**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington
      D. C. 20549**




**FORM
      10-QSB**





S QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934


For
      the
      quarterly period ended September 30, 2007





£ TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934


For
      the
      transition period from


Commission
      file number 333-79405





**Tactical
      Air Defense Services, Inc.**


(Exact
      name of small business issuer as specified in its charter)







**Nevada**
            **88-0455809**(State
                or other jurisdiction of
              incorporation
                or organization)
            (I.R.S.
                Employer
              Identification
                No.)





**100
      Crescent Court, 7th Floor,**


**Dallas,
      Texas 75201**


(Address
      of principal executive offices)





**(214)
      459-8272**


(Issuer's
      telephone number)





Check
      whether the issuer (1) has filed all reports required to be filed by Section
      13
      or 15(d) of the Exchange Act during the past 12 months (or for such shorter
      period that the registrant was required to file such reports), and (2) has
      been
      subject to such filing requirements for the past 90 days. Yes S  No £





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





The
      number of shares of the issuer's outstanding common stock on October 31, 2007
      was 44,297,052 .





Transitional
      Small Business Disclosure Format (check one): Yes £ No S










**INDEX**





Page
                No.Part
                IItem
                1.  Financial Statements.
            
            F-1Item
                2.  Management's Discussion and Analysis or Plan of Operations.
            
            F-23Item
                3.  Controls and Procedures.
            
            F-30Part
                IIItem
                1.  Legal Proceedings.
            
            F-31Item
                2.  Unregistered Sale of Equity Securities and Use of Proceeds
            
            F-31Item
                3.  Defaults Upon Senior Securities
            
            F-32Item
                4.
                 Submission of Matters to a Vote of Security
                Holders.
            
            F-32Item
                5.
                 Other Information
            
            F-32Item
                6.  Exhibits.
            
            F-33Signatures.
            
            F-34










**PART
      I - FINANCIAL INFORMATION**





**Item
      1. Financial Statements**





**TACTICAL
      AIR DEFENSE SERVICES, INC.**


**(A
      Development Stage Company, Commencing January 1, 2006)**


**CONDENSED
      CONSOLIDATED BALANCE SHEET**


**September
      30, 2007**


**(Unaudited)**





ASSETSCurrent
                Assets:Cash
            
            $
            14,086Other
                current assets
            
            
            85,836Total
                Current Assets
            
            
            99,922Property
                and Equipment, net
            
            
            6,828,000TOTAL
                ASSETS
            
            
            6,927,922LIABILITIES
                AND STOCKHOLDERS' DEFICIENCYCurrent
                Liabilities:Accounts
                payable
            
            
            7,762Accrued
                liabilities
            
            
            1,466,369Convertible
                Debentures including accrued interest net of debt discount of $2,123,776
            
            
            4,186,302Total
                Current Liabilities
            
            
            5,660,433Convertible
                Notes Payable net of discount of $1,465,219
            
            
            2,146,038TOTAL
                LIABILITIES
            
            
            7,806,471COMMITMENTSSTOCKHOLDERS'
                DEFICIENCY:Series
                A Preferred stock-$.001 par value; 50,000,000 shares authorized;
                - shares
                issued andoutstanding
                - 6,400,000
            
            
            6,400Common
                stock-$.001 par value; 300,000,000 shares authorized; - 43,606,986
                shares
                issued andoutstanding
            
            
            43,607Additional
                paid-in-capital
            
            
            26,112,123Unearned
                compensation
            
            
            (239,583
            )Deficit
                accumulated during the development stage
            
            
            (26,801,096
            )TOTAL
                STOCKHOLDERS' DEFICIENCY
            
            
            (878,549
            )TOTAL
                LIABILITIES AND STOCKHOLDERS' DEFICIENCY
            
            $
            6,927,922




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




F-1


**TACTICAL
      AIR DEFENSE SERVICES, INC.**


**(A
      Development Stage Company, Commencing January 1, 2006)**


**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS**


**For
      the Three and Nine Months Ended September 30, 2007 and 2006**


**(Unaudited)**





Three
                Months Ended
              September
                30,
            
            Nine
                Months Ended
              September
                30,
            
            For the Period
              From January 1,
              2006
              (Commencementas a DevelopmentStage Company)
              To September 30,2007
            
            2006
            
            2007
            
            2006
            
            2007REVENUES
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -Operating
                costs
            
            
            1,073
            
            
            82,166
            
            
            170,335
            
            
            209,361
            
            
            507,681General
                and administrative, including compensatory element of stock issuance
                of
                $1,907,094, $-0-, $20,774,533, $144,773 for the three and nine months
                ended September 30, 2007 and 2006, respectively, and $20,919,306
                for the
                period January 1, 2006 to September 30, 2007
            
            
            2,201,783
            
            
            313,416
            
            
            22,000,833
            
            
            985,696
            
            
            23,659,461TOTAL
                COSTS
            
            
            2,202,856
            
            
            395,582
            
            
            22,171,168
            
            
            1,195,057
            
            
            24,167,142OPERATING
                LOSS
            
            
            (2,202,856
            )
            
            (395,582
            )
            
            (22,171,168
            )
            
            (1,195,057
            )
            
            (24,167,142
            )OTHER
                (EXPENSE) INCOME:Derivative
                loss on derivative liabilities
            
            
            -
            
            
            (9,951,824
            )
            
            -
            
            
            (16,914,828
            )
            
            (27,599,597
            )Write-down
                of fixed assets
            
            
            (326,985
            )
            
            
            
            
            (326,985
            )
            
            
            
            
            (326,985
            )Forgiveness
                of liquidated damages
            
            
            -
            
            
            1,074,188
            
            
            -
            
            
            1,074,188
            
            
            1,074,188Interest
                expense
            
            
            (1,483,218
            )
            
            (110,756
            )
            
            (3,927,743
            )
            
            (923,810
            )
            
            (5,394,333
            )Other
            
            
            -
            
            
            1
            
            
            -
            
            
            (2,386
            )
            
            (2,386
            )TOTAL
                EXPENSES
            
            
            (1,810,203
            )
            
            (8,988,391
            )
            
            (4,254,728
            )
            
            (16,766,836
            )
            
            (32,249,113
            )NET
                LOSS
            
            $
            (4,013,059
            )
            $
            (9,383,973
            )
            $
            (26,425,896
            )
            $
            (17,961,893
            )
            $
            (56,416,255
            )Preferred
                stock dividend
            
            
            (111,693
            )
            
            -
            
            
            (230,827
            )
            
            -
            
            $
            (230,827
            )NET
                LOSS APPLICABLE TO COMMON STOCKHOLDERS
            
            $
            (4,124,752
            )
            $
            (9,383,973
            )
            $
            (26,656,723
            )
            $
            (17,961,893
            )Loss
                per common share - basic and diluted
            
            $
            (0.11
            )
            $
            (0.63
            )
            $
            (1.06
            )
            $
            (1.21
            )Weighted
                average number of shares outstanding-basic and diluted
            
            
            36,045,321
            
            
            14,989,000
            
            
            25,256,199
            
            
            14,860,857





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




F-2


**TACTICAL
      AIR DEFENSE SERVICES, INC.**


**(A
      Development Stage Company, Commencing January 1, 2006)**


**CONDENSED
      CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY**


**For
      the Nine Months Ended September 30, 2007**





DeficitAccumulatedDuringCommon
                Stock
            
            Preferred
                Stock
            
            Additional
            
            Unearned
            
            DevelopmentShares
            
            Amount
            
            Shares
            
            Amount
            
            Paid in Capital
            
            Compensation
            
            Stage
            
            EquityBALANCE
                - January 1, 2007
            
            
            18,915,655
            
            $
            18,916
            
            
            -
            
            $
            -
            
            $
            2,563,950
            
            $
            -
            
            $
            (144,373
            )
            $
            2,438,493Stock-based
                compensation issued to employees-$0.48- $1.05 per share
            
            
            7,490,000
            
            
            7,490
            
            
            6,400,000
            
            
            6,400
            
            
            18,315,910
            
            
            -
            
            
            -
            
            
            18,329,800Stock
                - based compensation issued to consultants- $.48- $2.40 per
                share
            
            
            2,894,734
            
            
            2,895
            
            
            -
            
            
            -
            
            
            2,345,421
            
            
            (250,000
            )
            
            -
            
            
            2,098,316Stock
                issued for services-$1.05 per share
            
            
            320,000
            
            
            320
            
            
            -
            
            
            -
            
            
            335,680
            
            
            -
            
            
            -
            
            
            336,000Issuance
                of common stock upon conversion of debentures
            
            
            5,265,759
            
            
            5,266
            
            
            -
            
            
            -
            
            
            781,693
            
            
            -
            
            
            -
            
            
            786,959Issuance
                of common stock under private placement-$.30-$.55
            
            
            1,012,574
            
            
            1,012
            
            
            -
            
            
            -
            
            
            460,219
            
            
            -
            
            
            -
            
            
            461,231Cashless
                exercise of warrants for common stock
            
            
            7,208,264
            
            
            7,208
            
            
            -
            
            
            -
            
            
            (7,208
            )
            
            -
            
            
            -
            
            
            -Amortization
                of unearned compensation
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            10,417
            
            
            
            
            
            10,417Conversion
                of note payable
            
            
            500,000
            
            
            500
            
            
            
            
            
            
            
            
            249,500
            
            
            
            
            
            
            
            
            250,000Fair
                value of warrants issued with convertible debt
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            791,749
            
            
            -
            
            
            -
            
            
            791,749Beneficial
                conversion feature under convertible debt
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            275,209
            
            
            -
            
            
            -
            
            
            275,209Dividend
                to preferred stockholders
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (230,827
            )
            
            (230,827
            )Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (26,425,896
            )
            
            (26,425,896
            )Balance
                -September 30, 2007 (Unaudited)
            
            
            43,606,986
            
            $
            43,607
            
            
            6,400,000
            
            $
            6,400
            
            $
            26,112,123
            
            $
            (239,583
            )
            $
            (26,801,096
            )
            $
            (878,549
            )




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





F-3


**TACTICAL
      AIR DEFENSE SERVICES, INC.**


**(A
      Development Stage Company, Commencing January 1, 2006)**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**(Unaudited)**





**For
                the Nine Months**
              **Ended
                September 30,**
            
            **For
                the Period**
              **From**
              **January
                1, 2006**
              **(Commencementas a Development
                Stage Company)to September 30,****2007**
            
            **2006**
            
            **2007**CASH
                FLOWS FROM OPERATING ACTIVITIESNet
                (loss)
            
            $
            (26,425,896
            )
            $
            (17,961,893
            )
            $
            (
                56,416,255
            )Adjustments
                to reconcile net loss to net cash used in
              operating
                activities:Loss
                on derivative liabilities
            
            
            -
            
            
            16,914,828
            
            
            27,599,597(Forgiveness)
                provision of liquidated damages
            
            
            -
            
            
            (1,074,188
            )
            
            (1,074,188
            )Write-down
                of fixed assets
            
            
            326,985
            
            
            -
            
            
            326,985Stock-based
                compensation
            
            
            20,774,533
            
            
            144,773
            
            
            20,919,306Excess
                of initial derivative liability over debt
              Discount
            
            
            -
            
            
            587,603
            
            
            -Debt
                discount amortization
            
            
            3,234,859
            
            
            392,916
            
            
            3,873,647Changes
                in operating assets and liabilities:Other
                assets
            
            
            (85,836
            )
            
            
            
            
            (85,836
            )Accounts
                payable
            
            
            -
            
            
            (52,762
            )
            
            7,762Accrued
                liabilities
            
            
            871,644
            
            
            220,689
            
            
            2,388,420Net
                Cash Used in Operating Activities
            
            
            (1,303,711
            )
            
            (828,034
            )
            
            (2,460,562
            )CASH
                USED IN INVESTING ACTIVITIESPurchase
                of property and equipment
            
            
            -
            
            
            (261,485
            )
            
            (300,985
            )Cash
                received from the reverse acquisition
            
            
            -
            
            
            -
            
            
            150,744Net
                Cash Used in Investing Activities
            
            
            -
            
            
            (261,485
            )
            
            (150,241
            )CASH
                FLOWS FROM FINANCING ACTIVITIESProceeds
                from sale of common stock
            
            
            114,781
            
            
            
            
            
            114,781Due
                to related parties, net
            
            
            -
            
            
            (65,000
            )
            
            (67,484
            )Proceeds
                from convertible debentures
            
            
            1,066,958
            
            
            1,155,263
            
            
            2,577,592Net
                Cash Provided by Financing Activities
            
            
            1,181,739
            
            
            1,090,263
            
            
            2,624,889Increase
                (Decrease) in cash
            
            
            (121,972
            )
            
            744
            
            
            14,086Cash
                - Beginning of period
            
            
            136,058
            
            
            720
            
            
            -Cash
                - End of period
            
            $
            14,086
            
            $
            1,464
            
            $
            14,086Interest
                paid
            
            $
            -
            
            $
            -Taxes
                paid
            
            $
            -
            
            $
            -Non-cash
                Transactions:Stock
                issued to settle accrued compensation
            
            $
            -
            
            $
            -
            
            $
            390,000Dividend
                to preferred stockholders
            
            $
            230,827
            
            
            
            
            $
            230,827Liabilities
                not assumed in reverse acquisition
            
            $
            -
            
            $
            -
            
            $
            4,505,560Reclassification
                of derivative liability
            
            $
            -
            
            $
            -
            
            $
            29,930,094Conversion
                of debt plus accrued interest to equity
            
            $
            1,036,959
            
            $
            -
            
            $
            1,036,959Common
                stock issued for leasehold improvements
            
            $
            26,000
            
            $
            -
            
            $
            26,000Acquisition
                of assets for issuance of debt
            
            $
            -
            
            $
            3,156,210
            
            $
            6,740,000Beneficial
                conversion feature under convertible debt
            
            $
            275,209
            
            $
            -
            
            $
            4,328,324Fair
                value of warrants issued with convertible debt
            
            $
            791,749
            
            $
            -
            
            $
            1,468,278Distribution
                to stockholder
            
            $
            -
            
            $
            -
            
            $
            311,525





F-4


**TACTICAL
      AIR DEFENSE SERVICES, INC.**


**(A
      Development Stage Company, Commencing January 1, 2006)**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**





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





**General**





Tactical
      Air Defense Services, Inc. (“TADS” and the “Company”), a development stage
      company ,which was incorporated in Nevada in 1998 under the name Natalma
      Industries, Inc. Originally, TADS operated as a junior mining company with
      minimal operations. In 2005, the former management of TADS commenced seeking
      potential operating businesses and business opportunities with the intent to
      complete a merger with an operating business.





On
      December 15, 2006 (the “Closing Date”), TADS and three of its wholly-owned
      subsidiaries, Resource Financial Aviation Holdings Inc., OneSource Aviation
      Acquisition Inc. and Genesis Aviation Acquisition Inc., each a Nevada
      corporation (the “TADS Subsidiaries” and, collectively with TADS,”) acquired
      substantially all of the assets of AeroGroup Incorporated (“Aero or AeroGroup”),
      a Utah corporation, and its three wholly owned subsidiaries, OneSource
      Acquisition, Inc., Genesis Acquisition, Inc. and Resource Financial Holding
      Acquisition, Inc., each a Delaware corporation (the “AeroGroup Subsidiaries”
and, collectively with AeroGroup Incorporated, “AeroGroup”), pursuant to an
      Asset Purchase Agreement dated July 14, 2006, as amended (the “Asset Purchase
      Agreement”) and in consideration of the acquisition issued stock and assumed
      certain indebtedness and other obligations under various warrants, a real
      property sublease, government and non-government aviation contracts and certain
      other contracts of AeroGroup (the “AeroGroup Acquisition”). As a result of the
      asset purchase, the Company intends to be a provider of outsourced military
      fighter jet pilot training to military personnel, including certain flight
      support services.





Since
      the
      AeroGroup Acquisition was settled through the issuance of a controlling interest
      in TADS common stock, AeroGroup is deemed to be the acquirer for accounting
      purposes. Furthermore, since TADS is deemed to be a shell company prior to
      the
      acquisition, purchase accounting was not applied. Therefore, the transaction
      was
      accounted for as a reverse acquisition and recapitalization of AeroGroup.
      Accordingly, the historical financial statements presented in the financial
      statements are those of AeroGroup as adjusted to reflect the recapitalization
      and elimination of certain assets and liabilities that were not assumed by
      TADS.
      The net liabilities not assumed by TADS was recorded as a contribution to
      capital totaling $4,505,560. These liabilities substantially consisted of
      indebtedness due to Aero’s controlling stockholder, Mark Daniels (“Daniels”).





The
      accompanying share information for AERO has been retroactively restated to
      reflect the recapitalization transactions, including the exchange of common
      stock and common stock equivalents of AERO for common stock and common stock
      equivalents of TADS based on the exchange ratio of 50 to 1.







F-5


**TACTICAL
      AIR DEFENSE SERVICES, INC.**


**(A
      Development Stage Company, Commencing January 1, 2006)**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**





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





In
      connection with the reverse acquisition, the consideration paid to Aero Group
      for the assets consisted of:





·
            14,989,900
                shares of restricted common stock of TADS, constituting a majority
                of the
                then outstanding common stock of TADS.





·
            Assumption
                by TADS of Aero’s obligations under its convertible debentures totaling
                approximately $5.6 million, inclusive of accrued interest, all convertible
                into shares of TADS common stock at prices ranging $0.15 to $1.00
                per
                share.





·
            Assumption
                by TADS of Aero’s obligation under a convertible note issued in connection
                with a settlement agreement in the principal amount of $250,000,
                with an
                interest rate of 12%, payable in 36 equal monthly installments of
                principal, plus interest. The note has a maturity date of April 13,
                2011.
                The note is convertible into shares of common stock at a rate of
                $.50 per
                share.





·
            Assumption
                by TADS of Aero’s obligation under an assumed secured note payable to
                Daniels in the principal amount of $1,100,000, plus interest, at
                the rate
                of 12% per annum. The outstanding principal and interest is convertible
                into shares of TADS common stock at a conversion price of $.0.50
                per
                share.





·
            Assumption
                by TADS of Aero’s' obligation under a note assumed by the Company in
                connection with its June 2006 asset purchase (Note 3) in the principal
                amount of $2.2 million, plus interest at the rate of 8% per annum.
                The
                outstanding principal and interest is convertible into shares of
                TADS
                common stock at a conversion price of $0.50 per share.





·
            Assumption
                by TADS of Aero’s obligations under certain outstanding warrants to
                purchase 23,968,315 shares of common stock exercisable at $0.15 per
                share.





·
            Assumption
                by TADS of Aero’s obligations under government contracts and subcontracts
                and of leases relating to its Grayson Airport facilities, a $300,000
                consulting contract and property leases.





·
            Assumption
                by TADS of Aero’s obligations for accrued expenses totaling $136,000.





Effective
      January 1, 2006, the Company is in the development stage and its operations
      principally involve research and development, market analysis, and other
      business planning activities, and minimal revenue has been generated to date.





Aero
      is a
      Utah corporation, which was incorporated on July 31, 1984 under the name
      Diversified Resources Group, Inc. Aero was a provider of outsourced military
      fighter jet pilot training to military personnel, including certain flight
      support services. Effective January 1, 2006, Aero became a development stage
      company as it was devoting all of its present efforts to securing and
      establishing a new business.




F-6




**TACTICAL
      AIR DEFENSE SERVICES, INC.**


**(A
      Development Stage Company, Commencing January 1, 2006)**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**





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





**Basis
      of Presentation**





The
      results in the accompanying unaudited condensed consolidated financial
      statements are not necessarily indicative of the results to be expected for
      the
      full fiscal year and have not been audited. In the opinion of management, the
      accompanying unaudited condensed consolidated financial statements contain
      all
      adjustments, consisting of normal recurring accruals, necessary for a fair
      statement of the results of operations and cash flows for the periods presented
      and the condensed consolidated balance sheet at September 30, 2007. Certain
      information and footnote disclosures normally included in financial statements
      prepared in accordance with accounting principles generally accepted in the
      United States of America have been condensed or omitted pursuant to the SEC
      rules and regulations. These condensed consolidated financial statements should
      be read in conjunction with the financial statements and notes thereto that
      were
      included in the Company’s latest annual report within its Form 10-KSB for the
      year ended December 31, 2006.





**Going
      Concern and Management's Plan**





The
      accompanying condensed consolidated financial statements have been prepared
      in
      conformity with accounting principles generally accepted in the United States
      of
      America, which contemplate the continuation of the Company as a going concern.
      However, as shown in the accompanying condensed consolidated financial
      statements, the Company has incurred losses from operations since inception
      and
      has a significant working capital deficiency as of September 30, 2007 of
      $5,560,511.





As
      discussed above, on December 15, 2006, TADS acquired all of the assets of Aero
      and assumed certain contracts in exchange for the assumption by TADS of certain
      liabilities of Aero. Management believes the Company can raise adequate capital
      for the Company’s required working capital needs for 2007 including additional
      modifications to its aircrafts necessary to make them operational. Management
      also believes that it still needs substantial capital in order to carry out
      its
      business plan, which is to become a civilian provider of outsourced military
      aviation services which includes fighter jet pilot training, operational
      deployment training, aviator combat support and close air support for “Forward
      Controllers,”.





No
      assurance can be given that the Company can obtain the required estimated
      additional working capital, or if obtained, that such funding will not cause
      substantial dilution to stockholders of the Company. Being a development stage
      company, the Company is subject to all the risks inherent in the establishment
      of a new enterprise and the marketing of a new product, many of which risks
      are
      beyond the control of the Company. All of the factors discussed above raise
      substantial doubt about the Company's ability to continue as a going concern.





These
      condensed consolidated financial statements do not include any adjustments
      relating to the recoverability of recorded asset amounts that might be necessary
      as a result of the above uncertainty.





F-7


**TACTICAL
      AIR DEFENSE SERVICES, INC.**


**(A
      Development Stage Company, Commencing January 1, 2006)**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**





**NOTE
      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**





**Principals
      of Consolidation**





The
      condensed consolidated financial statements include the accounts of the Company
      and its wholly-owned subsidiaries, Genesis Acquisition, Inc., Resource Financial
      Holding Acquisition, Inc. and OneSource Acquisition, Inc. All significant
      intercompany transactions have been eliminated.





**Use
      of Estimates**





The
      preparation of the condensed consolidated financial statements in conformity
      with accounting principles generally accepted in the United States of America
      requires management to make estimates and assumptions that affect the reported
      amounts of assets and liabilities and disclosure of contingent assets and
      liabilities in the condensed consolidated financial statements and accompanying
      notes. The most significant estimates relate to the estimated useful lives
      and
      assessment for impairment of the Company’s property and equipment,
      contingencies, revenue recognition and valuation of derivative instruments.
      Actual results could differ from those estimates.





**Property
      and Equipment**





Property
      and equipment are recorded at cost. Property and equipment acquired by Aero
      pursuant to the June 2006 Asset Purchase Agreement (Note 3) was recorded at
      its
      then net carrying value due to the entities being controlled by Aero's majority
      stockholder. The provision for depreciation of operating equipment is computed
      on the straight line method applied to each unit of property over the estimated
      useful lives, generally five to ten years, commencing when the assets are placed
      into service.





Leasehold
      improvements shall be amortized over the shorter of their useful life or the
      remaining lease term. Upon retirement or other disposition of these assets,
      the
      cost and related accumulated depreciation of these assets are removed from
      the
      accounts and the resulting gains or losses are reflected in the results of
      operations.





During
      the third quarter of 2007, the Company was no longer using the facilities at
      the
      Grayson County Airport. As a result, the Company has written down the value
      of
      those improvements to $-0-. The Company recorded a charge of $326,985 which
      is
      included as a write-down of fixed asset in the accompanying condensed
      consolidated statement of operations.





The
      Aircraft acquired pursuant to the June 2006 Asset Purchase Agreement (Note
      3)
      are stationed in the Ukraine awaiting for disassembly and shipment to the United
      States of America. Additional modifications are necessary to make them
      operational for use within the United States of America. The Company estimates
      that it will cost approximately $200,000 to ship the MIGs to the United States
      of America, and approximately $420,000 to get the MIGs fully operational.





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





F-8


**TACTICAL
      AIR DEFENSE SYSTEMS, INC.**


**(A
      Development Stage Company, Commencing January 1, 2006)**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**





**NOTE
      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued**





**Revenue
      Recognition**





Revenue
      is recognized once four criteria are met: (1) the Company must have persuasive
      evidence that an arrangement exists; (2) services have been performed and
      accepted by the Customer, (3) the price must be fixed and determinable; and
      (4)
      collectibility must be reasonably assured.





**Convertible
      Notes and Warrants**





The
      Company accounts for conversion options embedded in convertible notes in
      accordance with SFAS No. 133 "Accounting for Derivative Instruments and Hedging
      Activities" (" **SFAS
      133** ")
      and
      Emerging Issues Task Force (" **EITF** ")
      00-19,
      "Accounting for Derivative Financial Instruments Indexed to, and Potentially
      Settled in, a Company's Own Stock" (" **EITF
      00-19** ").
      SFAS
      133 generally requires companies to bifurcate conversion options embedded in
      convertible notes from their host instruments and to account for them as free
      standing derivative financial instruments in accordance with EITF 00-19. SFAS
      133 provides for an exception to this rule when convertible notes, as host
      instruments, are deemed to be conventional as that term is described in the
      implementation guidance under Appendix A to SFAS 133 and further clarified
      in
      EITF 05-2 "The Meaning of "Conventional Convertible Debt Instrument" in Issue
      No. 00-19.”





The
      Company accounts for convertible notes deemed conventional and conversion
      options embedded in non-convertible notes which qualify as equity under EITF
      00-19, in accordance with the provisions of Emerging Issues Task Force Issue
      (" **EITF** ")
      98-5
      "Accounting for Convertible Securities with Beneficial Conversion Features,"
      and
      EITF 00-27 "Application of EITF 98-5 to Certain Convertible Instruments".
      Accordingly, the Company records, as a discount to convertible notes, the
      intrinsic value of such conversion options based upon the differences between
      the fair value of the underlying common stock at the commitment date of the
      note
      transaction and the effective conversion price embedded in the note. Debt
      discounts under these arrangements are amortized over the term of the related
      debt.





As
      of
      September 30, 2007, the Company had no derivative financial instruments.





The
      Company accounts for embedded conversion options in non-conventional convertible
      notes which do not qualify as equity under EITF 00-19, as derivative
      liabilities. Accordingly, the Company determines the fair value (as determined
      through a lattice model) of these embedded derivatives (usually conversion
      options and redemption rights). Such fair value is recorded as a debt discount
      up to the proceeds of the debt and any amount in excess of the proceeds of
      the
      debt is charged to operations at the security issuance date.




F-9


**TACTICAL
      AIR DEFENSE SYSTEMS, INC.**


**(A
      Development Stage Company, Commencing January 1, 2006)**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**





**NOTE
      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued**





The
      Company accounts for the issuance of common stock purchase warrants issued
      and
      other free standing derivative financial instruments in accordance with the
      provisions of EITF 00-19. Based on the provisions of EITF 00-19, the Company
      classifies as equity any contracts that (i) require physical settlement or
      net-share settlement or (ii) gives the Company a choice of net-cash settlement
      or settlement in its own shares (physical settlement or net-share settlement).
      The Company classifies as assets or liabilities any contracts that (i) require
      net-cash settlement (including a requirement to net cash settle the contract
      if
      an event occurs and if that event is outside the control of the Company) and
      (ii) give the counterparty a choice of net-cash settlement or settlement in
      shares (physical settlement or net-share settlement). The Company determines
      the
      fair value of these free standing instruments under the Black-Scholes Pricing
      Model using the following range of assumptions:




·  expected
      volatility - 350%-450%


·  expected
        dividend - none
 ·  risk-free
        interest rate - 4.75%-5.00%
 ·  contractual
        term - 3-5 years


**Non-Employee
      Stock Based Compensation**





The
      Company accounts for stock based compensation awards issued to non-employees
      for
      services, as prescribed by SFAS No. 123R, at either the fair value of the
      services rendered or the instruments issued in exchange for such services,
      whichever is more readily determinable, using the measurement date guidelines
      enumerated in EITF 96-18, "Accounting for Equity Instruments That Are Issued
      to
      Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
      Services."





**Recently
      Adopted Accounting Policies**





Effective
      January 1, 2007, the Company adopted Financial Accounting Standards Board
      (“FASB”) Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an
      interpretation of FASB Statement No. 109" ("FIN48"). FIN 48 prescribes a single,
      comprehensive model for how a company should recognize, measure, present and
      disclose in its financial statements uncertain tax positions that the Company
      has taken or expects to take on its tax returns. Differences between tax
      positions taken or expected to be taken in a tax return and the benefit
      recognized and measured pursuant to the interpretation are referred to as
      "unrecognized benefits". A liability is recognized (or amount of net operating
      loss carry forward or amount of tax refundable is reduced) for an unrecognized
      tax benefit because it represents an enterprise's potential future obligation
      to
      the taxing authority for a tax position that was not recognized as a result
      of
      applying the provisions of FIN 48.





In
      accordance with FIN 48, interest costs related to unrecognized tax benefits
      are
      required to be calculated (if applicable) and would be classified as "Interest
      Expense, net" in the condensed consolidated statements of operations. Penalties
      would be recognized as a component of "General and administrative expenses".
      No
      interest or penalties were required to be recorded during the period ended
      September 30, 2007.





The
      Company files income tax returns in the United States of America (federal)
      and
      in various state and local jurisdictions. The Company is delinquent in its
      filings of its 2004, 2005, and 2006 tax returns. The Company is subject to
      federal, state and local income tax examinations by tax authorities for years
      after December 31, 2003.




F-10




**TACTICAL
      AIR DEFENSE SYSTEMS, INC.**


**(A
      Development Stage Company, Commencing January 1, 2006)**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**





**NOTE
      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued**





The
      adoption of the provisions of FIN 48 did not have a material impact on the
      Company's condensed consolidated financial position and results of operations.
      As of January 1, 2007 and September 30, 2007, no liability for unrecognized
      tax
      benefits was required to be recorded.





Effective
      in the first quarter of 2007 the Company adopted FASB Staff Position No EITF
      00-19-2 "Accounting for Registration Payment Arrangements" issued on December
      21, 2006 ("FSP 00-19-2"). FSP 00-19-2 specifies that the contingent obligation
      to make future payments or otherwise transfer consideration under a registration
      payment, whether issued as a separate agreement or included as a provision
      of a
      financial instrument or other agreement, should be separately recognized and
      measured in accordance with FASB Statement No. 5, "Accounting for Contingencies.
      For registration payment arrangements and financial instruments subject to
      those
      arrangements that were entered into prior to the  issuance
      of FSP 00-19-2, this guidance is effective for financial statements issued
      for
      fiscal years beginning after December 15, 2006 and interim periods within those
      fiscal years. The adoption of FSP 00-19-2 did not have a material impact on
      the
      Company’s condensed consolidated financial position and results of operations.





**Net
      Loss Per Share of Common Stock**





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





Diluted
      net loss per share reflects per share amounts that result if dilutive common
      stock equivalents are converted to common stock. Common stock equivalents,
      consisting of convertible debt, options and warrants were not included in the
      calculation of diluted loss per share for the three and nine months ended
      September 30, 2007 and 2006 because their inclusion would have had been
      anti-dilutive.





**NOTE
      3 - ASSETS PURCHASED BY AERO**





**Assets
      Purchased By Aero**





In
      June
      of 2006, Aero, through its subsidiaries, acquired certain assets from three
      entities (“the Selling Entities”) owned 100% by Aero's controlling stockholder,
      Mark Daniels. The Selling Entities acquired these assets on December 29, 2005
      from an unrelated entity in exchange for assets with a fair value of $4,540,000
      and a promissory note of $2,200,000. The assets acquired included two MIG29
      Aircrafts and four flight simulators and certain intellectual assets. The
      Selling Entities obtained appraisals from certified independent appraisers
      dated
      December 2005, which valued the aircrafts and simulators at $6,740,000.





As
      consideration for the purchase of these assets, Aero (i) assumed indebtedness
      of
      $1.1 million owed to Daniels by the Selling Entities, (ii) assumed obligations
      under a promissory note in the principal amount of $2.2 million, with interest
      at 8% per annum, which was originally issued in December 2005, in connection
      with the acquisition of aircraft and simulators by the Selling Entities, and
      (iii) issued a $3,440,000 unsecured promissory note to Daniels. The $1.1 million
      due to Daniels is collateralized by TADS assets and is guaranteed by its
      subsidiaries.





F-11


**TACTICAL
      AIR DEFENSE SERVICES, INC.**


**(A
      Development Stage Company, Commencing January 1, 2006)**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**





**NOTE
      3 - ASSETS PURCHASED BY AERO - Continued**





In
      reviewing the above transaction, Management determined that it had purchased
      a
      group of assets, rather than acquiring a business. Since Aero and the Selling
      Entities are commonly controlled, the recorded value of the assets purchased
      for
      accounting purposes is limited to the Selling Entities carrying value of the
      assets, which totaled $6,740,000 in June of 2006. The difference between the
      considerations provided to the Selling Entities of $7,051,255, inclusive of
      accrued interest assumed of $311,255, and the carrying value of the assets
      sold
      of $6,740,000 was $311,255. This amount was recorded as a distribution in June
      of 2006. Prior to this asset purchase, Aero did not have any business
      transactions with the Selling Entities.





In
      connection with the reverse acquisition, TADS assumed the notes payable of
      $2.2
      million and $1.1 million and did not assume the note payable to Daniels of
      $3,440,000.





**NOTE
      4 - CONVERTIBLE DEBENTURES**





As
      part
      of the reverse acquisition, the Company assumed Convertible Debentures issued
      by
      Aero. During the period May 2002 through December 31, 2006, Aero sold 4,715,895
      Convertible Debentures (“Debentures”), along with Debenture Warrants to purchase
      23,968,315 shares of common stock of Aero which were assumed by the Company
      at
      exercise prices ranging from $.15 to $1.00.





Debentures
      and Debenture Warrants as of September 30, 2007 consist of the following:





**Year
                Ended**
            
            **Debentures**
            
            **Debenture**
              **Warrants**2002
            
            $
            250,000
            
            
            1,666,6672003
            
            
            1,091,199
            
            
            7,141,3292004
            
            
            487,265
            
            
            3,248,4332005
            
            
            1,376,797
            
            
            9,645,311Total
                principal at December 31, 2005
            
            
            3,205,261
            
            
            21,701,7402006
            
            
            1,510,634
            
            
            2,266,575Total
                principal at December 31, 2006
            
            
            4,715,895
            
            
            23,968,315First
                nine months of 2007 -
                Issued
            
            
            1,066,958
            
            
            4,042,105First
                nine months of 2007 – Converted/Exercised
            
            
            (614,060
            )
            
            (8,364,089
            )Total
                principal at September 30, 2007
            
            
            5,168,793
            
            
            19,646,331Accrued
                interest
            
            
            1,141,285Unamortized
                debt discount
            
            
            (2,123,776
            )Net
                Carrying Value at September 30, 2007
            
            $
            4,186,302





Included
      in principal at September 30, 2007 is $366,602 due to the Company's majority
      stockholder which was converted in 2005 from shareholder loans to Convertible
      Debentures.




F-12




**TACTICAL
      AIR DEFENSE SERVICES, INC.**


**(A
      Development Stage Company, Commencing January 1, 2006)**


**NOTES
      TO CONDENSED FINANCIAL STATEMENTS**


**(Unaudited)**





**NOTE
      4 - CONVERTIBLE DEBENTURES - Continued**





**First
      Quarter of 2007**





Between
      January 1, 2007 and March 31, 2007, the Company received proceeds from loans
      totaling $343,873. The Debentures are convertible into TADS common stock at
      conversion prices ranging from $.25 to $1.00 per share and provide for warrants
      to purchase 1,013,999 shares of TADS common stock at exercise prices ranging
      from $.25 to $1.00. The Debentures bear interest of 12% and are due three years
      from the date of issuance. The Debenture Warrants are exercisable at per share
      exercise prices of $.25 to $1.00 per share of common stock, are exercisable
      immediately up until the fifth anniversary of the initial warrant date, and
      such
      exercise price is subject to adjustment for subsequent lower price issuances
      by
      the Company and other customary events including stock splits, reverse stock
      splits, issuance of convertible securities, sale of common stock and spin-offs.





The
      gross
      proceeds of the $343,873 were allocated 25% or $86,084 to the Debentures and
      75%
      or $257,789 to the Warrants. The effective conversion price of the Debentures
      was below the market price of TADS common stock at the date the various notes
      were issued, which resulted in a beneficial conversion feature of $86,084.
      In
      accordance with EITF 00-27 the amount allocated to the beneficial conversion
      feature was limited to the net proceeds of the offering.





**Second
      Quarter of 2007**





Between
      April 1, 2007 and June 30, 2007, the Company received proceeds from loans
      totaling $493,851. The Debentures are convertible into TADS common stock at
      a
      conversion price of $.25 per share and provide for warrants to purchase
      1,974,486 shares of TADS common stock at an exercise price of $.25. The
      Debentures bear interest of 12% and are due three years from the date of
      issuance. The Debenture Warrants are exercisable at a per share exercise prices
      of $.25 per share of common stock, are exercisable immediately up until the
      fifth anniversary of the initial warrant date, and such exercise price is
      subject to adjustment for subsequent lower price issuances by the Company and
      other customary events including stock splits, reverse stock splits, issuance
      of
      convertible securities, sale of common stock and spin-offs.





The
      gross
      proceeds of the $493,851 were allocated 24.2% or $120,731 to the Debentures
      and
      75.8% or $373,120 to the Warrants. The effective conversion price of the
      Debentures was below the market price of TADS common stock at the date the
      various notes were issued, which resulted in a beneficial conversion feature
      of
      $120,731. In accordance with EITF 00-27 the amount allocated to the beneficial
      conversion feature was limited to the net proceeds of the offering.





**Third
      Quarter of 2007**





Between
      July 1, 2007 and September 30, 2007, the Company received proceeds from loans
      totaling $229,234. The Debentures are convertible into 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.




F-13




**TACTICAL
      AIR DEFENSE SERVICES, INC.**


**(A
      Development Stage Company, Commencing January 1, 2006)**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**





**NOTE
      4 - CONVERTIBLE DEBENTURES - Continued**





As
      of
      September 30, 2007, all of the principal and accrued interest related to the
      Debentures has been classified as a current liability as they due within one
      year.





**Registration
      Rights**





In
      connection with the issuance of the Debentures, the Company is required to
      file
      a Registration Statement to register the shares of common stock issuable upon
      the conversion of the Debentures and the exercise of the Debenture Warrants.
      The
      Company will be obligated to pay the holders of the Debentures certain
      liquidated damages in the event the shares are not registered within sixty
      days
      of the date of issuance. The Company has not filed the Registration Statement
      and therefore must pay the holders of the Debentures liquidated damages in
      the
      aggregate amount equal to two percent (2%) for each (thirty) days (or part
      thereof) per month until such Registration Statement is filed and declared
      effective. In October 2007 Debenture holders agreed to waive the registration
      requirement.





**NOTE
      5 - INCOME TAXES**





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





**NOTE
      6 - STOCKHOLDERS' DEFICIENCY**





**Preferred
      Stock**





On
      March
      21, 2007, the Company filed a Certificate of Designation of Series A Preferred
      Stock (the “Series A Certificate of Designation”) with the Secretary of State of
      the State of Nevada, designating a series of 50,000,000 shares of Preferred
      Stock of the Company, $.001 par value (the “Series A Preferred Stock”). Pursuant
      to the Series A Certificate of Designation, holders are entitled to:


·
              elect
                  one director to the Company’s board of directors
 ·
              vote
                  on all other matters on a 25 votes per share common stock basis.
 ·
              The
                  Series A Preferred Stock shall, with respect to dividend rights,
                  rights on
                  redemption, rights on conversion and rights on liquidation, winding
                  up and
                  dissolution, rank senior to all common stock, warrants and options
                  to
                  purchase common stock established by the Board or the Stockholders
                  (all of
                  such equity securities of the Corporation to which the Series A
                  Preferred
                  Stock ranks senior are collectively referred to herein as “JUNIOR STOCK”).
 ·
              Each
                  share of Series A Preferred Stock is initially convertible into
                  2 shares
                  of the Common Stock of the Company, subject to adjustment for stock
                  splits, recapitalization or other reorganizations.




F-14




**TACTICAL
      AIR DEFENSE SERVICES, INC.**


**(A
      Development Stage Company, Commencing January 1, 2006)**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**





**NOTE
      6 - STOCKHOLDERS' DEFICIENCY - Continued**





In
      addition, the Series A Preferred Stock:


·
                have
                    broad-based weighted average antidilution protection that will
                    cause the
                    conversion price to adjust downward in the event that the Company
                    issues
                    shares of common stock or securities convertible into common
                    stock at a
                    price of less than the conversion price of the Series A Preferred
                    Stock
                    then in effect.
 ·
                The
                    shares of Series A Preferred Stock may be converted into common
                    stock at
                    the option of the holder. In addition, at any time after the
                    closing bid
                    price for the Company’s common stock on the NASDAQ OTCBB or the primary
                    United States exchange on which the common stock is then traded
                    exceeds
                    $5.00 during any five consecutive trading days, the Company may,
                    at its
                    sole option, convert the Series A Preferred and any accrued but
                    unpaid
                    dividends into common shares at the then-applicable conversion
                    price by
                    providing written notice of such conversion to the holders of
                    the Series A
                    Preferred; provided that there is an effective registration statement
                    under the Securities Act registering the resale of the common
                    stock to be
                    issued upon such
                    conversion.


Each
      share of Series A Preferred Stock is entitled to receive a per share dividend
      of
      $.07 per annum ($7,441 for the 1st quarter of 2007). The dividend begins to
      accrue on January 1, 2007 and will be payable quarterly thereafter. The dividend
      is cumulative. In the event of a liquidation or acquisition of the Company,
      the
      holders of the Series A Preferred Stock will be entitled to receive an amount
      equal to any accrued and unpaid dividend prior and in preference to any
      distributions to the holders of the common stock. Thereafter, the holders of
      the
      Series A Preferred Stock will be entitled to participate in distributions on
      an
      as converted to common stock basis.


·
              Shares
                  of Series A Preferred may be redeemed, in whole or in part, by
                  the Company
                  out of funds lawfully available therefore from the holders of then
                  outstanding shares of Series A Preferred on a pro rata basis, at
                  any time
                  by providing written notice to the holders of the Series A Preferred
                  owned
                  by each holder, that number of outstanding shares of Series A Preferred
                  owned by each holder, that number of outstanding shares of Series
                  A
                  Preferred that the Company has elected to purchase for the following
                  consideration: (i) an amount equal to a price per share equal to
                  the $4.00
                  plus any accrued and unpaid dividends multiplied by the number
                  of shares
                  of Series A Preferred being redeemed from such holder and (ii)
                  the
                  issuance of the number of shares of common stock equal to seventeen
                  and
                  one-half percent (17.5%) of the shares of common stock then issuable
                  upon
                  conversion of the shares of Series A Preferred being redeemed from
                  such
                  holder. A cash payment will be provided in lieu of any fractional
                  shares
                  of common stock.




**Stock
      Issuances**





During
      the nine month period ended September 30, 2007, holders of Debentures converted
      $614,060 plus accrued interest of $172,899 into 5,265,759 shares of common
      stock
      in accordance with the Debentures agreement.





During
      the nine month period ended September 30, 2007, the Company issued 2,894,734
      shares of common stock to various consultants and recorded a charge of
      $2,098,316 representing the approximate fair value of the issued capital stock
      on the date of issuance and deferred compensation of $250,000 which will be
      amortized over the period such services are rendered.





In
      the
      first quarter of 2007, the Company issued 320,000 of shares of common stock
      for
      services valued at $336,000 of which $26,000 was charged to lease hold
      improvements and the remaining $310,000 was charged as non-employee stock-based
      compensation.





F-15





**TACTICAL
      AIR DEFENSE SERVICES, INC.**


**(A
      Development Stage Company, Commencing January 1, 2006)**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**





**NOTE
      6 - STOCKHOLDERS' DEFICIENCY - Continued**





During
      the nine month period ended September 30, 2007, the Company issued 7,490,000
      shares of common stock and 6,400,000 shares of its Series A Preferred Stock
      to
      various officers and directors for compensation due under various employment
      agreements. The Company recorded a charge of approximately $18,329,800.





During
      the nine month period ended September 30, 2007, 8,364,089 of warrants were
      exercised to purchase 7,208,264 shares of common stock under the terms of
      cash-less exercise provision.





During
      the quarter ended September 30, 2007, a note holder converted $250,000 of
      principal into 500,000 shares of common stock in accordance with the note
      payable agreement.





During
      the quarter ended September 30, 2007, the Company recorded unearned compensation
      of $250,000 of which $10,417 was amortized.





**Sale
      of Stock**





Pursuant
      to a 2007 Securities Purchase Agreement, in September 2007, TADS sold to four
      investors 382,663 shares of the TAD’s common stock at a purchase price of $0.30
      per share. The gross proceeds of this offering totaled $114,781. Under the
      terms
      of the Securities Purchase Agreement, TADS is offering to sell a total of
      3,333,333 shares, which can be increased to 4,000,000 shares at the sole
      discretion of TADS. The share purchase price carries certain anti-dilution
      rights whereby the share purchase price may be amended as follows: if the
      average closing price, as quoted in the Wall Street Journal, of the shares,
      during the 30-day period following the closing of the offering, is less than
      the
      share purchase price, then the new share purchase price shall become the
      anti-dilution reference price, and additional shares shall be issued to reflect
      the new share purchase price. Notwithstanding any of the above, the new, share
      purchase price shall not be less than $0.15.





**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-16




**TACTICAL
      AIR DEFENSE SERVICES, INC.**


**(A
      Development Stage Company, Commencing January 1, 2006)**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**





**NOTE
      6 - STOCKHOLDERS' DEFICIENCY - Continued**





**Warrants**





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





**No.
                of****Warrants**
            
            **Weighted**
              **AveragePrice**Balance
                at January 1, 2005
            
            
            12,056,428
            
            $
            0.15Issued
                - 2005
            
            
            9,645,312
            
            $
            0.15Balance
                - December 31, 2005
            
            
            21,701,740
            
            $
            0.15Issued
                - 2006
            
            
            2,266,575
            
            $
            0.67Balance
                - December 31, 2006
            
            
            23,968,315
            
            $
            0.20Issued
                - First quarter of 2007
            
            
            1,013,999
            
            $
            0.34Issued
                - Second quarter of 2007
            
            
            1,974,486
            
            $
            0.25Exercised
                - Second quarter of 2007
            
            
            (7,187,301
            )
            $
            (0.15
            )Issued-Third
                quarter of 2007
            
            
            1,053,620
            
            
            (0.22
            )Exercised-Third
                quarter of 2007
            
            
            (1,176,788
            )
            
            (0.15
            )Balance
                at September 30, 2007
            
            
            19,646,331
            
            $
            0.22Potential
                Proceeds Assuming all Exercised atSeptember
                30, 2007
            
            $
            4,322,000





**Earnings
      per Share**





Securities
      that could potentially dilute basic earnings per share (" **EPS** ")
      in the
      future that were not included in the computation of diluted EPS because to
      do so
      would have been anti-dilutive for the periods presented consist of the following
      at September 30, 2007 and 2006:





September
      30, 2007:





**Principaland**
              **Interest**
            
            **Additional
                Number**
              **of
                Potential**
              **Common
                Shares if**
              **Converted/Exercised**Debentures
            
            $6,310,078
            
            31,536,244Convertible
                notes
            
            $
            4,052,614
            
            
            8,105,228Warrants
                to purchase common stock
            
            
            N/A
            
            
            19,646,331Preferred
                stock convertible into common stock
            
            
            N/A
            
            
            12,800,000Accrued
                consulting fees
            
            $
            300,000
            
            
            600,000Total
                at September 30, 2007
            
            
            
            
            
            72,687,803




F-17




**TACTICAL
      AIR DEFENSE SERVICES, INC.**


**(A
      Development Stage Company, Commencing January 1, 2006)**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**





**NOTE
      6 - STOCKHOLDERS' DEFICIENCY - Continued**





September
      30, 2006:





**Additional
                  Number****Principal**
              
              **of
                  Potential****and**
              
              **Common
                  Shares if****Interest**
              
              **Converted/Exercised**Debentures
              
              
              
              
              $
              4,608,979
              
              
              30,726,527Warrants
                  to purchase common stock
              
              
              
              
              
              N/A
              
              
              23,566,646Accrued
                            consulting fees
              
              
              
              
              $
              300,000
              
              
              600,000Total
                  at September 30, 2006
              
              
              
              
              
              
              
              
              54,893,173
  Issuances
                  after September 30, 2007:New
                  convertible debt
              
              
              60,000Warrants
                  issued with new convertible debt
              
              
              60,000Proceeds
                  from sale from common stock
              
              
              382,666Shares
                issued in connection with settlement agreement
              
              
              50,000Shares
                issued for legal services
              
              
              200,000Shares
                issued in connection with financial advisory services
              
              
              57,400




**NOTE
      7 - COMMITMENTS**





**Periodic
      Filings**





Under
      a
      2005 rule change, OTC Bulletin Board ("OTCBB") issuers that are cited for filing
      delinquent three times in a 24-month period and those removed for failure to
      file two times in a 24-month period will be ineligible for quotation by an
      NASD
      member. Following removal under this new rule, an issuer's securities would
      again become eligible for quotation on the OTCBB when the issuer has filed
      periodic reports for one year in a timely manner.





The
      Company has been late with two filings during the last six months. If the
      Company is late in its future filings over the next two years, TADS common
      stock may be ineligible to remain quoted on the OTCBB and will become
      listed on the pink sheets.




F-18




**TACTICAL
      AIR DEFENSE SERVICES, INC.**


**(A
      Development Stage Company, Commencing January 1, 2006)**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**





**NOTE
      7 - COMMITMENTS**





**Compensation
      Agreements**





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





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





**Consulting
      Agreement**





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




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




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




F-19




**TACTICAL
      AIR DEFENSE SERVICES, INC.**


**(A
      Development Stage Company, Commencing January 1, 2006)**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**


**NOTE
      7 - COMMITMENTS**





**Resignation
      of Executive Officer**





On
      August
      17, 2007 Mr. John Farley an executive officer resigned from all positions with
      the Company to pursue other business ventures. In satisfaction of all past
      due
      compensation to Mr. Farley, the Company entered into a Resignation and Release
      Agreement with Mr. Farley providing for the issuance of 100,000 shares of
      restricted common stock and payment of $11,250 to Mr. Farley in exchange for
      an
      unconditional release of all amounts owed to him. In addition the Company agreed
      to indemnify Mr. Farley as a former executive officer for all actions brought
      against him in such capacity. As of September 30, 2007, the Company has paid
      $6,000 and issued 75,000 shares of common stock under the terms of this
      separation agreement.





**Legal
      Proceedings**





Mr.
      Jeffrey Peer, a former executive officer of AeroGroup, has threatened litigation
      in Florida as a result of AeroGroup’s failure to pay his salary and other
      expenses under his employment terms, which terms are at dispute. The Company
      believes that this claim is without merit and are working towards resolution
      of
      the same.





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




F-20




**TACTICAL
      AIR DEFENSE SERVICES, INC.**


**(A
      Development Stage Company, Commencing on January 1, 2006)**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**





**NOTE
      8 - SUBSEQUENT EVENTS**





**Debt
      Issuances Subsequent to September 30, 2007**





During
      October 2007, the Company received loan proceeds of $12,000 in connection with
      various loans, entered into with an unrelated party. The loans provide for
      interest at an annual rate of 12%. The loans are due within three years of
      issuance. The loans are convertible into 60,000 shares of common stock at a
      conversion rate of $0.20 per share and provide for warrants to purchase 60,000
      shares of common stock at an exercise price $0.20 per share.





**Common
      Stock Issuances Subsequent to September 30, 2007**





In
      October 2007, pursuant to a 2007 Securities Purchase Agreement (see Note 6),
      in
      September 2007, TADS sold to four investors 382,666 shares of the TAD’s common
      stock at a purchase price of $0.30 per share. The gross proceeds of this
      offering totaled $114,780.


In
        November 2007, the Company issued 50,000 shares of TAD’s common stock in
        connection with a settlement agreement with a former employee.
 
 In
        November 2007, the Company issued 200,000 shares of TAD’s common stock for legal
        services.
 
 In
        November 2007, the Company issued 57,400 shares of TAD’s common stock for
        financial advisory services.


Agreement





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





Preferred
      Stock





Effective
      October 22, 2007 the Company cancelled 4,000,000 shares of Series A Preferred
      Stock. The cancelation of the preferred shares
      came as a result of an Agreement and General Mutual Release entered into between
      the Company and a former shareholder. Additionally, the shareholder waived
      payment of accrued dividends in the amount of $143,068, waived rights to any
      future dividends, in connection with the shares. An aggregate of 2,400,000
      shares of Series A Preferred Stock remain outstanding.




**Recent
      Share Pledges**





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





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





F-21




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





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





F-22




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





**CAUTIONARY
      STATEMENT REGARDING FORWARD LOOKING STATEMENTS**





This
      Quarterly Report on Form 10-QSB, and, specifically the Management's Discussion
      and Analysis may contain "forward-looking statements." The terms "believe,"
      "anticipate," "intend," "goal," "expect," and similar expressions may identify
      forward-looking statements. These forward-looking statements represent the
      Company's current expectations or beliefs concerning future events. The matters
      covered by these statements are subject to certain risks and uncertainties
      that
      could cause actual results to differ materially from those set forth in the
      forward-looking statements. The Company disclaims any obligation subsequently
      to
      revise any forward-looking statements to reflect events or circumstances after
      the date of such statements, or to reflect the occurrence of anticipated or
      unanticipated events. In light of the significant uncertainties inherent in
      the
      forward-looking information included herein, the inclusion of such information
      should not be regarded as a representation that the strategy, objectives or
      other plans of the Company will be achieved. The Company wishes to caution
      readers not to place undue reliance on any such forward-looking statements,
      which speak only as of the date made. We undertake no duty to update this
      information. More information about potential factors that could affect our
      business and financial results is included in the section entitled "Risk
      Factors" of our Annual Report on Form 10-KSB for the year ended December 31,
      2006, and information relating to recent transactions in our Quarterly Reports
      for the fiscal quarters ended March and June 2007. The following discussion
      should be read in conjunction with our consolidated financial statements
      provided in this quarterly report on Form 10-QSB.





**Background**





On
      December 15, 2006, Tactical Air Defense Services, Inc. (sometimes referred
      to
      herein as the “Company” “we” or “us”) and three of its wholly-owned
      subsidiaries, Resource Financial Aviation Holdings Inc., OneSource Aviation
      Acquisition Inc. and Genesis Aviation Acquisition Inc., each a Nevada
      corporation acquired substantially all of the assets (the “AeroGroup Assets”) of
      AeroGroup Incorporated, a Utah corporation, and of its three wholly-owned
      subsidiaries, OneSource Acquisition, Inc., Genesis Acquisition, Inc. and
      Resource Financial Holding Acquisition, Inc., each a Delaware corporation (the
      “AeroGroup Subsidiaries” and, collectively with AeroGroup Incorporated,
“AeroGroup”), pursuant to an Asset Purchase Agreement dated July 14, 2006, as
      amended (the “Asset Purchase Agreement”) and in consideration of the acquisition
      issued stock and assumed certain indebtedness and other obligations under
      various warrants, a real property sublease, government and
      non-government aviation contracts and certain other contracts of
      AeroGroup (the “AeroGroup Acquisition”).





As
      a
      result of this transaction there was a change of control of the Company
      effective as of December 15, 2006 and, we are deemed to be the legal surviving
      acquirer in the AeroGroup Acquisition and therefore, the assets and liabilities
      and historical operations of AeroGroup prior to the Closing Date of the
      acquisition is reflected in our financial statements and will be recorded at
      the
      historical cost basis of AeroGroup.





Prior
      to
      the acquisition we were a development stage company without any material
      revenues from operations. The business of AeroGroup acquired by us has not
      had
      any material revenues in 2006 or 2005 and for most of 2004. The business we
      acquired from AeroGroup was commenced in 2002 by with the intention of becoming
      an outsourced provider of military flight training, research and flight support
      services. More recently, we have acquired an IL-76/78 Supertanker aircraft
      designed by the Soviet military for aerial water bombing and air to air
      refueling missions. We will require substantial additional capital in order
      to
      implement our business plan and commence operations.





As
      a
      result of the AeroGroup Acquisition, on December 15, 2006 TADS ceased to be
      a
      shell corporation as such term is defined in Rule 12b-2 of the Security and
      Exchange Act of 1934, as amended, resulting in a change of control. A
      description of our business after the acquisition follows in the “Business”
section below.





Pursuant
      to the terms of the AeroGroup Acquisition, AeroGroup acquired a majority of
      our
      issued and outstanding Common Stock as constituted at the time of the
      transaction. A majority of AeroGroup’s common stock is beneficially owned by
      Mark Daniels, formerly our director and chief executive officer. Information
      relating to current and previous management is set forth under the “Management”
section of our annual report on Form 10-KSB and in our Current Reports on Form
      8-K.





F-23




**Recent
      Developments**





*Recent
      Lease of IL-76 Supertanker Aircraft*




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





We
      have
      recently taken delivery of this IL-76 aircraft at its Grayson County Airport
      facility in Grayson County, Texas. This aircraft is currently operational in
      the
      United States and is believed to be the only one of its kind in the U.S.





We
      intend
      to operate our IL-76 supertanker to solicit contracts as an aerial firefighting
      IL-76 supertanker in the United States. The IL-76 supertanker is a Russian
      military designed aircraft specifically designed for military applications
      and
      aerial firefighting, and has already been successfully utilized for firefighting
      in Greece, Russia and Indonesia, and caries a greater water payload then other
      commonly used aerial firefighting aircraft. While the U.S. Forest Service has
      not imported this aircraft for testing and has resisted efforts by the Russian
      government to import and market this aircraft in the United States, management
      believes that the IL-76 is an effective tool in fire fighting. Additionally,
      management believes that the aircraft’s presence in the United States, and its
      private domestic ownership will foster interest. The Company is not required
      to
      cover the hangaring or other carrying costs while not operational but will
      be
      required to cover any repairs and upgrades necessary to make the aircraft
      operational.





When
      configured with mid-air refueling drogues, the IL-76 is referred to under the
      type designator of “IL-78”. In this “aerial refueling” configuration, the IL-78
      is capable of refueling three military aircraft simultaneously. Management
      believes that this configuration of the aircraft will achieve the further goal
      of supplementing the Company’s air to air combat and training business.





Additional
      information relating to this aircraft, its operational costs and uses is
      contained in the “Management Section and Analysis and Plan of Operation”
section, below.





*Change
      in Board of Directors and Officers On August 9, 2007*





Effective
      August 3, 2007, Mr. Mark Daniels, our former director and Mr. Victor Miller,
      a
      director, resigned from all positions with the Company for personal reasons.
      Mr.
      Donald Goldstein was appointed as a director of the Company, joining Mr. Fred
      Daniels and Mr. John Farley was appointed as Vice President and Principal
      Financial Officer. Additional information about Mr. Goldstein and these
      resignations have been filed as part of a Current Report on Form 8-K dated
      August 3, 2007, as amended. Our two resigning directors, Mark Daniels and Victor
      Miller were provided with copies of our Current Report on Form 8-K and did
      not
      disagree with the any of the statements therein.





On
      August
      17, 2007 Mr. John Farley an executive officer resigned from all positions with
      the Company to pursue other business ventures. At such time, Mr. Alexis Korybut
      was appointed as a director and chief executive officer as set forth in the
      Company’s Current Report on Form 8-K, dated August 17, 2007.





F-24





*Appointment
      of Flight Engineering Officer On November 5, 2007*





On
      November 5, 2007 Mr. Yuri Goroshovsky was appointed as the Company’s Director of
      Engineering. His duties are to include the supervision of the preparation,
      maintenance, and operation of the of Ilyushin IL-76 fire fighting aircraft
      leased by TADS as set forth in the Company’s Current Report on Form 8-K, dated
      October 31, 2007.




*Retirement
      of Certain Series A Preferred Stock*




On
      March
      21, 2007, the Company filed a Certificate of Designation of Series A Preferred
      Stock (the “Series A Certificate of Designation”) with the Secretary of State of
      the State of Nevada, designating a series of 50,000,000 shares of Preferred
      Stock of the Company, $.001 par value (the “Series A Preferred Stock”). The
      Series A Preferred Stock provisions provide for a $.07 per share preferred
      dividend per annum and are granted super voting rights of 25 votes for each
      share of common stock voting at a meeting and contain liquidation preference
      rights. Additionally, the holders of the Series A Preferred Stock are entitled
      to appoint a director by vote of a majority of the Series A Preferred Stock
      holders. An aggregate of 6,400,000 shares of Series A Preferred Stock have
      been
      issued to certain officers and directors and a consultant in lieu of cash
      compensation under their respective employment or consulting agreements,
      resulting in control of the Company by Mr. Mark Daniels, a former director
      and executive
      officer. All of these shares were subject to an irrevocable voting proxy
      pursuant to which, among other things, Mr. Don Goldstein, a director at the
      time, was granted irrevocable proxy rights





Effective
      October 22, 2007 the company cancelled 4,000,000 shares of Series A Preferred
      Stock. The cancelation of the preferred shares
      came as a result of an Agreement and General Mutual Release entered into between
      the company and a former shareholder. Additionally, the shareholder agreed
      to
      waive payment of the accrued dividends in the amount of $143,068, waived rights
      to any future dividends, and relinquished any rights to future distributions
      issued in connection with the shares. An aggregate of 2,400,000 shares of Series
      A Preferred Stock remain outstanding.




*Private
      Placements*





Between
      July 1, 2007 and September 30, 2007 we issued $229,234 of 12% convertible notes
      and 1,053,620 warrants in exchange for loan proceeds of an additional $77,549
      from a single accredited investor. The loans accrue interest at 12% per annum
      and become due three years from issuance and the warrants are exercisable at
      $.20 to $.25 per share and the notes and warrants are identical in all material
      respects to the notes and warrants issued earlier in the year.





In
      addition, we have completed an offering of Common Stock to four accredited
      investors existing overseas, with aggregate gross proceeds of $114,780.





Finally,
      between July 1 and September 30 2007, there have been various note conversions
      and warrant exercises resulting in the issuance of restricted stock. See
“Unregistered Sales of Equity Securities”, below, for additional information
      relating to these share issuances.





**Development
      of Advisory Board**





On
      October 18, 2007 we formed an informal Advisory Board (“the Board”). The newly
      formed Board will help provide us with strategic, management, and industry
      advice to assist us in advancing our business objectives. On October 18, 2007
      we
      appointed our first advisor, Brad Baker to the Board. The members of the Board
      do not have any voting or policy making rights and attend meetings of management
      by invitation only.





F-25




**Consulting
      Agreement**





On
      September 15, 2007
      we entered into a Consulting Agreement with Joint Strategy Group, Inc. to be
      the
      Company’s strategic advisor. As the Company’s strategic advisor JSG will work
      closely with the Company and analyze the Company’s business as well as assisting
      in the development of strategic goals. The term of the agreement is for the
      period of two years and calls for the issuance of 500,000 common shares per
      year
      for two years. As part of the consulting agreement, services are to
      include:




·
            Consulting
                on mergers and acquisitions,


·
            Assist
                in the review and development of the Company’s business
                plan,


·
            Assist
                in the development of the acquisition profile and
                structure,


·
            Provide
                corporate advisor services,


·
            Recommend
                financing alternatives and sources for growth
                capital,


·
            Consult
                on corporate finance and investment banking
                issues.





**Recent
      Share Pledges**





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




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




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




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





**Item
      2. Management Discussion and Analysis and**  **Plan
      of Operation**





For
      the
      nine months ended September 30, 2007, our operating costs were $170,335 as
      compared with $209,361 for the same period in 2006. The decrease in costs
      related primarily to decreased employment staff and costs relating to
      development of our maintenance and other programs.





Interest
      expenses for the nine months ended September 30, 2007 was $3,927,743 as compared
      to $923,810 for the same period in 2006, which increase was caused by our
      increase in outstanding debt used to fund our operations.





**Liquidity
      and Capital Resources**





Our
      business involves the ownership, operation and maintenance of jet aircraft,
      which typically require significant amounts of capital. Some of our anticipated
      one time and ongoing expenses are discussed below.





Our
      predecessor, AeroGroup, has had no revenues during 2006. We had no revenues
      during the first nine months of 2007. We anticipate that our current
      cash on hand of $14,086 as of September 30, 2007 is sufficient to satisfy our
      cash requirements only through the end of December of 2007. We do not
      have any financing commitments and no assurance can be made that we will be
      obtaining financing at the times and terms needed. Therefore, there is
      substantial doubt that we will be able to continue as a going concern. In
      addition, we will need substantial additional capital during the next 12 months
      in order to complete our business plan.




F-26




We
      have
      funded our operations and met our capital expenditures requirements primarily
      from the issuance of convertible debt securities and warrants.





As
      of
      December 31, 2006, AeroGroup (our predecessor in interest) had a negative
      working capital deficiency in the amount of $4,621,385. Cash used by
      operating activities were $1,157,571 for the year ended December 31, 2006
      compared to cash used by operating activities for the year ended December 31,
      2005 of $967,573.




As
      of
      September 30, 2007, we had negative working capital deficiency in the amount
      of
      $5,560,511 with cash used in operating activities of $1,303,711 for the nine
      months ended September 30, 2007 as compared to $828,034 during the nine month
      period ended September 30, 2006.





Net
      cash
      provided by financing activities for the nine months ended September 30, 2007
      was $1,181,739 compared to $1,090,263 for the nine months
      ended September 30, 2007 primarily as a result of continued capital raising
      efforts of the Company





The
      factors that predominantly impact working capital and therefore cash flows
      from
      operations are operating expenses.




During
      the year ended December 2007, the Company believes that it will need to expend
      funds on the following in order to generate revenues or bid for additional
      contracts:


·
              Completion
                  of development of our IL-76/78 safety, parts and maintenance programs
                  which we anticipate will cost a minimum of another $150,000 to
                  complete,
 ·
              Completion
                  of development of our F-16 safety, parts and maintenance programs
                  which we
                  anticipate will cost a minimum of another $1,000,000 to complete,
 ·
              Import
                  and modification of the MiG 29 Aircraft, currently in the Ukraine,
                  which
                  we anticipate will cost approximately
                  $620,000,
 ·
              Acquisition
                  or leasing of new fourth generation military aircraft and/or tanker
                  aircraft.
 ·
              Hiring
                  of a Chief Financial Officer and dispatch and other personnel with
                  military aviation experience.




**Financing
      Activities Since June 30, 2007**





From
      July
      1, 2007 to September 30, 2007 we issued $229,234 of 12% convertible notes and
      1,053,620 warrants. The loans accrue interest at 12% per annum and become due
      three years from issuance and the warrants are exercisable at $.20 to $.25
      per
      share and the notes and warrants are identical in all material respects to
      the
      notes and warrants issued earlier in the year.





In
      September and October of 2007, the Company completed a private placement of
      its
      common stock to four accredited investors pursuant to which it sold an aggregate
      of 765,329 shares at a purchase price of $.30 per share, with gross proceeds
      of
      $229,561.





We
      anticipate that if we are able to raise sufficient capital that we will be
      able
      to complete our programs and import our MiG 29 aircraft by the second quarter
      of
      2008. If we are not able to do so, we will not be able to perform under the
      F-16
      Training Contract or to bid under newer contracts.





We
      anticipate that we will need at least $150,000 in order to be able to complete
      our safety, parts and maintenance programs for the IL 76/78 aircraft and
      complete and necessary modifications to it to make it operational, during the
      fourth quarter of 2007. If we are not able to do so, we will not be able to
      bid
      for firefighting or aerial refueling contracts.





F-27




**Immediate
      Need for Additional Capital**





We
      will
      be required to make significant additional expenditures to acquire F-16, F-15,
      SU-27, IL-76/78 or additional MiG 29 fighter jet aircraft in order to make
      these
      aircraft operational and perform under our contracts. We may lease these
      aircraft if sufficient financing alternatives are not available to acquire
      them.
      Additionally, we will be required to allocate capital towards completion of
      our
      parts, maintenance and safety programs as well as allocating capital to make
      any
      leased or acquired aircraft operational. Presently, we do not have any
      commitments for capital. Our near term anticipated costs are listed below.





*Cost
      of Importing our Existing Jet Fighter Aircraft*





Our
      MiG
      29 aircraft are located in the Ukraine and must be disassembled for delivery
      to
      the United States, where they will be reassembled and modified to an airworthy
      condition suitable for use in our business. We intend to use these aircraft
      in
      connection with our air-to-air training of pilots who fly NATO aircraft, such
      as
      the F-16.





We
      estimate that it will cost $200,000 to import our MiG 29 aircraft that are
      in the Ukraine and $420,000 to modify these aircraft for use in military
      training. Presuming that we are able to finance this shipment promptly, we
      anticipate that these two aircraft will become fully operational in the United
      States no sooner
      than March of 2008. We
      estimate that it will take no less than 50 days from the closing of a financing,
      if any, to ship such aircraft to the United States.




*Cost
      of Developing Parts, Maintenance and Safety Programs*





Our
      F-16
      Training Contract and most of our existing subcontracts, as well as those we
      may
      bid for in the future, will require us to develop and maintain a formal safety,
      maintenance, and parts programs. We anticipate that it will cost us
      approximately $1,000,000 through March of 2008 to complete these programs and
      start accepting tasking orders on this contract.





Our
      IL-76/78 program will require us to develop and maintain a formal safety
      program, a formal maintenance program and a formal parts program. We anticipate
      that it will cost us approximately $150,000 through December of 2007 to complete
      these programs. Our first IL-76 aircraft is already in our possession in our
      Grayson County Airport facility, and, presuming the Company attains the
      requisite funding, management believes that maintenance can easily be performed
      and parts can be reasonably acquired from Ilyushin parts resellers in the
      Ukraine and other former Soviet republics which operate the IL76.  Part of
      the above expense includes filling the Company’s leased IL-76 with tanks holding
      an aggregate of 12,000 gallons (which can be further expanded with a third
      tank
      to enable the aircraft to hold 18,000 gallons) of water or
      chemical.  Many
      parts may be substituted with parts from U.S. suppliers, including complete
      replacement of part type, e.g. engines, which way be replaced with Pratt and
      Whitney turbofans. Accordingly, management believes that original or salvage
      parts are therefore readily available. We do not have any firefighting or aerial
      refueling contracts for this aircraft and no assurance can be made that we
      will
      be able to successfully bid for or perform under such contracts.





Notwithstanding
      the foregoing, even if we are able to raise additional capital and implement
      our
      parts, maintenance and safety programs, no assurance can be made that we will
      be
      able to bid for additional contracts. Management believes that the IL-76 has
      only received general acceptance in several countries as a firefighting aircraft
      and has not yet been utilized for such purposes in the United States.





*Cost
      of Acquisition or Lease of Fourth Generation Military
      Aircraft*





In
      order
      to for us to be eligible to be called upon to do work under our contracts,
      we
      must acquire at least two F-16 fighter jet aircraft with no less then seven
      of
      such aircraft being the optimum number of F-16 fighter jet aircraft. We do
      not
      have formal agreements to acquire or lease these aircraft, but based on recent
      negotiations, we anticipate that these aircraft will cost at least $5,500,000
      each, or a total of $11 Million to $38.5 Million in order to be fully
      operational. We may also utilize other fourth generation military aircraft
      for
      our F-16 Training Contract which we anticipate will cost less then the F-16
      aircraft based on the purchase price paid for the MiG 29 aircraft in December
      of
      2005. Alternatively, if we do not have the capital to acquire or finance these
      aircraft we will have to lease these aircraft. We have not yet entered into
      any
      formal arrangements to lease these or any other aircraft and are not aware
      if
      these aircraft are available for lease from third parties. Even if we are able
      to identify leasing agents, we anticipate that a lease arrangement will also
      entail a capital commitment.





F-28





We
      do not
      have adequate capital to purchase or lease these aircraft at this time or any
      financing commitments for the foregoing. If traditional acquisition financing
      cannot be found we will seek alternatives including a possible sale of debt
      or
      equity securities.





**Employees**





We
      currently have two full time employees. From time to time we have retained
      a
      number of independent consultants to assist us in developing our safety,
      maintenance and parts programs and to develop our curricula. We
      do not anticipate the hiring of new employees until we complete the acquisition
      of the F-16 aircraft and we are prepared to accept tasking orders under our
      contracts. However, we anticipate retaining consultants from time to time in
      order to complete development of our parts, maintenance and safety programs.
      We
      anticipate that after such time in order to operate our business of providing
      flight training, water bombing and aircraft services relating to F-16 fighter
      jet aircraft and, we will need to hire new employees and members of management.
      These new management personnel will include a director of logistics, a chief
      of
      maintenance, a director of administration, and a security director. We will
      also
      need certified flight instructors, maintenance and line personnel sufficient
      to
      manage our aircraft flight operations and program managers with military
      experience.





While
      we
      have interviewed and met with multiple candidates for these positions, we do
      not
      intend to hire anyone until the needs of our operations require such
      expenditures. We believe that the annual number of retiring military flight
      instructors and mechanics is sufficient to enable us to find qualified training
      and maintenance personnel.





**Recent
      Contract**





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





We
      have
      recently taken delivery of this IL-76 aircraft at its Grayson County Airport
      facility in Grayson County, Texas. This aircraft is currently operational in
      the
      United States and is believed to be the only one of its kind currently in the
      U.S. We have not procured any contracts to utilize this aircraft yet and no
      assurance can be made that we will be successful in doing so.





**Off
      Balance Sheet Arrangements**





As
      of
      October 31, 2007, we do not have any off balance sheet arrangements, as defined
      in Section 303(c) of Regulation S-B, other then as specifically disclosed in
      this report. Off balance sheet arrangements include, without limitation,
      contractual arrangements with any entity whose financial information is not
      consolidated with our own, under which we have:


·
                Guaranteed
                    any obligation of such other
                    entity;
 ·
              A
                  retained or contingent interest in assets transferred to such
                  unconsolidated entity or similar arrangement that serves as credit,
                  liquidity or market risk support to that entity for such
                  assets;
   F-29
  ·
              Any
                  obligation under certain derivative
                  instruments;
 ·
              Any
                  obligation under a material variable interest held by the registrant
                  in an
                  unconsolidated entity that provides financing, liquidity, market
                  risk or
                  credit risk support to the registrant, or engages in leasing, hedging
                  or
                  research and development services with the
                  registrant.




Additionally,
      we do not have any relationships or transactions with persons or entities that
      derive benefits from any non-independent relationships other than related party
      transactions discussed herein.





**Employment
      Agreement with Chief Executive Officer**





Pursuant
      to an employment agreement dated August 17, 2007 with Alexis C. Korybut, the
      Company’s Chief Executive Officer, Principal Executive and Financial Officer,
      the Company agreed to compensate Mr. Korybut, a salary of $300,000 per annum,
      subject to increase up to $450,000 once certain performance targets are
      achieved. The agreement is for a period of two years. In addition, the agreement
      calls for issuance of up to 3,000,000 restricted shares of the Company’s common
      stock. The common stock shall have piggy-back registration rights and
      full-ratchet anti-dilution rights in connection with a share reference price
      of
      $0.50 per share.





**Item
      3. Controls and Procedures**





(a) **Evaluation
      of Disclosure Controls and Procedures**





As
      of
      November 5, 2007, we do not have a full time internal chief financial officer
      or
      accounting compliance staff. Based on an evaluation of our disclosure controls
      and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of
      the Securities Exchange Act of 1934, as amended) required by paragraph
      (b) of Rule 13a-15 or Rule 15d-15, as of March 31, 2007, our
      Principal Executive Officer and Principal Financial Officer believes that,
      our
      disclosure controls and procedures were not effective in ensuring that
      information required to be disclosed by us in the reports that we file or submit
      under the Exchange Act is recorded, processed, summarized and reported. Our
      auditors, Marcum & Kliegman, LLP in performing their audit for the years
      ended December 31, 2006 and 2005, discovered conditions which they deemed to
      be
      a material weakness in the Company’s internal control related to financial
      reporting. Specifically, they noted a lack in timeliness in financial statement
      reporting as well as deficiencies related to disclosures in the notes to
      financial statements (2006 and 2005) and adjusting journal entries in accounting
      for derivative instruments (2005). Our Principal Executive Officer and Principal
      Financial Officer believes that the lack of a full time chief financial officer
      has been instrumental in leading to delays in the company’s filings and in the
      prompt gathering and analysis of financial information. Management believes
      that
      hiring a full time chief financial officer is crucial to maintaining timely
      preparation and filing of its financial information and reports and intends
      to
      do so as funds permit.





(b) **Changes
      in Internal Controls**





On
      August
      17, 2007 Mr. John Farley resigned as a principal financial officer of the
      Company and Mr. Alexis Korybut was appointed to such position, resulting in
      a
      change in our financial officer during the period ended September 30, 2007.
      There were no other changes in our internal control over financial reporting
      identified in connection with the evaluation required by paragraph (d) of Rule
      13a-15 or Rule 15d-15 that has materially affected, or is reasonably likely
      to
      materially affect, our internal control over financial reporting.




F-30




**PART
      II – OTHER
      INFORMATION**





**Item
      1. Legal Proceedings**





Mr.
      Jeffrey Peer, a former executive officer of AeroGroup, has threatened litigation
      in Florida as a result of AeroGroup’s failure to pay his salary and other
      expenses under his employment terms, which terms are at dispute. We believe
      that
      this claim is without merit and are working towards resolution of the same.





Mr.
      Charlie Searock, a former executive officer of our Company, has brought a law
      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. We
      believe that this claim is without merit and are working towards resolution
      of
      the same.





To
      our
      knowledge, no such proceedings are threatened other than a threat of a lawsuit
      from Mr. Peer and the suit with Mr. Charlie Searock, as described above.





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





*Conversion
      of Notes and Exercise of Warrants*





During
      the three months ended September 30, 2007 the issuances of unregistered
      securities were made as a result of various warrant exercises and note
      conversions. During three months ended September 30, 2007, holders of warrants
      exercised 1,176,788 warrants at $.15 per share by cashless exercise,
      resulting in the net issuance of 974,026 shares of common stock with an
      aggregate of 8,364,089 warrants exercised into 7,208,264 shares during the
      entire nine month period ended September 30, 2007. In addition, during the
      three
      months ended September 30, 2007, four holders of the convertible debentures
      converted $714,355 of debentures, (of which $564,060 was principal with the
      remaining $150,295 of interest) at conversion price of $.15 per share, resulting
      in the issuance of 4,762,373 shares of Common Stock. In all, during the nine
      months ended September 30, 2007, an aggregate of $786,959 of debentures have
      been converted into approximately 5,265,759 shares of Common Stock. The Company
      believes that, among other exemptions that may be available, these issuance
      of
      shares were exempt from the registration requirements of the Securities Act
      of
      1933, as amended, under Section 4(2) in that the transaction was limited to
      few investors with a pre-existing relationship with the Company and that no
      public solicitation was made with respect to this sale.





*Issuance
      of Convertible Debt*





Between
      July 1, 2007 and September 30, 2007 we issued $229,234 of 12% convertible notes
      and 1,053,620 warrants in exchange for loan proceeds of an additional $229,234
      from two existing creditors, Gary Fears and Sprout Investments, Inc. These
      loans
      accrue interest at 12% per annum and become due three years from issuance and
      the 1,053,620 warrants are exercisable at $.25 per share and the notes and
      warrants are identical in all material respects to the notes and warrants issued
      earlier in the year as disclosed above. In addition, d uring
      October 1, 2007 through October 31, 2007, the Company received loan proceeds
      of
      $12,000 from one unrelated party at identical terms but at a conversion rate
      of
      $0.20 per share and provide for warrants to purchase 60,000 shares of common
      stock at an exercise price $0.20 per share. The Company believes that, among
      other exemptions that may be available, this offering and issuance of shares
      therein, was exempt from the registration requirements of the Securities Act
      of
      1933, as amended, under Section 4(2) in that the transaction was limited to
      one investor and the investor with a pre-existing relationship with the Company
      and that no public solicitation was made with respect to this sale.





F-31





*Issuance
      of Common Stock to Private Investors*





In
      September and October of 2007, the Company completed a private placement of
      its
      common stock to four accredited investors located outside the United States
      pursuant to which it sold an aggregate of 765,329 shares at a purchase price
      of
      $.30 per share, with gross proceeds of $229,561. The Company paid Economic
      Advisors, Inc., a BVI limited company with offices in Panama, and introduction
      fee of $11,478 and issued to them 57,400 shares of restricted common stock
      for
      their introduction services. The Company believes that, among other exemptions
      that may be available, this offering and issuance of shares therein, to the
      investors and to Economic Advisors, Inc., were exempt from the registration
      requirements of the Securities Act of 1933, as amended, under Section 4(2)
      and under Regulation S and Regulation D in that the transaction was
      limited to four investors and not in the United States and the purchasers were
      not, to the Company’s knowledge, domiciled in the United States and that no
      public solicitation was made with respect to this sale.





*Issuance
      of Shares to Consultant*





On
      September 15, 2007
      we entered into a Consulting Agreement with Joint Strategy Group, Inc. to be
      the
      Company’s strategic advisor. The term of the agreement is for the period of two
      years and calls for the issuance of 500,000 shares of restricted common stock
      of
      the Company per year for two years with the first issuance to be made in 2007.
      The Company believes that, among other exemptions that may be available, this
      issuance of shares was exempt from the registration requirements of the
      Securities Act of 1933, as amended, under Section 4(2) in that the
      transaction was limited to one investor and that no public solicitation was
      made
      with respect to this sale.





*Satisfaction
      of Compensation Payments to John Farley*





On
      August
      17, 2007 Mr. John Farley our former Vice President and Principal Financial
      Officer, resigned from all positions with the Company to pursue other business
      ventures. In satisfaction of all past due compensation to Mr. Farley, the
      Company entered into a Resignation and Release Agreement with Mr. Farley
      providing for the issuance of 100,000 shares of restricted common stock and
      payment of $11,250 to Mr. Farley in exchange for an unconditional release of
      all
      amounts owed to him. In addition the Company agreed to indemnify Mr. Farley
      as a
      former executive officer for all actions brought against him in such capacity.
      The Company believes that, among other exemptions that may be available, this
      issuance of shares was exempt from the registration requirements of the
      Securities Act of 1933, as amended, under Section 4(2) in that the
      transaction was limited to one investor and that no public solicitation was
      made
      with respect to this sale.


Other
        Shares issued for Services
 
 In
        early
        November of 2007, we issued (i) 50,000 shares of common stock in connection
        with
        a settlement agreement with John Farley, a former employee and (ii) 200,000
        shares of common stock to Gary Condy for legal services relating to defense
        of
        the lawsuit initiated by Mr. Searock disclosed above. The Company believes
        that,
        among other exemptions that may be available, this issuance of shares was
        exempt
        from the registration requirements of the Securities Act of 1933, as amended,
        under Section 4(2) in that the transaction was limited to one investor and
        that no public solicitation was made with respect to this sale.


**Item
      3. Defaults Upon Senior Securities**





The
      Company and its note and warrant holders agreed to waive any default relating
      to
      the breach of certain anti dilution, non registration and non-repayment
      provisions of their notes and warrants, through March 31, 2008.





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





None.





**Item
      5. Other Information**





None.




F-32




**Item
      6. Exhibits**





a.
      Exhibit Index





3.2
            Certificate
                of Designation, with Respect to Series A Preferred Stock, dated March
                21,
                2007.*





10.1
            Employment
                Agreement, dated as of January 3, 2007, between the Company and Mark
                Daniels.*





10.2
            Employment
                Agreement, dated as of January 3, 2007, between the Company and Victor
                Miller.*





10.3
            Settlement
                and Release Agreement, between Tactical Air Defense Services, In.
                and John
                Farley, dated as of  August 17, 2007. (Incorporated by reference from
                Exhibit 10.1 of Current Report on Form 8-K, dated  August 17,
                2007.





10.4
            Employment
                Agreement, dated as of August 17, 2007, between the Company and Alexis
                C.
                Korybut.





10.5
            Form
                of Subscription Agreement Relating to Sale of Common Stock at $.30
                per
                share in September 2007.





10.6
            Lease
                Relating to IL-76/78 Aerial Firefighting and refueling aircraft.
                (Incorporated by reference from  Exhibit 10.01 to Current Report on
                Form 8-K, dated October 29, 2007).





10.7
            Consulting
                Agreement by and between JSG Strategy Group, Inc., dated September
                15,
                2007.





31.1
            Certification
                by Chief Executive Officer and Principal Financial Officer, required
                by
                Rule 13a- 14(a) or  Rule 15d-14(a) of the Exchange Act, promulgated
                pursuant to Section 302 of the Sarbanes-Oxley Act of  2002.





32.1
            Certification
                by Chief Executive Officer and Principal Financial Officer, required
                by
                Rule 13a-14(b) or  Rule 15d-14(b) of the Exchange Act and Section
                1350 of Chapter 63 of Title 18 of the United States Code,
                 promulgated pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.





*
              Incorporated
                  by reference to the Issuer’s Form 10-KSB filed on June 14,
                  2007.





F-33




**SIGNATURES**





In
      accordance with the requirements of the Exchange Act, the registrant caused
      this
      report to be signed on its behalf by the undersigned, thereunto duly authorized.





**TACTICAL
              AIR DEFENSE SERVICES,****INC.**November
                14, 2007By:
            /s/
                Alexis
                KorybutName:
              Alexis KorybutTitle:
              President and Chairman (PrincipalExecutive
              Officer and Principal FinancialOfficer)





F-34