities and could divert management’s attention and
      resources.




***OUR
      BUSINESS PLAN CALLS FOR EXTENSIVE AMOUNTS OF FUNDING AND WE MAY NOT BE ABLE
      TO
      OBTAIN SUCH FUNDING WHICH COULD ADVERSELY AFFECT OUR BUSINESS, OPERATIONS AND
      FINANCIAL CONDITION.***




We
      will
      be relying on additional financing and funding. We are currently in discussions
      with potential sources of financing but no definitive agreements are in place.
      If we cannot achieve the requisite financing or complete the projects as
      anticipated, this could adversely affect our business, the results of our
      operations, prospects and financial condition.




**SHOULD
      ONE OR MORE OF THE FOREGOING RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD
      THE
      UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY
      FROM THOSE ANTICIPATED, BELIEVED, ESTIMATED, EXPECTED, INTENDED OR
      PLANNED.**





TADS
      is
      not a party to any pending litigation or legal proceeding that is not in the
      ordinary course of business except as described in Part II, Item 1 above. The
      costs and results associated with these legal proceedings could be significant
      and could affect the results of future operations.





**Item
      2. Unregistered Sales of Equity Securities and Use of
      Proceeds**





*Conversion
      of Notes*





During
      the period ended June 30, 2008, the issuances of unregistered securities were
      made as a result of various note conversions. In all, during this period holders
      of the convertible debentures converted $2,706,224  of
      debentures (which total includes accrued interest), resulting in the issuance
      of
      50,000,000 shares of Common Stock.





*Issuance
      of Shares of Common Stock for Services*




During
      the period ended June 30, 2008, the Company issued a net aggregate 53,835,360
      shares of Common Stock in satisfaction of invoices and obligations to various
      services providers, employees, executives and consultants. These shares of
      Common Stock are restricted and no registration rights were granted in
      connection with these issuances.




8




The
      offer
      and sale of such shares of our Common Stock were effected in reliance on the
      exemptions for sales of securities not involving a public offering, as set
      forth
      in Rule 506 promulgated under the Securities Act and in Section 4(2) of the
      Securities Act, based on the following: (a) the investors confirmed to us
      that they were “accredited investors,” as defined in Rule 501 of Regulation D
      promulgated under the Securities Act and had such background, education and
      experience in financial and business matters as to be able to evaluate the
      merits and risks of an investment in the securities; (b) there was no
      public offering or general solicitation with respect to the offering;
      (c) the investors were provided with certain disclosure materials and all
      other information requested with respect to our company; (d) the investors
      acknowledged that all securities being purchased were “restricted securities”
for purposes of the Securities Act, and agreed to transfer such securities
      only
      in a transaction registered under the Securities Act or exempt from registration
      under the Securities Act; and (e) a legend was placed on the certificates
      representing each such security stating that it was restricted and could only
      be
      transferred if subsequent registered under the Securities Act or transferred
      in
      a transaction exempt from registration under the Securities Act.




**ITEM
      3.  DEFAULTS UPON SENIOR SECURITIES**




There
      were no defaults upon senior securities during the period ended September 30,
      2008.




**ITEM
      4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY
      HOLDERS**





There
      were no matters submitted to the vote of securities holders during the period
      ended September 30, 2008.




**ITEM
      5.  OTHER INFORMATION**




There
      is
      no information with respect to which information is not otherwise called for
      by
      this form.




**Item
      6. Exhibits**





a.
      Exhibit Index




31.1
            Certification
                of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
                Act31.2
            Certification
                of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
                Act.32.1
            Certification
                of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley
                Act.32.2
            Certification
                of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley
                Act.




9





**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.**November
                19, 2008By:
            /s/
                Mark DanielsName:
                Mark DanielsTitle:
                President and Chairman (Principal
              Executive
                and Principal Accounting
              Officer)





10