U.
S. SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON,
D.C.  20549
 
 FORM
10-Q
 
 
 [X]
              QUARTERLY
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 
 For
the quarterly period ended June 30, 2010
 
 [  ]
              TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 
 For
the transition period from ___________ to _____________
 
 
 Commission
File Number: 000-29735
 
 TACTICAL
AIR DEFENSE SERVICES, INC.
 
 Nevada
              
              
              
              88-0455809(State
      or other jurisdiction
              
              
              
              (IRS
      Employerof
      Incorporation)
              
              
              
              Identification
      Number)123
      West Nye Lane, Suite 517Carson
      City, Nevada 89706(Address
      of principal executive offices)(775)
      888-6744(Issuer’s
      Telephone Number)
 
 
 Indicate
by check mark whether the registrant (1) filed all reports required to be
filed by Section 13 or 15(d) of the 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, a non-accelerated filer, or a small reporting
company.
 
 Large
accelerated filer ___        Accelerated
filer
___             Non-accelerated
filer
___            Smaller
reporting company X
 
 Indicate
by a check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act.     Yes _ No X
 
 APPLICABLE
ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
 PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
 
 Check
whether the registrant filed all documents and reports required to be filed by
Section 12, 13, or 15(d) of the Exchange Act of 1934 after the distribution of
securities under a plan confirmed by a court. Yes ___  No
____
 
 APPLICABLE
ONLY TO CORPORATE ISSUERS
 
 State the
number of shares outstanding of each of the issuer’s classes of common equity,
as of the latest practicable date:
 
 1,960,366,397common shares outstanding, $0.001 par value, as of August 23,
2010
 
 
 
 
 
 
  
 TABLE
      OF CONTENTSPageForward
      Looking Statements
                iiPART
      I - FINANCIAL INFORMATION
                F-1Item
      1. - Financial Statements
                F-1Consolidated
      Balance Sheets as of  June 30, 2010 (unaudited) and December 31,
      2009
                F-1Consolidated
      Statements of Operations for the Three and Six Months Ended June 30, 2010
      and 2009 and from Inception January 15, 2008 through June 30, 2010
      (unaudited)
                F-2Consolidated
      Statements of Cash Flows for the Three and Six Months Ended June 30, 2010
      and 2009 and from Inception January 15, 2008 through June 30, 2010
      (unaudited)
                F-3Notes
      to Unaudited Consolidated Financial Statements
                F-4Item
      2 – Management's Discussion and Analysis of Financial Condition and
      Results of Operations
                1Item
      3 – Quantitative and Qualitative Disclosures about Market
    Risk
                10Item
      4 - Controls and Procedures
                10PART
      II - OTHER INFORMATIONItem
      1 -   Legal Proceedings
                10Item
      1A – Risk Factors
                12Item
      2 – Unregistered Sales of Equity Securities and Use of
      Proceeds
                12Item
      3 - Defaults Upon Senior Securities
                14Item
      4 - Submission of Matters to a Vote of Security Holders
                14Item
      5 - Other Information
                14Item
      6 – Exhibits
                14Signatures
                15
    i
  
 
 Forward
Looking Statements
 
 Certain
information contained in this Quarterly Report on Form 10-Q (this “Report” or
“Quarterly Report”) includes forward-looking statements within the meaning of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, (the “Exchange Act”).  These
statements are expressed in good faith and based upon what we believe are
reasonable assumptions, but there can be no assurance that these expectations
will be achieved or accomplished.  These forward looking statements
can be identified by the use of terms and phrases such as “believe,” “plan,”
“intend,” “anticipate,” “target,” “estimate,” “expect,” and the like, and/or
future-tense or conditional constructions (“will,” “may,” “could,” “should,”
etc.).
 
 The
statements herein which are not historical reflect our current expectations and
projections about the Company’s future results, performance, liquidity,
financial condition, prospects and opportunities and are based upon information
currently available to the Company and management and their interpretation of
what are believed to be significant factors affecting the businesses, including
many assumptions regarding future events.
 
 Readers
are urged not to place undue reliance on these forward-looking statements, which
speak only as of the date of this Report.  We assume no obligation to
update any forward-looking statements in order to reflect any event or
circumstance that may arise after the filing date of this Quarterly Report,
other than as may be required by applicable law or
regulation.  Readers are urged to carefully review and consider the
various disclosures made by us in our reports filed with the SEC (which shall
also include by reference herein and incorporate the same as if fully included
in their entirety, all Form 10-Ks, Form 10-Qs, Form 8-Ks and other periodic
reports filed by us in the SEC’s EDGAR filing system (www.sec.gov)) which
attempt to update interested parties of the risks and factors and other
disclosures that may affect our business, financial condition, results of
operation and cash flows.
 
 Our
actual results could differ materially from those anticipated in these
forward-looking statements as a result of various factors, including those set
forth in this Quarterly Report.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 ii
 
 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 June 30,
2010 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2010
 
 
 
 TACTICAL
      AIR DEFENSE SERVICES, INC. AND SUBSIDIARIESCONSOLIDATED
      BALANCE SHEETSJune
      30
              
              December
      31,2010
              
              2009ASSETSCurrent
      Assets:Cash
              $                           -
              
              $                        -Accounts
      Receivable-Net of Allowance for Doubtful Accounts
              -
              
              -Total
      Current Assets
              -
              
              -Property
      and Equipment, net
              88,000
              
              88,000TOTAL
      ASSETS
              $                   88,000
              
              $                88,000LIABILITIES AND STOCKHOLDERS'
      EQUITYCurrent
      Liabilities:Accounts
      payable
              $                   27,787
              
              $                18,378Short-Term
      Debentures, including accrued interest
              1,539,177
              
              1,431,813Total
      Current Liabilities
              1,566,964
              
              1,450,191TOTAL
      LIABILITIES
              1,566,964
              
              1,450,191COMMITMENTS
      AND CONTINGENCIESSTOCKHOLDERS'
      DEFICIENCY:Preferred
      stock-$.001 par value; 50,000,000 shares authorized; --0-
      shares issued and outstanding
              --
              
              --Common
      stock-$.001 par value;30,000,000,000 shares authorized; -1,718,965,552
      and 1,399,809,286  shares issued and outstandingat
      June 30, 2010 and December 31, 2009 , respectively
              1,718,966
              
              1,428,730Additional
      paid-in-capital
              35,864,312
              
              35,733,183Accumulated
      deficit
              (39,062,242)
              
              (38,524,104)TOTAL
      STOCKHOLDERS' DEFICIENCY
              (1,478,964)
              
              (1,362,191)TOTAL
      LIABILITIES AND STOCKHOLDERS' DEFICIENCY
              $                   88,000
              
              $                88,000The
      accompanying notes are an integral part of these financial
      statements
 
 
 
 
 F-1
  
 
 TACTICAL
      AIR DEFENSE SERVICES, INC. AND SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF OPERATIONSThree
      Months Ended
              Six
      Months EndedJune
      30
              June
      30
              June
      30
              June
      302010
              2009
              2010
              2009REVENUES
              $
              
              $
              $Operating
      costsGeneral
      and administrative, including compensatory element of stock issuance of
      $421,370 for the six months ended June 30, 2010
              368,571
              277,152
              477,627
              391,278TOTAL
      COSTS
              368,571
              277,152
              477,627
              391,278OPERATING
      LOSS
              (368,571)
              (277,152)
              (477,627)
              (391,278)OTHER
      (EXPENSE) INCOME:Interest
      expense
              (28,506)
              (10,000)
              (60,516)
              (10,000)OtherTOTAL
      OTHER EXPENSES
              (28,506)
              (10,000)
              (60,516)
              (10,000)NET
      LOSS
              $         (397,077)
              $   (287,152)
              $       (538,143)
              $   (401,278)Preferred
      stock dividendNET
      LOSS APPLICABLE TO COMMON STOCKHOLDERS
              $       (397,077)
              $   (287,152)
              $       (538,143)
              $   (401,278)Loss
      per common share - basic and diluted
              $             (0.00)
              $          (0.00)
              $             (0.00)
              $          (0.00)Weighted
      average number of shares outstanding - basic and diluted
              1,718,855,298
              1,288,309,286
              1,548,431,721
              1,071,756,571The
      accompanying notes are an integral part of these financial
      statements
 
 
 
 
 
 
 
 
 F-2
 
 TACTICAL
      AIR DEFENSE SERVICES, INC. AND SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF CASH FLOWSJune
      30,
              
              June
      30,2010
              
              2009CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      (loss)
              
              $
              (538,143)
              
              $                                       (401,278)Adjustments
      to reconcile net loss to net cash used in operating
      activities:Bad
      Debt Reserve
              
              
              -
              
              250,000Stock-based
      compensation
              
              
              421,370
              
              176,668Changes
      in operating assets and liabilities:
              
              
              -Accounts
      payable
              
              
              9,409
              
              (265,488)Accrued
      liabilities
              
              
              (107,364)
              
              (240,098)Net
      Cash Used in Operating ActivitiesCASH
      USED IN INVESTING ACTIVITIES
              
              
              -
              
              -Net
      Cash Used in Investing ActivitiesCASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from Related Parties
              
              
              
              
              25,000Proceeds
      from convertible debentures
              
              
              107,364
              
              191,959Net
      Cash Provided by Financing Activities
              
              
              107,364
              
              216,959Increase
      (Decrease) in cash
              
              
              -
              
              (23,139)Cash
      - Beginning of period
              
              
              -
              
              23,156Cash
      - End of period
              
              $
              -
              
              17Interest
      paid
              
              $
              -
              
              $                                                      -Taxes
      paid
              
              $
              -
              
              $                                                      -The
      accompanying notes are an integral part of these financial
      statements
 
 
 
 
 
 
         
 F-3
 
 
 TACTICAL
AIR DEFENSE SERVICES, INC.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 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, and specialty aerial services to the U.S. and Foreign Militaries and
other Federal and State Agencies. TADS is certified by the United States
Government as a private-sector military contractor and has been granted the
required security clearances.
 
 TADS was
incorporated in the State of Nevada on July 9, 1998 under the name Natalma
Industries, Inc. Originally, TADS operated as a junior mining company engaged in
the exploration of mining properties. We were unsuccessful in locating a joint
venture partner to assist us in the development of our mining claims. As a
result, TADS was unable to pay for and perform the exploration and development
required in its agreement with the owners of its properties and lost our rights
to the mining claims. Our management at the time, therefore determined that it
was in the best interest of our shareholders that we seek potential operating
businesses and business opportunities with the intent to acquire or merge with
another business, which led to the purchase substantially all of the assets of
AeroGroup Incorporated (the “AeroGroup Acquisition”).
 
 On
December 15, 2006 (the “Closing Date”), TADS and three of its wholly-owned
subsidiaries, Resource Financial Aviation Holdings Inc., OneSource Aviation
Acquisition Inc. and Genesis Aviation Acquisition Inc., each a Nevada
corporation (the “TADS Subsidiaries” and, collectively with TADS,”) acquired
substantially all of the assets of AeroGroup Incorporated (“Aero or AeroGroup”),
a Utah corporation, and its three wholly owned subsidiaries, OneSource
Acquisition, Inc., Genesis Acquisition, Inc. and Resource Financial Holding
Acquisition, Inc., each a Delaware corporation (the “AeroGroup Subsidiaries”
and, collectively with AeroGroup Incorporated, “AeroGroup”), pursuant to an
Asset Purchase Agreement dated July 14, 2006, as amended (the “Asset Purchase
Agreement”) and in consideration of the acquisition issued stock and assumed
certain indebtedness and other obligations under various warrants, a real
property sublease, government and non-government aviation contracts and certain
other contracts of AeroGroup (the “AeroGroup Acquisition”). As a result of the
asset purchase, the Company intends to be a provider of outsourced military
fighter jet pilot training to military personnel, including certain flight
support services.
 
 Since the
AeroGroup Acquisition was settled through the issuance of a controlling interest
in TADS Common Stock, AeroGroup is deemed to be the acquirer for accounting
purposes. Furthermore, since TADS is deemed to be a shell company prior to the
acquisition, purchase accounting was not applied. Therefore, the transaction was
accounted for as a reverse acquisition and recapitalization of AeroGroup.
Accordingly, the historical financial statements presented in the financial
statements are those of AeroGroup as adjusted to reflect the recapitalization
and elimination of certain assets and liabilities that were not assumed by TADS.
The net liabilities not assumed by TADS were recorded as a contribution to
capital totaling $4,505,560. These liabilities substantially consisted of
indebtedness due to Aero’s controlling stockholder, Mark Daniels
(“Daniels”).
 
 The
accompanying share information for Aero has been retroactively restated to
reflect the recapitalization transactions, including the exchange of Common
Stock and Common Stock equivalents of Aero for Common Stock and Common Stock
equivalents of TADS based on the exchange ratio of 50 to 1.
 
 In
connection with the reverse acquisition, the consideration paid to Aero Group
for the assets consisted of:
 
 -
              14,989,900
      shares of restricted Common Stock of TADS, constituting a majority of the
      then outstanding Common Stock of
TADS.
 -
              Assumption
      by TADS of Aero’s obligations under its convertible debentures totaling
      approximately $5.6 million, inclusive of accrued interest, all convertible
      into shares of TADS Common Stock at prices ranging $0.15 to $1.00 per
      share.
 -
              Assumption
      by TADS of Aero’s obligation under a convertible note issued in connection
      with a settlement agreement in the principal amount of $250,000, with an
      interest rate of 12%, payable in 36 equal monthly installments of
      principal, plus interest. The note has a maturity date of April 13, 2011.
      The note is convertible into shares of Common Stock at a rate of $.50 per
      share.
 -
              Assumption
      by TADS of Aero’s obligation under an assumed secured note payable to
      Daniels in the principal amount of $1,100,000, plus interest, at the rate
      of 12% per annum. The outstanding principal and interest is convertible
      into shares of TADS Common Stock at a conversion price of $.0.50 per
      share.
 -
              Assumption
      by TADS of Aero’s' obligation under a note assumed by the Company in
      connection with its June 2006 asset purchase (Note 5) in the principal
      amount of $2.2 million, plus interest at the rate of 8% per annum. The
      outstanding principal and interest is convertible into shares of TADS
      Common Stock at a conversion price of $0.50 per
  share.
 -
              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.
 
   F-4
  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.
 
 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 June 30, 2010 of approximately $39,062,000.
 
 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 2010. 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 2007-2009, 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
 
 BASIS OF
PRESENTATION
 
 In the
opinion of management, the accompanying audited 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 for the
quarter ended June 30, 2010. 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.
 
 Financial
Reporting
 
 The
Company prepares its financial statements in conformity with accounting
principles generally accepted in the United States of America. Revenues and
expenses are reported on the accrual basis, which means that income is
recognized as it is earned and expenses are recognized as they are
incurred.
   F-5
 
 Use
of Estimates
 
 The
Company’s significant estimates include allowance for doubtful accounts and
accrued expenses. These estimates and assumptions affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. While the Company
believes that such estimates are fair when considered in conjunction with the
financial statements taken as a whole, the actual amounts of such estimates,
when known, will vary from these estimates. If actual results significantly
differ from the Company’s estimates, the Company’s financial condition and
results of operations could be materially impacted.
 
 Cash
and Cash Equivalents
 
 Cash and
cash equivalents include all interest-bearing deposits or investments with
maturities of three and nine months or less.
 
 CONCENTRATION
OF CREDIT RISK
 
 Financial
instruments that potentially subject the Company to concentrations of
credit risk consist principally of cash. The
Company maintains cash balances at one financial
institution, which is insured by the Federal Deposit Insurance Corporation
(“FDIC”). The FDIC insured institution insures up to $250,000 on account
balances. The amounts that are not insured by FDIC limitations are held in
short-term securities.
 
 Fair
value of financial instruments
 
 The
carrying amounts reported in the balance sheet for cash, accounts receivable,
accounts payable and accrued expenses, debenture and loans payable approximate
their fair market value based on the short-term maturity of these
instruments.
 
 Accounts
Receivable
 
 The
Company extends credit to its customers in the normal course of business.
Further, the Company regularly reviews outstanding receivables, and provides
estimated losses through an allowance for doubtful accounts. In evaluating the
level of established loss reserves, the Company makes judgments regarding its
customers’ ability to make required payments, economic events and other factors.
As the financial condition of these parties change, circumstances develop or
additional information becomes available, adjustments to the allowance for
doubtful accounts may be required. The Company maintains reserves for potential
credit losses, and such losses traditionally have been within its
expectations.
 
 IMPAIRMENT
OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
 
 The
Company accounts for the impairment of long-lived assets in accordance with
Statement of Financial Accounting Standards No. 144, “Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of”
(“SFAS No. 144”). SFAS No. 144 requires write-downs to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets’ carrying amount.
 
 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.
   F-6
 
 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.
 
 REVENUE
RECOGNITION
 
 Revenue
for services and goods is recognized monthly as provided pursuant to the terms
of contracts or purchase orders, which have prices that are fixed and
determinable. The Company assesses the client’s ability to meet the contract
terms, including meeting payment obligations, before entering into the contract.
Deferred revenue results from customers who are billed for monitoring in advance
of the period in which the services are provided, on a monthly, quarterly or
annual basis.
 
 The
Company follows Staff Accounting Bulletin 104 (SAB 104), which requires the
Company to defer certain revenue and expenses. The capitalized costs and
deferred revenues related to the installation are then amortized over the life
of an average customer relationship, on a straight line basis. If the customer
is discontinued prior to the expiration of the original expected life, the
unamortized portion of the deferred installation revenue and related capitalized
costs are recognized in the period the discontinuation becomes effective. In
accordance with EITF 00-21, “Revenue Arrangements with Multiple Deliverables”,
the service contracts that include both installation and video streaming are
considered a single unit of accounting.
 
 PROPERTY
AND EQUIPMENT
 
 Property
and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets.
Expenditures for major betterments and additions are capitalized
while replacement, maintenance and repairs, which do not extend the lives
of the respective assets, are currently charged to expense. Any gain
or loss on disposition of assets is recognized currently in the statement
of income.
 
 FAIR
VALUE OF FINANCIAL INSTRUMENTS
 
 The
Company's financial instruments consist primarily of cash, accounts payable and
accrued expenses, and debt. The carrying amounts of such financial instruments
approximate their respective estimated fair value due to the short-term
maturities and approximate market interest rates of these instruments. The
estimated fair value is not necessarily indicative of the amounts the Company
would realize in a current market exchange or from future earnings or
cash flows.
 
 INCOME
TAXES
 
 The
Company adopted Financial Accounting Standards Board (“FASB”) Interpretation No.
(FIN) 48, “Accounting for Uncertainty in Income Taxes.” FIN 48 clarifies the
accounting for uncertainty in income taxes recognized in financial statements in
accordance with SFAS No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return. FIN 48 requires that the Company determine whether the benefits of
the Company’s tax positions are more likely than not of being sustained upon
audit based on the technical merits of the tax position. The provisions of FIN
48 also provide guidance on de-recognition, classification, interest and
penalties, accounting in interim periods, and disclosure. The Company did not
have any unrecognized tax benefits and there was no effect on the financial
condition or results of operations as a result of implementing FIN 48. The
Company does not have any interest and penalties in the statement of operations
for the years ended December 31, 2009 and quarter ended June 30,
2010.
   F-7
 
 EARNINGS
(LOSS) PER SHARE
 
 Earnings
(loss) per share is computed in accordance with SFAS No. 128, "Earnings per
Share". Basic earnings (loss) per share is computed by dividing net income
(loss), after deducting preferred stock dividends accumulated during the period,
by the weighted-average number of shares of common stock outstanding during each
period. Diluted earnings per share is computed by dividing net income by the
weighted-average number of shares of common stock, common stock equivalents and
other potentially dilutive securities outstanding during the period. The
outstanding warrants for the quarters ended June 30, 2010 and 2009 respectively
are anti-dilutive and therefore are not included in earnings (loss) per
share.
 
 ACCOUNTING
FOR STOCK-BASED COMPENSATION
 
 The
Company adopted SFAS No. 123R, "Accounting for Stock-Based Compensation". This
statement requires a public entity to measure the cost of employee services
received in exchange for an award of equity instruments based on the grant-date
fair value of the award (with limited exceptions). That cost will be recognized
over the period during which an employee is required to provide
service.
 
 In
addition, a public entity is required to measure the cost of employee services
received in exchange for an award of liability instruments based on its current
fair value. The fair value of that award has been re-measured subsequently at
each reporting date through the settlement date. Changes in fair value during
the requisite service period will be recognized as compensation cost over that
period.
 
 For the
quarters ended June 30, 2010 and 2009, the Company did not grant any stock
options.
 
 NON-EMPLOYEE
STOCK BASED COMPENSATION
 
 The cost
of stock based compensation awards issued to non-employees for services are
recorded 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 Emerging Issues Task Force
Issue (“EITF”) 96-18, “Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services” (“EITF 96-18”).
 
 COMMON
STOCK PURCHASE WARRANTS
 
 The
Company accounts for common stock purchase warrants in accordance with the
provisions of Emerging Issues Task Force Issue (“EITF”) issue No. 00-19
“Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Company’s Own Stock” (“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), or (ii) give the counterparty a choice of net-cash
settlement or settlement in shares (physical settlement or net-share
settlement).
 
 INCOME
TAXES
 
 The
Company accounts for income taxes using SFAS No. 109, "Accounting for Income
Taxes," which requires recognition of deferred tax liabilities and assets for
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference between the
financial statement and tax bases of assets
and liabilities using enacted tax rates in effect for the
year in which the differences are expected to reverse. A
valuation allowance is recorded for deferred tax assets if it is more
likely than not that some portion or all of the deferred tax
assets will not be realized. Beginning after December 15, 2006. The Company does
not expect that this interpretation will have a material impact on its financial
position, results of operations, or cash flows.
   F-8
 
 In May
2007, the FASB issued FASB Staff Position No. FIN 48-1,Definition of Settlement in FASB
Interpretation No. 48 (“the FSP”). The FSP provides guidance about
how an enterprise should determine whether a tax position is effectively settled
for the purpose of recognizing previously unrecognized tax benefits. Under the
FSP, a tax position could be effectively settled on completion of examination by
a taxing authority if the entity does not intend to appeal or litigate the
result and it is remote that the taxing authority would examine or re-examine
the tax position. The Company does not expect that this interpretation will have
a material impact on its financial position, results of operations, or cash
flows.
 
 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.
 
 NOTE
3 - RECENT ACCOUNTING PRONOUNCEMENTS
 
 Recently
Adopted Accounting Pronouncements
 
 In
January 2010, the Financial Accounting Standards Board (“FASB”) issued
Accounting Standards Update (“ASU”) 2010-06, “Fair Value Measurements and
Disclosures,” which amends the disclosure requirements related to
recurring and nonrecurring fair value
 measurements. 
The guidance requires disclosure of transfers of assets and liabilities between
Level 1 and Level 2 of the fair value measurement hierarchy, including the
reasons and the timing of the transfers and information on purchases, sales,
issuance, and settlements on a gross basis in the reconciliation of the assets
and liabilities measured under Level 3 of the fair value measurement hierarchy.
The guidance is effective for annual and interim reporting periods beginning
after December 15, 2009, except for Level 3 reconciliation disclosures
which are effective for annual and interim periods beginning after
December 15, 2010. The Company adopted these amendments in the first
quarter of 2010 and the adoption did not have a material impact on the
disclosures in the Company’s consolidated financial statements.
 
 In
June 2009, the FASB issued ASU 2009-17, Improvements to Financial Reporting
by Enterprises Involved with Variable Interest Entities, which changes
various aspects of accounting for and disclosures of interests in variable
interest entities. ASU 2009-17 is effective for interim and annual periods
beginning after November 15, 2009. The Company adopted these amendments in
the first quarter of 2010 and the adoption did not have a material impact on the
Company’s consolidated financial statements.
 
 In June
2009, the Financial Accounting Standards Board ("FASB") issued authoritative
guidance on accounting for transfers of financial assets.  This guidance
was issued to improve the relevance, representational faithfulness, and
comparability of the information that a reporting entity provides in its
financial statements about a transfer of financial assets; the effects of a
transfer on its financial position, financial performance, and cash flows; and a
transferor's continuing involvement, if any, in transferred financial assets.
 This guidance is effective for fiscal years and interim periods beginning
after November 15, 2009.  The adoption of this statement did not have a
material effect on the Company's consolidated financial statements.
 
 Recently
Issued Accounting Pronouncements Not Yet Adopted
 
 In July
2010, the Financial Accounting Standards Board (“FASB”) issued new accounting
guidance that will require additional disclosures about the credit quality of
loans, lease receivables and other long-term receivables and the related
allowance for credit losses. Certain additional disclosures in this new
accounting guidance will be effective for the Company on December 31,
2010 with certain other additional disclosures that will be effective on
March 31, 2011. The Company does not expect the adoption of this new
accounting guidance to have a material impact on its consolidated financial
statements.
 
 In April
2010, the FASB issued ASU 2010-13, “Compensation — Stock Compensation (Topic
718) — Effect of Denominating the Exercise Price of a Share-Based Payment Award
in the Currency of the Market in Which the Underlying Equity Security Trades.”
ASU 2010-13 provides amendments to Topic 718 to clarify that an employee
share-based payment award with an exercise price denominated in the currency of
a market in which a substantial portion of the entity’s equity securities trades
should not be considered to contain a condition that is not a market,
performance, or service condition. Therefore, an entity would not classify such
an award as a liability if it otherwise qualifies as equity. The amendments in
ASU 2010-13 are effective for fiscal years, and interim periods within those
fiscal years, beginning on or after December 15, 2010 and are not expected
to have a significant impact on the Company’s consolidated financial
statements.
   F-9
 
 In March
2010, the FASB issued ASU No. 2010-11, “Derivatives and Hedging (Topic 815)
— Scope Exception Related to Embedded Credit Derivatives.”  ASU
2010-11 clarifies that the only form of an embedded credit derivative that is
exempt from embedded derivative bifurcation requirements are those that relate
to the subordination of one financial instrument to another. As a result,
entities that have contracts containing an embedded credit derivative feature in
a form other than such subordination may need to separately account for the
embedded credit derivative feature. The provisions of ASU 2010-11 will be
effective on July 1, 2010 and are not expected to have a significant impact on
the Company’s consolidated financial statements.
 
 In
October 2009, the FASB issued ASU No. 2009-14, “Software (Topic 985) —
Certain Revenue Arrangements That Include Software Elements (A Consensus of the
FASB Emerging Issues Task Force)”. ASU 2009-14 requires tangible products that
contain software and non-software elements that work together to deliver the
products essential functionality to be evaluated under the accounting standard
regarding multiple deliverable arrangements. This standard update is effective
January 1, 2011 and may be adopted prospectively for revenue arrangements
entered into or materially modified after the date of adoption or
retrospectively for all revenue arrangements for all periods presented. The
Company does not expect that this standard update will have a significant impact
on its consolidated financial statements.
 
 In
September 2009, the FASB issued certain amendments as codified in ASC Topic
605-25, “Revenue Recognition;
Multiple-Element Arrangements.”  These amendments provide
clarification on whether multiple deliverables exist, how the arrangement should
be separated, and the consideration allocated.  An entity is required to
allocate revenue in an arrangement using estimated selling prices of
deliverables in the absence of vendor-specific objective evidence or third-party
evidence of selling price. These amendments also eliminate the use of the
residual method and require an entity to allocate revenue using the relative
selling price method.  The amendments significantly expand the disclosure
requirements for multiple-deliverable revenue arrangements.  These
provisions are to be applied on a prospective basis for revenue arrangements
entered into or materially modified in fiscal years beginning on or after
June 15, 2010, with earlier application permitted.  The Company will
adopt the provisions of these amendments in its fiscal year 2011 and is
currently evaluating the impact of these amendments to its consolidated
financial statements.
 
 Other
accounting standards that have been issued or proposed by the FASB or other
standards-setting bodies that do not require adoption until a future date are
not expected to have a material impact on the consolidated financial statements
upon adoption.
 
 NOTE
4- 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.
   F-10
 
 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 5 – 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 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.
 
 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 May, 2009, the Company sold 5,000,000
shares of restricted Common Stock to one investor at a purchase price of $0.005
per share. The gross proceeds of the offering totaled $25,000.
 
 Pursuant
to a Securities Purchase Agreement, in July, 2010, the Company sold 4,000,000
shares of restricted Common Stock to one investor at a purchase price of $0.0033
per share. The gross proceeds of the offering totaled $13,200.
 
 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.
 
 F-11
 
 
 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.
 
 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 September 30, 2007, the Company received proceeds from loans
totaling $493,851. The Debentures are convertible into 1,974, 486 shares of TADS
Common Stock at a conversion price of $.25 per share and provide for warrants to
purchase 1,974,486 shares of TADS Common Stock at an exercise price of $.25. The
Debentures bear interest of 12% and are due three years from the date of
issuance. The Debenture Warrants are exercisable at a per share exercise prices
of $.25 per share of Common Stock, are exercisable immediately up until the
fifth anniversary of the initial warrant date, and such exercise price is
subject to adjustment for subsequent lower price issuances by the Company and
other customary events including stock splits, reverse stock splits, issuance of
convertible securities, sale of Common Stock and spin-offs.
 
 The gross
proceeds of the $493,851 were allocated 24.2% or $120,731 to the Debentures and
75.8% or $373,120 to the Warrants. The effective conversion price of the
Debentures was below the market price of TADS Common Stock at the date the
various notes were issued, which resulted in a beneficial conversion feature of
$120,731. In accordance with EITF 00-27 the amount allocated to the beneficial
conversion feature was limited to the net proceeds of the offering.
 
 Third
Quarter of 2007
 
 F-12
 
 
 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 issued $343,873 of Debentures as
consideration for  loans totaling $343,873. The Debentures are
convertible into TADS 6,877,460 shares of Common Stock at a conversion
price of $0.05 per share and provide for warrants to
purchase 6,877,460 shares of TADS Common Stock at an exercise price of
$0.05. The Debentures bear interest of 12% and are due three years from the date
of issuance. The Debenture Warrants are exercisable at a per share exercise
price of $.05 per share of Common Stock, are exercisable immediately up until
the fifth anniversary of the initial warrant date, and such exercise price is
subject to adjustment for subsequent lower price issuances by the Company and
other customary events including stock splits, reverse stock splits, issuance of
convertible securities, sale of Common Stock and spin-offs.
 
 The gross
proceeds of the $343,873 were allocated 25% or $86,084 to the Debentures and 75%
or $257,789 to the Warrants. The effective conversion price of the Debentures
was at the market price of TADS Common Stock at the date the various notes were
issued.
 
 Second
Quarter of 2008
 
 Between
April 1, 2008 and September 30, 2008, the Company issued $357,151 of Debentures
as consideration for loans totaling $357,151. The Debentures are convertible
into 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.
 
  F-13
   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 issued $95,489 of Debentures as
consideration for loans totaling $95,489. The Debentures are convertible into
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.
 
 First
Quarter of 2009
 
 In the
first quarter of 2009, the Company issued $30,000 of Debentures as consideration
for unpaid fees to service providers.  The Debentures are convertible
into 1,730 shares of Common Stock at a conversion price of $0.02 per
share.  The Debentures have a term of three years, an interest rate of
12%, and full-ratchet anti-dilution protection
 
 Third
Quarter of 2009
 
 On July
31, 2009, the Company issued four Convertible Debentures totaling $753,457.42 in
principle amount in the aggregate, as consideration for the retirement of
Short-Term Loans totaling $753,457.42 of principle plus accrued interest through
July 31, 2009.  The Short-Term Loans are described below in the
Section titled “Additional Indebtedness”.  The Convertible Debentures
have a term of three years, an interest rate of 12%, are convertible into
602,765,936 shares of Common Stock at a conversion price of $0.00125, have
full-ratchet anti-dilution protection, and were issued as follows: $300,000 in
principle amount to the Dakota Fears Trust, $300,000 in principle amount o the
Gary Fears Trust, $76,728.71 in principle amount to the Dakota Fears Trust, and
$76,728,71 in principle amount to the Gary Fears Trust.
 
 On
September 3, 2009, the Company issued two Convertible Debentures totaling
$162,964.54 in principle amount in the aggregate,  as consideration
for the retirement of two Promissory Notes totaling $162,964.54 of principle
plus accrued interest through September 3, 2009.  The Promissory Notes
are described below in the Section titled “Additional
Indebtedness”.  The Convertible Debentures have a term of three years,
an interest rate of 12%,, are convertible into 130,371,634 shares of Common
Stock at a conversion price of $0.00125, have full-ratchet anti-dilution
protection, and were issued as follows: $119,729.11 in principle amount to
Alexis Korybut, and $43,234.43 in principle amount to Joint Strategy Group,
Inc.
 
 On
September 3, 2009, the Company issued Convertible Debentures totaling,
$274,603.11 in principle amount in the aggregate, all of which have a term of
three years, an interest rate of 12%, a conversion price of $0.00125, and
full-ratchet anti-dilution protection.  The Convertible Debentures
were issued as follows:  $50,000 in principle amount to Michael
Cariello for accrued and unpaid consulting fees for the period from April 16,
2008 through April 15, 2009, which principle amount is convertible into
40,000,000 shares of Common Stock; $8,537.73 in principle amount to Michael
Cariello for accrued and unpaid salary for the period from April 16, 2009
through July 31, 2009, which principle amount is convertible into 6,830,184
shares of Common Stock; $19,762.32 in principle amount to Joint Strategy Group,
Inc. for consulting fees for the period from April 16, 2009 through July 31,
2009, which principle amount is convertible into 15,809,856 shares of Common
Stock; $46,128.43 in principle amount to Alexis Korybut for accrued and unpaid
salary for the period from October 31, 2007 through April 15, 2008, which
principle amount is convertible into 36,902,744 shares of Common Stock;
$119,731.11 in principle amount to Alexis Korybut for accrued and unpaid salary
for the period from April 16, 2008 through April 15, 2009, which principle
amount is convertible into 95,784,888 shares of Common Stock; and $30,443.52 in
principle amount to Alexis Korybut for accrued and unpaid salary for the period
from April 16, 2009 through July 31, 2009, which principle amount is convertible
into 24,354,816 shares of Common Stock.
   F-14
 
 Fourth
Quarter of 2009
 
 On
October 16, 2009, the Company issued a Convertible Debenture in a principle
amount of $560.00 to Michael Cariello as consideration for accrued and unpaid
salary for the period from August 1, 2009 through October 15,
2009.  The Convertible Debenture has a term of three years, an
interest rate of 12%, and has full-ratchet anti-dilution
protection.  The principle amount is convertible into 448,000 shares
of Common Stock at a conversion price of $0.00125 per share,
 
 On
October 16, 2009, the Company issued a Convertible Debenture in a principle
amount of $22,460.79 to Alexis Korybut as consideration for accrued and unpaid
salary for the period from August 1, 2009 through October 15,
2009.  The Convertible Debenture has a term of three years, an
interest rate of 12%, and has full-ratchet anti-dilution
protection.  The principle amount is convertible into 17,968,632
shares of Common Stock at a conversion price of $0.00125 per
share,
 
 On
October 31, 2009, the Company issued a Convertible Debenture in a principle
amount of $57,542.46 to the Gary Fears Trust as consideration for loans to the
Company accrued during the period from July 31, 2009 through October 31,
2009.  The Convertible Debenture has a term of three years, an
interest rate of 12%, and has full-ratchet anti-dilution
protection.  The principle amount is convertible into 46,033,968
shares of Common Stock at a conversion price of $0.00125 per
share.
 
 First
Quarter of 2010
 
 On
January 1, 2010, the Company issued a Convertible Debenture in a principle
amount of $51,008.96 to the Gary Fears Trust as consideration for loans to the
Company accrued during the period from November 1, 2009 through December 31,
2009.  The Convertible Debenture has a term of three years, an
interest rate of 12%, and has full-ratchet anti-dilution
protection.  The principle amount is convertible into 40,807,168
shares of Common Stock at a conversion price of $0.00125 per
share.
 
 On
January 1, 2010, the Company issued a Convertible Debenture in a principle
amount of $11,500 to Michael Cariello as consideration for unpaid salary accrued
during the period from October 16, 2009 through December 31,
2009.  The Convertible Debenture has a term of three years, an
interest rate of 12%, and has full-ratchet anti-dilution
protection.  The principle amount is convertible into 9,200,000 shares
of Common Stock at a conversion price of $0.00125 per share.
 
 On
January 1, 2010, the Company issued a Convertible Debenture in a principle
amount of $16,707.50 to Alexis Korybut as consideration for unpaid salary
accrued during the period from October 16, 2009 through December 31,
2009.  The Convertible Debenture has a term of three years, an
interest rate of 12%, and has full-ratchet anti-dilution
protection.  The principle amount is convertible into 13,336,000
shares of Common Stock at a conversion price of $0.00125 per
share.
 
 Second
Quarter of 2010
 
 On April
12, 2010, the Company issued a Convertible Debenture in a principle amount of
$25,000 to the Katherine O’Connor Trust as consideration for a loan to the
Company.  The Convertible Debenture has a term of three years, an
interest rate of 12%, and has full-ratchet anti-dilution
protection.  The principle amount is convertible into 36,316,095
shares of Common Stock at a conversion price of $0.0006884 per
share.
 
 On April
1, 2010, the Company issued a Convertible Debenture in a principle amount of
$37,500 to the Bingham Law Group as consideration for unpaid legal fees as of
4/1/2010 to the Company.  The Convertible Debenture has a term of
three years, an interest rate of 12%, and has full-ratchet anti-dilution
protection.  The principle amount is convertible into 30,000,000
shares of Common Stock at a conversion price of $0.00125 per
share.
 
 On May
19, 2010, the Company issued a Convertible Debenture in a principle amount of
$150,000.00 to the Gary Fears Trust as consideration for a loan to the
Company.  The Convertible Debenture has a term of three years, an
interest rate of 12%, and has full-ratchet anti-dilution
protection.  The principle amount is convertible into 60,000,000
shares of Common Stock at a conversion price of $0.0025 per
share.
   F-15
 
 On July
1, 2010, the Company issued a Convertible Debenture in a principle amount of
$318,570.50 to the Gary Fears Trust as consideration for a loan to the
Company.  The Convertible Debenture has a term of three years, an
interest rate of 12%, and has full-ratchet anti-dilution
protection.  The principle amount is convertible into 127,428,200
shares of Common Stock at a conversion price of $0.0025 per
share.
 
 On July
1, 2010, the Company issued a Convertible Debenture in a principle amount of
$33,945.68 to Alexis Korybut as consideration for unpaid salary, benefits, and
expenses to the Company.  The Convertible Debenture has a term of
three years, an interest rate of 12%, and has full-ratchet anti-dilution
protection.  The principle amount is convertible into 13,578,272
shares of Common Stock at a conversion price of $0.0025 per
share.
 
 On June
30, 2010, the Company issued a Convertible Debenture in a principle amount of
$45,000.00 to Michael Cariello as consideration for unpaid salary to the
Company.  The Convertible Debenture has a term of three years, an
interest rate of 12%, and has full-ratchet anti-dilution
protection.  The principle amount is convertible into 18,000,000
shares of Common Stock at a conversion price of $0.0025 per
share.
 
 Additional
Indebtedness
 
 Between
July 1, 2008 and April 30, 2009, the Company received proceeds of Short-Terms
loans from the Gary Fears Trust and the Dakota Fears Trust (the “Short-Term
Loans”) totaling $742,863in the aggregate,of which $175,000 was
repaid in October, 2008. The Short-Term Loans carry a term of one year, an
interest rate of 12%, and a 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
re-loaned 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, which Common Stock has been
issued.  On July 31, 2009 the Short-Term Loans including accrued
interest to-date were retired and reissued as Convertible Debentures as detailed
above in the Section titled Third Quarter of
2009.
 
 Between
April 30, 2009 and July 31, 2009, the Company received proceeds of Short-Terms
loans (the “Short-Term Loans”) totaling $109,188 in the
aggregate.  The Short-Term Loans carry a term of one year, an interest
rate of 12%, and 100% stock coverage with a reference price equal to the lowest
purchase price of Common Stock of the Company sold by the Company between the
date of the Short-Term Loans and repayment of the Short-Term
Loans.  The reference price is 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 $0.005 and which principle new loans equals
51,774,471 shares of the Company’s Common Stock, which Common Stock has not yet
been issued. On July 31, 2009 the Short-Term Loans including accrued interest
to-date were retired and reissued as Convertible Debentures as detailed above in
the Section titled Third
Quarter of 2009.
 
 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 terms of the Promissory Note have been
revised to increase the term of 120 days with an annual interest rate 12%, and
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 retroactively to 18% and
the note-holder shall receive additional consideration of 100% annual stock
coverage at a share reference price equal to a 50% discount to the 30-day
trailing average price of the Common Stock of the Company.  In March
20, 2010, the Company initiated a lawsuit in Florida state court against Mr.
Daniels for, among other things, improper enrichment and misappropriation of
Company assets and opportunities.  The Company believes that it will
prevail against Mr. Daniels and that among other remedies the Promissory Note
will be cancelled.
 
 On April
15, 2009, the Company issued a Promissory Note to Alexis Korybut for
$114,425.77in
consideration for partial unpaid salary and expenses accrued from April 1, 2008
through April 15, 2009.  The terms of the Promissory Note have been
revised to increase the term to 120 days with an annual interest rate 12%, and
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 retroactively to 18% and
the note-holder shall receive additional consideration of 100% annual stock
coverage at a share reference price equal to a 50% discount to the 30-day
trailing average price of the Common Stock of the Company.  On
September 3, 2009, the Promissory Note was retired and reissued as a Convertible
Debenture as detailed above in the Section titled Third Quarter of
2009.
   F-16
 
 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 terms of the Promissory Note have been
revised to increase the term to 120 days with 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
retroactively to 18% and the note-holder shall receive additional consideration
of 100% annual stock coverage at a share reference price equal to a 50% discount
to the 30-day trailing average price of the Common Stock of the
Company.  On September 3, 2009, the Promissory Note was retired and
reissued as a Convertible Debenture as detailed above in the Section titled
Third Quarter of
2009.
 
 Conversion
of Notes and Exercise of Warrants
 
 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.
 
 In March,
2010, the Company issued 2,324,356 shares of unrestricted Common Stock to Cassio
Ismael in connection with the conversion of a Convertible Debenture of the
Company in the aggregate amount of $1,600.11, including $1,500 of principle and
$100.11 of accrued interest, at a conversion price of $0.0006884 subject to the
terms of the Convertible Debenture.
 
 In March,
2010, the Company issued 2,324,356 shares of unrestricted Common Stock to
Marcela Alvarez in connection with the conversion of a Convertible Debenture of
the Company in the aggregate amount of $1,600.11, including $1,500 of principle
and $100.11 of accrued interest, at a conversion price of $0.0006884 subject to
the terms of the Convertible Debenture.
 
 In March,
2010, the Company issued 2,324,356 shares of unrestricted Common Stock to
Jessica Buitrago in connection with the conversion of a Convertible Debenture of
the Company in the aggregate amount of $1,600.11, including $1,500 of principle
and $100.11 of accrued interest, at a conversion price of $0.0006884 subject to
the terms of the Convertible Debenture.
 
 In April,
2010, the Company issued 33,570,797 shares of unrestricted Common Stock to the
Estella A. Korybut Trust in connection with the conversion of a Convertible
Debenture of the Company in the aggregate amount of $23,110.14, including
$20,000 of principle and $3,110.14 of accrued interest, at a conversion price of
$0.0006884 subject to the terms of the Convertible Debenture.
 
 In April,
2010, the Company issued 16,785,399 shares of unrestricted Common Stock to the
Michael Korybut in connection with the conversion of a Convertible Debenture of
the Company in the aggregate amount of $11,555.07, including $10,000 of
principle and $1,555.07 of accrued interest, at a conversion price of $0.0006884
subject to the terms of the Convertible Debenture.
   F-17
 
 In April,
2010, the Company issued 15,615,324 shares of unrestricted Common Stock to Jamie
Goldstein in connection with the conversion of a Convertible Debenture of the
Company in the aggregate amount of $10,749.59 including $10,000 of principle and
$749.59 of accrued interest, at a conversion price of $0.0006884 subject to the
terms of the Convertible Debenture.
 
 In May,
2010, the Company issued 38,335,351 shares of unrestricted Common Stock to The
Gary Fears Trust in connection with the conversion of a Convertible Debenture of
the Company in the aggregate amount of $26,390.06 including $24,187.35 of
principle and $2,202.71 of accrued interest, at a conversion price of $0.0006884
subject to the terms of the Convertible Debenture.
 
 In May,
2010, the Company issued 75,556,581 shares of unrestricted Common Stock to The
Gary Fears Trust in connection with the conversion of a Convertible Debenture of
the Company in the aggregate amount of $52,013.15 including $47,500.00 of
principle and $4,513.15 of accrued interest, at a conversion price of $0.0006884
subject to the terms of the Convertible Debenture.
 
 In May,
2010, the Company issued 76,397,762 shares of unrestricted Common Stock to The
Gary Fears Trust in connection with the conversion of a Convertible Debenture of
the Company in the aggregate amount of $52,592.22 including
$48,000.00 of
principle and $4,592.22 of accrued
interest, at a conversion price of $0.0006884 subject to the terms of the
Convertible Debenture.
 
 In June,
2010, the Company issued 7,002,111 shares of unrestricted Common Stock to Fox
Hollow Holdings, Inc. in connection with the conversion of a Convertible
Debenture of the Company in the aggregate amount of $4,820.25 including
$4,390.14 of principle and $430.11 of accrued interest, at a conversion price of
$0.0006884 subject to the terms of the Convertible Debenture.
 
 In July,
2010, the Company issued 12,500,267 shares of unrestricted Common Stock to Fox
Hollow Holdings, Inc. in connection with the conversion of a Convertible
Debenture of the Company in the aggregate amount of $8,605.18 including
$7,740.00 of principle and $865.18 of accrued interest, at a conversion price of
$0.0006884 subject to the terms of the Convertible Debenture.
 
 In July,
2010, the Company issued 27,298,139 shares of unrestricted Common Stock to The
Gary Fears Trust in connection with the conversion of a Convertible Debenture of
the Company in the aggregate amount of $18,792.04 including $16,897.65 of
principle and $1,894.39 of accrued interest, at a conversion price of $0.0006884
subject to the terms of the Convertible Debenture.
 
 In July,
2010, the Company issued 36,348,730 shares of unrestricted Common Stock to
Venetian Investment Partners LLC in connection with the conversion of a
Convertible Debenture of the Company in the aggregate amount of $25,022.47
including $22,500.00 of principle and $2,522.47 of accrued interest, at a
conversion price of $0.0006884 subject to the terms of the Convertible
Debenture.
 
 In July,
2010, the Company issued 30,017,511 shares of unrestricted Common Stock to Drae
Holdings LLC in connection with the conversion of a Convertible Debenture of the
Company in the aggregate amount of $20,664.05 including $18,625.00 of principle
and $2,039.05 of accrued interest, at a conversion price of $0.0006884 subject
to the terms of the Convertible Debenture.
 
 In July,
2010, the Company issued 40,291,962 shares of unrestricted Common Stock to The
Gary Fears Trust in connection with the conversion of a Convertible Debenture of
the Company in the aggregate amount of $27,736.99 including $25,000.00 of
principle and $2,736.99 of accrued interest, at a conversion price of $0.0006884
subject to the terms of the Convertible Debenture.
 
 In July,
2010, the Company issued 12,500,994 shares of unrestricted Common Stock to Fox
Hollow Holdings, Inc in connection with the conversion of a Convertible
Debenture of the Company in the aggregate amount of $8,605.68 including
$7,704.00 of principle and $901.68 of accrued interest, at a conversion price of
$0.0006884 subject to the terms of the Convertible Debenture.
 
 In
August, 2010, the Company issued 15,943,242 shares of unrestricted Common Stock
to Fox Hollow Holdings, Inc in connection with the conversion of a Convertible
Debenture of the Company in the aggregate amount of $10,975.33 including
$9,793.65 of principle and $1,181.68 of accrued interest, at a conversion price
of $0.0006884 subject to the terms of the Convertible Debenture.
   F-18
 
 Cancellation
of Indebtedness and Return of Assets
 
 On May
29, 2008, the Company returned the two MiG-29 aircraft and four flight
simulators (the “Cambar Assets”) it had purchased through the Aerogroup
Acquisition.  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, the Cambar Assets, which indebtedness
included interest to be paid on the principle.
 
 With the
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.
   F-19
 
 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. In addition, in April, 2009, the Company
issued to Mr. Miller 10,000,000 shares of Common Stock as per a Settlement
Agreement signed between Mr. Miller and the Company and other parties 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.  The shares of Common Stock have
subsequently been retired as per agreement between the Company and Alexis
Korybut.
 
 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.
 
 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.
 
 The
Company issued 20,000,000 restricted shares of Common Stock to ZA Consulting,
Inc. in May, 2010, as consideration for investor relations services and related
consulting services.
 
  F-20
   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.
 
 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.
   F-21
 
 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 issued 82,885,154 restricted 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.  The shares of Common Stock have subsequently been retired as
per agreement between the Company and Plumtree Capital Management
LLC.
 
 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.
 
 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
Ticktin Law Group as compensation for legal services. No registration rights
were issued in connection with these shares.
   F-22
 
 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.  The shares of Common Stock have subsequently been
retired as per agreement between the Company and Air Support Systems,
LLC.
 
 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.
 
 Issuance
of Common Stock to Phillip Scott
 
 The
Company issued 45,805,758 unrestricted shares of Common Stock to Phillip
Scott  in March, 2010 per the terms of a settlement agreement between
the Company and DS Enterprises.
 
 Issuance
of Common Stock to Alexis Korybut
 
 The
Company issued 50,000,000 restricted shares of Common Stock to Alexis Korybut in
March, 2010 as a signing bonus per the terms of his employment agreement of
January 1, 20101.  No registration rights were issued in connection
with these shares.
 
 Issuance of Common Stock to Michael
Cariello
 
 The
Company issued 50,000,000 restricted shares of Common Stock to Michael Cariello
in March, 2010 as a signing bonus per the terms of his employment agreement of
January 1, 20101.  No registration rights were issued in connection
with these shares.
 
 Issuance
of Common Stock to Rene Ferrer
 
 The
Company issued 50,000,000 restricted shares of Common Stock to Rene Ferrer in
July, 2010 as a signing bonus per the terms of his employment agreement of July
1, 2010.  No registration rights were issued in connection with these
shares.
   F-23
 
 Issuance of Common Stock to Tom
Robinson
 
 The
Company issued 10,000,000 restricted shares of Common Stock to Tom Robinson in
July, 2010 as a signing bonus per the terms of his employment agreement of July
1, 2010.  No registration rights were issued in connection with these
shares.
 
 Issuance
of Common Stock to David Perin
 
 The
Company issued 2,500,000 unrestricted shares of Common Stock to David Perin in
July, 2010 per the terms of a settlement agreement between the Company and David
Perin.
 
 Issuance
of Common Stock to Lark MW IC Ltd
 
 The
Company issued 4,000,000 restricted shares of common stock to Lark MW IC Ltd as
part of a Securities Purchase Agreement.
 
 Retirement
of Common Stock
 
 The
Company retired 45,000,000 shares of its Common Stock in May, 2009, which had
been issued to International Tactical Training Center, Inc. in advance
consideration for services which services were subsequently not
delivered.
 
 The
Company retired 30,000,000 shares of its Common Stock in November, 2009, which
had been issued to Alexis Korybut, pursuant to an agreement between the Company
and Alexis Korybut.
 
 The
Company retired 86,885,154 shares of its Common Stock in March, 2010, which had
been issued to Plumtree Capital Management, LLC, pursuant to an agreement
between the Company and Plumtree Capital Management LLC in November,
2009.
 
 The
Company retired 100,000,000 shares of its Common Stock in November, 2009, which
had been issued to Air Support Systems, LLC, pursuant to an agreement between
the Company and Air Support Systems, LLC.
 
 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;
      and
 -
              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 June 30, 2008 and 2009 because their inclusion would have had been
      anti-dilutive.
   F-24
 
 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
August 3, 2010, there is no Series A Preferred Stock outstanding.
 
 NOTE
6 - INCOME TAXES:
 
 There is
no provision for income taxes for the year December 31, 2009. The Company has
minimal net operating loss carry forwards for income tax purposes at December
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
                June
      30,2010Federal
      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.
 
 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.
   F-25
 
 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”).
 
 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
 
 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 bonus
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 bonus 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. Mr. Daniels was terminated in November of 2009, and the Company is
currently pursuing through a legal action the retirement of the 80,000,000
restricted shares of its Common Stock.
 
 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 bonus 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.
 
 On June
8, 2009, the Company entered into an employment agreement with Michael Cariello
as Chief Operating Officer of the Company.  The term of the agreement
is for one year, and provides for an annual salary of $60,000 and a signing
bonus of 20,000,000 restricted shares of the Company’s Common Stock, which
shares of Common Stock were never issued.  The agreement also provides
for participation by Mr. Cariello in the management bonus pool.
 
 On
January 1, 2010, the Company entered into a new employment agreement with Alexis
Korybut as President, Chief Executive Officer, and Chief Financial Officer of
the Company.  The term of the agreement is for one year, and provides
for an annual salary of $120,000 and a signing bonus of 50,000,000 restricted
shares of the Company’s Common Stock.  The agreement also provides for
participation by Mr. Korybut in the management bonus pool.
 
 On
January 1, 2010, the Company entered into a new employment agreement with
Michael Cariello as Chief Operating Officer of the Company.  The term
of the agreement is for one year, and provides for an annual salary of $120,000
and a signing bonus of 50,000,000 restricted shares of the Company’s Common
Stock.  The agreement also provides for participation by Mr. Cariello
in the management bonus pool.
   F-26
 
 In May,
2010, the Company entered into a six-month Corporate Development Services
Agreement with ZA Consulting, Inc. to provide, among other services, investor
relations consulting services.  As consideration for the services to
be provided by ZA Consulting, the Company issued 20,000,000 shares of Common
Stock to ZA Consulting and agreed to pay $150,000 in cash to ZA
Consulting.
 
 On July
9, 2010, the Company entered into an employment agreement with Rene Ferrer as
Director of Business Development for Latin America.  The term of the
agreement is for one year, and provides for an annual salary of $48,000 and a
signing bonus of 50,000,000 restricted shares of the Company’s Common
Stock.
 
 On July
14, 2010, the Company entered into an employment agreement with Tom Robinson as
Director of Disaster Relief Services of the Company.  The term of the
agreement is for one year, and provides for an annual salary of $48,000 and a
signing bonus of 10,000,000 restricted shares of the Company’s Common
Stock.
 
 Additional
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.
 
 Lease Agreement
 
 On April
15, 2008, 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 was subsequently cancelled by the lessor in November of
2009 due to litigation between Air Support Systems, LLC and Victor Miller/Air 1
Flight Support.
 
 On May
18, 2010 the Company signed a lease agreement with Air Support Systems, LLC. The
Lease Option Agreement with Air Support Systems, LLC gives TADS the right to
enter into exclusive one-year renewable leases for any or all of the four IL-76
and IL-76 supertanker aircraft, under a fee arrangement that allocates 50% of
the operating profits each to TADS and Air Support Systems
respectively.
 
 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.  On July 31, 2009,
the Company determined that it would not be able to repay the Short-Term Loans
from the proceeds from the BAF contract, and therefore cancelled the Short-Term
Loans in favor of Debentures convertible in shares of restricted Common Stock at
a conversion price of $0.00125 per share.
   F-27
 
 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;
 -
              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;
 -
              On
      June 8, 2009, Michael Cariello was appointed by the Board of Directors of
      the Company as Chief Operating Officer of the
  Company;
 -
              On
      July 10, 2009, Alexis Korybut was appointed by the Board of Directors of
      the Company as Principle Accounting Officer of the
  Company;
 -
              On
      July 10, 2009, Peter Maffitt and Charles Deangelo resigned from the Board
      of Directors of the Company, leaving Mark Daniels as the sole member of
      the Board of Directors of the
Company;
 -
              On
      July 10, 2009, Mark Daniels, acting as the sole member of the Board of
      Directors of the Company, appointed Michael Cariello and Alexis Korybut to
      the Board of Directors of the Company, where they joined Mark Daniels as
      the three members of the Board of Directors of the
  Company;
 -
              On
      November 23, 2009, Mark Daniels resigned from all capacities as an Officer
      of the Company including as President, Chief Executive Officer, Treasurer,
      and Secretary, and also resigned from the Board of Directors of the
      Company, leaving Alexis Korybut and Michael Cariello as the remaining two
      member of the Board of Directors of the
Company;
 -
              On
      November 23, 2009, Michael Cariello and Alexis Korybut, acting as the
      Board of Directors of the Company, appointed Alexis Korybut as President,
      Chief Executive Officer, and Treasurer of the Company, and appointed
      Michael Cariello as Secretary of the
Company;
 -
              November
      23, 2009, Michael Cariello and Alexis Korybut, acting as the Board of
      Directors of the Company, appointed Mark Shubin to the Board of Directors
      of the Company, where he joined Michael Cariello and Alexis Korybut as the
      three members of the Board of Directors of the Company;
  and
 -
              November
      23, 2009, Mark Shubin resigned from the Board of Directors of the Company,
      leaving Michael Cariello and Alexis Korybut as the remaining two members
      of the Board of Directors of the
Company.
 -
              On
      July 9, 2010, Tactical Air Defense Services, Inc. (the “Company”)
      appointed Mr. Rene Ferrer, Jr. (“Mr. Ferrer”) to the position of Director
      for Latin America.
   F-28
 
 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.
 
 Legal
Proceedings
 
 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.
 
 In June
of 2009, Victor Miller and Air 1 Flight support, an entity controlled by Victor
Miller, caused an injunction to be placed on the Company to not relocate the
IL-78, which the Company leases from a third party, as a result of a lien Victor
Miller and Air 1 Flight Support placed on the IL-78 for unpaid services provided
to the third-party leasing the IL-78 to the Company.  The Company
believes that the lien and injunction are completely without merit based upon
Victor Miller and Air 1 Flight Support being party to a settlement agreement
between the parties including the third-party subject to the
lien.  Victor Miller and Air 1 Flight Support subsequently filed a
motion for contempt of court against the Company subsequent to the IL-78 having
been relocated by a third-party to which the Company leases the IL-78, without
the knowledge or assistance of the Company.  Victor Miller and Air 1
Flight Support subsequently filed a legal proceeding against the Company in
Michigan in connection with the lien, which has resulted in a judgment against
the Company.  The Company intends to contest the judgment which it was
not given the opportunity to defend against for what it believes to be a
fraudulent lien. The Company believes that these motions and proceedings are
without merit, and the Company intends to vigorously defend itself, and pursue
Victor Miller and Air 1 Flight Support for tortuous interference and material
damages to the Company.
 
 On March
4, 2010, TADS sued Mark Daniels, the Company’s former President and Chief
Executive Officer, and various entities affiliated with or controlled by Mr.
Daniels, in The Circuit Court of The 15th
Judicial Circuit in and for Palm Beach County, Florida, for temporary and
permanent injunctive relief, damages, and other relief for breach of contract;
breach of fiduciary duty and duty of loyalty; tortuous interference with
advantageous and contractual relationships, and misappropriation, misuse and
conversion of trade secrets and confidential business information. Although the
Court did not grant our Emergency Motion for Preliminary Injunction, the court
did find that here continues to be a valid and enforceable agreement between the
parties. Most recently, the Company filed motions for the disgorgement of
certain assets and opportunities that it believes Mr. Daniels has
misappropriated,, and for the cancellation of certain convertible promissory
notes and certain share issuances that it believes the Company awarded to Mr.
Daniels without proper consideration when Mr. Daniels was the President, CEO,
and director of the Company, and based upon information relied upon at the time
by Mr. Daniels that the Company believes was materially misrepresented by Mr.
Daniels.  The Company is continuing to vigorously pursue all claims
and remedies against Mr. Daniels and the other the defendant in such action.
TADS is currently preparing its case against Mr. Daniels and the other
defendants to seek permanent injunctive relief and damages, and we believe that
we will prevail in this action, although no assurances can be
given.
   F-29
 
 On May 7,
2010, Mr. Daniels filed an improper and frivolous Involuntary Chapter 7 Petition
(the “Petition”) against the Company in the United States Bankruptcy Court for
the Southern District of Florida, in an effort to circumvent the legitimate
court process, by claiming non-payment of a promissory note that the Company
contends in its litigation against Mr. Daniels was issued without proper
consideration when Mr. Daniels was the President, Chief Executive Officer, and a
Director of the Company. Upon notification to the Company on May 10, 2010 of
this improper Petition, the Company requested and was granted an Emergency
Hearing for May 14, 2010 in the United States Bankruptcy Court in the Southern
District of Florida before Chief Justice Paul G. Hyman (the "Emergency
Hearing"). On May 14, 2010, Chief Justice Paul G. Hyman dismissed the
Involuntary Chapter 7 Petition by a signed Order granting an emergency Motion to
Dismiss the Involuntary Chapter 7 Petition filed against the Company by Mr.
Daniels.  In the Court Order, it was agreed that:
 
 -
              Mr.
      Daniels’ claim is the subject of a bona fide
      dispute;-
              The
      Company has more than 12 unsecured creditors (note holders are the only
      claims not in dispute);
 
 -
              The
      Court should enter an Order dismissing Mr. Daniels’ involuntary petition,
      with prejudice to any subsequent involuntary petition by Mr. Daniels
      (i.e.. he is
      barred from refilling an involuntary petition), or any insider or
      affiliate of Mr. Daniels; and-
              Moreover,
      Mr. Daniels cannot pursue any efforts or take any actions to solicit,
      recruit, encourage, or cause any other alleged creditor of the Company to
      file an involuntary bankruptcy petition against the
    Company.
 
 -
              The
      Company agreed to withdraw its claim for attorney’s fees, costs, damages
      and punitive damages arising from the improvident filing in exchange for
      Mr. Daniels’ consent to the dismissal of the
  petition.
 
 Additionally,
Mr. Daniels’ attorney of record who filed the Petition, as a result of learning
that Mr. Daniels had materially misstated the facts and failed to disclose that
Mr. Daniels was currently the Defendant in civil litigation with the Company,
filed a motion to withdraw his representation of Mr. Daniels in the
Petition.
 
 As of
August 20, 2010, 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 those described herein.
 
 
 ITEM
2.                      MANAGEMENT’S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
 
 FORWARD-LOOKING
STATEMENTS
 
 This
discussion and analysis in this Quarterly Report on Form 10-Q should be read in
conjunction with the accompanying Consolidated Financial Statements and related
notes. Our discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires us to make estimates and assumptions that affect the reported amounts
of assets and liabilities, disclosure of any contingent liabilities at the
financial statement date and reported amounts of revenue and expenses during the
reporting period. We review our estimates and assumptions on an on-going basis.
Our estimates are based on our historical experience and other assumptions that
we believe to be reasonable under the circumstances. Actual results are likely
to differ from those estimates under different assumptions or conditions, but we
do not believe such differences will materially affect our financial position or
results of operations. Our critical accounting policies, the policies we believe
are most important to the presentation of our financial statements and require
the most difficult, subjective and complex judgments, are outlined below in
‘‘Critical Accounting Policies,’’ and have not changed
significantly.
 
 In
addition, certain statements made in this report may constitute “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.
These forward-looking statements involve known or unknown risks, uncertainties
and other factors that may cause the actual results, performance, or
achievements of the Company to be materially different from any future results,
performance or achievements expressed or implied by the forward-looking
statements. Specifically, but not limited to, 1) our ability to obtain
necessary regulatory approvals for our products; and 2) our ability to
increase revenues and operating income, is dependent upon our ability to develop
and sell our products, general economic conditions, and other factors. You can
identify forward-looking statements by terminology such as "may," "will,"
"should," "expects," "intends," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential," "continues" or the negative of these terms or other
comparable terminology. We base these forward-looking statements on our
expectations and projections about future events, which we derive from the
information currently available to us.  Such forward-looking
statements relate to future events or our future performance. Although we
believe that the expectations reflected-in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements.  Forward-looking statements are only
predictions.  The forward-looking events discussed in this Quarterly
Report, the documents to which we refer you, and other statements made from time
to time by us or our representatives, may not occur, and actual events and
results may differ materially and are subject to risks, uncertainties, and
assumptions about us.  For these statements, we claim the protection
of the “bespeaks caution” doctrine.  The forward-looking statements
speak only as of the date hereof, and we expressly disclaim any obligation to
publicly release the results of any revisions to these forward-looking
statements to reflect events or circumstances after the date of this
filing.
     1
 
 OVERVIEW
AND PLAN OF OPERATION
 
 Tactical
Air Defense Services, Inc. (“TADS”) is a Nevada public corporation that offers
air-combat training,
aerial refueling, aircraft maintenance training, disaster relief services, and
other Aerospace/Defense services to the United States and Foreign militaries and
agencies. TADS is certified by the United States Government as a
private-sector military contractor and has been granted the required security
clearances.
 
 The
Company’s executive offices are located at 123 West Nye Lane, Suite 517, Carson
City, Nevada, 89706 and the Company’s phone number is (775)
888-6744.
 
 TADS Corporate
History
 
 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 on December 15, 2006 (the “AeroGroup Acquisition”). The
complete terms of the AeroGroup Acquisition were disclosed in our Form 8-K filed
with the SEC on December 18, 2006. AeroGroup Incorporated originally 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.
 
 Current Business
Operations
 
 Following
the AeroGroup Acquisition, the Company acquired several key assets including the
following:
 
 -
              Two
      MiG 29 “Fulcrum” fighter aircraft, which were appraised in late 2005 at
      $2,800,000 each (pre-modification) located in the Ukraine (the “MIG
      29’s”);
 -
              Four
      Singer Link tactical jet simulators, and related equipment,
      appraised in late 2005 at $285,000 each (pre-modification)(the
      “Simulators”);
 -
              Assignments
      of copyrights to a specialized F-16 Fighter Aircraft training course
      syllabus, specially created by AeroGroup for training pilots.(the “F-16
      Training Courses”);
 -
              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 (collectively
      the “Patents”);
 -
              Assignment
      of a Federal Aviation Administration issued license as an Aircraft Dealer
      (“FAA Dealer License”);
 -
              Rights
      as assignee under three subcontracts and one contract to provide combat,
      primary and other flight training, as well as training research, in the
      F-16 and various other types of aircraft to military personnel of the U.S.
      Armed Forces, NATO forces and other approved countries (“Training
      Contracts”);
 -
              Assignment
      of a sublease of facilities at the Grayson County Airport in
      Grayson, Texas, including aircraft hangars, land and office space (the
      “Grayson Sublease”);
 -
              Assignment
      of an option to enter into an exclusive agreement with Air Support
      Systems, LLC, to lease IL-78 tanker aircraft which are used primarily in
      air-to-air refueling operations (the “IL-78 Lease”) (The MIG 29’s,
      Simulators, F-16 Training Courses, Patents, FAA Dealer License, Training
      Contracts, Grayson Sublease and IL-78 Lease may collectively be referred
      to hereinafter as the “AeroGroup Assets”);
and
 -
              Exclusive
      rights to the AeroGroup name and all copyrights, trademarks, logos,
      imagery and other intellectual property, in connection with any business
      competitive to the business of the
Company.
   2
 
 It was
intended that the AeroGroup Assets would be used by the Company in connection
with both “basic flight training” “introduction to fight fundamentals” and
“combat flight training” of military pilots. The Company planned to use the
assets to provide U.S. and NATO military pilots with a “real life” opportunity
to train against threat-type aircraft whose performance and flight
characteristics are superior in some respects to those of U.S. and NATO fighter
aircraft.
 
 As a
result of the U.S. Base Foreclosure Act, the overall downsizing of the armed
forces of the U.S. and its foreign allies, and the advanced age of the U.S.
military air fleet, there was insufficient equipment and personnel to meet
demands for combat air training and air refueling training. The wars in Iraq and
Afghanistan and various regional conflicts and terrorist’s acts, have only added
to this crisis. The private-sector is now being asked to fill a role once the
exclusive domain of the military, and the capabilities of civilian contractors
are well recognized, and are frequently proven superior and more efficient than
public-sector contractors. In addition, due to the escalating wild fires in the
Western U.S., and the financial and environmental costs associated with this
crisis, fire-fighting preparedness and capability have become a top priority at
both the State and Federal levels of government. Again, the private sector is
being asked to provide services that were previously the domain of the
public-sector.
 
 In order
to meet present and future military, environmental, and financial threats, the
United States and its allies has been forced to continue to commit billions of
dollars to training, preparedness, and execution. These needs cannot be met
without the support of the private-sector. We believe that there is currently no
other private-sector contractor which can adequately fulfill these diverse and
urgent demands, and we believe that TADS possesses access to the aircraft,
personnel, and operational skills necessary to claim a significant piece of this
rapidly growing and highly-profitable market for diverse air support
services.
 
 Air Combat
Training
 
 Air
combat training exercises are currently conducted by the training commands of
the United States Air Force, United States Navy, and of most of our NATO, and
foreign allies. We believe neither the U. S. Department of Defense (the “DoD”)
nor its allies have sufficient personnel, support equipment, or access to
foreign enemy type aircraft, to meet current demand. In many instances our
European allies have neither the facilities nor the extensive airspace required
for fighter combat training or fighter bomber training that we hope to
provide.
 
 TADS is
able to provide the armed forces of the U.S. and its allies with a vast array of
training services and support functions including, but not limited to air combat
instruction and tactical training, actual aggressor simulated combat, classroom
instruction, and airspace scheduling, fueling, aircraft spare parts support,
aircraft maintenance and aircraft maintenance training.
 
 Air
combat simulation exercises are currently conducted by the training commands of
the United States Air Force, United States Navy, and of most of our NATO, and
foreign allies. We believe neither the DoD nor its allies have sufficient
training and support equipment and personnel to meet current demand. In many
instances, our European allies have neither the facilities nor the extensive
airspace required for fighter combat training or fighter bombing training that
TADS can provide.
 
 Our
flight training services focus on two major components; initial qualification
flight training and advanced flight training, both of which consist of ground,
and in the air flight training. In addition, we are preparing to perform other
flight training support services as described herein.
 
       3
  Initial Qualification Flight
Training
 
 Initial
qualification flight training consists of the training of military pilots
that have only recently become qualified in their aircraft and of more
experienced pilots returning for recurrency training. Initial qualification
flight training involves aircraft specific flight theory, flight maneuvers,
aerodynamics, emergency in flight procedures as they relate to combat in a
specific aircraft. Pilots and other crew members are also trained in cockpit
resource management, which focuses on division of duties between pilot and
co-pilot and utilization of resources within the aircraft cockpit to complete
the flight plan and address emergencies. Initial qualification training involves
many hours of classroom instruction in aircraft systems operations, air-to-air
flight maneuvers, tactics, formation flying, instrument training and
air-to-ground tactics. In flight instruction is generally provided only once the
pilot has shown proficiency in ground instruction and flight simulator
instruction.
 
 Advanced  Flight
Training
 
 Advanced
flight training focuses on combat and other advanced maneuvers and is conducted
after the pilot completes initial qualification training and returns to a “full
service” training facility where he is provided refresher or upgrade training to
sharpen his or her combat skills. We intend to focus the training venue on
approved overseas customers and NATO customers who would use our facilities and
ranges to qualify, in some cases, and re-qualify in other cases in specific
combat skills like air-to-air, air-to-ground, electronic countermeasure
training, air-refueling training, and other advanced maneuvers.
 
 U.S. Military
Training
 
 A crucial
component to aerial combat training involves training against actual foreign
adversary aircraft which are typically Russian, ex-Soviet bloc, or Chinese.
However, because the U.S. military has little to no access to “enemy” aircraft,
the status-quo has been to use aged U.S. military aircraft operating as the
adversarial or “Red Air” aircraft. The status-quo leaves much to be desired
because aged U.S. military aircraft do not possess the flying characteristics or
capabilities of sophisticated enemy combat aircraft, nor do they emit the same
electronic, radar signature, or visual signals.
 
 Through
its agreements with companies licensed by the U.S. Department of Justice (BATF)
to import foreignweapons of war, TADS
can provide unique Red Air aggressor aircraft, along with ILyushin IL-78’s
available in the U.S. or the Ukraine.  These are the aircraft that are
the actual fighter aircraft currently used substantially many of the former
Soviet bloc countries and non-allied nations.
 
 In
connection with contracts to provide adversary combat aircraft to the U.S.
military, TADS can supply various support services such as adversary pilots,
spare parts, service and maintenance of the adversary aircraft, tactical
training, actual aggressor simulated combat, and classroom
instruction.
 
 In 2008,
TADS was awarded a $207 million government contract to provide air combat
training and support to the U.S. military. The funding amount of the contract
has been stipulated, and the requirements of the contract have been established,
but to-date, the contract has not been funded or “tasked”, and TADS can give no
assurances that the contract will ever be tasked or funded.
 
 In 2009,
TADS received a three-month renewable contract from a private U.S. company to
provide its exclusively leased IL-78 aircraft to an allied Middle-Eastern
governmental agency.  Due to what TADS believes to be tortuous
interference from a third-party, immediately prior to TADS sending the IL-78
aircraft to the Middle-East, it was not able to provide the IL-78 aircraft and
the contract expired.
 
 Foreign Air Combat
Training
 
 Unlike
the training of the U.S. military, air combat training of foreign allied
militaries typically entails air combat training techniques and strategies using
U.S. military aircraft such as the F-16, which such foreign militaries have
already purchased. Although a commercial endeavor, it has been a strategic
decision of the U.S. government to supply U.S. fighter aircraft to its allies.
However, the ability and resources of the U.S. military to thereafter train the
foreign purchasers of its aircraft is extremely limited and
sub-par.
 
 As a
result, there is a backlog of allied countries that have purchased F-16’s and
other U.S. fighter aircraft, and that have immediate and ongoing need for air
combat training. TADS believes they are able to offer to foreign militaries
actual combat training from highly experienced U.S. fighter pilots, classroom
training, and parts, service, and maintenance protocols for their aircraft. TADS
also has the capability to either train on foreign soil and foreign military
bases to fulfill multi-year contracts, or to provide a turn-key solution by
hosting foreign militaries on U.S. soil, and therein provide not only pilots,
training protocols, and parts, service, and maintenance, but also the air-bases,
bombing ranges, fueling services, housing requirements, etc.
   4
 
 Belgian Air Force Training
Contract
 
 On
October 23, 2007, TADS was awarded, through the AeroGroup Acquisition, contract
FA3002-08-C-0003 to train the Belgian Air Force pilots at facilities located in
Belgium (the “BAF Contract”).
 
 TADS
executed the BAF Contract for the first year but the contract was not renewed
for an additional 2 years. The BAF Contract specified providing classroom,
flight, and combat training to the Belgian Air Force. The Company was not
required to provide either aircraft or facilities as both were provided by the
Belgian Air Force.
 
 Through
the BAF Contract, TADS graduated four pilots from the Air Force of a
Middle-Eastern ally, and is currently pursuing a contract for additional
training services with said allied Air Force, although no assurances can be
given that a final contract will be awarded to TADS.
 
 In
addition, TADS is currently in the early phases of air combat training contracts
with other allied countries to provide F-16 training, support, and services, and
although TADS believes that it is well-positioned to be awarded any and all of
these foreign contracts, no assurances can be given.
 
 Ground-Threat
Support
 
 The U.S.
military regularly trains against “enemy” ground-threats, simulating Former
Soviet Union  and Chinese Air Defense surface-to-air missile
systems.  These systems make up approximately 95% of all known
ground-threats used by perceived hostile states and groups around the world such
as North Korea, Syria, Iran, the Taliban, etc.
 
 Notably,
however, the U.S. DoD has been unable to acquire and support working examples of
said air defense systems with which to train. As a replacement, the U.S.
military uses replica or “same signal” practice units which offer a sub-par
training experience due to at times materially different physical and electronic
characteristics.
 
 To the
best of our knowledge, TADS, through its agreement with a supplier of Russian
systems, is the only U.S. company able to provide and support Former Soviet
Union joint-threat emitter systems in good working and overhauled condition, and
as a result we believe we can provide a much more effective and value-added
training experience to the U.S. and allied militaries.
 
 Although
TADS is not actively pursuing any ground-threat support contracts, we believe
that the demand does exist and that TADS is well-positioned to be awarded
ground-threat support contracts in the future, although no assurances can be
given.
 
 Air to Air
Refueling
 
 As
demonstrated by the debacle between Boeing and AES in the awarding of the next
generation of air refueling aircraft, air refueling is big business, and the
U.S. fleet of air refueling aircraft, which were all built in the 1950’s and
1960’s, are operating well below the required levels. With its aging fleet and
the uncertainty of the delivery of new tankers, there is an immediate need for
the military to outsource air re-fueling and air refueling
training.
 
 Until
recently, TADS had an exclusive lease agreement to operate the only ILyushin
IL-78 refueling tanker aircraft available in the U.S. The IL-78 is used for
mid-air refueling by most air forces in the world including Russia, most former
Soviet republics, China, India, Pakistan, Cuba, Libya, Syria, and many others.
The TADS IL-78 is the Midas version and is configured for mid-air refueling. It
is capable of re-fueling at an airspeed exceeding 400 knots, and can deliver
fuel to three aircraft simultaneously. In addition, the ILyushin aircraft are
the only planes ever made for the purpose of aerial fire-fighting and
water-bombing, and are recognized as far superior to any other aircraft in
existence for this purpose. TADS plans to provide the IL-78 for re-fueling
during air combat training sessions and for contract re-fueling of U.S. military
squadrons.
 
 TADS is
currently negotiating an option to lease up to two IL-78 aircraft, and believes
that there is demand for its services in connection with IL-78’s from both the
U.S. and foreign allied militaries, although no assurances can be given that
TADS will be awarded a contract in the future.
   5
 
 Aerial
Fire-Fighting
 
 In
addition to its military operation capabilities, the IL-76/78 is the only large
aircraft ever built for the purpose of aerial water-bombing, and is considered
by most fire-fighting experts as the most capable. The ILyushin IL-76/78
aircraft are dedicated water-bombers that are capable of quickly and efficiently
disbursing large quantities of water or fire retardant to defeat the increasing
damage from the extensive forest fires in the Western U.S. and other
areas.
 
 As
exemplified by the state-of emergency declared by California recently, the
United States Forest Service estimates that forest fires will be a permanent
threat. In addition to the substantial revenue stream that TADS anticipates
could result from these services, we believe that TADS would receive valuable
high-profile publicity from providing aerial fire-fighting
services.
 
 Due to
the escalating forest fire crisis in the Western U.S., and the unique
capabilities and exclusivity of its ILyushin aircraft, prior to cancellation of
its exclusive lease, TADS had exploring opportunities with State and Federal
agencies in connection with providing aerial fire-fighting services to combat
the seemingly ever-growing devastation of forest fires, and anticipates that
should it be successful in acquiring the option to lease additional IL-78
aircraft, that there will be demand for its services, but TADS cannot guarantee
that it will be awarded a final contract in the near future.
 
 Specialty Aerial
Services
 
 In
addition to its use as an air refueling aircraft and as an aerial fire-fighter,
the unique characteristics of the IL-78 make it extremely desirable for a number
of specialty aerial services.
 
 The
IL-78aircraft is a versatile workhorse that can be configured for heavy cargo
and used for the transport of military vehicles, heavy equipment, and commercial
air cargo services. The IL-78 has unique performance capabilities and is famous
for its ability to operate in extreme conditions and from marginal landing
areas.
 
 Current Asset
Status
 
 On May
29, 2008, TADS returned the two MiG-29 and Simulators (the “Cambar Assets”)
purchased in the AeroGroup Acquisition through a Settlement and Release
Agreement (the “Cambar Settlement”) executed between the Company and Cambar
& Associates (“Cambar”). As part of the AeroGroup Acquisition, in December,
2006, TADS had assumed from AeroGroup indebtedness owed to Cambar (the “Cambar
Note”) of a principle amount of $2,200,000 for the purchase of the Cambar Assets
and, which indebtedness included interest to be paid on the
principle.  Due to the terms of the Cambar Note and the value of the
Cambar Assets, the Company determined at that time that it was in its best
interest to unwind the purchase of the Cambar Assets. With the Cambar
Settlement, 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. In addition, Cambar reclaimed
the Cambar Assets, the Company cancelled the Cambar Note including any accrued
and unpaid interest and retired the 1,000,000 Shares issued to Cambar and NATA
as compensation for interest due on the Cambar Note in 2007. Such terms were
considered payment in full and final settlement for any claims Cambar held
against the Company.
 
 In
November of 2009, the lessor of IL-78 aircraft pursuant to the IL-78 Lease,
cancelled the excusive lease of the IL-78 with TADS.  TADS had been
preparing the IL-78 for departure to the Middle East for execution of a
three-month contract through a U.S. intermediary party, when the IL-78 was
encumbered by an FAA lien by Victor Miller and Air 1 Flight Support for unpaid
work on the IL-78.  Subsequently, the IL-78, without the knowledge of
the lessor or TADS, was removed from the facilities in Texas. Since that time,
the aircraft has remained grounded awaiting the outcome of litigation between
Victor Miller and the lessor (See “Item 3. Legal Proceedings”
herein).  Although TADS believes that the action by Mr. Miller and Air
1 Flight Support are without merit, the result has been the loss of the
exclusive lease of the IL-78 and the loss of its first contract in connection
with the IL-78. Notwithstanding the above, TADS is currently negotiating an
option with the lessor for the option to lease up to two of its remaining IL-78
aircraft currently located in the Ukraine for use in connection with potential
contracts outside of the U.S.
 
 On May
18, 2010 the Company signed a lease agreement with Air Support Systems, LLC. The
Lease Option Agreement with Air Support Systems, LLC gives the Company the right
to enter into exclusive one-year renewable leases for any or all of the four
IL-76 and IL-76 supertanker aircraft, under a fee arrangement that allocates 50%
of the operating profits each to the Company and Air Support Systems
respectively. A copy of the Lease Option Agreement was attached as an exhibit to
our Form 10-Q for the period ending March 31, 2010 filed with the SEC on May 24,
2010 and incorporated herein by reference.
 
 6
 
 
 Due to
the loss of our Cambar Assets and IL-78, the Company has allowed the Grayson
Sublease to lapse. Following acquisition of the additional aircraft the Company
is currently negotiating, the Grayson Sublease, including aircraft hangars, land
and office space, is under negotiations.
 
 RESULTS
OF OPERATIONS
  Revenues
 
 Six
      months
                ended
      June 302010
              
              2009Total
      Sales
              $0
              
              $0
 
 We had no
revenues for the six months ended June 30, 2010 or 2009.
 
 Operating
Expenses
 
 Six
      months
                ended
      June 302010
              
              2009Operating
      Expense
              $477,627
              
              $391,278
 
 Total
operating costs of $477,627 for the six months ended June 30, 2010 and $391,278
for the six months ended June 30, 2009 consisted of general and administrative
expenses, including the compensatory element of stock issuances for such
periods.
 
 Net Profit
(Loss)
 
 Six
      months
                ended
      June 302010
              
              2009Net
      Profit (Loss)
              ($538,143)
              
              ($401,278)
 
 For the
six months ended June 30, 2010, we sustained net losses of $538,143 as compared
with net losses of $401,278 for the six months ended June 30, 2009.
 
 Liquidity and Capital
Resources
 
 As at
June 30, 2010, the Company had total assets of $88,000 comprised mainly of
property and equipment.  There were liabilities of $1,566,964
comprised of $27,787 in accounts payable and $1,539,177 in short term debentures
payable. Assets of $88,000 and liabilities of $1,539,177 resulted in a working
capital deficiency of $1,478,694. The Company reported total stockholders’
deficit of $1,478,964 at June 30, 2010. We anticipate that our current cash on
hand of $0 as of June 30, 2010 is not sufficient to satisfy our cash
requirements without additional funding.  The Company has funded its
operations and met its capital expenditures requirements primarily through cash
generated from contributions from the issuance of convertible debt securities
and short-term promissory notes. 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 on order to complete our business plan.
 
  7
   During
the year ended December 31, 2010, the Company believes that it will expend funds
on the following:
 
 -
              Expenses
      related to the acquisition of potential
  contracts;
 -
              Leasing
      and refurbishment of certain military aircraft and
    equipment;
 -
              Leasing
      and refurbishment of training facilities to fulfill potential contracts;
      and
 -
              Hiring
      of additional employees and independent contractors to fulfill potential
      contracts.
 
 Need for Additional
Capital
 
 As
indicated above, management does not believe that the Company has sufficient
capital to sustain its operations without raising additional
capital.  We presently do not have any available credit, bank
financing or other external sources of liquidity.  Accordingly, we
expect that we will require additional funding through additional equity and/or
debt financings.  However, there can be no assurance that any
additional financing will become available to us, and if available, on terms
acceptable to us.
 
 Any
financing, if available, may involve restrictive covenants that may impact our
ability to conduct our business or raise additional funds on acceptable
terms.  If we are unable to raise additional capital when required or
on acceptable terms, we may have to delay, scale back or discontinue our
expansion plans.  In the event we are unable to raise additional
capital we will not be able to sustain any growth or continue to
operate.
 
 Effects of
Inflation
 
 Inflation
and changing prices have not had a material effect on our business and we do not
expect that inflation or changing prices will materially affect our business in
the foreseeable future. However, our management will closely monitor the price
change and continually maintain effective cost control in
operations.
 
 Off Balance Sheet
Arrangements
 
 We do not
have any off balance sheet arrangements that are reasonably likely to have a
current or future effect on our financial condition, revenues, and results of
operations, liquidity or capital expenditures.
 
 Going
Concern
 
 The
accompanying financial statements have been prepared assuming we will continue
as a going concern.  We have had substantial operating losses for the
past years and are dependent upon outside financing to continue operations. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty. It is management’s plan to raise necessary funds
from shareholders to satisfy the expense requirements of the
Company.
 
 CONTRACTUAL
OBLIGATIONS
 
 Consulting / Employment
Agreements
 
 On May
11, 2010, the Company entered into a Corporate Development Services Agreement
(the “ZA Agreement”) with ZA Consulting, Inc. to provide certain corporate
development and investor relations consulting services. Pursuant to the terms of
the ZA Agreement, ZA Consulting, Inc. shall provide their services for a six
month term and will receive a one-time payment of: (i) $150,000; and (ii)
20,000,000 shares of the Company’s restricted common stock. The complete terms
and details of the Agreement are included in a copy of the ZA Agreement which
was attached to our Form 8-K filed with the SEC on May 17, 2010 and incorporated
herein by reference.
 
 On July
9, 2010, the Company entered into a new employment agreement with Renee Ferrer
as Director of Business Development for Latin America of the
Company.  The term of the agreement is for one year, and provides for
an annual salary of $48,000 and a signing bonus of 50,000,000 restricted shares
of the Company’s Common Stock.  The agreement also provides for
participation by Mr. Cariello in the management bonus pool. The complete terms
and details of the employment agreement are included in a copy of the employment
agreement attached as an exhibit hereto and incorporated herein by
reference.
 
 On July
14, 2010, the Company entered into a new employment agreement with Tom Robinson
as Director of Disaster Relief Services of the Company.  The term of
the agreement is for one year, and provides for an annual salary of $48,000 and
a signing bonus of 10,000,000 restricted shares of the Company’s Common Stock.
The complete terms and details of the employment agreement are included in a
copy of the employment agreement attached as an exhibit hereto and incorporated
herein by reference.
   8
 
 Debt
Obligations
 
 On April
1, 2010, the Company issued a Convertible Debenture in a principle amount of
$37,500 to The Bingham Law Group as consideration for unpaid legal fees as of
4/1/2010 to the Company. The Convertible Debenture has a term of three years, an
interest rate of 12%, and has full-ratchet anti-dilution
protection.  The principle amount is convertible into 30,000,000
shares of Common Stock at a conversion price of $0.00125 per share. The
complete terms and details of the Convertible Debenture are included in a copy
of the Convertible Debenture attached as an exhibit hereto and incorporated
herein by reference.
 
 On May
19, 2010, the Company issued a Convertible Debenture in a principle amount of
$150,000.00 to the Gary Fears Trust as consideration for a loan to the
Company.  The Convertible Debenture has a term of three years, an
interest rate of 12%, and has full-ratchet anti-dilution
protection.  The principle amount is convertible into 60,000,000
shares of Common Stock at a conversion price of $0.0025 per share. The
complete terms and details of the Convertible Debenture are included in a copy
of the Convertible Debenture attached as an exhibit hereto and incorporated
herein by reference.
 
 On June
30, 2010, the Company issued a Convertible Debenture in a principle amount of
$45,000.00 to Michael Cariello as consideration for unpaid salary to the
Company.  The Convertible Debenture has a term of three years, an
interest rate of 12%, and has full-ratchet anti-dilution
protection.  The principle amount is convertible into 18,000,000
shares of Common Stock at a conversion price of $0.0025 per share. The
complete terms and details of the Convertible Debenture are included in a copy
of the Convertible Debenture attached as an exhibit hereto and incorporated
herein by reference.
 
 On July
1, 2010, the Company issued a Convertible Debenture in a principle amount of
$318,570.50 to the Gary Fears Trust as consideration for a loan to the
Company.  The Convertible Debenture has a term of three years, an
interest rate of 12%, and has full-ratchet anti-dilution
protection.  The principle amount is convertible into 127,428,200
shares of Common Stock at a conversion price of $0.0025 per share. The
complete terms and details of the Convertible Debenture are included in a copy
of the Convertible Debenture attached as an exhibit hereto and incorporated
herein by reference.
 
 On July
1, 2010, the Company issued a Convertible Debenture in a principle amount of
$33,945.68 to Alexis Korybut as consideration for unpaid salary, benefits, and
expenses to the Company.  The Convertible Debenture has a term of
three years, an interest rate of 12%, and has full-ratchet anti-dilution
protection.  The principle amount is convertible into 13,578,272
shares of Common Stock at a conversion price of $0.0025 per share. The
complete terms and details of the Convertible Debenture are included in a copy
of the Convertible Debenture attached as an exhibit hereto and incorporated
herein by reference.
 
 Other
Agreements
 
 On May 20, 2010, the Company entered
into a Letter of Intent (the “LOI”) with Tactical Air Support, Inc.
(“TAS”). TAS is a highly
regarded Aerospace/Defense Services contractor founded by a group of former
Navy, Marine, and Air Force Weapon’s School Instructors. TAS has won and
successfully executed multiple Aerospace/Defense contracts awarded by divisions
of the U.S. Department of Defense. TAS’s website is located at
www.tacticalairsupport.com. Pursuant to the terms of the LOI and
subject to further negotiation, the Company will acquire 100% of the equity
interest (both common and preferred) of TAS such that following the transaction,
TAS will become a wholly owned subsidiary of the Company. In exchange, the
existing shareholders of TAS will be issued approximately 46% of post
transaction issued and outstanding shares of the Company’s common stock. The
parties have agreed to use their best efforts to close the Transaction within
120 days of execution of the LOI. The complete terms and details of the LOI are
included in a copy of the LOI which was attached to our Form 10-Q for the period
ending March 31, 2010 filed with the SEC on May 24, 2010 and incorporated herein
by reference.
     9
 
 On May
18, 2010, the Company entered into an Aircraft Lease Option Agreement (the
“Lease Option Agreement”) with Air Support Systems, LLC (“ASSL”) wherein the
Company obtained an option to an exclusive lease of two Russian ILyushin IL-78
and two ILyushin IL-76 supertanker aircraft. The ILyushin IL-78 is a specialty
military air-to-air refueling supertanker capable of refueling three aircraft
simultaneously, and is widely regarded as the air-to-air refueling aircraft of
choice around the world. The ILyushin IL-76 supertanker is a Russian made
aircraft specifically designed for aerial fire-fighting, and which can be
retrofitted for aerial oil-spill containment. The IL-76 is generally recognized
throughout the world as the pre-eminent aerial firefighting tool available, and
is widely considered superior to other aerial firefighting aircraft in
existence. The Company intends to offer the ILyushin aircraft to the U.S. and
foreign-allied militaries and other federal and state agencies for air-to-air
refueling services, aerial fire-fighting services, oil-spill containment
services, and other disaster relief deployment services. Under the terms of the
Lease Option Agreement with ASSL, the Company maintains the right to enter into
exclusive one-year renewable leases for any or all of the four ILyushin
supertanker aircraft with shared operating costs split between the parties
subject to further agreement. The Company is required to issue ASSL 10,000,000
shares of the Company’s restricted Common Stock and provides for a fee
arrangement that allocates 50% of the operating profits each to the Company and
ASSL respectively. As of the date herein, no shares have been issued pursuant to
the Lease Option Agreement. The complete terms and details of the Lease Option
Agreement are included in a copy of the Lease Option Agreement which was
attached to our Form 10-Q for the period ending March 31, 2010 filed with the
SEC on May 24, 2010 and incorporated herein by reference.
 
 On July
19, 2010 the Company entered into an MOU to acquire Sudamin A&D S.A. Sudamin
shall transfer to TADF all shares of Sudamin’s common stock and preferred stock,
which shall represent 100% of the equity interest of Sudamin, such that Sudamin
shall become a wholly owned subsidiary of TADF. In exchange, the existing
shareholders of Sudamin  shall be issued shares of TADF’s common stock
such that the Sudamin Shareholders shall own a number of shares of TADF’s common
stock, which number shall to be determined and subject to further mutual due
diligence and execution of definitive agreements between the
Parties.
 
 ITEM
      3.
              QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
 
 Not
Applicable.
 
 ITEM
4.                      CONTROLS
AND PROCEDURES
 
 As
required by Rule 13a-15 under the Securities Exchange Act of 1934 (“Exchange Act”) we
carried out an evaluation of the effectiveness of the design and operation of
our disclosure controls and procedures as June 30, 2010, being the date of our
most recently completed fiscal quarter. This evaluation was carried out under
the supervision and with the participation of our Chief Executive and Chief
Financial Officer. Based upon that evaluation, our Chief Executive and Chief
Financial Officer have concluded that our disclosure controls and procedures are
not effective to ensure that information required to be disclosed in our
Exchange Act reports is recorded, processed, summarized, and reported within the
time periods specified in the Securities and Exchange Commission’s rules and
forms, and that such information is accumulated and communicated to them to
allow timely decisions regarding required disclosure.  Such reasons
for ineffectiveness were described in the Company’s Form 10-K for the period
ending December 31, 2009.
 
 During
our most recently completed fiscal quarter ended June 30, 2010, there were no
changes in our internal control over financial reporting that have materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
 
 We
currently do not have an audit committee, or a person serving on our Board of
Directors who would qualify as a financial expert.
 
 
 PART
II
 
 ITEM
1.                      LEGAL
PROCEEDINGS
 
 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.
        
 10
 
 
 In June
of 2009, Victor Miller and Air 1 Flight Support, an entity controlled by Victor
Miller, caused an injunction to be placed on the Company to not relocate the
IL-78, which the Company leases from a third party, as a result of a lien Victor
Miller and Air 1 Flight Support placed on the IL-78 for unpaid services provided
to the third-party leasing the IL-78 to the Company.  The Company
believes that the lien and injunction are completely without merit based upon
Victor Miller and Air 1 Flight Support being party to a settlement agreement
between the parties including the third-party subject to the
lien.  Victor Miller and Air 1 Flight Support subsequently filed a
motion for contempt of court against the Company subsequent to the IL-78 having
been relocated by a third-party to which the Company leases the IL-78, without
the knowledge or assistance of the Company.  Victor Miller and Air 1
Flight Support subsequently filed a legal proceeding against the Company in
Michigan in connection with the lien, which has resulted in a judgment against
the Company.  The Company intends to contest the judgment which it was
not given the opportunity to defend against for what it believes to be a
fraudulent lien. The Company believes that these motions and proceedings are
without merit, and the Company intends to vigorously defend itself, and pursue
Victor Miller and Air 1 Flight Support for tortuous interference and material
damages to the Company.
 
 On March
4, 2010, TADS sued Mark Daniels, the Company’s former President and Chief
Executive Officer, and various entities affiliated with or controlled by Mr.
Daniels, in The Circuit Court of the 15th
Judicial Circuit in and for Palm Beach County, Florida, for temporary and
permanent injunctive relief, damages, and other relief for breach of contract,
breach of fiduciary duty and duty of loyalty, tortuous interference with
advantageous and contractual relationships, and misappropriation, misuse and
conversion of trade secrets and confidential business information. Although the
Court did not grant our Emergency Motion for Preliminary Injunction, the court
did find that here continues to be a valid and enforceable agreement between the
parties. The Company will continue to pursue all claims and remedies against the
defendant in such action.
 
 On May 7, 2010, Mr. Daniels filed an
improper and frivolous Involuntary Chapter 7 Petition (the “Petition”) against
the Company in the United States Bankruptcy Court for the Southern District of
Florida, in an effort to circumvent the legitimate court process, by claiming
non-payment of a promissory note that the Company contends in its litigation
against Mr. Daniels was issued without proper consideration when Mr. Daniels was
the President, Chief Executive Officer, and a Director of the Company.
Upon notification to the Company
on May 10, 2010 of this improper Petition, the Company requested and was granted
an Emergency Hearing for May 14, 2010 in the United States Bankruptcy Court in
the Southern District of Florida before Chief Justice Paul G. Hyman (the
"Emergency Hearing"). On
May 14, 2010, Chief Justice Paul G. Hyman dismissed the Involuntary Chapter 7
Petition by a signed Order granting an emergency Motion to Dismiss the
Involuntary Chapter 7 Petition filed against the Company by Mr.
Daniels.  In the Court Order, it was agreed that:
 
 -
              Mr.
      Daniels’ claim is the subject of a bona fide
      dispute;-
              The
      Company has more than 12 unsecured creditors (note holders are the only
      claims not in dispute);
 
 -
              The
      Court should enter an Order dismissing Mr. Daniels’ involuntary petition,
      with prejudice to any subsequent involuntary petition by Mr. Daniels
      (i.e.. he is
      barred from refilling an involuntary petition), or any insider or
      affiliate of Mr. Daniels; and-
              Moreover,
      Mr. Daniels cannot pursue any efforts or take any actions to solicit,
      recruit, encourage, or cause any other alleged creditor of the Company to
      file an involuntary bankruptcy petition against the
    Company.
 
 -
              The
      Company agreed to withdraw its claim for attorney’s fees, costs, damages
      and punitive damages arising from the improvident filing in exchange for
      Mr. Daniels’ consent to the dismissal of the
  petition.
 
 Additionally,
Mr. Daniels’ attorney of record who filed the Petition, as a result of learning
that Mr. Daniels had materially misstated the facts and failed to disclose that
Mr. Daniels was currently the Defendant in civil litigation with the Company,
filed a motion to withdraw his representation of Mr. Daniels in the
Petition.
 
 Despite
the dismissal of the Petition described above, on August 3, 2010 certain
affiliates and business associates of Mr. Daniels filed an improper and
frivolous Involuntary Chapter 7 Petition (the “New Petition”) against the
Company in the United States Bankruptcy Court for the Southern District of
Florida, in an effort to circumvent the legitimate court process, in direct
violation of the Court Order issued by Judge Paul Hyman on May 14, 2010
described above.
   11
 
 The
Company immediately requested an emergency Motion to Dismiss the New Petition
based upon its contention that:
 
 -
              the
      New Petition violated the Court Order because it was solicited, recruited,
      encouraged, or caused by Mr.
Daniels;
 -
              the
      majority of the new petitioners were affiliates and business associates of
      Mr. Daniels;
 -
              a
      majority of the new petitioners were currently involved in civil
      litigation with TADF; and
 -
              all
      of the claims of the new petitioners were either without merit, being
      contested, or were frivolous and
improper.
 
 On August
10, 2010, at an Emergency Hearing to Dismiss the fraudulent and improper
Petition, the Federal Bankruptcy judge dismissed the Petition, as had been
anticipated and previously disclosed by the Company, and, moreover, due to the
egregious actions of the petitioners, reserved the right of the US Federal
Bankruptcy Court to:
 
 -
              impose
      sanctions upon the petitioners, and
 -
              impose
      punitive sanctions upon the petitioners if it is determined that the
      actions of the petitioners violated the Court Order previously issued by
      U.S. Federal Bankruptcy Court Judge
Hyman.
 
 Although
no assurances can be given, the Company believes that sanctions will be imposed
upon the petitioners, and that it will be determined that the petitioners
violated the Court Order issued by Judge Hyman.
 
 As
disclosed in our past filings, Sichenzia & Ross LLP (“Sichenzia”) had been
pursuing a claim against the Company for unpaid services dating back to early
2007. The Company recently learned that Sichenzia obtained a judgment against
the Company in the amount of $21,471.87 in the Civil Court of the City of New
York, County of New York on April 3, 2008. We believe that this claim is without
merit and are working towards resolution of the same.
 
 As of the
date of this Annual Report, the Company is not a party to any pending litigation
or legal proceeding that is not described herein or in the ordinary course of
business. To our knowledge, no such proceedings exist or are threatened other
than those described herein.
 
 ITEM
1A.                      RISK
FACTORS
 
 Not
Applicable.
 
 ITEM
2.                      UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
 On April
20, 2010, the Company issued 33,570,797 shares of unrestricted Common Stock to
the Estella A. Korybut Trust in connection with the conversion of a Convertible
Debenture of the Company in the aggregate amount of $23,110.14, including
$20,000 of principle and $3,110.14 of accrued interest, at a conversion price of
$0.0006884 subject to the terms of the Convertible Debenture.
 
 On April
20, 2010, the Company issued 16,785,399 shares of unrestricted Common Stock to
the Michael Korybut in connection with the conversion of a Convertible Debenture
of the Company in the aggregate amount of $11,555.07, including $10,000 of
principle and $1,555.07 of accrued interest, at a conversion price of $0.0006884
subject to the terms of the Convertible Debenture.
 
 On April
21, 2010, the Company issued 15,615,324 shares of unrestricted Common Stock to
Jamie Goldstein in connection with the conversion of a Convertible Debenture of
the Company in the aggregate amount of $10,749.59 including $10,000 of principle
and $749.59 of accrued interest, at a conversion price of $0.0006884 subject to
the terms of the Convertible Debenture.
   12
   On April
21, 2010, the Company issued 2,324,356 shares of unrestricted Common Stock to
Leidy Alvarez in connection with the conversion of a Convertible Debenture of
the Company in the aggregate amount of $1,600.11 including $1,500 of principle
and $10.11 of accrued interest, at a conversion price of $0.0006884 subject to
the terms of the Convertible Debenture.
 
 On April
21, 2010, the Company issued 2,324,356 shares of unrestricted Common Stock to
Cassio Ismael in connection with the conversion of a Convertible Debenture of
the Company in the aggregate amount of $1,600.11 including $1,500 of principle
and $10.11 of accrued interest, at a conversion price of $0.0006884 subject to
the terms of the Convertible Debenture.
 
 On April
21, 2010, the Company issued 2,324,356 shares of unrestricted Common Stock to
Jessica Buitrago in connection with the conversion of a Convertible Debenture of
the Company in the aggregate amount of $1,600.11 including $1,500 of principle
and $10.11 of accrued interest, at a conversion price of $0.0006884 subject to
the terms of the Convertible Debenture.
 
 On May 7,
2010, the Company issued 38,335,351 shares of unrestricted Common Stock to The
Gary Fears Trust in connection with the conversion of a Convertible Debenture of
the Company in the aggregate amount of $26,390.06 including $24,187.35 of
principle and $2,202.71 of accrued interest, at a conversion price of $0.0006884
subject to the terms of the Convertible Debenture.
 
 On May
18, 2010, the Company issued 75,556,581 shares of unrestricted Common Stock to
The Gary Fears Trust in connection with the conversion of a Convertible
Debenture of the Company in the aggregate amount of $52,013.15 including
$47,500.00 of principle and $4,513.15 of accrued interest, at a conversion price
of $0.0006884 subject to the terms of the Convertible Debenture.
 
 On May
25, 2010, the Company issued 76,397,762 shares of unrestricted Common Stock to
The Gary Fears Trust in connection with the conversion of a Convertible
Debenture of the Company in the aggregate amount of $52,592.22 including
$48,000.00 of principle and $4,592.22 of accrued interest, at a conversion price
of $0.0006884 subject to the terms of the Convertible Debenture.
 
 On June
7, 2010, the Company issued 7,002,111 shares of unrestricted Common Stock to Fox
Hollow Holdings, Inc. in connection with the conversion of a Convertible
Debenture of the Company in the aggregate amount of $4,820.25 including
$4,390.14 of principle and $430.11 of accrued interest, at a conversion price of
$0.0006884 subject to the terms of the Convertible Debenture.
 
 On July
9, 2010, the Company issued 12,500,267 shares of unrestricted Common Stock to
Fox Hollow Holdings, Inc. in connection with the conversion of a Convertible
Debenture of the Company in the aggregate amount of $8,605.18 including
$7,740.00 of principle and $865.18 of accrued interest, at a conversion price of
$0.0006884 subject to the terms of the Convertible Debenture.
 
 On July
9, 2010, the Company issued 50,000,000 restricted shares of Common Stock to Rene
Ferrer as a signing bonus per the terms of his employment
agreement.  No registration rights were issued in connection with
these shares. A copy of the Employment Agreement has been attached hereto as an
exhibit.
 
 On July
12, 2010, the Company issued 27,298,139 shares of unrestricted Common Stock to
The Gary Fears Trust in connection with the conversion of a Convertible
Debenture of the Company in the aggregate amount of $18,792.04 including
$16,897.65 of principle and $1,894.39 of accrued interest, at a conversion price
of $0.0006884 subject to the terms of the Convertible Debenture.
 
 On July
12, 2010, the Company issued 36,348,730 shares of unrestricted Common Stock to
Venetian Investment Partners LLC in connection with the conversion of a
Convertible Debenture of the Company in the aggregate amount of $25,022.47
including $22,500.00 of principle and $2,522.47 of accrued interest, at a
conversion price of $0.0006884 subject to the terms of the Convertible
Debenture.
 
 On July
12, 2010, the Company issued 30,017,511 shares of unrestricted Common Stock to
Drae Holdings LLC in connection with the conversion of a Convertible Debenture
of the Company in the aggregate amount of $20,664.05 including $18,625.00 of
principle and $2,039.05 of accrued interest, at a conversion price of $0.0006884
subject to the terms of the Convertible Debenture.
 
 On July
12, 2010, the Company issued 40,291,962 shares of unrestricted Common Stock to
The Gary Fears Trust in connection with the conversion of a Convertible
Debenture of the Company in the aggregate amount of $27,736.99 including
$25,000.00 of principle and $2,736.99 of accrued interest, at a conversion price
of $0.0006884 subject to the terms of the Convertible Debenture.
   13
 
 On July
20, 2010, the Company sold 4,000,000 shares of restricted Common Stock to Lark
MW IC Ltd pursuant to a securities purchase agreement at a purchase price of
$0.0033 per share. The gross proceeds of the offering totaled
$13,200.
 
 On July
20, 2010, the Company issued 10,000,000 restricted shares of Common Stock to Tom
Robinson as a signing bonus per the terms of his employment
agreement.  No registration rights were issued in connection with
these shares. A copy of the Employment Agreement has been attached hereto as an
exhibit.
 
 On July
20, 2010, the Company issued 2,500,000 unrestricted shares of Common Stock to
David Perin per the terms of a settlement agreement between the Company and
David Perin. A copy of the Settlement Agreement has been attached hereto as an
exhibit.
 
 On July
23, 2010, the Company issued 12,500,994 shares of unrestricted Common Stock to
Fox Hollow Holdings, Inc in connection with the conversion of a Convertible
Debenture of the Company in the aggregate amount of $8,605.68 including
$7,704.00 of principle and $901.68 of accrued interest, at a conversion price of
$0.0006884 subject to the terms of the Convertible Debenture.
 
 On August
4, 2010, the Company issued 15,943,242 shares of unrestricted Common Stock to
Fox Hollow Holdings, Inc in connection with the conversion of a Convertible
Debenture of the Company in the aggregate amount of $10,975.33 including
$9,793.65 of principle and $1,181.68 of accrued interest, at a conversion price
of $0.0006884 subject to the terms of the Convertible Debenture.
 
 
 ITEM
3.                      DEFAULTUPON
SENIOR SECURITIES
 
 None.
 
 ITEM
4.                      REMOVED
AND RESERVED
 
 None.
 
 ITEM
5.                      OTHER
INFORMATION
 
 July 20, 2010 Mart Martin
was appointed to the Company’s Board of Advisors.Mr. Martin has developed
invaluable insight, experience, and relationships within the U.S. and
international intelligence services and with many foreign governments connected
to TADF’s business expansion activities.
 
 ITEM
6.                      EXHIBITS
 
 Exhibit
      #
              Title3.1
              Articles
      of Incorporation. (Attached as an exhibit to our Form SB-2 filed with the
      SEC on May 27, 1999 and incorporated herein by
  reference).3.2
              Bylaws
      (Attached as an exhibit to our Form SB-2 filed with the SEC on May 27,
      1999 and incorporated herein by reference).10.1
              Employment
      Agreement with Renee Ferrer.10.2
              Employment
      Agreement with Tom Robinson10.3
              Settlement
      Agreement with David Perin10.4
              ZA
      Consulting, Inc. Corporate Development Services Agreement (Attached as an
      exhibit to our Form 8-K filed with the SEC on May 17, 2010 and
      incorporated herein by reference).10.5
              Aircraft
      Lease Option Agreement with Air Support Systems, LLC (Attached as an
      exhibit to our Form 10-Q for the period ending March 31, 2010 filed with
      the SEC on May 24, 2010 and incorporated herein by
    reference).10.6
              Letter
      of Intent with Tactical Air Support, Inc. (Attached as an exhibit to our
      Form 10-Q for the period ending March 31, 2010 filed with the SEC on May
      24, 2010 and incorporated herein by reference).10.7
              Convertible
      Promissory Note issued to The Bingham Law Group dated April 1,
      201010.8
              Convertible
      Promissory Note issued to The Gary Fears Trust dated May 19,
      201010.9
              Convertible
      Promissory Note issued to Michael Cariello dated June 30,
    201010.10
              Convertible
      Promissory Note issued to The Gary Fears Trust dated July 1,
      201010.11
              Convertible
      Promissory Note issued to Alexis Korybut dated July 1,
  201023.1
              Consent
      of Independent Registered Public Accounting Firm Larry O’Donnell, CPA,
      P.C.31.1
              Certification
      of the Principal Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200231.2
              Certification
      of the Principal Financial Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200232.1
              Certification
      of the Principal Executive Officer  pursuant to U.S.C. Section
      1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      200232.2
              Certification
      of the Principal Financial Officer pursuant to U.S.C. Section 1350 as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002
 
 
 
 14
 
  
 
 SIGNATURES
 
 Pursuant to the requirements of Section
13 or 15(d) of the Exchange Act, the registrant has duly caused this Quarterly
Report on Form 10-Q for the period ended June 30, 2010, to be signed on its
behalf by the undersigned on August 23, 2010  thereunto duly
authorized.
 
 
 
 TACTICAL
      AIR DEFENSE SERVICES, INC./s/
      Alexis KorybutBy:
      Alexis Korybut
                Its:
      Chief Executive Officer (Principal Executive Officer, Principal Accounting
      Officer, Principal Financial
Officer)
 
 
 
                        
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