UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington
D. C. 20549
 
 FORM
10-Q
  (Mark
One)
 x  Quarterly
Report Pursuant to Section 13 or 15(d) of
 the
Securities Exchange Act of 1934
 
 For the
quarterly period ended March 31, 2009.
 
 o  Transition
Report Pursuant to Section 13 or 15(d)
 of
the Securities Exchange Act
 
 For the
transition period from N/A to N/A
 ____________________
 
 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 May 20, 2009Common
      Stock, $0.001 par value
                        1,472,309,286
  
  INFORMATION
RELATING TO FORWARD-LOOKING STATEMENTS
  In
addition to historical information, this Form 10-Q contains statements
relating to our future results (including certain projections and business
trends) that are “forward-looking statements” within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E
of the Securities Exchange Act of 1934, as amended (the Exchange Act), and are
subject to the “safe harbor” created by those sections. Words such as “expects”,
“anticipates”, “intends”, “plans”, “believes”, “estimates”, “suggests”, “seeks”,
“will” and variations of such words and similar expressions are intended to
identify forward-looking statements.  These statements involve known
and unknown risks, uncertainties and other factors that may cause our actual
results and performance to be materially different from any future results or
performance expressed or implied by these forward-looking statements. These
factors include, among other things, our capital needs, the competitiveness of
the business in our industry, our strategies, our ability to attract and retain
qualified officers and directors, demand for the services we provide, both
nationally and in the regions in which we operate, the functioning of our
information systems, the effect of existing or future government regulation and
federal and state legislative and enforcement initiatives on our business, our
clients’ ability to pay us for our services, our ability to successfully
implement our acquisition and development strategies, the effect of liabilities
and other claims asserted against us, the effect of competition in the markets
we serve, our ability to successfully defend the Company, its subsidiaries, and
its officers and directors on the merits of any lawsuit or determine its
potential liability, if any, and other factors.
  Although
we believe that these statements are based upon reasonable assumptions, we
cannot guarantee future resultsand readers are
cautioned not to place undue reliance on these forward-looking statements, which
reflect management’s opinions only as of the date of this filing. There can be
no assurance that (i) we have correctly measured or identified all of the
factors affecting our business or the extent of these factors’ likely impact,
(ii) the available information with respect to these factors on which such
analysis is based is complete or accurate, (iii) such analysis is correct
or (iv) our strategy, which is based in part on this analysis, will be
successful. The Company undertakes no obligation to update or revise
forward-looking statements
  All
references in this Annual Report on Form 10/K to the “Company,” “we,” “our,” or
“us,” ” refer to TADS and its subsidiaries as constituted subsequent to the
acquisition of substantially all of the assets of AeroGroup Incorporated on
December 15, 2006, except where the context makes clear that the reference is
only to TADS. Information about the Company and the principal terms of this
acquisition are set forth below.
  
  INDEX
TO FORM 10-Q FILING
 
 TABLE
OF CONTENTS
 
 PART
I
 FINANCIAL
INFORMATION
 Page NumbersPART
      I - FINANCIAL INFORMATIONItem 1.
                                                          Condensed
      Consolidated Financial Statements (unaudited)Condensed
      Consolidated Balance Sheets
                                                          5Condensed
      Consolidated Statements of Income
                                                          6Condensed
      Consolidated Statement of Cash Flows
                                                          7Notes
      to Condensed Consolidated Financial Statements
                                                          8Item 2.
                                                          Management
      Discussion & Analysis of Financial Condition and Results of
      Operations
                                                          37Item 3
                                                          Quantitative
      and Qualitative Disclosures About Market Risk
                                                          39Item 4.
                                                          Controls
      and Procedures
                                                          39PART
      II - OTHER INFORMATIONItem1
                                                          Legal
      Proceedings
                                                          41Item1A
                                                          Risk
      Factors
                                                          41Item 2.
                                                          Unregistered
      Sales of Equity Securities and Use of Proceeds
                                                          45Item 3.
                                                          Defaults
      Upon Senior Securities
                                                          45Item 4.
                                                          Submission
      of Matters to a Vote of Security Holders
                                                          45Item 5
                                                          Other
      information
                                                          45Item 6.
                                                          Exhibits
                                                          45CERTIFICATIONSExhibit
      31 – Management certificationExhibit
      32 – Sarbanes-Oxley Act
  
  PART
I
 
 ITEM
1 – FINANCIAL STATEMENTS
 
 The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions for Form 10-Q and Rule 10-01 of
Regulation S-X.  Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.  In the opinion of management, all
adjustments considered necessary for a fair presentation have been
included.  All such adjustments are of a normal recurring
nature.  Operating results for the three month period ended March 31,
2009 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2009.
 
 5
  TACTICAL
AIR DEFENSE SERVICES, INC.
 CONDENSED
CONSOLIDATED BALANCE SHEET
  MARCH
      31,
                    2009
                  
                  
                  DECEMBER
      31, 2008ASSETSCurrent
      Assets:Cash
                  
                  $
                  5,501
                  
                  
                  
                  23,156Accounts
      Receivable
                  
                  
                  250,000
                  
                  
                  
                  250,000Total
      Current Assets
                  
                  
                  255,501
                  
                  
                  
                  273,156Property
      and Equipment, net
                  
                  
                  88,000
                  
                  
                  
                  88,000TOTAL
      ASSETS
                  
                  
                  343,501
                  
                  
                  
                  361,156LIABILITIES AND STOCKHOLDERS'
      EQUITYCurrent
      Liabilities:Accounts
      payable
                  
                  
                  161,605
                  
                  
                  
                  7,762Accrued
      liabilities
                  
                  
                  353,123
                  
                  
                  
                  473,454Short-Term
      Debentures, including accrued interest, net of debt discount of
      $2,590,041
                  
                  
                  567,863
                  
                  
                  
                  504,904Total
      Current Liabilities
                  
                  
                  1,082,591
                  
                  
                  
                  986,120TOTAL
      LIABILITIES
                  
                  
                  1,082,591
                  
                  
                  
                  986,120COMMITMENTSSTOCKHOLDERS'
      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; - 855,203,856
      shares issued and outstanding
                  
                  
                  855,204
                  
                  
                  
                  855,204Additional
      paid-in-capital
                  
                  
                  36,403,936
                  
                  
                  
                  36,403,936Unearned
      compensationDeficit
      accumulated during the development stage
                  
                  
                  (38,004,630
                  )
                  
                  
                  (37,890,504
                  )TOTAL
      STOCKHOLDERS' EQUITY
                  
                  
                  (739,090
                  )
                  
                  
                  (624,964
                  )TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                  
                  $
                  343,501
                  
                  
                  
                  361,156
  
 The
accompanying notes are an integral part of these condensed consolidated
financial statements.
 6
  TACTICAL AIR DEFENSE SERVICES,
INC.
 (A
Development Stage Company, Commencing January 1, 2006)
 CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
 Three
Months Ended March 31, 2009 and 2008
 (Unaudited)
  2009
                                        
                                        
                                        2008REVENUES
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        -Operating
      costs
                                        
                                        
                                        
                                        
                                        
                                        
                                        -General
      and administrative, including compensatory element of stock issuance of
      $-0- and $375,000  for the three months ended March 31, 2009 and
      2008,
                                        
                                        
                                        114,126
                                        
                                        
                                        
                                        679,524TOTAL
      COSTS
                                        
                                        
                                        114,126
                                        
                                        
                                        
                                        679,524OPERATING
      LOSS
                                        
                                        
                                        (114,126
                                        )
                                        
                                        
                                        (679,524
                                        )OTHER
      (EXPENSE) INCOME:Derivative
      loss on derivative liabilities
                                        
                                        
                                        -Write-down
      of fixed assetsForgiveness
      of liquidated damages
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Interest
      expense
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (330,500
                                        )OtherTOTAL
      EXPENSES
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (330,550
                                        )NET
      LOSS
                                        
                                        $
                                        (114,126
                                        )
                                        
                                        $
                                        (1,010,024
                                        )NET
      LOSS APPLICABLE TO COMMON STOCKHOLDERS
                                        
                                        $
                                        (114,126
                                        )
                                        
                                        $
                                        (1,010,024
                                        )Loss
      per common share - basic and diluted
                                        
                                        $
                                        
                                        
                                        
                                        $
                                        (0.02
                                        )Weighted
      average number of shares outstanding - basic and diluted
                                        
                                        
                                        855,203,856
                                        
                                        
                                        
                                        54,044,183
  The
accompanying notes are an integral part of these condensed consolidated
financial statements.
 7
  TACTICAL AIR DEFENSE SERVICES,
INC.
 CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 
 Three
      Months Ended March 31,2009
                                            
                                            
                                            2008CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      (loss)
                                            
                                            $
                                            (114,126
                                            )
                                            
                                            $
                                            (1,010,024
                                            )Adjustments
      to reconcile net loss to net cash
                                              used
      in operating activities:Changes
      in operating assets and liabilities:Accounts
      payable
                                            
                                            
                                            153,843
                                            
                                            
                                            
                                            -Accrued
      liabilities
                                            
                                            
                                            (120,331
                                            )
                                            
                                            
                                            635,026Net
      Cash Used in Operating Activities
                                            
                                            
                                            (80,614
                                            )
                                            
                                            
                                            (1,010,024
                                            )CASH
      USED IN INVESTING ACTIVITIESPurchase
      of property and equipment
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Net
      Cash Used in Investing Activities
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -CASH
      FLOWS FROM FINANCING ACTIVITIES:Due
      to related parties, net
                                            
                                            
                                            62,959
                                            
                                            
                                            
                                            -Net
      Cash Provided by Financing Activities
                                            
                                            
                                            62,959
                                            
                                            
                                            
                                            -Increase
      (Decrease) in cash
                                            
                                            
                                            (17,655
                                            )
                                            
                                            
                                            (-
                                            )Cash
      - Beginning of period
                                            
                                            
                                            23,156
                                            
                                            
                                            
                                            -Cash
      - End of period
                                            
                                            $
                                            5,501
                                            
                                            
                                            $
                                            -Interest
      paid
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Taxes
      paid
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Non-cash
      Transactions:Stock
      issued to settle accrued compensation
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            375,000
 
 The
accompanying notes are an integral part of these condensed consolidated
financial statements.
 8
  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, maintenance training, 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.
 
 9
  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.●
                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.
  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.
 
 Basis of
Presentation
 
 The
results for the first quarter of 2009 are not necessarily indicative of the
results to be expected for the full fiscal year and have not been audited. In
the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments, consisting of normal recurring
accruals, necessary for a fair statement of the results of operations and cash
flows for the periods presented and the condensed consolidated balance sheet at
March 31, 2009. 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-K
for the year ended December 31, 2008.
  10
 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 March 31, 2009 of $827,090.
 
 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 2009. 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, maintenance training, aerial
fire-fighting, ground-threat support, and other aerial services. 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.
  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.
  11
  Leasehold
improvements shall be amortized over the shorter of their useful life or the
remaining lease term. Upon retirement or other disposition of these assets, the
cost and related accumulated depreciation of these assets are removed from the
accounts and the resulting gains or losses are reflected in the results of
operations.
 
 As of
March 31, 2009 and 2008, the Company did not have any assets placed into
service. As a result, there was no depreciation expense for the three months
ended March 31, 2009 and 2008.
 
 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 aircraft and flight simulators. 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.
 
 GOODWILL AND OTHER
INTANGIBLE ASSETS
 
 In June
2001, the FASB issued Statement No. 142 Goodwill and Other Intangible Assets.
 This statement addresses financial accounting and reporting for acquired
goodwill and other intangible assets and supersedes APB Opinion No. 17,
Intangible Assets.  It addresses how intangible assets that are acquired
individually or with a group of other assets (but not those acquired in a
business combination) should be accounted for in financial statements upon their
acquisition.  This Statement also addresses how goodwill and other
intangible assets should be accounted for after they have been initially
recognized in the financial statements.
 
 Goodwill
and intangible assets with indefinite useful lives are not amortized. Intangible
assets with finite useful lives are amortized generally on a straight-line basis
over the periods benefited, with a weighted average useful life of 15
years.
 
 In
performing this assessment, management uses the income approach and the similar
transactions method of the market approach to develop the fair value of the
acquisition in order to assess its potential impairment of goodwill. The income
approach is based on a discounted cash flow model which relies on a number of
factors, including operating results, business plans, economic projections and
anticipated future cash flows. Rates used to discount future cash flows are
dependent upon interest rates and the cost of capital at a point in time. The
similar transactions method is a market approach methodology in which the fair
value of a business is estimated by analyzing the prices at which companies
similar to the subject, which are used as guidelines, have sold in controlling
interest transactions (mergers and acquisitions). Target companies are compared
to the subject company, and multiples paid in transactions are analyzed and
applied to subject company data, resulting in value indications. Comparability
can be affected by, among other things, the product or service produced or sold,
geographic markets served, competitive position, profitability, growth
expectations, size, risk perception, and capital structure. There are inherent
uncertainties related to these factors and management’s judgment in applying
them to the analysis of goodwill impairment. It is possible that assumptions
underlying the impairment analysis will change in such a manner that impairment
in value may occur in the future.
  12
 REVENUE
RECOGNITION
 
 The
Company recognizes revenue in accordance with the Securities and Exchange
Commission, Staff Accounting Bulletin (SAB) No. 104, “Revenue Recognition” (“SAB
No. 104”). SAB 104 clarifies application of generally accepted accounting
principles related to revenue transactions. The Company also follows the
guidance in EITF Issue No. 00-21, Revenue Arrangements with Multiple
Deliverables ("EITF Issue No. 00-21"), in arrangements with multiple
deliverables.
 
 The
Company recognizes revenues when all of the following criteria are met: (1)
persuasive evidence of an arrangement exists, (2) delivery of products and
services has occurred, (3) the fee is fixed or determinable and (4)
collectability is reasonably assured.
 
 The
Company receives revenue for consulting services, video streaming services,
equipment sales and leasing, installation, content licensing, and maintenance
agreements.  Sales and leasing agreement terms generally are for one
year, and are renewable year to year thereafter.  Revenue for
consulting services is recognized as the services are provided to
customers.  For upfront payments and licensing fees related to
contract research or technology, the Company determines if these payments and
fees represent the culmination of a separate earnings process or if they should
be deferred and recognized as revenue as earned over the life of the related
agreement. Milestone payments are recognized as revenue upon achievement of
contract-specified events and when there are no remaining performance
obligations. Revenues from monthly video streaming agreements, as well as
equipment maintenance, are recorded when earned. Operating equipment lease
revenues are recorded as they become due from customers.  Revenues
from equipment sales and installation are recognized when equipment delivery and
installation have occurred, and when collectability is reasonably
assured.
 
 In
certain cases, the Company enters into agreements with customers that involve
the delivery of more than one product or service.  Revenue for such
arrangements is allocated to the separate units of accounting using the relative
fair value method in accordance with EITF Issue No. 00-21. The delivered item(s)
is considered a separate unit of accounting if all of the following criteria are
met: (1) the delivered
item(s) has value to the customer on a standalone basis, (2) there is objective
and reliable evidence of the fair value of the undelivered item(s) and (3) if
the arrangement includes a general right of return, delivery or performance of
the undelivered item(s) is considered probable and substantially in the control
of the vendor. If all the conditions above are met and there is objective and
reliable evidence of fair value for all units of accounting in an arrangement,
the arrangement consideration is allocated to the separate units of accounting
based on their relative fair values.
 
 Explicit
return rights are not offered to customers; however, the Company may accept
returns in limited circumstances. There have been no returns through March 31,
2009.   Therefore, a sales return allowance has not been
established since management believes returns will be
insignificant.
 
 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 short-term investments as of March 31,
2009.
  13
 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 quarters ended March 31, 2008 and 2009 because their inclusion would
have had been anti-dilutive.
  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
March 31, 2009, 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.
  14
  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."
  Recent
Accounting Pronouncements
 
 In
December 2007, the FASB issued FAS No. 141(R) “Applying the Acquisition Method”,
which is effective for fiscal years beginning after December 15,
2008.  This statement retains the fundamental requirements in FAS 141
that the acquisition method be used for all business combinations and for an
acquirer to be identified for each business combination. FAS 141(R) broadens the
scope of FAS 141 by requiring application of the purchase method of accounting
to transactions in which one entity establishes control over another entity
without necessarily transferring consideration, even if the acquirer has not
acquired 100% of its target.  Among other changes, FAS 141(R) applies
the concept of fair value and “more likely than not” criteria to accounting for
contingent consideration, and preacquisition contingencies.  As a
result of implementing the new standard, since transaction costs would not be an
element of fair value of the target, they will not be considered part of the
fair value of the acquirer’s interest and will be expensed as
incurred.
  15
  In
December 2007, the FASB also issued FAS No. 160, “Accounting for Noncontrolling
Interests”, which is effective for fiscal years beginning after December 15,
2008.  This statement clarifies the classification of noncontrolling
interests in the consolidated statements of financial position and the
accounting for and reporting of transactions between the reporting entity and
the holders of non-controlling interests.  The Company does not expect
that the adoption of this standard will have a significant impact on its
financial condition, results or operations, cash flows or
disclosures.
 
 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.
 
 In May,
2008 the FASB issued FASB Staff Position (FSP) APB 14-1, “Accounting for Convertible Debt
Instruments That May Be 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.
 
 In June
2008, the FASB issued FSP No. EITF 03-6-1, "Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities". This
FASB Staff Position (FSP) addresses whether instruments granted in share-based
payment transactions are participating securities prior to vesting and,
therefore, need to be included in the earnings allocation in computing earnings
per share (EPS) under the two-class method described in paragraphs 60 and 61 of
FASB Statement No. 128, Earnings per Share. This FSP provides that unvested
share-based payment awards that contain non-forfeitable rights to dividends or
dividend equivalents (whether paid or unpaid) are participating securities and
shall be included in the computation of EPS pursuant to the two-class method.
The provisions of FSP No. 03-6-1 shall be effective for financial statements
issued for fiscal years beginning after December 15, 2008, and interim periods
within those years. All prior-period EPS data presented shall be adjusted
retrospectively (including interim financial statements, summaries of earnings,
and selected financial data) to conform with the provisions of this FSP. Early
application is not permitted. The provisions of FSP No. 03-6-1 are effective for
the Company retroactively in the first quarter ended March 31, 2009. The Company
is currently assessing the impact of FSP No. EITF 03-6-1 on the calculation and
presentation of earnings per share in its’ consolidated financial
statements.
  16
  On
January 1, 2009, the Company adopted Financial Accounting Standards Board
(“FASB”) Statement No. 141R, Business Combinations(“FAS
141R”), FSP No. FAS 142-3, Determination of the Useful Life of
Intangible Assets(“FSP FAS 142-3”), Statement No. 160, Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51(“FSP
160”), Statement No. 161, Disclosures about Derivative
Instruments and Hedging Activities(“FAS 161”), Emerging Issues Task
Force (“EITF”) Issue No. 07-1 (“EITF 07-1”), Accounting for Collaborative
Arrangements,EITF Issue No. 08-6, Equity Method Investment Accounting
Considerations(“EITF 08-6”), EITF Issue No. 08-7, Accounting for Defensive Intangible
Assets(“EITF 08-7”), FASB Staff Position EITF 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities(“FSP EITF 03-6-1”) and FASB Staff Position APB 14-1, Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement)(“APB 14-1”).
 
 FAS 141R
expands the scope of acquisition accounting to all transactions under which
control of a business is obtained. This standard requires an acquirer to
recognize the assets acquired and liabilities assumed at the acquisition date
fair values with limited exceptions. Additionally, FAS 141R requires that
contingent consideration as well as contingent assets and liabilities be
recorded at fair value on the acquisition date, that acquired in-process
research and development be capitalized and recorded as intangible assets at the
acquisition date, and also requires transaction costs and costs to restructure
the acquired company be expensed. Transactions are now being accounted for under
this standard. On April 1, 2009, the FASB issued Staff Position FAS
141(R)-1, Accounting for
Assets Acquired and Liabilities Assumed in a Business Combination That Arise
from Contingencies,which is effective January 1, 2009, and amends
the guidance in FAS 141R to require that assets acquired and liabilities assumed
in a business combination that arise from contingencies be recognized at fair
value if fair value can reasonably be estimated. If the acquisition date fair
value of an asset acquired or liability assumed that arises from a contingency
cannot be determined, the asset or liability would be recognized in accordance
with FASB Statement No. 5, Accounting for Contingencies(“FAS 5”),and
FASB Interpretation No. 14, Reasonable Estimation of the Amount
of a Loss.If the fair value is not determinable and the FAS 5 criteria
are not met, no asset or liability would be recognized.
 
 FSP FAS
142-3 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 SFAS No. 142, “Goodwill and Other Intangible Assets”
(SFAS 142). The objective of this FSP is to improve the consistency between the
useful life of a recognized intangible asset under SFAS 142 and the period of
expected cash flows used to measure the fair value of the asset under SFAS
141(R), and other principles of GAAP. This FSP applies to all intangible assets,
whether acquired in a business combination or otherwise, and shall be effective
for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years and
applied prospectively to intangible assets acquired after the effective date.
Early adoption is prohibited. We have evaluated the new statement and have
determined that it will not have a significant impact on the determination or
reporting of our financial results.
 
 FAS 160
provides guidance for the accounting, reporting and disclosure of noncontrolling
interests and requires, among other things, that noncontrolling interests be
recorded as equity in the consolidated financial
statements.   The adoption of FAS 160 did not affect the
Company’s consolidated financial position or consolidated results of
operations.
 
 FAS 161
requires enhanced disclosures about derivative instruments and hedging
activities to allow for a better understanding of their effects on an entity’s
financial position, financial performance, and cash flows. Among other things,
FAS 161 requires disclosure of the fair values of derivative instruments and
associated gains and losses in a tabular format. Since FAS 161 requires only
additional disclosures about the Company’s derivatives and hedging activities,
the adoption of FAS 161 did not affect the Company’s consolidated financial
position or consolidated results of operations.
  17
  EITF 07-1
defines collaborative arrangements and establishes reporting requirements for
transactions between participants in a collaborative arrangement and between
participants in the arrangement and third parties. The effect of adoption of
EITF 07-1 did not affect the Company’s consolidated financial position or
consolidated results of operations.
 
 EITF
08-6, which is effective January 1, 2009, clarifies the accounting for
certain transactions and impairment considerations involving equity method
investments and is applied on a prospective basis to future
transactions.
 
 EITF
08-7, which is effective January 1, 2009, clarifies that a defensive
intangible asset (an intangible asset that the entity does not intend to
actively use, but intends to hold to prevent others from obtaining access to the
asset) should be accounted for as a separate unit of accounting and should be
assigned a useful life that reflects the entity’s consumption of the expected
benefits related to the asset. EITF 08-7 is applied on a prospective basis to
future transactions.
 
 FSP EITF
03-6-1 clarifies that share-based payment awards that entitle holders to receive
nonforfeitable dividends before they vest will be considered participating
securities and included in the earnings per share calculation pursuant to the
two class method. The effect of adoption of FSP EITF 03-6-1 was not material to
the Company’s consolidated results of operations.
 
 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 was adopted on January 1, 2009, and did not affect
the Company’s consolidated financial position or consolidated results of
operations.
 
 Recently Issued Accounting
Standards
 
 The FASB
recently issued Staff Position FAS 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly (“FSP FAS
157-4”), Staff Position FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments(“FSP FAS 115-2/124-2”) and Staff
Position FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value
of Financial Instruments(“FSP FAS 107-1/APB 28-1”).
  Under FSP
FAS 157-4, if an entity determines that there has been a significant decrease in
the volume and level of activity for an asset or liability in relation to the
normal market activity for the asset or liability (or similar assets or
liabilities), then transactions or quoted prices may not accurately reflect fair
value. In addition, if there is evidence that the transaction for the asset or
liability is not orderly, the entity shall place little, if any, weight on that
transaction price as an indicator of fair value. Since FSP FAS 157-4 is
effective for
 interim
reporting periods ending after June 15, 2009, the Company will adopt the
provisions of FSP FAS 157-4 during the second quarter of 2009 and is currently
assessing the impact of adoption on its consolidated financial position and
consolidated results of operations.
 
 FSP FAS
115-2/124-2 changes existing guidance for determining whether debt securities
are other-than-temporarily impaired and replaces the existing requirement that
the entity’s management assert it has both the intent and ability to hold an
impaired security until recovery with a requirement that management assert:
(a) it does not have the intent to sell the security; and (b) it is
more likely than not it will not have to sell the security before recovery of
its cost basis. FSP FAS 115-2/124-2 requires entities to separate an
other-than-temporary impairment of a debt security into two components when
there are credit related losses associated with the impaired debt security for
which management asserts that it does not have the intent to sell the security,
and it is more likely than not that it will not be required to sell the security
before recovery of its cost basis. The amount of the other-than-temporary
impairment related to a credit loss is recognized in earnings, and the amount of
the other-than-temporary impairment related to other factors is recorded in
other comprehensive loss. Since FSP FAS 115-2/124-2 is effective for interim
reporting periods ending after June 15, 2009, the Company will adopt the
provisions of FSP FAS 115-2/124-2 during the second quarter of 2009 and is
currently assessing the impact of adoption on its consolidated financial
position and consolidated results of operations.
  18
  FSP FAS
107-1/APB 28-1 requires disclosures about fair values of financial instruments
in interim and annual financial statements. Prior to the issuance of FSP FAS
107-1/APB 28-1, disclosures about fair values of financial instruments were only
required to be disclosed annually. FSP FAS 107-1/APB 28-1 requires disclosures
about fair value of financial instruments in interim and annual financial
statements. Since FSP FAS 107-1/APB 28-1 is effective for interim reporting
periods ending after June 15, 2009, the Company will adopt FSP FAS 107-1/APB
28-1 in the second quarter 2009. Since FSP FAS 107-1/APB 28-1 requires only
additional disclosures of fair values of financial instruments in interim
financial statements, the adoption will not affect the Company’s consolidated
financial position or consolidated results of operations.
 
 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.
  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.
  19
 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. The share purchase price carried certain anti-dilution rights whereby
the share purchase price would be amended if the average closing price of the
shares, during the 30-day period following the closing of the offering, was less
than the share purchase price.  The new share purchase price would
become the anti-dilution reference price, and additional shares would be issued
to reflect the new share purchase price. Notwithstanding any of the above, the
new, share purchase price would 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.
 
 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.
 
 Pursuant
to a Securities Purchase Agreement, in December, 2008, the Company sold
3,000,000 shares of restricted Common Stock to one investor at a purchase price
of $0.02 per share. The gross proceeds of the offering totaled
$60,000.
 
 Pursuant
to a Securities Purchase Agreement, in March, 2008, the Company sold 3,000,000
shares of restricted Common Stock to one investor at a purchase price of $0.01
per share. The gross proceeds of the offering totaled $30,000.
 
 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.
  20
  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.
  21
 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.
  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.
  22
 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.
 
 Fourth
Quarter of 2008 to Present
 
 No
Debentures have been issued by the Company post Third-Quarter 2008.
 
 Additional
Indebtedness
 
 Between
July 1, 2008 and April 30, 2009, the Company received proceeds of Short-Terms
loans (the “Short-Term Loans”) totaling $742,863of which $175,000 was
repaid in October, 2008. The Short-Term Loans carry a term of one year, an
interest rate of 12%, and carried 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.  The Short-Term Loans have a lien on the receivables from the
AETC Contract which stipulates that all funds received from the AETC Contract
will first be directed towards paying down the Short-Term loans, with the
agreement that one half of the funds repaid from the AETC receivables will be
reloaned to the Company by the lien holders. The reference price was
renegotiated with the lender and is currently equal to a 50% discount 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
lowest purchase price is currently $0.01 and which principle is equal to
148,572,658 shares of the Company’s Common Stock.
 
 On April
15, 2009, the Company issued a Promissory Note to Lawrence Scharfman & Co.,
CPA, P.A. for $12,500in
consideration for unpaid fees accrued from September 30, 2008 through December
31, 2008.  The Promissory Note carries a term of 30 days and an annual
interest rate 12%.  In the event of non-payment in full by the
due-date of the Promissory Note, on the unpaid balance, the annual interest rate
increases to 18% until paid-in-full.
  23
  On April
15, 2009, the Company issued a Promissory Note to Lawrence Scharfman & Co.,
CPA, P.A. for $25,000in
consideration for unpaid fees accrued from January 1, 2009 through April 15,
2009.  The Promissory Note carries a term of 90 days and an annual
interest rate 12%.  In the event of non-payment in full by the
due-date of the Promissory Note, on the unpaid balance, the annual interest rate
increases to 18% until paid-in-full.
 
 On April
15, 2009, the Company issued a Promissory Note to Mark Daniels for $159,878.63
in consideration for unpaid salary and expenses accrued from April 1, 2008
through April 15, 2009.  The Promissory Note carries a term of 90 days
and an annual interest rate 12%.  In the event of non-payment in full
by the due-date of the Promissory Note, on the unpaid balance, the annual
interest rate increases to 18% and the note-holder shall receive additional
consideration of 100% annual stock coverage, pro-rated for time, with a share
reference price equal to a 50% discount to the 90-day trailing average price of
the Common Stock of the Company.
 
 On April
15, 2009, the Company issued a Promissory Note to Alexis Korybut for
$114,425.77in
consideration for unpaid salary and expenses accrued from April 1, 2008 through
April 15, 2009.  The Promissory Note carries a term of 90 days and an
annual interest rate 12%.  In the event of non-payment in full by the
due-date of the Promissory Note, on the unpaid balance, the annual interest rate
increases to 18% and the note-holder shall receive additional consideration of
100% annual stock coverage, pro-rated for time, with a share reference price
equal to a 50% discount to the 90-day trailing average price of the Common Stock
of the Company.
 
 On April
15, 2009, the Company issued a Promissory Note to Joint Strategy Group, Inc. for
$41,319.04in
consideration for unpaid consulting fees and expenses accrued from July 1, 2008
through April 15, 2009.  The Promissory Note carries a term of 90 days
and an annual interest rate 12%.  In the event of non-payment in full
by the due-date of the Promissory Note, on the unpaid balance, the annual
interest rate increases to 18% and the note-holder shall receive additional
consideration of 100% annual stock coverage, pro-rated for time, with a share
reference price equal to a 50% discount to the 90-day trailing average price of
the Common Stock of the Company.
 
 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 July,
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.  As a result of
such conversion agreement, on November 20, 2008, $9,954,287 of principle of and
accrued interest on outstanding Convertible Promissory Notes was converted to
497,714,345 shares of the Company’s Common Stock.
  24
 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 Daniel
 
 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 through April 16, 2008. 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 third quarter of
2008.  Notwithstanding the above, 52,500,000 of these shares were
duplicately issued in error and were cancelled on November 20, 2008 by the
Company’s transfer agent for retirement by tender to the transfer agent of a
lost share affidavit by the Mark Daniels Irrevocable Trust III.  The
shares were issued in consideration for Mr. Daniels executing a new employment
agreement with the Company and for accrued and unpaid salary. The Company issued
an aggregate amount of 121,975,720 restricted shares of Common Stock to Mark
Daniels Irrevocable Trust III in April, 2009.  The shares were issued
in consideration for accrued and unpaid salary and expenses owed to Mr. Daniels,
for his retirement of 4,000,000 Series A Preferred Shares including cancellation
of any accrued dividends, and for Mr. Daniels executing a new employment
agreement with the Company upon his assuming the role of Chief Executive
Officer. No registration rights were issued in connection with these
shares.
  25
 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 February, 2008 in consideration of Mr. Miller retiring his 2,400,000
Series A Preferred shares including any accrued dividends, which Preferred share
retirement occurred in April, 2009. No registration rights were issued in
connection with these shares.
 
 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.  The Company issued 1,000,000 restricted shares of Common
Stock to Mr. Lawrence Cusack in April, 2009, as consideration for unpaid salary
while serving as an employee of the Company in 2008.  No registration
rights were issued in connection with these shares.
 
 Issuance
of Common Stock to Peter Maffitt
 
 The
Company issued 500,000 restricted shares Common Stock to Peter Maffitt, a
Director of the Company, in the second 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 third quarter of 2008
as further compensation for acting as a Director of the Company. The Company
issued 1,000,000 restricted shares Common Stock to Peter Maffitt, a Director of
the Company, in April, 2009, as 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 second  quarter of 2008 as
compensation for acting as a Director of the Company. The Company issued an
additional 750,000 restricted shares of Common Stock to Charles DeAngelo in the
third quarter of 2008 as further compensation for acting as a Director of the
Company. The Company issued 1,000,000 restricted shares of Common Stock to
Charles DeAngelo, a Director of the Company, in April, 2009 as compensation for
acting as a Director of the Company. No registration rights were issued in
connection with these shares.
  26
 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 February, 2008 in consideration of Mark Daniels retiring his
4,000,000 Series A Preferred shares.  Notwithstanding the above, the
stock certificate representing the 4,000,000 shares of Common Stock was
cancelled on April 30, 2009.  No registration rights were issued in
connection with these shares.
 
 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 for consulting services in the third
quarter of 2007.  No registration rights were issued in connection
with these shares.
 
 Issuance
of Common Stock to Joint Strategy Group, Inc.
 
 The
Company issued 5,000,000 restricted shares of Common Stock to Joint Strategy
Group, Inc. 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. The Company issued 68,263,808 restricted shares of Common
Stock to Joint Strategy Group, Inc. in April, 2009, as consideration for unpaid
consulting fees accrued from July 1, 2008 through April 15, 2009, and as
consideration for a new consulting agreement with the Company. No registration
rights were issued in connection with these shares.
  27
 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 of Common Stock to Plumtree Capital
Management LLC in July, 2008 as compensation for accrued and unpaid consulting
fees and expenses to July, 2008. The Company issued82,885,154restricted shares of Common
Stock to Plumtree Capital Management LLC in April, 2009 as consideration for
unpaid salary and expenses accrued from July 1, 2008 through April 15, 2009, and
as consideration for a new employment agreement with the Company. 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  in the
third quarter of 2008 and 2,000,000 restricted shares of Common Stock in April,
2009, to M&A Advisors LLC 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 providing ongoing
consulting services to the Company. No registration rights were issued in
connection with these shares.
 
 Issuance
of Common Stock to Eurotrust Capital SPA
 
 The
Company issued to Eurotrust Capital SPA an aggregate of 4,500,000 restricted
shares of Common Stock in the third and fourth quarters 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 MBC Consulting LLC
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.
  28
 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.
 
 Issuance
of Common Stock to the Ticktin Law Group
 
 The
Company issued 3,000,000 restricted shares of Common Stock in the fourth quarter
of 2008 and 3,000,000 restricted shares of Common Stock in April, 2009, to the
Tictin Law Group as compensation for legal services. No registration rights were
issued in connection with these shares.
 
 Issuance
of Common Stock to Julius Astrada
 
 The
Company issued 1,000,000 restricted shares of Common Stock to Julius Astrada in
the fourth quarter of 2008 as compensation for marketing services. No
registration rights were issued in connection with these shares.
 
 Issuance
of Common Stock to Bradley Hacker
 
 The
Company issued 1,000,000 restricted shares of Common Stock to Bradley
Hacker in April, 2009 as compensation for fees associated with bookkeeping
services for the third and fourth quarters of 2008 and the first quarter of
2009. No registration rights were issued in connection with these
shares.
 
 Issuance
of Common Stock to Air Support Systems, LLC
 
 The
Company issued 100,000,000 restricted shares of Common Stock to Air Support
Systems, LLC in April, 2009 as consideration under the terms of an agreement
between Air Support Systems, LLC and the Company for the exclusive lease of its
ILyushin IL-78 aircraft. No registration rights were issued in connection with
these shares.
 
 Issuance
of Common Stock to Dakota Aviation Consultants, LLC
 
 The
Company issued 100,000,000 restricted shares of Common Stock to Dakota Aviation
Consultants, LLC in April, 2009 as consideration under the terms of a consulting
agreement between Dakota Aviation Consultants, LLC and the Company. No
registration rights were issued in connection with these shares.
 
 Issuance
of Common Stock to the Dakota Fears Trust
 
 The
Company issued 100,000,000 restricted shares of Common Stock to the Dakota Fears
Trust in April, 2009 as consideration under the terms of a Short-Term Loan
agreement between the Dakota Fears Trust and the Company. No registration rights
were issued in connection with these shares.
 
 Issuance
of Common Stock to the Gary Fears Trust
 
 The
Company issued 83,980,742 restricted shares of Common Stock to the Gary Fears
Trust in April, 2009, of which 30,000,000 shares were issued as consideration
for an investment of $300,000 in September of 2008, and 53,980,742 shares were
issued under the terms of a Short-Term Loan agreement between the Gary Fears
Trust and the Company. No registration rights were issued in connection with
these shares.
 
 29
 
 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:
  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 months ended March 31, 2008
and 2009 because their inclusion would have had been anti-dilutive.
 
 Issuance
of Series A Preferred Stock
 
 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
Federal Financial Partners, LLC.
 
 Retirement
of Series A Preferred Stock
 
 In April,
2009, the 6,400,000 shares of Series A Preferred Stock, of which 4,000,000
shares had been issued to Federal Financial Partners, LLC and 2,400,000 shares
had been issued to Victor Miller, were cancelled and retired, as per a
settlement agreement between Federal Financial Partners, LLC and Victor Miller,
and the Company in which Federal Financial Partners, LLC and Victor Miller each
receive 10,000,000 shares of Common Stock of the Company as consideration for
the retirement of their Series A Preferred Stock and cancellation of any accrued
and unpaid dividends owed to them.
 
 As of
April 30, 2009, there is no Series A Preferred Stock outstanding.
  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. All these notes were converted to
stock at various exercise price in November 2008.
  30
 Debentures
and Debenture Warrants as of December 31, 2008 consist of the
following:
  Year
      Ended
                                
                                Debentures
                                
                                
                                Debenture
                                  WarrantsTotal
      principal at December 31, 2007
                                
                                
                                5,314,912
                                
                                
                                $
                                25,274,054Accrued
      interest
                                
                                
                                1,712,761Unamortized
      debt discount
                                
                                
                                (2,076,820
                                )2008-Converted/Excercised
                                
                                
                                (4,950,853
                                )Net
      Carrying Value at December 31, 2008 and March 31, 2009
                                
                                $
                                4,950,853
 
 NOTE
6 - INCOME TAXES:
 
 There is
no provision for income taxes for the quarter ended March 31, 2009. The Company
has minimal net operating loss carry forwards for income tax purposes at March
31, 2009. 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 March
      31,2009Federal
      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.
 
 Effective
as of June 25, 2008, the Company filed an amendment to its Articles of
Incorporation (the “Amendment”) to increase the Company’s authorized capital
stock from 300,000,000 shares of Common Stock, par value $.001 per share only,
to 1,050,000,000 shares, par value $.001 per share, of which 1,000,000,000
shares are Common Stock and the remaining 50,000,000 shares are a newly created
class of “blank check” preferred stock.
  31
  Effective
as of April 24, 2009, the Company filed an amendment to its Articles of
Incorporation (the “Amendment”) to increase the Company’s authorized capital
stock from 1,050,000,000 shares of Common Stock, par value $.001 per share only,
to 3,050,000,000 shares, par value $.001 per share, of which 3,000,000,000
shares are Common Stock and the remaining 50,000,000 shares are a newly created
class of “blank check” 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”).
 
 Warrants
 
 At March
31, 2009 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
                              
                              
                              26,473,876
                              
                              
                              $
                              0.20Cancellation
      of warrants as per conversion of notes payable
                              
                              
                              (26,473,876
                              )Balance
      at December 31, 2008 and March 31, 2009
                              
                              
                              -0-
 
 NOTE
8 – COMMITMENTS:
 
 Compensation
Agreements
 
 On June
27, 2008, the Company entered into a consulting agreement with MBC Consulting,
LLC to provide financial support services. The term of the agreement is for one
year. The agreement provides for a total fee of 7,000,000 restricted shares of
the Company’s Common Stock.  No registration rights were
granted
  32
  Pursuant
to an employment agreement dated November, 2008, the Company hired David Perin,
as the Company’s Chief Technology Officer and Facilities Officer at an annual
salary of $60,000.  The agreement was for a period of one year. In
addition, Mr. Perin was to be vested with 6,000,000 restricted shares of the
Company’s Common Stock over a two-year period, which shares he has not been
issued.  However, Mr. Perin was terminated by the Company’s Board
of Directors in all capacities on April 14, 2009, and the Company believes that
no further compensation is due to Mr. Perin.
 
 Pursuant
to an employment agreement dated February, 2009, the Company hired James O’Brien
as the Company’s interim Chief Executive Officer at an annual salary of
$120,000. The agreement was for a period of one year. In addition, Mr. O’Brien
was to be vested with 6,000,000 restricted shares of the Company’s Common
Stock and was to receive an additional 6,000,000 restricted shares of the
Company’s Common Stock, which shares have not been issued to Mr.
O’Brien.  Mr. O’Brien was terminated by the Company’s Board of
Directors in all capacities on April 14, 2009, and the Company believes that no
further compensation is due to Mr.  O’Brien.
 
 On April
15, 2009, the Company entered into an employment agreement with Mark Daniels as
Chief Executive Officer of the Company.  The term of the agreement is
for one year, and provides for an annual salary of $160,000 and a signing fee of
80,000,000 restricted shares of the Company’s Common Stock.  The
agreement also provides for participation by Mr. Daniels in the management bonus
pool.
  On April
15, 2009, the Company entered into an employment agreement with Alexis Korybut
as Vice President of the Company.  The term of the agreement is for
one year, and provides for an annual salary of $120,000 and a signing fee of
60,000,000 restricted shares of the Company’s Common Stock.  The
agreement also provides for participation by Mr. Korybut in the management bonus
pool.
 
 On April
15, 2009, the Company entered into a consulting agreement with Joint Strategy
Group, LLC to provide consulting services to the Company.  The term of
the agreement is for one year, and provides for a monthly fee of $5,000 and a
signing fee of 60,000,000 restricted shares of the Company’s Common
Stock.  The agreement also provides for participation by Joint
Strategy Group, LLC in the management bonus pool.
  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.
  33
  Lease
Agreement
 
 On April
15, 2009, the Company signed a lease agreement with Air Support Systems, LLC.
for the exclusive use of its ILyushin IL-78 aerial refueling and fire-fighting
aircraft. The agreement with Air Support Systems, LLC is for an initial
three-year term, renewable for two subsequent three-year terms.
 
 Lien
Agreement
  The Company has granted a lien to the
holder of the Short-Term Loans on the receivables payable to the Company by the
AETC for fulfillment of the BAF Contract.  The lien holder has agreed
to reloan to the Company 50% of the funds repaid to it from the AETC
receivables.
 
 
 NOTE
9 - OTHER EVENTS:
 
 Departures
of Directors or Principal Officers; Elections of Directors; Appointments of
Principal Officers
 
 ●
                On
      January 8, 2007, Fred Daniels and Victor Miller were appointed to serve as
      a Director of the Company, joining Mark Daniels on the
    Board.●
                On
      August 3, 2007 Mark Daniels, a Director and Officer of the Company and
      Victor Miller, a Director and Officer of the Company each resigned from
      all positions with the Company, leaving Fred Daniels as the sole Director
      of the Company.●
                On
      August 3, 2007, Donald Goldstein was appointed as a Director of the
      Company by Fred Daniels, joining Fred Daniels on the Board of
      Directors.  Additionally, John Farley, our Vice President at the
      time, was also appointed  Principal Accounting
      Officer.●
                On
      August 17, 2007 John Farley, an Officer of TADS, resigned from all
      positions with the Company.●
                On
      August 17, 2007, Alexis Korybut was appointed as a Director of the
      Company, joining Donald Goldstein and Fred Daniels on the Board of
      Directors of TADS. Additionally, Korybut was also appointed as President,
      Chief Executive Officer, and Principal Accounting Officer of the
      Company.●
                On
      December 7, 2007 Donald Goldstein a Director of the Company, resigned from
      all positions with the Company, leaving Fred Daniels and Alexis Korybut as
      the two remaining Directors.●
                On
      March 4, 2008, to fill the vacancy left by the resignation of Donald
      Goldstein, Peter Maffitt was appointed to serve as a Director by the
      majority of the Series A Preferred shares, which appointment was ratified
      by Alexis Korybut and Fred Daniels, the 2 remaining
      Directors.  Peter Maffitt joined Fred Daniels and Alexis Korybut
      on the Board of Directors;●
                On
      March 4, 2008, Alexis Korybut resigned as President, Chief Executive
      Officer, Principal Accounting Officer, and Director, leaving Fred Daniels
      and Peter Maffitt as the 2 remaining members of the Board of
      Directors;●
                On
      March 4, 2008, Fred Daniels and Peter Maffitt appointed Michael Cariello
      as President and Chief Executive Officer of the Company, and appointed
      Fred Daniels as Secretary and
Treasurer;
 
 34
 
 ●
                On
      March 7, 2008, the Board of Directors accepted the resignation of Fred
      Daniels as Secretary and Treasurer, and appointed Peter Maffitt as
      Secretary and Treasurer;●
                On
      March 15, 2008, the Board of Directors of the Company accepted the
      resignation of Michael Cariello as President and Chief Executive Officer,
      and appointed Mark Daniels as President,  Chief Executive
      Officer, and Principle Accounting Officer;●
                On
      April 14, 2008, Charles Deangelo was appointed by Fred Daniels and Peter
      Maffitt, the two remaining members of the Board of Directors, as the third
      Director, thereby filling the vacancy left by the departure of Alexis
      Korybut.  Charles Deangelo joined Peter Maffitt and Fred Daniels
      on the Board of Directors;●
                On
      April 16, 2008, the Board of Directors accepted the resignation of Fred
      Daniels as Director, and appointed Mark Daniels to the vacancy created by
      the departure of Fred Daniels, where he joined Peter Maffitt and Charles
      Deangelo on the Board of Directors;●
                On
      February 4, 2009, Mark Daniels resigned as Chief Executive Officer of the
      Company, but continues to serve as Director along with Peter Maffitt and
      Charles Deangelo;●
                On
      February 4, 2009, James O’Brien was appointed interim Chief Executive
      Officer, Secretary, and Principle Accounting Officer of the
      Company.●
                On
      April 14, 2009, Mr. Obrien was terminated from all capacities with the
      Company.●
                On
      April 14, 2009, Mr. Mark Daniels was appointed as Chief Executive Officer,
      Secretary, and Principle Accounting Officer of the
  Company.
 
 Amendment
to Articles of Incorporation
 
 On June
25, 2008, the Company, pursuant to a resolution adopted by its Board of
Directors, 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.
 
 Submission of Matters to a Vote of
Security Holders
  On
December 4, 2008, the Company filed a Form 14A Proxy Statement and sent same to
all shareholders of record as of November 24, 2008, which required a vote of
security holders at the Annual Meeting of Shareholders held on December 28, 2008
at the executive offices of the Company, in connection with:
 
 (1)
                To
      elect the Company's Board of Directors to hold office until the Company's
      Annual Meeting of Stockholders in 2009 or until their respective successor
      is duly elected and qualified; and(2)
                To
      ratify the appointment of Lawrence Scharfman & Co., CPA P.A. as the
      Company's independent certified public accountant; and(3)
                To
      increase the Company’s authorized shares from one billion shares to three
      billion shares and to enact a one for ten reverse stock split;
      and(4)
                To
      ratify the name change from Tactical Air Defense Services, Inc. to
      AeroGroup Incorporated, to be effective as of the filing of an amendment
      to the Company's Articles of Incorporation with the Nevada Secretary of
      State; and(5)
                To
      transact such other business as may properly come before the Annual
      Meeting and any adjournment
thereof.
  35
  All items
proposed by the Company were approved by a majority of the shareholders of
the Company.
 
 Increase
in Authorized Shares
 
 Pursuant to a vote of the shareholders
of the Company, on April 24, 2009, the authorized number of shares of Common
Stock of the Company was increased from 1,000,000,000 to
3,000,000,000.  The authorized number of shares of the Company’s
Series A Preferred shares remained at 50,000,000.
 
 Share Retirement
  In 2007,
the Company conditionally placed into escrow 45,000,000 shares of its
Common Stock in the name of International Tactical Training Center, Inc., in
contemplation of a proposed joint venture and funding commitment.  Because
no funding commitment nor definitive transaction documents that require such a
pledge were entered into by the Company, and because the commitments pledged by
the other parties were not executed, the Company and International Tactical
Training Center, Inc., entered into a settlement agreement on April 15, 2009
whereby the 45,000,000 shares of Common Stock issued in the name of
International Tactical Training Center, Inc. were cancelled and
retired.
  36
 
 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-K for the year ended December 31, 2008
filed with the Securities and Exchange Commission on April 15, 2009. 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, maintenance training, 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.
  37
  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.
 
 Plan
of Operation
 THREE
MONTHS ENDED MARCH 31, 2009
 COMPARED
TO THREE MONTHS ENDED MARCH 31, 2008
 
 There was
no revenue or operating costs for the three months ended March 31, 2009. For the
same three months ended March 31, 2008 the Company had no revenue and
had  no operating costs for either period.
 
 Selling,
general and administrative expenses decreased from $679.524 for the three month
period ended March 31, 2009 to $114,126 for the three month period ended March
31, 2009 due to costs in 2008 issued for consulting and professional services
via issuance of Common Stock.
 
 Other
income (expenses) for the three month period ended March 31, 2009 decreased to
none from $330,000 for the three month period ended March 31, 2008. The change
was due to less interest expense for loans that were either converted or
cancelled in the current period.
 
 Net loss
decreased from $1,010,024 for the nine three month period ended March 31, 2008
to $114,126 for the three month period ended March 31, 2009, due to the above
analysis of Income and Expenses.
 
 Current
Assets
 
 Cash
decreased from $23,156 at December 31, 2008 to $5,501 at March 31, 2009,
primarily as a result of decreases in payables and accruals in the current
period.
 
 Total
assets decreased from $361,156 at December 31, 2008 to $345,501 at March 31,
2009, primarily as a result of the decrease in cash discussed
above.
 
 Current
liabilities increased from $986,120 at December 31, 2008 to $1,082,591 at March
31, 2009, due to increase in short term debentures with related parties in the
current year.
 
 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.
  38
  We have
funded our operations and met our capital expenditures requirements primarily
from the issuance of Common Stock, 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.
  ITEM
4.  CONTROLS AND PROCEDURES
  Evaluation of Disclosure
Controls and Procedures.
 
 Our principal
executive officer and our principal financial officer evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures as such term is defined under Rule 13a-15(e) promulgated under
the Securities Exchange Act of 1934, as amended (Exchange Act), as of the last
day of the fiscal period covered by this report, March 31, 2009. The term
disclosure controls and procedures means our controls and other procedures that
are designed to ensure that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the SEC’s rules
and forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be
disclosed by us in the reports that we file or submit under the Exchange Act is
accumulated and communicated to management, including our principal executive
and principal financial officer, or persons performing similar functions, as
appropriate to allow timely decisions regarding required
disclosure.
 
 The
Company and its newly appointed independent registered public accounting
firm identified certain significant internal control deficiencies during their
financial review for the three months ended March 31, 2009. We considered these
weakness, in the aggregate, to be a material weakness. The primary concerns were
a) the employment agreements which were entered into by our company
with two of our officers during the year ended December 31, 2008; and
which we were required to accrue for both compensation and related payroll
taxes for these two officers, and for which we did not properly accrue
for such expenditures for the year ended December 31, 2008; b) the convertible
promissory notes agreements which were entered into by us with two related
parties during the year ended December 31, 2008; and which we were
required to account for the beneficial conversion features of the promissory
notes consistent with the agreements, and for which we did not
properly account for such beneficial conversion features for the year ended
December 31, 2008. Management intends to rectify these
deficiencies.
 
 Management,
at this time, believe these concerns will have a material impact on the
financials presented herein and therefore have presented an un-audited restated
balance sheet for the year ended December 31, 2008 and which is presented in
greater detail in Note 2 of the financial statements. Management
plans review all financial disclosures in the Form 10-K for the for
the year ended December 31, 2008 and may determine to restate the Form
10-K.  If such restatement is required, the Company will publish a Form 8-K
regarding any restatement and file amended financial statements. Based on
that evaluation, our principal executive officer and our principal financial
officer have concluded that our disclosure controls and procedures as of
December 31, 2008 and March 31, 2009 may not be effective due to possible
material weakness in our internal controls over financial reporting described
below, and other factors related to the Company’s financial reporting processes.
Management, at this time, believe these concerns will not have a material impact
on the financial statements presented herein as these financial statements are
adjusted for the prospective revisions needed in the Form 10-K for the period
ended December 31, 2008.   The Company is in the process of evaluating the
internal controls and procedures to ensure that the internal controls and
procedures satisfy the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control — Integrated
Framework.
  39
  Our
principal executive officer and our principal financial officer, are responsible
for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Exchange Act Rules 13a-15(f).
Management is required to base its assessment of the effectiveness of our
internal control over financial reporting on a suitable, recognized control
framework, such as the framework developed by the Committee of Sponsoring
Organizations (COSO). The COSO framework, published in Internal Control-Integrated
Framework, is known as the COSO Report. Our principal executive officer
and our principal financial officer, have has chosen the COSO framework on which
to base its assessment.
 
 Management’s
report was not subject to attestation by our registered public accounting firm
pursuant to temporary rules of the Securities and Exchange Commission that
permit us to provide only management’s report in our quarterly reports on Form
10-Q for the period for the three months ended March 31, 2009.
 
 It should
be noted that any system of controls, however well designed and operated, can
provide only reasonable and not absolute assurance that the objectives of the
system are met. In addition, the design of any control system is based in part
upon certain assumptions about the likelihood of certain events. Because of
these and other inherent limitations of control systems, there can be no
assurance that any design will succeed in achieving its stated goals under all
potential future conditions, regardless of how remote.
 
 Changes
in Internal Control Over Financial Reporting
 
 There
were no changes in our internal control over financial reporting, as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently
completed fiscal quarter that have materially affected, or are reasonably likely
to materially affect, our internal control over financial
reporting.
 
 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
  40
  PART
II - OTHER INFORMATION
  Item
1. Legal Proceedings
 
 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.
 
 As of
April 30, 2009, 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.
  41
  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.
  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.
  42
  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.
  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.
  43
  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.
  44
  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.  DEFAULTS UPON SENIOR SECURITIES
  There
were no defaults upon senior securities during the period ended March 31,
2009.
  ITEM
3.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
 There
were no matters submitted to the vote of securities holders during the period
ended March 31, 2009.
  ITEM
4.  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.
  45
  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.May
      20, 2009By:
                      /s/
      Mark DanielsName:
      Mark DanielsTitle:
      President and Chairman (Principal
                        Executive
      and Principal AccountingOfficer)
   46