UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
 FORM
10-K
 
 o
                ANNUAL
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
  For the
fiscal year ended December 31, 2008
 
 o
                TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
  For the
transition period from _______ to ________
  Commission
file number: 333-79405
  Tactical
Air Defense Services, Inc.
 (Name of
small business issuer on its charter)
 
 NEVADA
                88-0455809State
      or other jurisdiction of incorporation or organization
                (I.R.S.
      Employer Identification
Number)
 
 1515
Perimeter Rd
 West Palm
Beach, FL 33406
 (Address,
Including Zip Code of Principal Executive Offices)
 
 (561)
398-8196
 (Issuer's telephone
number)
 
 Securities
registered under Section 12(b) of the Exchange Act:
 NONE
  Securities
registered under Section 12(g) of the Exchange Act:
 Common
stock, par value $0.001 (Title of class)
 
 Check
whether the issuer (1) 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 o Noo
 
 Check if
no disclosure of delinquent filers in response to Item 405 of Regulation S-B is
contained in this form, and no disclosure will be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.o
 
 Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).Yes o Noo
 
 State
issuer's revenues for its most recent fiscal year: $0
 
 State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days: Based on the closing sale price on the
OTC Bulletin Board on April 10, 2009, the aggregate market value of the
registrant's common stock held by non-affiliates was approximately $750,000 .
For purposes of this computation, all directors and executive officers of the
registrant are considered to be affiliates of the registrant. This assumption is
not to be deemed an admission by the persons that they are affiliates of the
registrant.
 
 
 
 
 TABLE
OF CONTENTS
 
 PART
      IITEM
      1.
                  DESCRIPTION
      OF BUSINESS
                  4ITEM
      2.
                  DESCRIPTION
      OF PROPERTY
                  18ITEM
      3.
                  LEGAL
      PROCEEDINGS
                  18ITEM
      4.
                  SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS
                  19PART
      IIITEM
      5.
                  MARKET
      FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
                  19ITEM
      6.
                  MANAGEMENT'S
      DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
                  27ITEM
      7.
                  FINANCIAL
      STATEMENTS
                  28ITEM
      8.
                  CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTINGAND
      FINANCIAL DISCLOSURE
                  29ITEM
      8A.
                  CONTROLS
      AND PROCEDURES
                  29ITEM
      8B.
                  OTHER
      INFORMATION
                  30PART
      IIIITEM
      9.
                  DIRECTORS,
      EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION
      16 (A) OF THE EXCHANGE ACT
                  31ITEM
      10.
                  EXECUTIVE
      COMPENSATION
                  39ITEM
      11.
                  SECURITIES
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS
                  49ITEM
      12.
                  CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE
                  50ITEM
      13.
                  EXHIBITS
                  53ITEM
      14.
                  PRINCIPAL
      ACCOUNTANT FEES AND SERVICES
                  54
  2
 
 Forward
Looking Statements
  This
Annual Report on Form 10-K and all other reports filed by Tactical Air Defense
Services, Inc., a Nevada corporation (“TADS” or the “Company”), from time
to time with the Securities and Exchange Commission (collectively the “Filings”)
contain or may contain forward looking statements and information that are based
upon beliefs of, and information currently available to, the management of TADS
as well as estimates and assumptions made by TADS management. When used in the
filings the words “may”, “will”, “should”, “estimates”,  “anticipate”,
“believe”, “estimate”, “expect”, “future”, “intend”, “plan” or the negative of
these terms and similar expressions as they relate to TADS or its management,
identify forward looking statements. Such statements reflect the current view of
TADS and with respect to future events and are subject to risks, uncertainties,
assumptions and other factors (including the risks contained in the section of
this report entitled “Risk Factors”) relating to TADS, its ability to raise
capital and to acquire, lease and operate F-16 or other fourth generation
aircraft in order to fulfill its contracts, its ability to acquire, lease and
operate air-to-air tanker refueling aircraft, its ability to complete and
maintain parts, safety and maintenance programs that will be acceptable to the
government contracting parties that it does business with, its ability to
procure and fulfill government contracts, and its results of operations and any
businesses that may be acquired by TADS. Should one or more of these risks or
uncertainties materialize, or should the underlying assumptions prove incorrect,
actual results may differ significantly from those anticipated, believed,
estimated, expected, intended or planned.
  Although
TADS believes that the expectations reflected in the forward looking statements
are reasonable, we cannot guarantee future results, levels of activity,
performance or achievements. Except as required by applicable law, including the
securities laws of the United States, management does not intend to update any
of the forward-looking statements to conform these statements to actual results.
The following discussion should be read in conjunction with TADS’ consolidated
financial statements and the related notes filed herewith.
  3
 
 PART
I
 
 All
references in this Annual Report on Form 10/K to the “Company,” “we,” “our,” or
“us,” ” refer to TADS and its subsidiaries as constituted subsequent to the
acquisition of substantially all of the assets of AeroGroup Incorporated on
December 15, 2006, except where the context makes clear that the reference is
only to TADS. Information about the Company and the principal terms of this
acquisition are set forth below.
  Item 1. Description of
Business
 Corporate
History
 
 Tactical
Air Defense Services, Inc. (TADS) is a Nevada public corporation that offers air
combat training, mid-air refueling, ground-threat support, aerial fire-fighting,
and specialty aerial services to the U.S. and Foreign Militaries and other
Federal and State Agencies. TADS is certified by the United States Government as
a private-sector military contractor and has been granted the required security
clearances.
 
 The
executive offices of TADS are located in West Palm Beach, Florida.
 
 As a
result of the U.S. Base Foreclosure Act, the overall downsizing of the armed
forces of the U.S. and its foreign allies, and the advanced age of the U.S.
military air fleet, there is insufficient equipment and personnel to meet
demands for combat air training and mid-air refueling training. The wars in Iraq
and Afghanistan and various regional conflicts and terrorist’s acts, have only
added to this crisis. The private-sector is now being asked to fill a role once
the exclusive domain of the military, and the capabilities of civilian
contractors are well recognized, and are frequently proven superior and more
efficient than public-sector contractors.
  Through
an exclusive lease arrangement, TADS has the only Soviet ILyushin IL-78/76
aircraft in the U.S. In addition to their mid-air refueling capabilities, the
ILyushin aircraft are the only planes ever built for the purpose of aerial
fire-fighting, and are recognized as far superior to any other aircraft in
existence for this purpose. The ILyushin aircraft are dedicated water-bombers
that are capable of quickly and efficiently disbursing large quantities of water
or fire retardant to defeat the increasing damage from the extensive forest
fires in the Western U.S. and other areas. Due to the escalating forest fire
crisis in the Western U.S., and the unique capabilities and exclusivity of its
ILyushin aircraft, TADS has experienced significant interest for fire-fighting
services from both Federal and State Agencies.
  In order
to meet present and future military, environmental, and financial threats, the
United States and its allies must continue to commit billions of dollars to
training, preparedness, and execution. These needs cannot be met without the
support of the private-sector. We believe that there is currently no other
private-sector contractor which can adequately fulfill these diverse and urgent
demands, and we believe that TADS possesses the aircraft, personnel, and
operational skills necessary to claim a significant piece of this rapidly
growing and highly-profitable market for diverse air support
services.
 
 TADS
Corporate History
 
 TADS was
incorporated in the State of Nevada on July 9, 1998 under the name Natalma
Industries, Inc. Originally, TADS operated as a junior mining company engaged in
the exploration of mining properties. We were unsuccessful in locating a joint
venture partner to assist us in the development of our mining claims. As a
result, TADS was unable to pay for and perform the exploration and development
required in its agreement with the owners of its properties and lost our rights
to the mining claims. Our management at the time, therefore determined that it
was in the best interest of our shareholders that we seek potential operating
businesses and business opportunities with the intent to acquire or merge with
another business, which led to the purchase substantially all of the assets of
AeroGroup Incorporated (the “AeroGroup Acquisition”).
  AeroGroup
Corporate History
 
 AeroGroup
Incorporated commenced its operations and business plan as a contractor of
military flight training as AeroGroup International Corporation in January
2002,and
eventually merged with and acquired AeroGroup Incorporated, which was, prior to
such time, a non-operating entity called Diversified Resources Group,
Inc.
 
 In June
of 2006, AeroGroup, through its subsidiaries, acquired two MiG 29 aircraft in
Ukraine, and four flight simulators (which we then purchased from AeroGroup in
the AeroGroup Acquisition) from three entities controlled by Mark Daniels, a
Director, majority beneficial shareholder, and an Officer of TADS.
AeroGroup also acquired various government licenses and permits that enable it
to trade, own and operate military class aircraft and to bid for government
contracts. Specifically, AeroGroup acquired the following intellectual property
from Mark Daniels:
  ●
                Copyrights
      to a specialized F-16 Fighter Aircraft training course syllabus, specially
      created by AeroGroup in training pilots to use this aircraft’s Flight
      Control Navigation Panel; and
  4
  ●
                Assignments
      of Provisional applications for utility patents filed relating
      to methods of operational training uses of fighter aircraft by civilian
      corporations of these types of military aircraft for training of military
      personnel, specifically F-16, Pat. Pend. 60805870; Kfir, Pat. Pend.
      60805885; A-4 Skyhawk, Pat Pend. 60805877; and MiG 29, Pat Pend.
      60805888.
 AeroGroup
has provided operational training support for F-16 Flight training with the
Royal Netherlands Air Force in Melbourne Florida in 2003 and in
Jacksonville Florida in 2004.
 
 Air
Combat Training
  Air
combat training exercises are currently conducted by the training commands of
the United States Air Force, United States Navy, and of most of our NATO, SEATO,
and foreign allies. Neither the U. S. Department of Defense (the “DoD”) nor its
allies have sufficient personnel, support equipment, or access to foreign enemy
aircraft, to meet current demand. In many instances our European allies have
neither the facilities nor the extensive airspace required for fighter combat
training or fighter bombing training that TADS can provide.
 
 TADS
intends to provide the highest standard of air combat training to the U.S.
military and its allies, and to other domestic and foreign
agencies.
  U.S.Military
Training
  A crucial
component to aerial combat training involves training against actual foreign
adversary aircraft which are typically Russian, ex-Soviet block, or Chinese.
However, because the U.S. military has little to no access to “enemy” aircraft,
the status-quo has been to use aged U.S. military aircraft operating as the
adversarial or “Red Air” aircraft. The status-quo leaves much to be desired
because aged U.S. military aircraft do not possess the flying characteristics or
capabilities of sophisticated enemy combat aircraft, nor do they emit the same
electronic, radar, or visual signals.
  Through
its agreement with a U.S. company licensed by the U.S. DoD to import
foreignweapons of war
and one of only five companies in the world approved by the Ukrainian Ministry
of Defense to purchase and export military equipment, TADS can provide unique
Red Air aggressor squadrons consisting of the only 4th  generation MIG 29’s, Sukhoi SU-27’s, and ILyushin IL-78’s
available in the U.S., and which aircraft are the actual fighter aircraft
currently used by substantially all of the former Soviet block countries and
non-allied nations.
  In
connection with contracts to provide adversary combat aircraft to the U.S.
military, TADS would supply various support services such as adversary pilots,
parts and service and maintenance of the adversary aircraft, tactical training,
actual aggressor simulated combat, and classroom instruction.
  TADS,
through AeroGroup, has been awarded a $207 million government contract
to provide air combat training and support to the U.S. military. The contract
has been finalized and awarded
to TADS, the funding amount has been stipulated, and the requirements of the
contract have been established. TADS is now awaiting for the contract to be
“tasked” by various customers which
require the services established in the contract, for the final definitive
contract face page to be signed, and for the funds are MIPRed from the customers
and secured for the contract. Although TADS believes that the $207 million
contract awarded to TADS will be “tasked”, signed, and the funds MIPRed and
secured, no assurances can be given.
  Foreign
Air Combat Training
 
 Unlike
the training of the U.S. military, air combat training of foreign allied
militaries typically entails air combat training techniques and strategies using
U.S. military aircraft such as the F-16, which such foreign militaries have
already purchased. Although a commercial endeavor, it has been a strategic
decision of the U.S. government to supply U.S. fighter aircraft to its allies.
However, the ability and resources of the U.S. military to thereafter train the
foreign purchasers of its aircraft is extremely limited and
sub-par.
  As a
result, there is a backlog of allied countries that have purchased F-16’s and
other U.S. fighter aircraft, and that have immediate and ongoing need for air
combat training. TADS is able to offer to foreign militaries actual combat
training from highly experienced U.S. fighter pilots, classroom training, and
parts, service, and maintenance protocols for their aircraft. TADS also has the
capability to either train on foreign soil and foreign military bases to fulfill
multi-year contracts, or to provide a turn-key solution by hosting foreign
militaries on U.S. soil, and therein provide not only pilots, training
protocols, and parts, service, and maintenance, but also the air-bases, bombing
ranges, fueling services, housing requirements, etc.
  5
  TADS is
currently fulfilling a $6.4 million contract for the Belgian Air Force (“BAF”).
The BAF contract was awarded to TADS in October of 2007, and tasked in March of
2008. The contract requires classroom and air combat training using F-16’s at
the Kleine-Brogel Air Base in Belgium, using BAF facilities, equipment, and
materials, and initially consists of two F-16 instructor pilots. The BAF has
expressed interest in increasing the number of pilots after year-one, although
no assurances can be given that this event will occur.
 
 Through
the BAF contract, TADS has also recently graduated four pilots from the Air
Force of a Middle-Eastern ally, and is currently pursuing a direct contract for
additional training services with said allied Air Force, although no assurances
can be given that a final contract will be awarded to TADS.
 
 In
addition, TADS is currently in the early phases of air combat training contracts
with other allied and NATO countries to provide F-16 training, support, and
services, and although TADS believes that it is well-positioned to be awarded
any and all of these foreign contracts, no assurances can be given.
 
 Ground-Threat
Support
 
 The U.S.
military regularly trains against “enemy” ground-threats, typically Russian and
Ukrainian Air Defense surface-to-air missile systems.  These systems make
up approximately 95% of all known ground-threats used by perceived hostile
states and groups around the world such as North Korea, Syria, Iran, the
Taliban, etc.
 
 Notably,
however, the U.S. DoD has been unable to acquire and support working examples of
said Russian and Ukrainian systems with which to train. As a replacement, the
U.S. military uses replica or “same signal” practice units which offer a sub-par
training experience due to at times materially different physical and electronic
characteristics.
 
 To the
best of our knowledge, TADS, through its agreement with a supplier of Russian
systems, is the only U.S. company able to provide and support Russian and
Ukrainian joint-threat emitter (“JTE”) systems in good working condition, and as
a result we can provide a much more effective and value-added training
experience to the U.S. and allied militaries.
 
 As a
direct consequence of our proposals to several DoD entities, a public Request
for Information was issued, and TADS, through its agreement with the supplier of
Russian systems, proposed selling this equipment with support contracts to
operate and maintain the equipment. It was determined that TADS through said
supplier was the only company capable of providing and operating this equipment,
and we are currently waiting for funding to be issued to be awarded a
contract.
 
 Although
said JTE contract is anticipated be initially be budgeted for $5 million, the
JTE program budget is approximately $500 million per year, and we anticipate,
but cannot guarantee that TADS will be awarded a final JTE contract, that said
contract budget will be expanded from the initial $5 million, and that TADS is
well-positioned to be awarded additional ground-threat support
contracts.
 
 Mid–Air
Refueling
 
 As
demonstrated by the debacle between Boeing and AES in the awarding of the next
generation of mid-air refueling aircraft, mid-airrefueling is big business, and
the U.S. fleet of mid-air refueling aircraft, which were all built in the 1950’s
and 1960’s, is operating well below the required levels. With its aging fleet
and the uncertainty of the delivery of new tankers, there is an immediate need
for the military to outsource re-fueling training.
 
 TADS
operates the only ILyushin IL-78 refueling tanker aircraft available in the
U.S., and is in the process of acquiring additional aircraft. The IL-78 is used
for mid-air refueling by most air forces in the world including Russia, most
former Soviet republics, China, India, Pakistan, Cuba, Libya, Syria, and many
others. The TADS IL-78 is the Midas version, which is presently undergoing final
preparation by TADS in Texas for certification, and is configured for mid-air
refueling. It is capable of re-fueling at an airspeed exceeding 400 knots, and
can deliver fuel to three aircraft simultaneously. TADS will provide its IL-78
for re-fueling during air combat training sessions and for contract re-fueling
of U.S. military squadrons.
  TADS is
currently in Phase IV, the final phase, of $207 million government contract, a
part of which provides airborne refueling training and ancillary services, and
we anticipate but cannot guarantee that this will lead to execution and
fulfillment of a contract.
  In
preliminary discussions with TADS, U.S. DoD representatives expressed their
intentions to contract with TADS for the use of its fleet of IL-78’s for mid-air
refueling services as soon as it is operational, although no assurances can be
given that these discussions will lead to the awarding of a final contract to
TADS.
  In
addition, as the only company able to provide an IL-78 within the U.S., TADS has
been asked by a large U.S. defense contractor to provide an IL-78 and support
for approximately 500 hours of flight-time. TADS is currently in advances
discussions, and anticipates receiving a letter-of-intent in due course,
although no assurances can be given. Said defense contractor is a manufacturer
of fighter jets, and is in the final stages of signing a contract with a foreign
ally which has requested that the defense contractor demonstrate that the
fighter jets to be purchased can be refueled specifically from an
IL-78.
  6
 Aerial
Fire-Fighting
 
 In
addition to its military operation capabilities, the IL-76/78 is the only large
aircraft ever built for the purpose of aerial water-bombing, and is considered
by most fire-fighting experts as the most capable. The ILyushin IL-76/78
aircraft are dedicated water-bombers that are capable of quickly and efficiently
disbursing large quantities of water or fire retardant to defeat the increasing
damage from the extensive forest fires in the Western U.S. and other areas. Due
to the escalating forest fire crisis in the Western U.S., and the unique
capabilities and exclusivity of its ILyushin aircraft, TADS has experienced a
significant increase in demand for water-bombing services from both Federal and
State agencies.
 
 With a
cruising speed of up to 800 knots per hour, the IL-76/78 can reach most
locations in the world in approximately twelve hours. When fitted with a
triple-tank reservoir system, it can hold approximately 18,000 gallons of water
or fire-retardant, the largest capacity of any water-bombing aircraft in
existence. In a single pass over a forest fire the IL-76/78 can disburse enough
liquid to cover an area exceeding 200 yards wide and 600 yards long which is
over a third of a mile in length and the equivalent of two rows of six football
fields. To see the IL-76/78 disburse thousands of gallons over a wide area at
extremely low altitude is overwhelming and convincing of its superiority in this
role. The IL-76/78 can then be re-filled and ready to take off for another cycle
within minutes.
 
 As
exemplified by the state-of emergency declared by California recently, the
United States Forest Service estimates that forest fires will be a permanent
threat, and TADS is preparing to lease additional IL-76/78 aircraft specifically
configured for water-bombing. In addition to the substantial revenue stream that
TADS anticipates from these services, we believe that the publicity that can
result from these fire-fighting operations will be priceless.
  TADS is
exploring opportunities with State and Federal agencies in connection with
providing aerial fire-fighting services to combat the seemingly ever-growing
devastation of forest fires, and anticipates but cannot guarantee that these
discussions will lead to the final award of a contract in 2009 or
2010.
 
 Specialty
Aerial Services
 
 In
addition to its use as a mid-air refueling aircraft and as an aerial
fire-fighter, the unique characteristics of the IL-78/76 “super-tanker” make
extremely desirable for a number of specialty aerial services.
 
 Versatile
Cargo Support
 
 The
IL78/76 aircraft is a versatile workhorse that can be configured for heavy cargo
and used for transport of military vehicles and equipment, and commercial air
cargo services. The IL-78/76 has unique performance capabilities and is famous
for its ability to operate in extreme conditions and from marginal landing
areas.
 
 TADS is
currently in discussion with a division of the U.S. DoD to supply helicopter
transport services, and anticipates but can be assured that a letter-of-intent
is forthcoming. The criteria for such services are anticipated to be no less
than 1,000 hours per year.
 
 Oil-Spill
Support
 
 The
IL78/76 is also very well suited to address the problem of ocean oil-spills.
Currently, smaller aircraft are deployed to drop specific chemicals onto
oil-spills which cause the oil to coagulate and thereby aid in clean-up. TADS
has had initial discussions, in connection with providing an IL-78/76, with a
number of private contractors engaged in this operation.
  Competition
 
 The
capabilities of companies which provide similar air combat training services are
limited. Typically, our competitors operate a small number of older-generation
aircraft. They therefore generally neither have the aircraft required to fulfill
the current contracts in the awards process, and nor do they have the
infrastructure necessary should they be awarded a contract. TADS will
contemplate the acquisition of competing operators having additional assets, to
ensure TADS’ superiority in the air combat training, re-fueling, air support,
and fire-fighting businesses.
 
 As the
only company able to offer the services of an ILyushin IL-78/76 in the U.S.,
TADS is positioned to be awarded contracts which require the specifications of
the ILyushin aircraft for mid-air refueling, fire-fighting, and specialty air
services.
 
 In
addition, TADS is not aware of any other U.S. company which can procure,
support, and maintain Russian or Ukrainian ground-threat support equipment. The
U.S. DoD itself has attempted to supply and maintain such equipment, but has
been able only to supply non-functioning equipment which provide only a visual
target for its combat pilots, and not the specific electronic signals emitted by
Russian and Ukrainian equipment against which our military
operates.
  7
 Government
Approval and Regulation
 
 Our
proposed business is heavily regulated. All of our operations involve intense
government approval and oversight. Prior to awarding contracts other than on a
“bid for service” basis, military agencies are required to publish their
proposed award of a contract with details of such contract. During this time
period, other persons may submit objections or counter bids on these
contracts.
 
 Our
aircraft operations will also be subject to all regulations of the Federal
Aviation Administration that relate to civil “experimental” aircraft, and will
be subject to airworthiness standards and operating procedures of the Federal
Aviation Administration. Additionally, our pilots, instructors and mechanics
also must generally be appropriately certified to perform their duties by the
Federal Aviation Administration and are required to comply with strict
recurrency flight training rules and medical certification.
 
 In
addition to the foregoing, government agencies will require that we have and
maintain a proper safety program, an approved parts program and an approved
maintenance program, each of which must be sufficient to support the contracts
that we undertake to perform and each of which must be continually kept
current.
 
 Under our
F-16 Training Contract, we are also subject to audit and inspection to ensure
that we are in compliance with all of the foregoing requirements insofar as they
relate to providing services under this agreement. If we are not in compliance
we could be fined and we risk suspension or loss of the contract.
 
 Additionally,
we may be subject to rules of foreign governments with respect to operations of
our aircraft over their territories.
 
 Effect
of Government Regulation
 
 As
evidenced by the Justification and Approval for the F-16 Training Contract, we
believe that it is not common for branches of the United States military to
issue contracts to private entities for the training of military personnel in
combat and other military exercises. No assurance can be made, therefore, that
other government agencies will outsource their training or flight support
services, or that the government agencies that we deal with will not change
their policy with respect to such contracts to not renew or issue new contracts
to us or others in our business sector. Additionally, due to terrorist or other
national safety concerns, no assurance can be made that Bureau of Alcohol,
Tobacco, and Firearms will not restrict or prohibit the renewal of a permit to
private companies such as us, to own and operate our military
aircraft.
  Development
of Programs
 
 During
fiscal 2005 we spent approximately $88,000 in developing
our training syllabus with no expenditures in fiscal 2006, fiscal 2007, or
as of December 31, 2008 for these programs. We believe that we are required to
have a strong and efficient training syllabus in order to maintain and bid for
additional military training contracts. We have also begun development of an
approved parts program, a safety program and maintenance program, all of which
are required to be in effect prior to being tasked on any military
contracts.
 
 AeroGroup
Assets Acquired
 
 The
AeroGroup assets (the “AeroGroup Assets”) acquired from AeroGroup in December
2006 include:
  ●
                              Two
      MiG 29 “Fulcrum” fighter aircraft, which were appraised in late 2005 at
      $2,800,000 each (pre-modification) which are located in the Ukraine and
      are being prepared to be shipped to the United States for
      reassembly;●
                              Four
      Singer Link tactical jet simulators, and related equipment, recently
      appraised in late 2005 $285,000 each (pre-modification)
      currently located at the Company’s facility at the
      Grayson County Airport;●
                              Assignments
      of copyrights to a specialized F-16 Fighter Aircraft training course
      syllabus, specially created by AeroGroup for training pilots to use this
      aircraft’s Flight Control Navigation Panel;●
                              Assignments
      of provisional applications for utility patents filed relating
      to methods of operational training uses of fighter aircraft by civilian
      corporations of these types of military aircraft for training of military
      personnel, specifically F-16, Pat. Pend. 60805870; Kfir, Pat. Pend.
      60805885; A-4 Skyhawk, Pat Pend. 60805877; and MiG 29, Pat Pend.
      60805888;●
                              Assignment
      of a Federal Aviation Administration issued license as an Aircraft
      Dealer;●
                              Rights
      as assignee under three subcontracts and one contract to provide combat,
      primary and other flight training, as well as training research, in the
      F-16 and various other types of aircraft to military personnel of the U.S.
      Armed Forces and to the armed forces of certain NATO aligned countries
      (the “Training Contracts”);●
                              Assignment
      of a sublease of facilities at the Grayson County Airport in
      Grayson, Texas, including aircraft hangars, land and office
      space;●
                              Assignment
      of an option to enter into an exclusive agreement with Air Support
      Systems, LLC, to lease IL-78 tanker aircraft which are used primarily in
      air-to-air refueling operations;
and
  8
  It is
intended that the AeroGroup Assets will be used by the Company in connection
with both “basic flight training” and “combat flight training” of military
pilots. The Company may use the its assets to provide U.S. and NATO military
pilots with a “real life” opportunity to train against threat-type aircraft
whose performance and flight characteristics are superior in some respects to
those of U.S. and NATO fighter aircraft.
 
 As a
result of the U.S. Base Foreclosure Act, the overall downsizing of the armed
forces of the U.S. and its foreign allies, and the advanced age of the U.S.
military air fleet, there is insufficient equipment and personnel to meet
demands for combat air training and mid-air refueling training. The wars in Iraq
and Afghanistan and various regional conflicts and terrorist’s acts, have only
added to this crisis. The private-sector is now being asked to fill a role once
the exclusive domain of the military, and the capabilities of civilian
contractors are well recognized, and are frequently proven superior and more
efficient than public-sector contractors.
 
 Due to
the escalating forest fire crisis in the Western U.S., and the financial and
environmental costs associated with this crisis, fire-fighting preparedness and
capability have become a top priority at both the State and Federal levels of
government. Again, the private sector is being asked to provide services that
were previously the domain of the public-sector.
  In order
to meet present and future military, environmental, and financial threats, the
United States and its allies must continue to commit billions of dollars to
training, preparedness, and execution. These needs cannot be met without the
support of the private-sector. We believe that there is currently no other
private-sector contractor which can adequately fulfill these diverse and urgent
demands, and we believe that TADS possesses the aircraft, personnel, and
operational skills necessary to claim a significant piece of this rapidly
growing and highly-profitable market for diverse air support
services.
 
 TADS
Corporate History
 
 TADS was
incorporated in the State of Nevada on July 9, 1998 under the name Natalma
Industries, Inc. Originally, TADS operated as a junior mining company engaged in
the exploration of mining properties. We were unsuccessful in locating a joint
venture partner to assist us in the development of our mining claims. As a
result, TADS was unable to pay for and perform the exploration and development
required in its agreement with the owners of its properties and lost our rights
to the mining claims. Our management at the time, therefore determined that it
was in the best interest of our shareholders that we seek potential operating
businesses and business opportunities with the intent to acquire or merge with
another business, which led to the purchase substantially all of the assets of
AeroGroup Incorporated (the “AeroGroup Acquisition”).
 
 Since the
AeroGroupo Acquisition, TADS has achieved a number of operational
successes:
 
 ●
                January
      2007 –TADS  is contracted through U.S. Army-RDECOM/CASU to
      provide pilot training and other aircraft services.●
                October
      2007-Current – TADS through AeroGroup  is the first commercial
      company to provide F-16 pilot training to the Belgian Air Force, via a
      contract awarded through U.S. Air Force – Air Education and Training
      Command (AETC).●
                December
      2007 – TADS executes an exclusive lease arrangement with Air Support
      Systems, LLC to lease the only Soviet ILyushin aircraft available in the
      U.S.  The ILyushin aircraft are the mid-air refueling aircraft
      of choice for non-U.S. militaries around the world, and are capable of
      refueling 3 aircraft simultaneously.  In addition, the ILyushin
      aircraft are the only planes ever made for the purpose of aerial
      fire-fighting and water-bombing, and are recognized as far superior to any
      other aircraft in existence for this
purpose.
 
 AeroGroup Corporate
History
 
 AeroGroup
Incorporated commenced its operations and business plan as a contractor of
military flight training as AeroGroup International Corporation in January
2002,  and
eventually merged with and acquired AeroGroup Incorporated, which was, prior to
such time, a non-operating entity called Diversified Resources Group,
Inc.
  9
  In June
of 2006, AeroGroup, through its subsidiaries, acquired two MiG 29 aircraft in
Ukraine, and four flight simulators (which we then purchased from AeroGroup in
the AeroGroup Acquisition) from three entities controlled by Mark Daniels, a
Director, majority beneficial shareholder, and an Officer of TADS.
AeroGroup also acquired various government licenses and permits that enable it
to trade, own and operate military class aircraft and to bid for government
contracts. Specifically, AeroGroup acquired the following intellectual property
from Mark Daniels:
  ●
                    Copyrights
      to a specialized F-16 Fighter Aircraft training course syllabus, specially
      created by AeroGroup in training pilots to use this aircraft’s Flight
      Control Navigation Panel;●
                    Assignments
      of Provisional applications for utility patents filed relating
      to methods of operational training uses of fighter aircraft by civilian
      corporations of these type of military aircraft for training of military
      personnel, specifically F-16, Pat. Pend. 60805870; Kfir, Pat. Pend.
      60805885; A-4 Skyhawk, Pat Pend. 60805877; and MiG 29, Pat Pend. 60805888;
      and●
                    Rights
      to the exclusive use of the AeroGroup
name.
  In
addition, AeroGroup has provided operational training support for the Air forces
of various allied countries:
 
 ●
                July
      2002 – AeroGroup is the first commercial company to provide Tactical
      Fighter support to the Royal Canadian Air Force.  AeroGroup
      began a program flying Hawker Hunter and A-4 Skyhawk fighter aircraft as
      adversary bandits in training Air Combat Maneuvers and Electronic Counter
      Measure training, similar as to the TopGun School that the U.S. Navy
      provides to U.S. pilots.●
                June
      2003 – AeroGroup is the first commercial company to be given approval from
      the U.S. Department of State and SAF/IA (Secretary of the Air
      Force-International Affairs) to provide a first test-trial of F-16
      Operational Detachment Support Training for Royal Netherlands Air Force
      (RNLAF) pilots and ground maintenance crews.●
                January
      2004 – Second test-trial approved by the U.S. Department of State and
      SAF/IA for AeroGroup to provide F-16 Operational Detachment Support
      Training for RNLAF pilots and ground maintenance crews, which 3-month
      training exercise was unprecedented as it was the longest period that the
      RNLAF had conducted this type of training within the United
      States.●
                May
      2005 through 2007 – Aerogroup is awarded and executes a contract from the
      United Kingdom Royal Air Force (RAF) via the Savannah Combat Readiness
      Training Center (CRTC), to provide ground handling and maintenance support
      for UK –AWACS aircraft at CRTC-Savannah, Shaw AFB, and the Beaufort, S.C.
      USMC base.
 
 Flight
& Combat Training, and Other Aerial Support Services
 
 TADS
intends to provide the armed forces of the U.S. and its allies with a vast array
of training services and support functions including, but not limited to,
military-grade facilities and bombing ranges, air combat instruction and
tactical training, actual aggressor simulated combat, classroom instruction, and
air combat and basic and advanced jet fighter flight simulation, and would also
provide the airspace scheduling, fueling, aircraft parts, service, and
maintenance.
  Air
combat simulation exercises are currently conducted by the training commands of
the United States Air Force, United States Navy, and of most of our NATO, SEATO,
and foreign allies. Neither the U. S. Department of Defense nor its allies have
sufficient training and support equipment and personnel to meet current demand.
In many instances, our European allies have neither the facilities nor the
extensive airspace required for fighter combat training or fighter bombing
training that TADS can provide.
 
 Our
flight training services will focus on two major components, “initial
qualification” flight training and continuation flight training, both of which
consist of ground, simulator and in the air flight training. In addition, we are
preparing to perform other flight training support services as described
herein.
  TADS is
currently in discussion with a division of the U.S. Department of Defense to
provide aerial training services and other services, and anticipates but cannot
guarantee that these discussions will lead to the final award of a
contract.
 
 Initial
Qualification Flight Training
 
 Initial
qualification flight training consists of the training of military pilots
that have only recently become qualified in their aircraft and of more
experienced pilots returning for recurrency training. Initial qualification
flight training involves aircraft specific flight theory, flight maneuvers,
aerodynamics, emergency in flight procedures as they relate to combat in a
specific aircraft. Pilots and other crew members are also trained in cockpit
resource management, which focuses on division of duties between pilot and
co-pilot and utilization of resources within the aircraft cockpit to complete
the flight plan and address emergencies. Initial qualification training involves
many hours of classroom instruction in aircraft systems operations, air-to-air
flight maneuvers, tactics, formation flying, instrument training and
air-to-ground tactics. In flight instruction is generally provided only once the
pilot has shown proficiency in ground instruction and flight simulator
instruction.
  10
  Continuation Flight
Training
 
 Continuation
flight training focuses on combat and other advanced maneuvers and is conducted
after the pilot completes initial qualification training and returns to a “full
service” training facility where he is provided refresher or upgrade training to
sharpen his or her combat skills. We intend to focus the training venue on NATO
customers who would use our facilities and ranges to qualify, in some cases, and
re-qualify in other cases in specific combat skills like air-to-air,
air-to-ground, electronic countermeasure training, air-refueling training, and
other advanced maneuvers. We anticipate that we will utilize our flight
simulators to aid in ground training for continuation flight training.
Additionally, we believe that use of “foreign” aircraft, such as MiG 29 aircraft
greatly enhances the air-to-air / Red Air combat training program.
 
 Mid-Air
Refueling
 
 TADS has
under exclusive contract the only Ilyushin IL-76/78 refueling tanker aircraft
available in the U.S., and is discussions to acquire contracts for additional
aircraft. The IL-76/78 is used by countries around the world, including Russia,
most former Soviet republics, China, India, Pakistan, Cuba, Libya, Syria, and
many others, for mid-air refueling, military air cargo, troop transport, and
other heavy-lift duties, and is capable of operating in extreme conditions. The
IL-76/78 aircraft are the largest and fastest aircraft of this category in the
world. The TADS IL-76/78 is presently undergoing final preparation for
certification by TADS, is configured for mid-air refueling, is capable of
re-fueling at an airspeed exceeding 400 knots, and can deliver fuel to three
aircraft simultaneously. TADS intends to provide these aircraft for re-fueling
during the air-combat training sessions and for contract re-fueling of U.S.
military squadrons.
  TADS is
currently in discussion with a division of the U.S. Department of Defense to
provide airborne refueling training services, and other services, and
anticipates but cannot guarantee that these discussions will lead to the final
award of a contract.
 
 Aerial
Fire-Fighting
 
 In
addition to its military operation capabilities, the IL-76/78 is the only large
aircraft ever built for the purpose of aerial water-bombing, and is considered
by most fire-fighting experts as the most capable.  The Ilyushin IL-76/78
aircraft are dedicated water-bombers that are capable of quickly and efficiently
disbursing large quantities of water or fire retardant to defeat the increasing
damage from the extensive forest fires in the Western U.S. and other areas. Due
to the escalating forest fire crisis in the Western U.S., and the unique
capabilities and exclusivity of its Ilyushin aircraft, TADS has experienced a
significant increase in demand for water-bombing services from both Federal and
State agencies.
 
 With a
cruising speed of up to 800 knots per hour, the IL-76/78 can reach most
locations in the world in approximately twelve hours. When fitted with a
triple-tank reservoir system, it can hold approximately 18,000 gallons of water
or fire-retardant, the largest capacity of any water-bombing aircraft in
existence. In a single pass over a forest fire the IL-76/78 can disburse enough
liquid to cover an area exceeding 200 yards wide and 600 yards long which is
over a third of a mile in length and the equivalent of two rows of six football
fields. To see the IL-76/78 disburse thousands of gallons over a wide area at
extremely low altitude is overwhelming and convincing of its superiority in this
role. The IL-76/78 can then be re-filled and ready to take off for another cycle
within minutes.
 
 As
exemplified by the state-of emergency declared by California recently, the
United States Forest Service estimates that forest fires will be a permanent
threat, and TADS is preparing to lease additional IL-76/78 aircraft specifically
configured for water-bombing. In addition to the substantial revenue stream that
TADS anticipates from these services, we believe that the publicity that can
result from these fire-fighting operations will be priceless.
  TADS is
currently in discussion with potential customers in connection with providing
aerial fire-fighting services to combat the seemingly ever-growing devastation
of forest fires, and anticipates but cannot guarantee that these discussions
will lead to the final award of a contract.
 
 Government
Licenses
 
 In order
to own and operate military aircraft and to enter into government contracts we
are required to have certain government licenses and permits.
  The
Company, through the AeroGroup Acquisition, as of September 21, 2006, was issued
a license as a registered importer of “Implements of War: former military
aircraft and related parts,” with the exclusion of guns and ammunition, from the
United States Bureau of Alcohol, Tobacco and Firearms (Registration No.
A-67-262-0921). We are required to renew this registration annually. We must
maintain this license in order to import, own, and operate the kinds of military
aircraft that we need in order to fulfill our training contracts. We are
dependent on having qualified personnel as members of our management in order to
maintain this license.
  Through
the AeroGroup Acquisition, we are also registered as a government contractor
through the United States Central Contractors Registration office, and we have
recently become registered with the United States Department of Defense Trade
Control. We are required to maintain our registration with the Central
Contractor Registration in order to be eligible to bid on government
contracts.
  11
  Government
Contracts
 
 The
Company’s business is dependent on our ability to bid for, negotiate, secure,
and perform under specialized government and agency contracts. We have recently
been awarded a number of service contracts, and we are in various stages of
discussions for the awarding of additional service contracts related to flight
and combat training, mid-air refueling, aerial fire-fighting, and other aerial
support services, although no assurances can be given that these discussions
will lead to the awarding of additional contracts.
 
 Belgian
Air Force Training Contract
 
 On
October 23, 2007, Tads was awarded, through the AeroGroup Acquisition, contract
FA3002-08-C-0003 to train the Belgian Air Force pilots at facilities located in
Belgium (the “BAF Contract”).
 
 The BAF
Contract is a 1-year contract which can be renewed annually for an additional 2
years in the aggregate. The BAF Contract was recently renewed for a second
year.  The BAF Contract specifies providing classroom, flight, and
combat training to the Belgian Air Force using up to 8 of our pilots. The
Company is not required to provide either aircraft or facilities as both are
provided by the Belgian Air Force.
 
 Recently,
in February of 2008, after a delay due to a protest of the awarding of the BAF
Contract to the Company by a competitor, which protest was resolved in favor of
the Company, and due to the interference of third-party, the Company
successfully began execution of the BAF Contract, commencing with an initial 2
training pilots. We currently have 4 training pilots in operation in Belgium,
and have been requested to increase the number of training pilots to 8 which we
anticipate achieving within the next 60 to 90 days, although assurances can be
given.
 
 F-16
Training Contract
 
 In
November of 2006, AeroGroup entered into a definitive F-16 Training Contract
with the U.S. Army RDECOM memorializing the terms of the Justification and
Approval and further expanding the scope of services to permit use of fourth
generation fighter aircraft other than the F-16, such as our MiG 29 jets (the
“F-16 Training Contract”). The F-16 Training Contract, which has been assigned
to TADS, initially will require us to have access to at least seven F-16 jet
aircraft and other fourth generation fighter jet aircraft (i.e.  MiG-29,
SU-27, F-15 or F-16) and to provide basic and continuation combat flight
training.
  The
F-16 Training Contract specifically requires that we have in place, prior to
accepting performance obligations thereunder, parts, maintenance and safety
programs that are satisfactory based on government standards. While we
originally anticipated beginning performance on this contract in April 2007, we
have not been able to do so as a result of interference by a third party. These
programs are designed to ensure the reliability and dispatch readiness of our
aircraft. We will be required to update and keep these programs current. We will
be subject to regular inspections by the contracting party for compliance with
these programs.
 
 In
addition, the F-16 Training Contract requires that program managers, pilots,
ground crew, and other personnel we utilize in connection with our services have
certain minimum training and experience qualifications.
 
 Customers
and Competition
  We are
dependent on a small, limited pool of customers for our services. The Company’s
aerial training and mid-air refueling services will only be requested, if at
all, by United States and NATO aligned military agencies with specific needs,
and by contractors for these services who sub-contract to us. Our fire-fighting
and water-bombing services will only be requested, if at all, by various State
and Federal agencies.
 
 The
contract procurement process is lengthy and the government military
organizations and the State and Federal agencies that are our primary target
customers are often delayed and cautious when issuing contracts such as we are
pursuing. These customers have strict regulations and policies with respect to
procuring services from private-sector companies for fulfillment of their
contracts. In addition, unless no other competitors are available, the contracts
we target are generally required to request bids before awarding contracts.
While we believe, based on our experience, that no other entities are currently
able to provide services most of these services, no assurance can be made that
new entities with more resources then us will enter into this
business.
 
 Parts
Availability
 
 Almost
all parts used in the aircraft that we fly have limitations on their useful
life. The useful life of the parts used in our aircraft are based on the number
of hours flown and/or the age of the parts. In addition, many parts have
performance limitations that require replacement or inspection in the event of
accident or flight that exceeds the flight envelope of the aircraft. Finally,
developments such as accidents of similar aircraft may lead us to replace or
repair suspect parts to prevent such accidents on our aircraft. Therefore, in
order to maintain our aircraft in airworthy condition, we will be required to
obtain and utilize an inventory of surplus parts. We will also be required to
keep excess parts in locations other than our headquarters so as to enable
on-site repairs when providing services outside of
Grayson County Airport. In addition, the aircraft we intend to utilize
will be specialized military aircraft some of which were manufactured overseas.
These parts are available from very few manufacturers and can be difficult to
procure.
  12
  With
respect to United States jet aircraft that we might operate, a number of both
domestic and foreign parts manufacturers are available who supply F-16 and F-15
related parts. Additionally, based on management’s experience in restoration and
operation of other aircraft, we believe that certain surplus parts for United
States military aircraft can be easily retrieved at reasonable or nominal
prices, from AMARC (Aerospace Maintenance and Regeneration Center), which is
also commonly known as the military aircraft “bone-yard” that is part of
Davis-Monthan Air Force Base at Tucson Arizona.
 
 If we are
not able to maintain an adequate supply of replacement parts, we will not be
able to develop or maintain a parts program or a maintenance program and will
therefore, not be eligible to accept work orders under our
contracts.
  Intellectual Property
 
 We own
patent applications to a number of procedures that related to the methods of
conversion of military aircraft for use by civilian entities in training
military personnel. These patents, which were acquired through the AeroGroup
Acquisition, are as follows:
 
 Aircraft
                              
                              PatentF-16
      Falcon
                              
                              Pat.
      Pend. 60805870Kfir
                              
                              Pat.
      Pend. 60805885A-4
      Skyhawk
                              
                              Pat
      Pend. 60805877MiG
      29
                              
                              Pat
      Pend.
60805888
  No
assurance can be made that we will be awarded patents or that they will not be
challenged. Moreover, no assurance can be made that competitors will not utilize
similar procedures to privatize military aircraft.
 
 Additionally,
we have a copyright on an F-16 Pilot Training Syllabus used in training F-16
pilots in use of a fire control navigation panel.
  Government
Approval and Regulation
 
 Our
proposed business is heavily regulated. All of our operations involve intense
government approval and oversight. Prior to awarding contracts other than on a
“bid for service” basis, military agencies are required to publish their
proposed award of a contract with details of such contract. During this time
period, other persons may submit objections or counter bids on these
contracts.
 
 Our
aircraft operations will also be subject to all regulations of the Federal
Aviation Administration that relate to civil “experimental” aircraft, and will
be subject to airworthiness standards and operating procedures of the Federal
Aviation Administration. Additionally, our pilots, instructors and mechanics
also must generally be appropriately certified to perform their duties by the
Federal Aviation Administration and are required to comply with strict
recurrency flight training rules and medical certification.
 
 In
addition to the foregoing, government agencies will require that we have and
maintain a proper safety program, an approved parts program and an approved
maintenance program, each of which must be sufficient to support the contracts
that we undertake to perform and each of which must be continually kept
current.
 
 Under our
F-16 Training Contract, we are also subject to audit and inspection to ensure
that we are in compliance with all of the foregoing requirements insofar as they
relate to providing services under this agreement. If we are not in compliance
we could be fined and we risk suspension or loss of the contract.
 
 Additionally,
we may be subject to rules of foreign governments with respect to operations of
our aircraft over their territories.
 
 Effect
of Government Regulation
 
 As
evidenced by the Justification and Approval for the F-16 Training Contract, we
believe that it is not common for branches of the United States military to
issue contracts to private entities for the training of military personnel in
combat and other military exercises. No assurance can be made, therefore, that
other government agencies will outsource their training or flight support
services, or that the government agencies that we deal with will not change
their policy with respect to such contracts to not renew or issue new contracts
to us or others in our business sector. Additionally, due to terrorist or other
national safety concerns, no assurance can be made that Bureau of Alcohol,
Tobacco, and Firearms will not restrict or prohibit the renewal of a permit to
private companies such as us, to own and operate our military
aircraft.
  13
  Development of
Programs
 
 During
fiscal 2005 we spent approximately $88,000 in developing
our training syllabus with no expenditures in fiscal 2006, fiscal 2007, or
fiscal 2008, for these programs. We believe that we are required to have a
strong and efficient training syllabus in order to maintain and bid for
additional military training contracts. We have also begun development of an
approved parts program, a safety program and maintenance program, all of which
are required to be in effect prior to being tasked on any military
contracts.
 
 Employees
 
 As of
December 31, 2008, we have five full time employees.
 
 Accounting
Treatment; Change Of Control
  The
AeroGroup Acquisition has been accounted for as a "reverse acquisition," as
AeroGroup owns a vast majority of the outstanding shares of the Company's Common
Stock as a result of the AeroGroup Acquisition. Consequently, AeroGroup is
deemed to be the accounting acquirer in the reverse acquisition and TADS is
deemed the legal acquirer. Therefore the assets and liabilities and the
historical operations of AeroGroup prior to the AeroGroup Acquisition will be
reflected in the financial statements and will be recorded at the historical
cost basis of AeroGroup. The consolidated financial statements for the Company
after completion of the Acquisition includes the assets and liabilities of both
TADS and AeroGroup, historical operations of AeroGroup, and operations of TADS
from the closing date of the AeroGroup Acquisition.
 
 Except as
described herein and under the Asset Purchase Agreement, as amended, no
arrangements or understandings exist among present or former controlling
stockholders with respect to the election of members of the Company's board of
directors and, to our knowledge, no other arrangements exist that might result
in a future change of control of the Company.
  AeroGroup
Assets Acquired
 
 The
AeroGroup assets (the “AeroGroup Assets”) acquired from AeroGroup in December
2006 include:
  ●
                                Two
      MiG 29 “Fulcrum” fighter aircraft, which were appraised in late 2005 at
      $2,800,000 each (pre-modification) which are located in the Ukraine and
      are being prepared to be shipped to the United States for
      reassembly;●
                                Four
      Singer Link tactical jet simulators, and related equipment, recently
      appraised in late 2005 $285,000 each (pre-modification)
      currently located at the Company’s facility at the
      Grayson County Airport;●
                                Assignments
      of copyrights to a specialized F-16 Fighter Aircraft training course
      syllabus, specially created by AeroGroup for training pilots to use this
      aircraft’s Flight Control Navigation Panel;●
                                Assignments
      of provisional applications for utility patents filed relating
      to methods of operational training uses of fighter aircraft by civilian
      corporations of these type of military aircraft for training of military
      personnel, specifically F-16, Pat. Pend. 60805870; Kfir, Pat. Pend.
      60805885; A-4 Skyhawk, Pat Pend. 60805877; and MiG 29, Pat Pend.
      60805888;●
                                Assignment
      of a Federal Aviation Administration issued license as an Aircraft
      Dealer;●
                                Rights
      as assignee under three subcontracts and one contract to provide combat,
      primary and other flight training, as well as training research, in the
      F-16 and various other types of aircraft to military personnel of the U.S.
      Armed Forces;●
                                Assignment
      of a sublease of facilities at the Grayson County Airport in
      Grayson, Texas, including aircraft hangars, land and office
      space;●
                                Rights
      to the exclusive use of the AeroGroup name; and●
                                Assignment
      of an option to enter into an exclusive agreement with Air Support
      Systems, LLC, to lease IL-78 tanker aircraft which are used primarily in
      air-to-air refueling
operations.
 
 It is
intended that the AeroGroup Assets will be used by the Company in connection
with both “basic flight training” and “combat flight training” of military
pilots. The Company may use the MiG’s and other assets to provide U.S. and NATO
military pilots with a “real life” opportunity to train against threat-type
aircraft whose performance and flight characteristics are superior in some
respects to those of U.S. and NATO fighter aircraft.
  WHERE YOU CAN
FIND MORE INFORMATION
 
 You are
advised to read this Form 10-K in conjunction with other reports and documents
that we file from time to time with the SEC.  In particular, please
read our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K that we
file from time to time.  You may obtain copies of these reports
directly from us or from the SEC at the SEC’s Public Reference Room at 100 F.
Street, N.E. Washington, D.C. 20549, and you may obtain information about
obtaining access to the Reference Room by calling the SEC at
1-800-SEC-0330.  In addition, the SEC maintains information for
electronic filers at its website http://www.sec.gov.
  14
 
 ITEM 1A
- Risk Factors
 
 An
investment in our common stock involves a high degree of risk. You should
carefully consider the following information about these risks, together with
the other information contained in this Annual Report on Form 10-K, before
investing in our common stock. If any of the events anticipated by the risks
described below occur, our results of operations and financial condition could
be adversely affected which could result in a decline in the market price of our
common stock, causing you to lose all or part of your investment.
  BECAUSE
WE ARE QUOTED ON THE OTCBB INSTEAD OF AN EXCHANGE OR NATIONAL QUOTATION SYSTEM,
OUR INVESTORS MAY HAVE A TOUGHER TIME SELLING THEIR STOCK OR EXPERIENCE NEGATIVE
VOLATILITY ON THE MARKET PRICE OF OUR STOCK.
  Our
common stock is traded on the OTCBB. The OTCBB is often highly illiquid, in part
because it does not have a national quotation system by which potential
investors can follow the market price of shares except through information
received and generated by a limited number of broker-dealers that make markets
in particular stocks. There is a greater chance of volatility for securities
that trade on the OTCBB as compared to a national exchange or quotation system.
This volatility may be caused by a variety of factors, including the lack of
readily available price quotations, the absence of consistent administrative
supervision of bid and ask quotations, lower trading volume, and market
conditions. Investors in our common stock may experience high fluctuations in
the market price and volume of the trading market for our securities. These
fluctuations, when they occur, have a negative effect on the market price for
our securities. Accordingly, our stockholders may not be able to realize a fair
price from their shares when they determine to sell them or may have to hold
them for a substantial period of time until the market for our common stock
improves.
  FAILURE
TO ACHIEVE AND MAINTAIN EFFECTIVE INTERNAL CONTROLS IN ACCORDANCE
WITH SECTION 404 OF THE SARBANES-OXLEY ACT COULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS AND OPERATING RESULTS.
  It may be
time consuming, difficult and costly for us to develop and implement the
additional internal controls, processes and reporting procedures required by the
Sarbanes-Oxley Act. We may need to hire additional financial reporting, internal
auditing and other finance staff in order to develop and implement appropriate
additional internal controls, processes and reporting procedures. If we are
unable to comply with these requirements of the Sarbanes-Oxley Act, we may not
be able to obtain the independent accountant certifications that the
Sarbanes-Oxley Act requires of publicly traded companies.
  If we
fail to comply in a timely manner with the requirements of Section 404 of
the Sarbanes-Oxley Act regarding internal control over financial reporting or to
remedy any material weaknesses in our internal controls that we may identify,
such failure could result in material misstatements in our financial statements,
cause investors to lose confidence in our reported financial information and
have a negative effect on the trading price of our common stock.
  Pursuant
to Section 404 of the Sarbanes-Oxley Act and current SEC regulations,
beginning with our annual report on Form 10-K for our fiscal period ending
December 31, 2007, we will be required to prepare assessments regarding
internal controls over financial reporting and beginning with our annual report
on Form 10-K for our fiscal period ending December 31, 2008, furnish a
report by our management on our internal control over financial reporting. We
have begun the process of documenting and testing our internal control
procedures in order to satisfy these requirements, which is likely to result in
increased general and administrative expenses and may shift management time and
attention from revenue-generating activities to compliance activities. While our
management is expending significant resources in an effort to complete this
important project, there can be no assurance that we will be able to achieve our
objective on a timely basis. There also can be no assurance that our auditors
will be able to issue an unqualified opinion on management’s assessment of the
effectiveness of our internal control over financial reporting. Failure to
achieve and maintain an effective internal control environment or complete our
Section 404 certifications could have a material adverse effect on our
stock price.
  In
addition, in connection with our on-going assessment of the effectiveness of our
internal control over financial reporting, we may discover “material weaknesses”
in our internal controls as defined in standards established by the Public
Company Accounting Oversight Board, or the PCAOB. A material weakness is a
significant deficiency, or combination of significant deficiencies, that results
in more than a remote likelihood that a material misstatement of the annual or
interim financial statements will not be prevented or detected. The PCAOB
defines “significant deficiency” as a deficiency that results in more
than a remote likelihood that a misstatement of the financial statements
that is more than inconsequential will not be prevented or
detected.
  15
  In the
event that a material weakness is identified, we will employ qualified personnel
and adopt and implement policies and procedures to address any material
weaknesses that we identify. However, the process of designing and implementing
effective internal controls is a continuous effort that requires us to
anticipate and react to changes in our business and the economic and regulatory
environments and to expend significant resources to maintain a system of
internal controls that is adequate to satisfy our reporting obligations as a
public company. We cannot assure you that the measures we will take will
remediate any material weaknesses that we may identify or that we will implement
and maintain adequate controls over our financial process and reporting in the
future.
  Any
failure to complete our assessment of our internal control over financial
reporting, to remediate any material weaknesses that we may identify or to
implement new or improved controls, or difficulties encountered in their
implementation, could harm our operating results, cause us to fail to meet our
reporting obligations or result in material misstatements in our financial
statements. Any such failure could also adversely affect the results of the
periodic management evaluations of our internal controls and, in the case of a
failure to remediate any material weaknesses that we may identify, would
adversely affect the annual auditor attestation reports regarding the
effectiveness of our internal control over financial reporting that are required
under Section 404 of the Sarbanes-Oxley Act. Inadequate internal controls
could also cause investors to lose confidence in our reported financial
information, which could have a negative effect on the trading price of our
common stock.
  RISKS
RELATING TO OWNERSHIP OF OUR COMMON STOCK
  Although
there is presently a market for our common stock, the price of our common stack
may be extremely volatile and investors may not be able to sell their shares at
or above their purchase price, or at all. We anticipate that the market may be
potentially highly volatile and may fluctuate substantially because
of:
  ●
                    Actual
      or anticipated fluctuations in our future business and operating
      results;●
                    Changes
      in or failure to meet market expectations;●
                    Fluctuations
      in stock market price and
volume
  WE
DO NOT INTEND TO PAY DIVIDENDS
  We do not
anticipate paying cash dividends on our common stock in the foreseeable future.
We may not have sufficient funds to legally pay dividends. Even if funds are
legally available to pay dividends, we may nevertheless decide in our sole
discretion not to pay dividends. The declaration, payment and amount of any
future dividends will be made at the discretion of the board of directors, and
will depend upon, among other things, the results of our operations, cash flows
and financial condition, operating and capital requirements, and other factors
our board of directors may consider relevant. There is no assurance that we will
pay any dividends in the future, and, if dividends are rapid, there is no
assurance with respect to the amount of any such dividend.
 
 VOLATILITY
IN OUR COMMON SHARE PRICE MAY SUBJECT US TO SECURITIES LITIGATION, THEREBY
DIVERTING OUR RESOURCES THAT MAY HAVE A MATERIAL EFFECT ON OUR PROFITABILITY AND
RESULTS OF OPERATIONS.
  As
discussed in the preceding risk factors, the market for our common shares is
characterized by significant price volatility when compared to seasoned issuers,
and we expect that our share price will continue to be more volatile than a
seasoned issuer for the indefinite future. In the past, plaintiffs have often
initiated securities class action litigation against a company following periods
of volatility in the market price of its securities. We may in the future be the
target of similar litigation. Securities litigation could result in substantial
costs and liabilities and could divert management’s attention and
resources.
  OPERATING
HISTORY AND LACK OF PROFITS WHICH COULD LEAD TO WIDE FLUCTUATIONS IN OUR SHARE
PRICE. THE PRICE AT WHICH YOU PURCHASE OUR COMMON SHARES MAY NOT BE INDICATIVE
OF THE PRICE THAT WILL PREVAIL IN THE TRADING MARKET. YOU MAY BE UNABLE TO SELL
YOUR COMMON SHARES AT OR ABOVE YOUR PURCHASE PRICE, WHICH MAY RESULT IN
SUBSTANTIAL LOSSES TO YOU.  THE MARKET PRICE FOR OUR COMMON SHARES IS
PARTICULARLY VOLATILE GIVEN OUR STATUS AS A RELATIVELY UNKNOWN COMPANY WITH A
SMALL AND THINLY TRADED PUBLIC FLOAT.
  16
  The
market for our common shares is characterized by significant price volatility
when compared to seasoned issuers, and we expect that our share price will
continue to be more volatile than a seasoned issuer for the indefinite future.
The volatility in our share price is attributable to a number of factors. First,
as noted above, our common shares are sporadically and thinly traded. As a
consequence of this lack of liquidity, the trading of relatively small
quantities of shares by our shareholders may disproportionately influence the
price of those shares in either direction. The price for our shares could, for
example, decline precipitously in the event that a large number of our common
shares are sold on the market without commensurate demand, as compared to a
seasoned issuer which could better absorb those sales without adverse impact on
its share price. Secondly, we are a speculative or “risky” investment due to our
limited operating history and lack of profits to date, and uncertainty of future
market acceptance for our potential products. As a consequence of this enhanced
risk, more risk-adverse investors may, under the fear of losing all or most of
their investment in the event of negative news or lack of progress, be more
inclined to sell their shares on the market more quickly and at greater
discounts than would be the case with the stock of a seasoned issuer. Many of
these factors are beyond our control and may decrease the market price of our
common shares, regardless of our operating performance. We cannot make any
predictions or projections as to what the prevailing market price for our common
shares will be at any time, including as to whether our common shares will
sustain their current market prices, or as to what effect that the sale of
shares or the availability of common shares for sale at any time will have on
the prevailing market price.
  Shareholders
should be aware that, according to SEC Release No. 34-29093, the market for
penny stocks has suffered in recent YEARSs from patterns of fraud and abuse.
Such patterns include (1) control of the market for the security by one or
a few broker-dealers that are often related to the promoter or issuer;
(2) manipulation of prices through prearranged matching of purchases and
sales and false and misleading press releases; (3) boiler room practices
involving high-pressure sales tactics and unrealistic price projections by
inexperienced sales persons; (4) excessive and undisclosed bid-ask
differential and markups by selling broker-dealers; and (5) the wholesale
dumping of the same securities by promoters and broker-dealers after prices have
been manipulated to a desired level, along with the resulting inevitable
collapse of those prices and with consequent investor losses. Our management is
aware of the abuses that have occurred historically in the penny stock market.
Although we do not expect to be in a position to dictate the behavior of the
market or of broker-dealers who participate in the market, management will
strive within the confines of practical limitations to prevent the described
patterns from being established with respect to our securities. The occurrence
of these patterns or practices could increase the volatility of our share
price.
  OUR
BUSINESS PLAN CALLS FOR EXTENSIVE AMOUNTS OF FUNDING AND WE MAY NOT BE ABLE TO
OBTAIN SUCH FUNDING WHICH COULD ADVERSELY AFFECT OUR BUSINESS, OPERATIONS, AND
FINANCIAL CONDITION.
  We will
be relying on additional financing and funding. We are currently in discussions
with potential sources of financing but no definitive agreements are in place.
If we cannot achieve the requisite financing or complete the projects as
anticipated, this could adversely affect our business, the results of our
operations, prospects, and financial condition.
 
 OUR
BUSINESS PLAN RELIES ON SIGNIFICANT REVENUE FROM NATIONAL, STATE AND LOCAL
GOVERNMENTS AND REDUCTION IN GOVERNMENT REVENUE COULD EFFECT OUR BUSINESS
PLAN
 
 A
significant portion of our business plan relies upon our ability to successfully
charge licensing and other fees to governmental agencies for our
services.    The recent worldwide financial crisis, coupled with
dramatic reductions in state revenues due to reduced property values and the
economic downturn, creates substantial additional uncertainty in both the size
and administration of governmental budgets.  In turn, our business plan may
be adversely affected if governmental budgets are reduced, if any limitations or
restrictions are placed upon the acquisition of new products or services like
ours (such as a “freeze” on new products or services) or if expenditure
priorities are changed, particularly if budgets available for emergency
management services are reduced.    We believe that our services
provide a key benefit to emergency managers and the general public,  and
that we will ultimately be able to successfully market our services on a
widespread basis  but we have no control over general economic conditions
or the administration of public funds, so the actual timing of the rate of
adoption is subject to additional uncertainty.    Should such
uncertainties otherwise adversely affect the execution of our business plan, we
will make appropriate adjustments to our plan, generally, and/or to the
execution of our plan, specifically, in light of the then-available resources,
existing prospects, and rapidly changing conditions.   By way of
example, if our adoption rates in the governmental sector are significantly
reduced, we may elect to curtail the growth of our operations, divert more
resources toward the pursuit of private sector (rather than governmental)
enterprises, adjust the pricing or terms of our offerings, or any combination of
the foregoing.   In anticipation of the potential for a reduction in
the short-term revenue from our services, particularly from our governmental
prospects, we have already scaled back expenditures beyond previously planned
levels.
 
 SHOULD
ONE OR MORE OF THE FOREGOING RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD THE
UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY
FROM THOSE ANTICIPATED, BELIEVED, ESTIMATED, EXPECTED, INTENDED OR
PLANNED.
 
 17
  FORWARD-LOOKING
STATEMENTS
  This
Annual Report contains certain forward-looking statements regarding management’s
plans and objectives for future operations including plans and objectives
relating to our planned marketing efforts and future economic performance. The
forward-looking statements and associated risks set forth in this Annual Report
include or relate to, among other things, (a)  our growth strategies,
(b) anticipated trends in our industry, (c) our ability to obtain and
retain sufficient capital for future operations, and (d) our anticipated
needs for working capital. These statements may be found under “Management’s
Discussion and Analysis or Plan of Operations” and “Business,” as well as in
this Annual Report generally. Actual events or results may differ materially
from those discussed in forward-looking statements as a result of various
factors, including, without limitation, the risks outlined under “Risk Factors”
and matters described in this Annual Report generally. In light of these risks
and uncertainties, there can be no assurance that the forward-looking statements
contained in this Annual Report will in fact occur.
  The
forward-looking statements herein are based on current expectations that involve
a number of risks and uncertainties. Such forward-looking statements are based
on assumptions described herein. The assumptions are based on judgments with
respect to, among other things, future economic, competitive and market
conditions, and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond our control.
Accordingly, although we believe that the assumptions underlying the
forward-looking statements are reasonable, any such assumption could prove to be
inaccurate and therefore there can be no assurance that the results contemplated
in forward-looking statements will be realized. In addition, as disclosed
elsewhere in the “Risk Factors” section of this prospectus, there are a number
of other risks inherent in our business and operations which could cause our
operating results to vary markedly and adversely from prior results or the
results contemplated by the forward-looking statements. Management decisions,
including budgeting, are subjective in many respects and periodic revisions must
be made to reflect actual conditions and business developments, the impact of
which may cause us to alter marketing, capital investment and other
expenditures, which may also materially adversely affect our results of
operations. In light of significant uncertainties inherent in the
forward-looking information included in this prospectus, the inclusion of such
information should not be regarded as a representation by us or any other person
that our objectives or plans will be achieved.
  Some of
the information in this annual report contains forward-looking statements that
involve substantial risks and uncertainties. Any statement in this prospectus
and in the documents incorporated by reference into this prospectus that is not
a statement of an historical fact constitutes a “forward-looking statement”.
Further, when we use the words “may”, “expect”, “anticipate”, “plan”, “believe”,
“seek”, “estimate”, “internal”, and similar words, we intend to identify
statements and expressions that may be forward- looking statements. We believe
it is important to communicate certain of our expectations to our investors.
Forward-looking statements are not guarantees of future performance. They
involve risks, uncertainties and assumptions that could cause our future results
to differ materially from those expressed in any forward-looking statements.
Many factors are beyond our ability to control or predict. You are accordingly
cautioned not to place undue reliance on such forward-looking statements.
Important factors that may cause our actual results to differ from such
forward-looking statements include, but are not limited to, the risk factors
discussed herein.
  ITEM
1B.  UNRESOLVED STAFF COMMENTS
 
 Not
applicable to small business issuers.
  ITEM
2. DESCRIPION OF PROPERTY
 
 The
Company’s address is 1515 Perimeter Rd., West Palm Beach, FL 33406, and the
Company’s phone number is (561) 398-8196.
 
 Tactical
Air Defense Services, Inc. (TADS) is a Nevada public corporation that trades on
the over-the-counter Bulletin Board under the ticker symbol of TADF.OB. TADS
currently provides air combat training, and intends to provide mid-air
refueling, aerial fire-fighting, ground-threat support, and other airborne
support services to U.S. and foreign agencies including the U.S. Department of
Defense, the defense departments of its allies, and other State and Federal
agencies.
 
 The
executive offices of TADS are located in West Palm Beach, Florida. The aviation
operations and training facilities are located at Grayson field, the former
Perrin air force base, located in Denison, Texas.
  Item
3. Legal Proceedings
 
 Sichenzia
& Ross LLP is pursuing a claim against the Company for unpaid services. We
believe that this claim is without merit and are working towards resolution of
the same.
 
 General
Charles Searock, the former Chief Executive Officer of International Tactical
Training Center, Inc. is pursuing a claim in Texas against TADS for unpaid
wages. We believe that this claim is without merit and are working towards
resolution of the same.
  18
  TADS is
not a party to any pending litigation or legal proceeding that is not in the
ordinary course of business. To our knowledge, no such proceedings are
threatened other than a threat of lawsuits from Sichenzia &Ross and General
Searock.
  Item
4. Submission of Matters to a Vote of Security Holders
  On
December 4, 2008, the Company filed a Form 14A Proxy Statement and sent same to
all shareholders of record as of November 24, 2008, which required a vote of
security holders at the Annual Meeting of Shareholdersheld
on December 28, 2008 at the executive offices of the Company, in connection
with:
 
 (1)
                        To
      elect the Company's Board of Directors to hold office until the Company's
      Annual Meeting of Stockholders in 2009 or until their respective successor
      is duly elected and qualified; and(2)
                        To
      ratify the appointment of Lawrence Scharfman & Co., CPA P.A. as the
      Company's independent certified public accountant; and(3)
                        To
      increase the Company’s authorized shares from one billion shares to three
      billion shares and to enact a one for ten reverse stock split;
      and(4)
                        To
      ratify the name change from Tactical Air Defense Services, Inc. to
      AeroGroup Incorporated, to be effective as of the filing of an amendment
      to the Company's Articles of Incorporation with the Nevada Secretary of
      State; and(5)
                        To
      transact such other business as may properly come before the Annual
      Meeting and any adjournment
thereof.
 
 All items
proposed by the Company were approved by a majority of the shareholders of the
Company.
 
 Item 5. Market for Common Equity and Related
Stockholder Matters
 
 The TADS
Common Stock is quoted on the Over-the-Counter Bulletin Board, under the symbol,
"TADF.OB". Trading in the Common Stock in the over-the-counter market has been
limited and sporadic, and the quotations set forth below are not necessarily
indicative of actual market conditions. Further, these prices reflect
inter-dealer prices without retail mark-up, mark-down, or commission, and may
not necessarily reflect actual transactions.
 
 Fiscal Period January 1 through December 31
                                        
                                        High
                                        
                                        
                                        Low2008December
      31, 2008
                                        
                                        $
                                        0.020
                                        
                                        
                                        $
                                        0.010September
      30, 2008
                                        
                                        $
                                        0.038
                                        
                                        
                                        $
                                        0.015June
      30, 2008
                                        
                                        $
                                        0.050
                                        
                                        
                                        $
                                        0.020March
      31, 2008
                                        
                                        $
                                        0.100
                                        
                                        
                                        $
                                        0.0202007December
      31, 2007
                                        
                                        $
                                        0.80
                                        
                                        
                                        $
                                        0.04December
      31, 2007
                                        
                                        $
                                        0.90
                                        
                                        
                                        $
                                        0.30June
      30, 2007
                                        
                                        $
                                        1.19
                                        
                                        
                                        $
                                        0.51March
      31, 2007
                                        
                                        $
                                        3.49
                                        
                                        
                                        $
                                        0.94
 
 As of
December 31, 2008 there were 237 record holders of TADS outstanding Common Stock
and 2 record holders of TADS outstanding Series A Preferred Stock.
 
 We have
not declared or paid dividends to our stockholders during this or our three most
recently completed fiscal years. We do not anticipate that we will pay dividends
any time in the near future.
 
 Shareholders
of AeroGroup will not be issued any of the shares issued to AeroGroup itself.
Additionally, any such distribution is likely to require registration under the
Securities Act.
 
 Recent
sales of unregistered securities
  The
common and preferred stock issued to investors was sold based or issued on an
exemption from registration pursuant to Section 4(2) and Rule 506 of Regulation
D of the Securities Act of 1933.
  19
 Sale
of Stock
 
 Pursuant
to a 2007 Securities Purchase Agreement, in September 2007, the Company sold to
four investors 382,663 shares in the aggregate of restricted Common Stock at a
purchase price of $0.30 per share. The gross proceeds of this offering totaled
$114,781. Under the terms of the Securities Purchase Agreement, TADS offered to
sell a total of 3,333,333 shares, which could be increased to 4,000,000 shares
at the sole discretion of the Company. The share purchase price carries certain
anti-dilution rights whereby the share purchase price may be amended as follows:
if the average closing price, as quoted in the Wall Street Journal, of the
shares, during the 30-day period following the closing of the offering, is less
than the share purchase price, then the new share purchase price shall become
the anti-dilution reference price, and additional shares shall be issued to
reflect the new share purchase price. Notwithstanding any of the above, the new,
share purchase price shall not be less than $0.15. As a result of a decline in
the price of the Company’s Common Stock, the anti-dilution rights kicked in and
an additional 382,663 were issued in January 2008. Subsequently, pursuant to
certain protective rights granted to the Investors in the Share Purchase
Agreement, on January 23, 2008, and additional 382,666 shares of Common Stock
was issued to the Investors, which effectively changed the purchase price of the
Common Stock to $0.15 per share. Additionally, a fee of $14,500 and 114,800
shares of Common Stock was paid to an introducing agent as an introduction and
expense fee.
 
 Pursuant
to a Securities Purchase Agreement, in May, 2008, the Company sold 2,500,000
shares of restricted Common Stock in the aggregate to two investors at a
purchase price of $0.01 per share. The gross proceeds of the offering totaled
$25,000.
 
 Pursuant
to a Securities Purchase Agreement, in September, 2008, the Company sold
30,000,000 shares of restricted Common Stock in the aggregate to two investors
at a purchase price of $0.01 per share. The gross proceeds of the offering
totaled $300,000.
 
 Pursuant
to a Securities Purchase Agreement, in December, 2008, the Company sold
3,000,000 shares of restricted Common Stock to one investor at a purchase price
of $0.02 per share. The gross proceeds of the offering totaled
$60,000.
 
 Sale
of Units
 
 Pursuant
to a 2006 Private Placement, in March, 2007, TADS sold to eleven investors an
aggregate 629,911 units, each a “unit” at a purchase price of $0.55 per unit.
Each unit is comprised of (i) one share of Common Stock, (ii) a Class A Warrant
to purchase one share of Common Stock at $1.00 per share and expiring on March
2, 2008 and (iii) a Class B Warrant to purchase one share of Common Stock at
$1.50 per share and expiring on March 2, 2010. The gross proceeds of this
offering totaled $346,450. During 2006, TADS received the full advance from this
financing.
 
 Convertible
Debentures
 
 2006
Debentures
 
 During
2006, Aero issued to investors $200,060 aggregate principal amount of its 12%
Convertible Debentures convertible into 1,333,733 shares of TADS Common Stock
and warrants to purchase 1,333,733 shares of Common Stock at a per share
exercise price of $.15 per share. The terms of these securities are the same as
the securities issued in 2005. The Debentures mature three years from the issue
date.
 
 During
2006, Aero issued to an investor $422,176 aggregate principal amount of 8%
Convertible Debentures convertible into 939,369 shares of TADS Common Stock at a
conversion price of $.45 per share. The Debentures mature on April 18, 2009.
Under the terms of the Debentures, the Company is prohibited from making any
distribution to its Stockholders without the Debenture holders'
consent.
 
 During
2006, Aero issued to an investor $20,000 aggregate principal amount of its 12%
Convertible Debentures and warrants to purchase 40,000 shares of TADS Common
Stock at an exercise price of $.50 per share. The Debentures are convertible
into TADS shares of Common Stock on a converted basis at $.50 per share. The
terms of these securities are substantially the same as the securities issued in
2005. The Debentures mature three years from the issuance date.
 
 The gross
proceeds of the total convertible debt issued by Aero in 2006 of $642,236 were
recorded net of a debt discount of $358,417. The Debenture Warrants were
initially valued at $178,413 and the embedded derivatives were valued at
$180,004. The debt discount is being amortized over the term of the
debt.
 
 Year
Ended December 31, 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.
  20
  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.
 
 Between
April 1, 2007 and June 30, 2007, the Company received proceeds from loans
totaling $493,851. The Debentures are convertible into 1,974, 486 shares of TADS
Common Stock at a conversion price of $.25 per share and provide for warrants to
purchase 1,974,486 shares of TADS Common Stock at an exercise price of $.25. The
Debentures bear interest of 12% and are due three years from the date of
issuance. The Debenture Warrants are exercisable at a per share exercise prices
of $.25 per share of Common Stock, are exercisable immediately up until the
fifth anniversary of the initial warrant date, and such exercise price is
subject to adjustment for subsequent lower price issuances by the Company and
other customary events including stock splits, reverse stock splits, issuance of
convertible securities, sale of Common Stock and spin-offs.
 
 The gross
proceeds of the $493,851 were allocated 24.2% or $120,731 to the Debentures and
75.8% or $373,120 to the Warrants. The effective conversion price of the
Debentures was below the market price of TADS Common Stock at the date the
various notes were issued, which resulted in a beneficial conversion feature of
$120,731. In accordance with EITF 00-27 the amount allocated to the beneficial
conversion feature was limited to the net proceeds of the offering.
 
 Between
July 1, 2007 and December 31, 2007, the Company received proceeds from loans
totaling $229,234. The Debentures are convertible into 1,053,620 shares of TADS
Common Stock at a conversion price range of $.20 to $.25 per share and provide
for warrants to purchase 1,053,620 shares of TADS Common Stock at an exercise
price in the range of $.20 to $.25. The Debentures bear interest of 12% and are
due three years from the date of issuance. The Debenture Warrants are
exercisable at a per share exercise prices at a range of $.20 to $.25 per share
of Common Stock, are exercisable immediately up until the fifth anniversary of
the initial warrant date, and such exercise price is subject to adjustment for
subsequent lower price issuances by the Company and other customary events
including stock splits, reverse stock splits, issuance of convertible
securities, sale of Common Stock and spin-offs.
 
 The gross
proceeds of the $229,234 were allocated 30.0% or $68,394 to the Debentures and
70.0% or $160,840 to the Warrants. The effective conversion price of the
Debentures was below the market price of TADS Common Stock at the date the
various notes were issued, which resulted in a beneficial conversion feature of
$160,840. In accordance with EITF 00-27 the amount allocated to the beneficial
conversion feature was limited to the net proceeds of the offering.
  Between
October 1, 2007 and December 31, 2007, the Company received proceeds from loans
totaling $286,719. The Debentures are convertible into TADS Common Stock at a
conversion price of $.05 per share and provide for warrants to purchase
5,734,385 shares of TADS Common Stock at an exercise price of $.05. The
Debentures bear interest of 12% and are due three years from the date of
issuance. The Debenture Warrants are exercisable at a per share exercise prices
of $.05 per share of Common Stock, are exercisable immediately up until the
fifth anniversary of the initial warrant date, and such exercise price is
subject to adjustment for subsequent lower price issuances by the Company and
other customary events including stock splits, reverse stock splits, issuance of
convertible securities, sale of Common Stock and spin-offs.
 
 The gross
proceeds of the $286,719 were allocated 26.0% or $74,657 to the Debentures and
74.0% or $212,062 to the Warrants. The effective conversion price of the
Debentures was below the market price of TADS Common Stock at the date the
various notes were issued, which resulted in a beneficial conversion feature of
$212,062. In accordance with EITF 00-27 the amount allocated to the beneficial
conversion feature was limited to the net proceeds of the offering.
  As of
December 31, 2007, all of the principal and accrued interest related to the
Debentures had been classified as a current liability as they were either in
default or due within one year.
 
 Year
Ended December 31, 2008
 
 Between
January 1, 2008 and March 31, 2008, the Company received proceeds of loans
totaling $343,873. The Debentures are convertible into TADS 6,877,460 shares of
Common Stock at a conversion price of $0.05 per share and provide for
warrants to purchase 6,877,460 shares of TADS Common Stock at an exercise
price of $0.05. The Debentures bear interest of 12% and are due three years from
the date of issuance. The Debenture Warrants are exercisable at a per share
exercise price of $.05 per share of Common Stock, are exercisable immediately up
until the fifth anniversary of the initial warrant date, and such exercise price
is subject to adjustment for subsequent lower price issuances by the Company and
other customary events including stock splits, reverse stock splits, issuance of
convertible securities, sale of Common Stock and spin-offs.
  The gross
proceeds of the $343,873 were allocated 25% or $86,084 to the Debentures and 75%
or $257,789 to the Warrants. The effective conversion price of the Debentures
was at the market price of TADS Common Stock at the date the various notes were
issued.
 
 Second
Quarter of 2008
 
 Between
April 1, 2008 and June 30, 2008, the Company received proceeds of loans totaling
$357,151. The Debentures are convertible into TADS 17,857,252 shares of Common
Stock at a conversion price of $0.02 per share and provide for warrants to
purchase 17,857,252 shares of TADS Common Stock at an exercise price of
$0.02. The Debentures bear interest of 12% and are due three years from the date
of issuance. The Debenture Warrants are exercisable at a per share exercise
price of $0.02 per share of Common Stock, are exercisable immediately up until
the fifth anniversary of the initial warrant date, and such exercise price is
subject to adjustment for subsequent lower price issuances by the Company and
other customary events including stock splits, reverse stock splits, issuance of
convertible securities, sale of Common Stock and spin-offs.
  The gross
proceeds of the $357,151 were allocated 30% or $107,145 to the Debentures and
70% or $250,006 to the Warrants. The effective conversion price of the
Debentures was at the market price of TADS Common Stock at the date the various
notes were issued.
 
 Third
Quarter of 2008
 
 Between
July 1, 2008 and December 31, 2008, the Company received proceeds of loans
totaling $95,489. The Debentures are convertible into TADS 4,774,450 shares of
Common Stock at a conversion price of $0.02 per share and provide for
warrants to purchase 17,857,252 shares of TADS Common Stock at an exercise
price of $0.02. The Debentures bear interest of 12% and are due three years from
the date of issuance. The Debenture Warrants are exercisable at a per share
exercise price of $0.02 per share of Common Stock, are exercisable immediately
up until the fifth anniversary of the initial warrant date, and such exercise
price is subject to adjustment for subsequent lower price issuances by the
Company and other customary events including stock splits, reverse stock splits,
issuance of convertible securities, sale of Common Stock and
spin-offs.
  21
  The gross
proceeds of the $95,489 were allocated 25% or $23,872 to the Debentures and 70%
or $71,617 to the Warrants. The effective conversion price of the Debentures was
at the market price of TADS Common Stock at the date the various notes were
issued.
 
 Additional
Indebtedness
 
 Between
July 1, 2008 and January 31, 2009, the Company received proceeds of Short-Terms
loans (the “Short-Term Loans”) totaling $679,904 of which $175,000 was repaid in
October, 2008. The Short-Term Loans carry a term of one year, an interest rate
of 12%, and 100% stock coverage with a reference price equal to the lowest
purchase price of Common Stock of the Company sold by the Company between the
date of the Short-Term Loans and repayment of the Short-Term
Loans.  The Short-Term Loans have a lien on the receivables from the
AETC Contract which stipulates that all funds received from the AETC Contract
will first be directed towards paying down the Short-Term loans, with the
agreement that one half of the funds repaid from the AETC receivables will be
reloaned to the Company by the lien holder. The reference price has been
renegotiated with the lender and is currently equal to a 50% discount to the
lowest purchase price of Common Stock of the Company sold by the Company between
the date of the Short-Term Loans and repayment of the Short-Term Loans, which
reference price is currently $0.01 and which principle is equal to 135,980,742
shares of the Company’s Common Stock, and which shares have not yet been
issued.
 
 Conversion
of Notes and Exercise of Warrants
 
 During
the period January 1, 2007 through June 8, 2007 the issuances of unregistered
securities were made as a result of various warrant exercises and note
conversions. In all, during this period, various holders of warrants exercised
warrants to purchase 7,611,480 shares of the Company’s Common Stock. These
warrants were exercisable at $.15 per share and were exercised through cashless
exercise method. In addition, during this period, various holders of the
convertible debentures converted $274,060 of debentures plus accrued interest of
$58,521 at conversion price of $.15 per share, resulting in the issuance of
2,236,586 shares of Common Stock.
 
 In the
second quarter of 2008, the Company issued 496,617 shares of restricted Common
Stock to Jack Ramsden in connection with the conversion of a Convertible
Promissory Note of the Company in the aggregate amount of $74,492, including
$55,000 of principle and $19,494 of accrued interest, at a conversion price of
$0.15.
 
 Agreement
to Convert All Outstanding Convertible Promissory Notes
 
 In July,
2008, the Company reached an agreement with holders of all of its Convertible
Promissory Notes to convert all Convertible Promissory Notes and cancel all
associated Warrants, in exchange for a reduction in the conversion price to
$0.02 of all outstanding Convertible Promissory Notes.  As a result of
such conversion agreement, on November 20, 2008, $9,954,287 of principle of and
accrued interest on outstanding Convertible Promissory Notes was converted to
497,714,345 shares of the Company’s Common Stock.
  22
 Cancellation
of Indebtedness and Return of Assets
 
 On May
29, 2008, the Company and Cambar & Associates (“Cambar”) executed a
Settlement and Release Agreement. In December, 2006, TADS assumed from AeroGroup
an indebtedness owed to Cambar (the “Cambar Note”) of a principle amount of
$2,200,000 for the purchase of two MiG-29 aircraft and four flight simulators
(the “Cambar Assets”), which indebtedness included interest to be paid on the
principle.
 
 With this
Settlement and Release Agreement, the Company agreed to relinquish the Cambar
Assets to Cambar, and issue to Cambar 50,000,000 Shares, as payment in full and
final settlement for any claims Cambar may have against the Company, and Cambar
agreed to reclaim the Cambar Assets, cancel the Cambar Note including any
accrued and unpaid interest, and return to the Company for retirement the
1,000,000 Shares issued in the aggregate to Cambar and NATA as compensation for
interest due on the Cambar Note in 2007, as payment in full and final settlement
for any claims the Company may have against Cambar.
 
 Issuance
of Common Stock
 
 Issuance
of Common Stock to Cambar & Associates and NATA
 
 The
Company issued 500,000 restricted shares of Common Stock to NATA in the second
quarter of 2007 and 500,000 restricted shares of Common Stock to Cambar &
Associates in the third quarter of 2007, as compensation for interest due on the
Cambar Note. Notwithstanding the above, NATA and Cambar & Associates have
agreed to retire the shares as per the Settlement and Release Agreement
described above. The Company issued an additional 40,000,000 restricted shares
of Common Stock to NATA and 10,000,000 restricted shares of Common Stock to
Cambar & Associates in the third quarter of 2008, as per the terms of the
Settlement and Release Agreement described above. No registration rights were
issued in connection with these shares.
  Issuance
of Common Stock to Fred Daniels
 
 The
Company issued an aggregate of 405,000 restricted shares of Common Stock to Mr.
Fred Daniels in the first and third quarters of 2007, as compensation for
service as an Officer of the Company. The Company issued an additional 1,100,000
restricted shares of Common Stock to Mr. Fred Daniels in the third quarter of
2008 as further compensation for service as an Officer and Director of the
Company through April 16, 2008. No registration rights were issued in connection
with these shares.
 
 Issuance
of Common Stock to Mark Daniels
 
 The
Company issued an aggregate of 1,600,000 restricted shares of Common Stock to
Mr. Mark Daniels in the second quarter of 2007, as compensation in lieu of
accrued and unpaid salary for his service as President and Chief Executive
Officer of the Company. No registration rights were issued in connection with
these shares.
 
 Issuance
of Common Stock to Mark Daniels Irrevocable Trust III
 
 The
Company issued an aggregate amount of 105,000,000 restricted shares of Common
Stock to Mark Daniels Irrevocable Trust III in the 3rd
quarter of 2008.  Notwithstanding the above, 52,500,000 of these
shares were duplicately issued in error and were cancelled on November 20, 2008
by the Company’s transfer agent for retirement by tender to the transfer agent
of a lost share affidavit by the Mark Daniels Irrevocable Trust
III.  The shares were issued in consideration for Mr. Daniels
executing a long-term employment agreement with the Company and for accrued and
unpaid salary. No registration rights were issued in connection with these
shares.
 
 Issuance
of Common Stock to Victor Miller
 
 The
Company issued an aggregate of 810,000 restricted shares of Common Stock to Mr.
Victor Miller in the second quarter of 2007, as compensation in lieu of accrued
and unpaid salary for his service as an Officer of the Company. The Company
issued an additional 2,400,000 restricted shares of Common Stock to Victor
Miller in February, 2008 in consideration of Mr. Miller retiring his 2,400,000
Series A Preferred shares.  Notwithstanding the above, the stock
certificate representing the 2,400,000 shares of Common Stock has been lost,
will be cancelled because as of December 31, 2008, it had not yet received
confirmation from the transfer agent of the Company of the retirement 2,400,000
Series A Preferred shares. No registration rights were issued in connection with
these shares.
 
 Issuance
of Common Stock to Alexis Korybut
 
 The
Company issued an aggregate of 30,000,000 restricted shares of Common Stock to
Mr. Alexis Korybut in the first quarter of 2008, as compensation for serving as
additional President, Chief Executive Officer, Treasurer, and Principle
Accounting Officer of the Company. No registration rights were issued in
connection with these shares.
  23
 Issuance
of Common Stock to John Farley
 
 The
Company issued an aggregate of 150,000 restricted shares of Common Stock to Mr.
John Farley in the first and third quarters of 2007, as compensation for his
service as an Officer of the Company. The Company issued an additional 100,000
restricted shares of Common Stock to Mr. John Farley in the first quarter of
2008, as compensation as an independent provider of services to the Company. The
Company issued an additional 300,000 restricted shares of Common Stock to Mr.
John Farley in the third quarter of 2008, as compensation as an independent
provider of services to the Company. No registration rights were issued in
connection with these shares.
 
 Issuance
of Common Stock to Lawrence Cusack
 
 The
Company issued 600,000 restricted shares of Common Stock to Mr. Lawrence Cusack
in the first quarter of 2008, as additional compensation for serving as an
employee of the Company. The Company issued an additional 400,000 restricted
shares of Common Stock to Mr. Lawrence Cusack in the third quarter of 2008, as
consideration for accrued and unpaid salary for serving as an employee of the
Company. No registration rights were issued in connection with these
shares.
 
 Issuance
of Common Stock to Peter Maffitt
 
 The
Company issued 500,000 restricted shares Common Stock to Peter Maffitt, a
Director of the Company, in the 2nd quarter
of 2008 as compensation for acting as a Director of the Company. The Company
issued an additional 1,000,000 restricted shares of Common Stock to Peter
Maffitt in the 3rd quarter
of 2008 as further compensation for acting as a Director of the Company. No
registration rights were issued in connection with these shares.
 
 Issuance
of Common Stock to Charles DeAngelo
 
 The
Company issued 250,000 restricted shares of Common Stock to Charles DeAngelo, a
Director of the Company, in the 2nd  quarter of 2008 as compensation for acting as a Director of
the Company. The Company issued an additional 750,000 restricted shares of
Common Stock to Charles DeAngelo in the 3rd quarter
of 2008 as further compensation for acting as a Director of the Company. No
registration rights were issued in connection with these shares.
 
 Issuance
of Common Stock to ZA Consulting
 
 The
Company issued 250,000 restricted shares of Common Stock to ZA Consulting Group
in the first quarter of 2007, as compensation for investor relations services
and related consulting services. The Company issued an additional aggregate of
6,000,000 restricted shares of Common Stock to ZA Consulting Group in the third
quarter of 2008 in connection with a Settlement and Release Agreement reached
between the parties in the 3rd quarter of 2008 and in connection with future
consulting services to the Company. No registration rights were issued in
connection with these shares.
  Issuance
of Common Stock to Gary Corley
 
 The
Company issued 200,000 restricted shares of Common Stock to Mr. Gary Corley Esq.
in the fourth quarter of 2007, as compensation for legal services. The Company
issued an additional 3,000,000 restricted shares of Common Stock to Mr. Gary
Corley Esq. in the third quarter of 2008 as compensation for legal services. No
registration rights were issued in connection with these shares.
  Issuance
of Common Stock to Economic Advisors, Inc.
 
 The
Company issued an aggregate of 114,800 restricted shares of Common Stock to
Economic Advisors, Inc. in the fourth quarter of 2007 and the first quarter of
2008, as compensation for introducing certain accredited investors to the
Company. The Company issued an additional 18,000,000 restricted shares of Common
Stock to Economic Advisors, Inc. in the third quarter of 2008 in connection with
a Settlement and Release Agreement reached between the parties in the third
quarter of 2008. No registration rights were issued in connection with these
shares.
 
 Issuance
of Common Stock to Federal Financial Partners, LLC
 
 The
Company issued an aggregate of 1,600,000 shares of restricted Common Stock to
Federal Financial Partners, LLC in the first and third quarters of 2007 as
compensation for consulting services to the Company. The Company issued an
additional 4,000,000 shares of restricted Common Stock to Federal Financial
Partners, LLC in February, 2008 in consideration of Mark Daniels retiring his
4,000,000 Series A Preferred shares.  Notwithstanding the above, the
stock certificate representing the 4,000,000 shares of Common Stock has been
lost, will be cancelled because as of December 31, 2008, it had not yet received
confirmation from the transfer agent of the Company of the retirement 4,000,000
Series A Preferred shares.  No registration rights were issued in
connection with these shares.
  24
 Issuance
of Common Stock to Northrop Defense Consulting Corp.
 
 The
Company issued an aggregate of 2,800,000 shares restricted shares of Common
Stock to Northrop Defense Consulting Corp in the third quarters of
2007.  Notwithstanding the above, Northrop Defense Consulting Corp has
returned said shares to the Company for further retirement. No registration
rights were issued in connection with these shares.
 
 Issuance
of Common Stock to Joint Strategy Group, LLC
 
 The
Company issued 5,000,000 restricted shares of Common Stock to Joint Strategy
Group, LLC in the first quarter of 2008, as compensation for consulting services
to the Company. The Company issued an additional 20,000,000 restricted shares of
Common Stock to Joint Strategy Group, LLC in the third quarter of 2008, as
consideration for executing a long-term consulting services agreement with the
Company. No registration rights were issued in connection with these
shares.
 
 Issuance
of Common Stock to Thomas Pierson
 
 The
Company issued 100,000 restricted shares of Common Stock to Thomas Pierson in
the first quarter of 2008 as compensation for consulting services to the
Company. No registration rights were issued in connection with these
shares.
 
 Issuance
of Common Stock to Charles Pearlman
 
 The
Company issued 50,000 restricted shares of Common Stock to Charles Pearlman in
the second quarter of 2008 as compensation for consulting services to the
Company. No registration rights were issued in connection with these
shares.
 
 Issuance
of Common Stock to Plumtree Capital Management LLC
 
 The
Company issued 4,000,000 restricted shares Common Stock to Plumtree Capital
Management LLC in July, 2008 as compensation for accrued and unpaid consulting
fees and expenses. No registration rights were issued in connection with these
shares.
 
 Issuance
of Common Stock to M&A Advisors LLC
 
 The
Company issued 2,000,000 restricted shares of Common Stock to M&A Advisors
LLC in the third quarter of 2008 as compensation for consulting services to the
Company. No registration rights were issued in connection with these
shares.
  Issuance
of Common Stock to TCI Global Trading Ltd
 
 The
Company issued 30,000,000 restricted shares of Common Stock to TCI Global
Trading Ltd in the third quarter of 2008 as consideration for providing ongoing
consulting services to the Company. No registration rights were issued in
connection with these shares.
 
 Issuance
of Common Stock to Eurotrust Capital SPA
 
 The
Company issued to Eurotrust Capital SPA an aggregate of 4,500,000 restricted
shares of Common Stock in the third and fourth quarters of 2008 as compensation
for consulting services to the Company. No registration rights were issued in
connection with these shares.
 
 Issuance
of Common Stock to Marc Brannigan
 
 The
Company issued 7,000,000 restricted shares of Common Stock to MBC Consulting LLC
in the third quarter of 2008 as compensation for accrued and unpaid consulting
services to the Company. No registration rights were issued in connection with
these shares.
 
 Issuance
of Common Stock to Brad Baker
 
 The
Company issued 250,000 restricted shares of Common Stock to Brad Baker in the
third quarter of 2008 as compensation for serving on the board of advisors of
the Company. No registration rights were issued in connection with these
shares.
 
 Issuance
of Common Stock to Donald Goldstein
 
 The
Company issued 1,000,000 restricted shares of Common Stock to Donald Goldstein
in the third quarter of 2008 as compensation for prior service on the Board of
Directors of the Company. No registration rights were issued in connection with
these shares.
 
 Issuance
of Common Stock to the Sassin Law Firm
 
 The
Company issued 666,667 restricted shares of Common Stock to the Sassin Law Firm
in the third quarter of 2008 as compensation for legal services. No registration
rights were issued in connection with these shares.
  25
 Issuance
of Common Stock to the Ticktin Law Group
 
 The
Company issued 3,000,000 restricted shares of Common Stock to the Tictin Law
Group in the fourht quarter of 2008 as compensation for legal services. No
registration rights were issued in connection with these shares.
 
 Issuance
of Common Stock to Julius Astrada
 
 The
Company issued 1,000,000 restricted shares of Common Stock to the Julius Astrada
in the fourth quarter of 2008 as compensation for marketing services. No
registration rights were issued in connection with these shares.
 
 Series
A Preferred Stock Issuances
 
 On March
21, 2007, the Company filed a Certificate of Designation of Series A Preferred
Stock (the “Series A Certificate of Designation”) with the Secretary of State of
the State of Nevada, designating a series of 50,000,000 shares of Preferred
Stock of the Company, $.001 par value (the “Series A Preferred Stock”). Pursuant
to the Series A Certificate of Designation, holders of the Company’s Series A
Preferred Stock are entitled to:
 
 ●
                      elect
      one director to the Company’s board of directors;●
                      vote
      on all other matters on a 25 votes per share Common Stock
      basis;●
                      with
      respect to dividend rights, rights on redemption, rights on conversion and
      rights on liquidation, winding up and dissolution, rank senior to all
      Common Stock, warrants and options to purchase Common Stock established by
      the Board or the Stockholders (all of such equity securities of the
      Corporation to which the Series A Preferred Stock ranks senior are
      collectively referred to herein as “Junior Stock”); and●
                      Each
      share of Series A Preferred Stock is initially convertible into 2 shares
      of the Common Stock of the Company, subject to adjustment for stock
      splits, recapitalization or other
  reorganizations.
 In
addition, the Series A Preferred Stock:
 
 ●
                  has
      weighted average antidilution protection that will cause the conversion
      price to adjust downward in the event that the Company issues shares of
      Common Stock or securities convertible into Common Stock at a price of
      less than the conversion price of the Series A Preferred Stock then in
      effect; and●
                  may
      be converted into Common Stock at the option of the
  holder.
 
 In
addition, at any time after the closing bid price for the Company’s Common Stock
on the NASDAQ OTCBB or the primary United States exchange on which the Common
Stock is then traded exceeds $5.00 during any five consecutive trading days, the
Company may, at its sole option, convert the Series A Preferred and any accrued
but unpaid dividends into common shares at the then-applicable conversion price
by providing written notice of such conversion to the holders of the Series A
Preferred; provided that there is an effective registration statement under the
Securities Act registering the resale of the Common Stock to be issued upon such
conversion.
 
 Each
share of Series A Preferred Stock is entitled to receive a dividend of 7% per
annum. The dividend begins to accrue on January 1, 2007 and will be payable
quarterly thereafter. The dividend is cumulative. In the event of a liquidation
or acquisition of the Company, the holders of the Series A Preferred Stock will
be entitled to receive an amount equal to any accrued and unpaid dividend prior
and in preference to any distributions to the holders of the Common Stock.
Thereafter, the holders of the Series A Preferred Stock will be entitled to
participate in distributions on an as converted to common stock
basis.
 
 Shares of
Series A Preferred may be redeemed, in whole or in part, by the Company out of
funds lawfully available therefore from the holders of then outstanding shares
of Series A Preferred on a pro rata basis, at any time by providing written
notice to the holders of the Series A Preferred owned by each holder, that
number of outstanding shares of Series A Preferred owned by each holder, that
number of outstanding shares of Series A Preferred that the Company has elected
to purchase for the following consideration: (i) an amount equal to a price per
share equal to the $4.00 plus any accrued and unpaid dividends multiplied by the
number of shares of Series A Preferred being redeemed from such holder and (ii)
the issuance of the number of shares of Common Stock equal to seventeen and
one-half percent (17.5%) of the shares of Common Stock then issuable upon
conversion of the shares of Series A Preferred being redeemed from such holder.
A cash payment will be provided in lieu of any fractional shares of Common
Stock.
  Issuance of Preferred
Securities
 
 During
fiscal 2007, the Company issued an aggregate of 6,400,000 shares of its Series A
Preferred Stock; 2,400,000 shares to Mr. Victor Miller, and 4,000,000 shares to
Mr. Mark Daniels, both of whom were Officers and Directors at the time of
issuance of the shares. Because the Company contends that the shares of its
Series A Preferred Stock were issued to Mr. Miller and Mr. Daniels without
consideration, the Company has been seeking to rescind said 6,400,000 Series A
Preferred shares, and have Mr. Miller and Mr. Daniels waive any accrued and
unpaid dividends associated with said Series A Preferred shares. Mr. Mark
Daniels has agreed to rescind the 4,000,000 Series A Preferred shares issued to
him and to waive any accrued and unpaid dividends associated with said 4,000,000
Series A Preferred shares, contingent upon Mr. Miller agreeing to rescind the
2,400,000 Series A Preferred shares issued to him and to waive any accrued and
unpaid dividends associated with said 2,400,000 Series A Preferred shares.
However, the Company has been unable to have Mr. Miller agree to rescind the
2,400,000 shares of its Series A Preferred Stock issued to him and to waive any
accrued and unpaid dividends associated with said 2,400,000 Series A Preferred
shares, and is considering taking legal action against Mr.
Miller.  The Company believes that its contention, that the 2,400,000
shares of its Series A Preferred Stock were issued to Mr. Miller without
consideration, is with merit and that it would be successful in a suit to have
said shares rescinded, and have any accrued and unpaid dividends waived, in
connection with the issuance of and the rescission of said 2,400,000 shares of
Series A Preferred Stock.
  26
 Dividends
 
 We may
never pay any dividends to our shareholders including the holders of the Series
A Preferred Stock.  We did not declare any dividends for the year
ended December 31, 2008. The Company contends that all Series A Preferred Stock
was issued without proper consideration and is therefore not entitled to any
dividends.  Our Board of Directors does not intend to distribute
dividends in the near future. The declaration, payment and amount of any future
dividends will be made at the discretion of the Board of Directors, and will
depend upon, among other things, the results of our operations, cash flows and
financial condition, operating and capital requirements, and other factors as
the Board of Directors considers relevant. There is no assurance that future
dividends will be paid, and if dividends are paid, there is no assurance with
respect to the amount of any such dividend.
  Item
6. Management’s Discussion and Analysis or Plan of Operation
 
 THE
FOLLOWING DISCUSSION SHOULD BE READ TOGETHER WITH THE INFORMATION CONTAINED IN
THE FINANCIAL STATEMENTS AND RELATED NO TES INCLUDED IN THIS ANNUAL REPORT ON
FORM 10-K, THE FORWARD LOOKING STATEMENTS PROVISIONS ABOVE, AND THE RISK FACTORS
ABOVE.
 
 The
Company has experienced substantial delays as a result of its inability to raise
capital and the result of interference from third-parties in its contracts and
business.
 
 Plan
of Operation
  Liquidity
and Capital Resources
 
 The
Company had had no revenues during 2007 and only $250,000 in 2008. We anticipate
that our current cash on hand of $23,156 as of December 31, 2008 is sufficient
to satisfy our cash requirements only through May 31, 2009. We do not have
any financing commitments and no assurance can be made that we will be obtaining
financing at the times and terms needed. Therefore, there is substantial doubt
that we will be able to continue as a going concern. In addition, we will need
substantial additional capital during the next 12 months on order to complete
our business plan.
 
 Our
business may require significant amounts of capital for the execution of pending
and future contracts. Some of our anticipated one time and ongoing expenses are
discussed below.
 
 The
Company has funded its operations and met its capital expenditures requirements
primarily through cash generated from contributions from the issuance of
convertible debt securities and short-term promissory notes.
 
 As of
December 31, 2008, the Company had negative working capital in the amount of
$625,000. Cash used by operating activities were $1.760,428 for the year ended
December 31, 2008 compared to cash used by operating activities for the year
ended December 31, 2007 of $1,604,516.
 
 Net cash
provided by financing activities for the year ended December 31, 2007 was
$1,468,458 compared to $1,737,272 for the year ended December 31, 2008. The
increase was predominantly due to increased debt raised in 2008.
 
 The
factors that predominantly impact working capital and therefore cash flows from
operations are operating expenses.
 
 During
the year ended December 2009, the Company believes that it will expend funds on
the following:
 
 ●
                      Final
      preparation of the leased ILyushin IL-78 which we anticipate will cost a
      minimum of another $250,000 to complete;●
                      Leasing
      and refurbishment of used fourth generation military aircraft, equipment,
      and tanker aircraft;●
                      Leasing
      and refurbishment of training facilities to fulfill pending contracts;
      and●
                      Hiring
      of additional employees and independent contractors to fulfill pending
      contracts.
  27
  We
anticipate that if we are able to raise sufficient capital that we will be able
to complete our programs and import additional aircraft and equipment by mid
2009. If we are not able to do so, we will not be able to perform under the F-16
Training Contract or execute pending contracts.
 
 Immediate
Expenses and Cost of Equipment
 
 We will
be required to make additional expenditures to complete the certification of the
IL-76/78 under lease in order to perform our certain parts of our contracts. We
anticipate the cost to be approximately $250,000. Thereafter, we may lease
additional aircraft if sufficient financing alternatives are not available.
 
 Off
Balance Sheet Arrangements
 
 As of
December 31, 2008 we do not have any off balance sheet arrangements, as defined
in Section 303(c) of Regulation S-B, other then as specifically disclosed in
this report. Off balance sheet arrangements include, without limitation,
contractual arrangements with any entity whose financial information is not
consolidated with our own, under which we have:
 
 ●
                      Guaranteed
      any obligation of such other entity;●
                      A
      retained or contingent interest in assets transferred to such
      unconsolidated entity or similar arrangement that serves as credit,
      liquidity or market risk support to that entity for such
      assets;●
                      Any
      obligation under certain derivative instruments;●
                      Any
      obligation under a material variable interest held by the registrant in an
      unconsolidated entity that provides financing, liquidity, market risk or
      credit risk support to the registrant, or engages in leasing, hedging or
      research and development services with the
  registrant.
  Additionally,
we do not have any relationships or transactions with persons or entities that
derive benefits from any non-independent relationships other than related party
transactions discussed herein.
  Item 7. Financial Statements
  INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
  Report
      of Independent Registered Public Accounting Firm
                    F-1Consolidated
      Balance Sheet at December 31, 2008
                    F-2Consolidated
      Statements of Operations for the Years Ended December 31, 2008
      (commencement as a development stage company) and 2005
                    F-3Consolidated
      Statements of Stockholders' (Deficiency) Equity for the Years Ended
      December 31, 2007 and 2008
                    F-4Consolidated
      Statements of Cash Flows for the Years Ended December 31, 2007
      (commencement as a development stage company) and 2008
                    F-5Notes
      to the Consolidated Financial Statements
                    F-6
      to F-23
 
 28
  Lawrence
Scharfman & Co., CPA P.A.
 Certified
Public Accountants
 
 18
      E. Sunrise Hwy
              9608
      Honey Bell CircleSuite
      201
              Boynton
      Beach, FL 33437Freeport,
      NY 11520Telephone:
      (516) 771-5900
              Telephone:
      (561) 733-0296Fax:              (516) 771-2598
              Fax:     
              (561) 740-0613
 
 Tactical
Air Defense Services, Inc.
 100
Crescent Court
 7th
Floor
 Dallas,
TX 75201
 
 REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 We have
audited the accompanying balance sheet of Tactical Air Defense Services, Inc. as
of December 31, 2008 and the related statements of Operations, Changes in
Stockholders Equity and Cash Flows then ended. These statements are the
responsibility of management. Our responsibility is to express an opinion on
these financial statements based on our audits.
 
 We
conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial presentation. We believe that our audit
provided a reasonable basis for our opinion.
 
 The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. The Company's existence is dependent upon
management's ability to develop profitable operations. Management is hopeful
that the Company will attain profitable status and liquidity if they are able to
raise additional capital.
  In our
opinion, the financial statements referred to above present fairly, in all
material respects the financial position of Tactical Air Defense Services, Inc.
as of December 31, 2008 and the results of operations and cash flows for the
year then ended in conformity with generally a in conformity with generally
accepted accounting principles except that the Company erroneously overstated
capital stock issued for services rendered.
 
 Lawrence
Scharfman CPA
 
 April
15th 2008
 
 Member:
 American
      Institute CPAS
                Florida
      Institute CPAS
 Licensed
in Florida & New York
 
 
  TACTICAL
AIR DEFENSE SERVICES, INC.
 CONDENSED
CONSOLIDATED BALANCE SHEET
 FOR
THE YEAR ENDED DECEMBER 31, 2008
 
 2008ASSETSCurrent
      Assets:Cash
                                        
                                        $
                                        23,156Accounts
      Receivable
                                        
                                        
                                        250,000Total
      Current Assets
                                        
                                        
                                        273,156Property
      and Equipment, net
                                        
                                        
                                        88,000TOTAL
      ASSETS
                                        
                                        
                                        361,156LIABILITIES AND STOCKHOLDERS'
      EQUITYCurrent
      Liabilities:Accounts
      payable
                                        
                                        
                                        7,762Accrued
      liabilities
                                        
                                        
                                        473,454Short-Term  Debentures,
      including accrued interest, net of debt discount of
    $2,590,041
                                        
                                        
                                        504,904Total
      Current Liabilities
                                        
                                        
                                        986,120OTHER
      LIABILITIES
                                        
                                        
                                        -0-TOTAL
      LIABILITIES
                                        
                                        
                                        986,120COMMITMENTSSTOCKHOLDERS'
      EQUITY:Series
      A Preferred stock-$.001 par value; 50,000,000 shares authorized; - shares
      issued and outstanding - 6,400,000
                                        
                                        
                                        6,400Common
      stock-$.001 par value; 1,000,000,000 shares authorized; -
      855,203,856 shares issued and outstanding
                                        
                                        
                                        855,204Additional
      paid-in-capital
                                        
                                        
                                        36,403,936Deficit
      accumulated during the development stage
                                        
                                        
                                        (37,890,504
                                        )TOTAL
      STOCKHOLDERS' EQUITY
                                        
                                        
                                        (624,964
                                        )TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                                        
                                        $
                                        361,156
 
 The
accompanying notes are an integral part of these condensed consolidated
financial statements.
 F-2
  TACTICAL
AIR DEFENSE SERVICES, INC.
 (A
Development Stage Company, Commencing January 1, 2006)
 CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
 For
the Years Ended December 30, 2008 and 2007
  2008
                                                
                                                
                                                2007REVENUES
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                -Operating
      costs
                                                
                                                
                                                350,010
                                                
                                                
                                                
                                                183,980General
      and administrative, including compensatory element of stock issuance of
      $18,867,439 and $144,773 for the year ended December 31, 2007 and 2008,
      respectively, and $18,999,015 for the period January 1, 2006 to December
      31, 2008
                                                
                                                
                                                1,612,770
                                                
                                                
                                                
                                                22,777,067TOTAL
      COSTS
                                                
                                                
                                                1,612,770
                                                
                                                
                                                
                                                22,961,047OPERATING
      LOSS
                                                
                                                
                                                (1,962,780
                                                )
                                                
                                                
                                                (22,961,047
                                                )OTHER
      (EXPENSE) INCOME:Derivative
      loss on derivative liabilities
                                                
                                                
                                                -Write-down
      of fixed assets
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (7,066,985
                                                )Forgiveness
      of liquidated damages
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -Interest
      expense
                                                
                                                
                                                (551,600
                                                )
                                                
                                                
                                                (4,861,198
                                                )Other
                                                
                                                
                                                -TOTAL
      OTHER EXPENSES
                                                
                                                
                                                (551,600
                                                )
                                                
                                                
                                                (11,928,183
                                                )NET
      LOSS
                                                
                                                $
                                                (2,514,380
                                                )
                                                
                                                $
                                                (34,889,230
                                                )Preferred
      stock dividend
                                                
                                                
                                                
                                                
                                                
                                                
                                                (342,521
                                                )NET
      LOSS APPLICABLE TO COMMON STOCKHOLDERS
                                                
                                                $
                                                (2,514,380
                                                )
                                                
                                                $
                                                (35,231,751
                                                )Loss
      per common share - basic and diluted
                                                
                                                $
                                                (.01
                                                )
                                                
                                                $
                                                (1.09
                                                )Weighted
      average number of shares outstanding - basic and diluted
                                                
                                                
                                                296,300,964
                                                
                                                
                                                
                                                32,311,450
  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)
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 YEARS
ENDED DECEMBER 31, 2008 AND 2007
 
 2008
                                                                
                                                                
                                                                2007CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      (loss)
                                                                
                                                                $
                                                                (2,514,380
                                                                )
                                                                
                                                                $
                                                                (34,889,230
                                                                )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Stock-based
      compensation
                                                                
                                                                
                                                                842,580
                                                                
                                                                
                                                                
                                                                21,233,889Write-down
      of fixed assets
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                7,040,985Excess
      of initial derivative liability over debt discount
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -Debt
      discount amortization
                                                                
                                                                
                                                                -0-
                                                                
                                                                
                                                                
                                                                3,936,922Changes
      in operating assets and liabilities:Accounts
      payable
                                                                
                                                                
                                                                (272,565
                                                                )
                                                                
                                                                
                                                                -Accrued
      liabilities
                                                                
                                                                
                                                                183,937
                                                                
                                                                
                                                                
                                                                1,072,918Net
      Cash Used in Operating Activities
                                                                
                                                                
                                                                (1,760,428
                                                                )
                                                                
                                                                
                                                                (1,604,516
                                                                )CASH
      USED IN INVESTING ACTIVITIESNet
      Cash Used in Investing Activities
                                                                
                                                                
                                                                (-0-
                                                                )
                                                                
                                                                
                                                                -CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from sale of common stock
                                                                
                                                                
                                                                360,000
                                                                
                                                                
                                                                
                                                                114,781Proceeds
      from Short Term Loan
                                                                
                                                                
                                                                639,904
                                                                
                                                                
                                                                
                                                                -0-Proceeds
      from convertible debentures
                                                                
                                                                
                                                                737,368
                                                                
                                                                
                                                                
                                                                1,353,677Net
      Cash Provided by Financing Activities
                                                                
                                                                
                                                                1,737,272
                                                                
                                                                
                                                                
                                                                1,468,458Increase
      (Decrease) in cash
                                                                
                                                                
                                                                23,156
                                                                
                                                                
                                                                
                                                                (136,058
                                                                )Cash
      - Beginning of period
                                                                
                                                                
                                                                -0-
                                                                
                                                                
                                                                
                                                                136,058Cash
      - End of period
                                                                
                                                                $
                                                                23,156
                                                                
                                                                
                                                                $
                                                                -0-Interest
      paid
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -Taxes
      paid
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -Non-cash
      Transactions:Stock
      issued to settle accrued compensation
                                                                
                                                                $
                                                                467,000
                                                                
                                                                
                                                                $
                                                                -Dividend
      to preferred stockholders
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                342,521Conversion
      of debt plus accrued interest to equity
                                                                
                                                                
                                                                2,706,224
                                                                
                                                                
                                                                $
                                                                1,227,046Common
      stock issued for leasehold improvements
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                $
                                                                26,000Acquisition
      of assets for issuance of debt
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                $
                                                                -Beneficial
      conversion feature under convertible debt
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                $
                                                                349,866Fair
      value of warrants issued with convertible debt
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                $
                                                                1,003,811Distribution
      to stockholder
                                                                
                                                                $
                                                                -
                                                                
                                                                
                                                                $
                                                                -
  The
accompanying notes are an integral part of these condensed consolidated
financial statements.
 F-4
  TACTICAL AIR DEFENSE SERVICES,
INC.
 (A
Development Stage Company, Commencing January 1, 2006)
 CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' (DEFICIENCY) EQUITY
  DeficitAccumulated
                                                                                        
                                                                                        TotalAdditional
                                                                                        
                                                                                        
                                                                                        
                                                                                        During
                                                                                        
                                                                                        Stockholders’Common
      Stock
                                                                                        
                                                                                        Preferred
      Stock
                                                                                        
                                                                                        Paid
                                                                                        
                                                                                        Unearned
                                                                                        
                                                                                        Development
                                                                                        
                                                                                        (Deficiency)Shares
                                                                                        
                                                                                        Amount
                                                                                        
                                                                                        Shares
                                                                                        
                                                                                        Amount
                                                                                        
                                                                                        in
      Capital
                                                                                        
                                                                                        Compensation
                                                                                        
                                                                                        Stage
                                                                                        
                                                                                        EquityBALANCE -
      December 31, 2006
                                                                                        
                                                                                        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- $.30- $2.40 per
      share
                                                                                        
                                                                                        3,144,734
                                                                                        
                                                                                        
                                                                                        3,145
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        2,420,171
                                                                                        
                                                                                        
                                                                                        (250,000
                                                                                        )
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        2,173,316Stock
      issued for services-$1.05 per share
                                                                                        
                                                                                        320,000
                                                                                        
                                                                                        
                                                                                        320
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        335,680
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        336,000Issuance
      of common stock upon conversion of debentures
                                                                                        
                                                                                        6,533,003
                                                                                        
                                                                                        
                                                                                        6,533
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        970,513
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        977,046Issuance
      of common stock under private placement-$.30-$.55
                                                                                        
                                                                                        1,012,574
                                                                                        
                                                                                        
                                                                                        1,012
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        460,219
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        461,231Shares
      issued in connection with equity financing
                                                                                        
                                                                                        57,400
                                                                                        
                                                                                        
                                                                                        57
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        (11,537
                                                                                        )
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        (11,480
                                                                                        )Cashless
      exercise of warrants for common stock
                                                                                        
                                                                                        7,274,930
                                                                                        
                                                                                        
                                                                                        7,275
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        (7,275
                                                                                        )
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        -Amortization
      of unearned compensation
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        250,000
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        250,000Conversion
      of note payable
                                                                                        
                                                                                        500,000
                                                                                        
                                                                                        
                                                                                        500
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        249,500
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        250,000Fair
      value of warrants issued with convertible debt
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        1,003,811
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        1,003,811Beneficial
      conversion feature under convertible debt
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        349,866
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        349,866Dividend
      to preferred stockholders
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        (342,521
                                                                                        )
                                                                                        
                                                                                        (342,521
                                                                                        )Net
      loss
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        (34,889,230
                                                                                        )
                                                                                        
                                                                                        (34,889,230
                                                                                        )Balance
      -December 31, 2007
                                                                                        
                                                                                        45,248,296
                                                                                        
                                                                                        $
                                                                                        45,248
                                                                                        
                                                                                        6,400,000
                                                                                        
                                                                                        $
                                                                                        6,400
                                                                                        
                                                                                        $
                                                                                        26,650,808
                                                                                        
                                                                                        $
                                                                                        -
                                                                                        
                                                                                        $
                                                                                        (35,376,124
                                                                                        )
                                                                                        $
                                                                                        (8,673,668
                                                                                        )
 Stock
      issued for services to consultants and employees
                                                                    
                                                                    85,900,000
                                                                    
                                                                    
                                                                    85,900
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    756,680
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    842,580Issuance
      of common stock upon conversion of debentures
                                                                    
                                                                    724,055,560
                                                                    
                                                                    
                                                                    724,056
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    8,996,448
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    9,720,504Net
      loss
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    (2,514,380
                                                                    )
                                                                    
                                                                    (2,514,380
                                                                    )Balance
      -December 31, 2007
                                                                    
                                                                    855,203,856
                                                                    
                                                                    $
                                                                    855,204
                                                                    
                                                                    6,400,000
                                                                    
                                                                    $
                                                                    6,400
                                                                    
                                                                    $
                                                                    36,403,936
                                                                    
                                                                    $
                                                                    -
                                                                    
                                                                    $
                                                                    (37,890,504
                                                                    )
                                                                    $
                                                                    (624,964
                                                                    )
 
 The
accompanying notes are an integral part of these condensed consolidated
financial statements.
 F-5
 
 TACTICAL
AIR DEFENSE SERVICES, INC.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  NOTE
1 - COMPANY AND BASIS OF PRESENTATION:
 
 General
 
 Tactical
Air Defense Services, Inc. (“TADS”) is a Nevada public corporation that offers
air combat training, mid-air refueling, ground-threat support, aerial
fire-fighting, and specialty aerial services to the U.S. and Foreign Militaries
and other Federal and State Agencies. TADS is certified by the United States
Government as a private-sector military contractor and has been granted the
required security clearances.
  TADS was
incorporated in the State of Nevada on July 9, 1998 under the name Natalma
Industries, Inc. Originally, TADS operated as a junior mining company engaged in
the exploration of mining properties. We were unsuccessful in locating a joint
venture partner to assist us in the development of our mining claims. As a
result, TADS was unable to pay for and perform the exploration and development
required in its agreement with the owners of its properties and lost our rights
to the mining claims. Our management at the time, therefore determined that it
was in the best interest of our shareholders that we seek potential operating
businesses and business opportunities with the intent to acquire or merge with
another business, which led to the purchase substantially all of the assets of
AeroGroup Incorporated (the “AeroGroup Acquisition”).
 
 On
December 15, 2006 (the “Closing Date”), TADS and three of its wholly-owned
subsidiaries, Resource Financial Aviation Holdings Inc., OneSource Aviation
Acquisition Inc. and Genesis Aviation Acquisition Inc., each a Nevada
corporation (the “TADS Subsidiaries” and, collectively with TADS,”) acquired
substantially all of the assets of AeroGroup Incorporated (“Aero or AeroGroup”),
a Utah corporation, and its three wholly owned subsidiaries, OneSource
Acquisition, Inc., Genesis Acquisition, Inc. and Resource Financial Holding
Acquisition, Inc., each a Delaware corporation (the “AeroGroup Subsidiaries”
and, collectively with AeroGroup Incorporated, “AeroGroup”), pursuant to an
Asset Purchase Agreement dated July 14, 2006, as amended (the “Asset Purchase
Agreement”) and in consideration of the acquisition issued stock and assumed
certain indebtedness and other obligations under various warrants, a real
property sublease, government and non-government aviation contracts and certain
other contracts of AeroGroup (the “AeroGroup Acquisition”). As a result of the
asset purchase, the Company intends to be a provider of outsourced military
fighter jet pilot training to military personnel, including certain flight
support services.
 
 Since the
AeroGroup Acquisition was settled through the issuance of a controlling interest
in TADS Common Stock, AeroGroup is deemed to be the acquirer for accounting
purposes. Furthermore, since TADS is deemed to be a shell company prior to the
acquisition, purchase accounting was not applied. Therefore, the transaction was
accounted for as a reverse acquisition and recapitalization of AeroGroup.
Accordingly, the historical financial statements presented in the financial
statements are those of AeroGroup as adjusted to reflect the recapitalization
and elimination of certain assets and liabilities that were not assumed by TADS.
The net liabilities not assumed by TADS were recorded as a contribution to
capital totaling $4,505,560. These liabilities substantially consisted of
indebtedness due to Aero’s controlling stockholder, Mark Daniels
(“Daniels”).
 
 The
accompanying share information for Aero has been retroactively restated to
reflect the recapitalization transactions, including the exchange of Common
Stock and Common Stock equivalents of Aero for Common Stock and Common Stock
equivalents of TADS based on the exchange ratio of 50 to 1.
 
 In
connection with the reverse acquisition, the consideration paid to Aero Group
for the assets consisted of:
 
 ●
                        14,989,900
      shares of restricted Common Stock of TADS, constituting a majority of the
      then outstanding Common Stock of TADS.●
                        Assumption
      by TADS of Aero’s obligations under its convertible debentures totaling
      approximately $5.6 million, inclusive of accrued interest, all convertible
      into shares of TADS Common Stock at prices ranging $0.15 to $1.00 per
      share.●
                        Assumption
      by TADS of Aero’s obligation under a convertible note issued in connection
      with a settlement agreement in the principal amount of $250,000, with an
      interest rate of 12%, payable in 36 equal monthly installments of
      principal, plus interest. The note has a maturity date of April 13, 2011.
      The note is convertible into shares of Common Stock at a rate of $.50 per
      share.●
                        Assumption
      by TADS of Aero’s obligation under an assumed secured note payable to
      Daniels in the principal amount of $1,100,000, plus interest, at the rate
      of 12% per annum. The outstanding principal and interest is convertible
      into shares of TADS Common Stock at a conversion price of $.0.50 per
      share.●
                        Assumption
      by TADS of Aero’s' obligation under a note assumed by the Company in
      connection with its June 2006 asset purchase (Note 5) in the principal
      amount of $2.2 million, plus interest at the rate of 8% per annum. The
      outstanding principal and interest is convertible into shares of TADS
      Common Stock at a conversion price of $0.50 per
  share.
  F-6
  ●
                        Assumption
      by TADS of Aero’s obligations under certain outstanding warrants to
      purchase 23,968,315 shares of Common Stock exercisable at $0.15 per
      share.●
                        Assumption
      by TADS of Aero’s obligations under government contracts and subcontracts
      and of leases relating to its Grayson Airport facilities, a $300,000
      consulting contract and property leases.●
                        Assumption
      by TADS of Aero’s obligations for accrued expenses totaling
      $136,000.
 
 Effective
January 1, 2006, the Company is in the development stage and its operations
principally involve research and development, market analysis, and other
business planning activities, and minimal revenue has been generated to
date.
 
 Aero is a
Utah corporation, which was incorporated on July 31, 1984 under the name
Diversified Resources Group, Inc. Aero was a provider of outsourced military
fighter jet pilot training to military personnel, including certain flight
support services. Effective January 1, 2006, Aero became a development stage
company as it was devoting all of its present efforts to securing and
establishing a new business. Accordingly, the accompanying consolidated
financial statements for 2006 represent the cumulative financial statements from
the commencement of the development stage through December 31, 2006
 
 Basis
of Presentation
 
 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
December 31, 2008. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted pursuant to the SEC rules and regulations.
 
 Going
Concern and Management's Plan
 
 The
accompanying consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of America,
which contemplate the continuation of the Company as a going concern. However,
as shown in the accompanying consolidated financial statements, the Company has
incurred losses from operations since inception and has a  working
capital deficiency as of December 31, 2008 of approximately
$625,000.
 
 December
15, 2006, TADS acquired substantially all of the assets of Aero and assumed
certain contracts in exchange for the assumption by TADS of certain liabilities
of Aero. Management believes the Company can raise adequate capital for the
Company’s required working capital needs for 2007 including additional
modifications to its aircrafts necessary to make them operational. Management
also believes that it still needs substantial capital in order to carry out its
business plan, which is to become a civilian provider of outsourced military
aviation services which includes fighter jet pilot training, operational
deployment training, aviator combat support and close air support for “Forward
Controllers,”. No assurance can be given that the Company can obtain the
required estimated additional working capital, or if obtained, that such funding
will not cause substantial dilution to stockholders of the Company. Being a
development stage company, the Company is subject to all the risks inherent in
the establishment of a new enterprise and the marketing of a new product, many
of which risks are beyond the control of the Company. All of the factors
discussed above raise substantial doubt about the Company's ability to continue
as a going concern. During 2006, Aero raised from various stockholders
approximately $1,510,634 through the issuance of convertible debt securities and
warrants. During 2007, the Company has raised from various financing
sources approximately $1,353,677 through the issuance of convertible debt. Also,
the Company received proceeds totaling $346,450 from the sale of 629,911 units
comprising of one share of common stock and warrants to purchase common stock.
In addition, the Company received proceeds totaling $114,781 from the sales of
382,663 shares of the Company’s common stock.  In 2008, the Company
received proceeds totaling $737,388 through the issuance of convertible debt,
and received proceeds totaling $679,904 through January 31, 2009 from the
issuance of short-term promissory notes.
 
 These
consolidated financial statements do not include any adjustments relating to the
recoverability of recorded asset amounts that might be necessary as a result of
the above uncertainty.
 
 NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Principals
of Consolidation
 
 The
condensed consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, Genesis Acquisition, Inc., Resource Financial
Holding Acquisition, Inc. and OneSource Acquisition, Inc. All significant
intercompany transactions have been eliminated.
  F-7
 Use
of Estimates
 
 The
preparation of the condensed consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities in the condensed consolidated financial statements and accompanying
notes. The most significant estimates relate to the estimated useful lives and
assessment for impairment of the Company’s property and equipment,
contingencies, revenue recognition and valuation of derivative instruments.
Actual results could differ from those estimates.
  Property
and Equipment
 
 Property
and equipment are recorded at cost. Property and equipment acquired by Aero
pursuant to the June 2006 Asset Purchase Agreement (Note 3) was recorded at its
then net carrying value due to the entities being controlled by Aero's majority
stockholder. The provision for depreciation of operating equipment is computed
on the straight line method applied to each unit of property over the estimated
useful lives, generally five to ten years, commencing when the assets are placed
into service.
 
 Leasehold
improvements shall be amortized over the shorter of their useful life or the
remaining lease term. Upon retirement or other disposition of these assets, the
cost and related accumulated depreciation of these assets are removed from the
accounts and the resulting gains or losses are reflected in the results of
operations.
 
 As of
December 31, 2008 and 2007, the Company did not have any assets placed into
service. As a result, there was no depreciation expense for the three and nine
months ended December 31, 2008 and 2007.
 
 The
Aircraft acquired pursuant to the June 2006 Asset Purchase Agreement (Note 5)
were stationed in the Ukraine awaiting for disassembly and shipment to the
United States of America. Additional modifications would be necessary to make
them operational for use within the United States of America. The Company
estimates that it would cost cost approximately $200,000 to ship the MIGs to the
United States of America, and approximately $420,000 to get the MIGs fully
operational. In December 2007, the Company was notified by the note holder of
the note issued in connection with the June 2006 Asset Purchase Agreement, that
the Company was in default of the agreement and that the holder was exercising
their right to repossess the equipment. As a result, the Company recorded a
charge of $6,740,000 which is included a write-down of fixed assets in the
accompanying consolidated statement of operations. The note associated with this
purchase was settled in the second quarter of 2008. The note balance including
accrued interest and principle was for approximately $2.7 million was settled
for 50 million shares of common stock. This settled all demands between the
Company and the company the asset was acquired from.
 
 Maintenance
and repair costs for owned and leased flight equipment are charged to operating
expense as incurred.
 
 Revenue
Recognition
 
 Revenue
is recognized once four criteria are met: (1) the Company must have
persuasive evidence that an arrangement exists; (2) services have been
performed and accepted by the Customer, (3) the price must be fixed and
determinable; and (4) collectibility must be reasonably
assured.
 
 Fair Value of Financial
Instruments
 
 The
recorded carrying values of accounts payable and accrued liabilities and
interest bearing indebtedness approximate the fair value of such financial
instruments. The derivative liabilities are recorded at fair value and are
marked-to-market at each balance sheet date.
  Cash
and Cash Equivalents
 
 For
purposes of the statement of cash flows, the Company considers all short-term
investments with original maturities of three months or less when purchased to
be cash equivalents. The Company had no cash equivalents as of December 31,
2007.
 
 Concentration
of Credit Risk
 
 The
Company places its cash in what it believes to be creditworthy financial
institutions. However, cash balances may exceed FDIC insured levels at various
times during the year.
 
 Net (Loss) Income Per Share of Common
Stock
 
 Basic net
(loss) income per share of common stock are computed by dividing net (loss)
income available to common stockholders by the weighted average number of
shares of common stock outstanding during the periods presented.
  F-8
  Diluted
net (loss) income per share reflects per share amounts that result if
dilutive common stock equivalents are converted to common stock. Common stock
equivalents, consisting of convertible debt, options and warrants, discussed in
Note 7, were not included in the calculation of diluted (loss) income per share
for the years ended December 31, 2007 and 2006 because their inclusion would
have had been anti-dilutive.
  Impairment
of Long-Lived Assets
 
 In
accordance with Statement of Financial Accounting Standards ("SFAS") No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," the Company
reviews the carrying amount of long-lived assets on a regular basis for the
existence of facts or circumstances, both internally and externally, that
suggest impairment. The Company determines if the carrying amount of a
long-lived asset is impaired based on anticipated undiscounted cash flows before
interest from the use of the asset. In the event of impairment, a loss is
recognized based on the amount by which the carrying amount exceeds the fair
value of the asset. Fair value is determined based on appraised value of the
assets or the anticipated cash flows from the use of the asset, discounted at a
rate commensurate with the risk involved.
  Convertible
Notes and Warrants
 
 The
Company accounts for conversion options embedded in convertible notes in
accordance with SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS
133  ") and Emerging Issues Task Force ("EITF  ")
00-19, "Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company's Own Stock" ("EITF
00-19  "). SFAS 133 generally requires companies to bifurcate
conversion options embedded in convertible notes from their host instruments and
to account for them as free standing derivative financial instruments in
accordance with EITF 00-19. SFAS 133 provides for an exception to this rule when
convertible notes, as host instruments, are deemed to be conventional as that
term is described in the implementation guidance under Appendix A to SFAS 133
and further clarified in EITF 05-2 "The Meaning of "Conventional Convertible
Debt Instrument" in Issue No. 00-19.”
 
 The
Company accounts for convertible notes deemed conventional and conversion
options embedded in non-convertible notes which qualify as equity under EITF
00-19, in accordance with the provisions of Emerging Issues Task Force Issue
("EITF  ")
98-5 "Accounting for Convertible Securities with Beneficial Conversion
Features," and EITF 00-27 "Application of EITF 98-5 to Certain Convertible
Instruments". Accordingly, the Company records, as a discount to convertible
notes, the intrinsic value of such conversion options based upon the differences
between the fair value of the underlying common stock at the commitment date of
the note transaction and the effective conversion price embedded in the note.
Debt discounts under these arrangements are amortized over the term of the
related debt.
 
 As of
December 31, 2008, the Company had no derivative financial
instruments.
 
 The
Company accounts for embedded conversion options in non-conventional convertible
notes which do not qualify as equity under EITF 00-19, as derivative
liabilities. Accordingly, the Company determines the fair value (as determined
through a lattice model) of these embedded derivatives (usually conversion
options and redemption rights). Such fair value is recorded as a debt discount
up to the proceeds of the debt and any amount in excess of the proceeds of the
debt is charged to operations at the security issuance date.
 
 The
Company accounts for the issuance of common stock purchase warrants issued and
other free standing derivative financial instruments in accordance with the
provisions of EITF 00-19. Based on the provisions of EITF 00-19, the Company
classifies as equity any contracts that (i) require physical settlement or
net-share settlement or (ii) gives the Company a choice of net-cash settlement
or settlement in its own shares (physical settlement or net-share settlement).
The Company classifies as assets or liabilities any contracts that (i) require
net-cash settlement (including a requirement to net cash settle the contract if
an event occurs and if that event is outside the control of the Company) and
(ii) give the counterparty a choice of net-cash settlement or settlement in
shares (physical settlement or net-share settlement). The Company determines the
fair value of these free standing instruments under the Black-Scholes Pricing
Model using the following range of assumptions:
 
 ●
                      
                      expected
      volatility -   350%-450%●
                      
                      expected
      dividend – none●
                      
                      risk-free
      interest rate - 4.75%-5.00%●
                      
                      contractual
      term - 3-5
years
 
 Non-Employee
Stock Based Compensation
 
 The
Company accounts for stock based compensation awards issued to non-employees for
services, as prescribed by SFAS No. 123R, at either the fair value of the
services rendered or the instruments issued in exchange for such services,
whichever is more readily determinable, using the measurement date guidelines
enumerated in EITF 96-18, "Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services."
  F-9
  Recently
Adopted Accounting Policies
  In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities. SFAS No. 159 permits entities to choose to
measure eligible financial instruments at fair value. The unrealized gains and
losses on items for which the fair value option has been elected should be
reported in earnings. The decision to elect the fair value options is determined
on an instrument by instrument basis, it should be applied to an entire
instrument, and it is irrevocable. Assets and liabilities measured at fair value
pursuant to the fair value option should be reported separately in the balance
sheet from those instruments measured using another measurement attribute. SFAS
No. 159 is effective as of the beginning of the first fiscal year that begins
after November 15, 2007. The Company is currently analyzing the potential impact
of adoption of SFAS No. 159 to its financial statements.
  In
December 2007, the FASB issued SFAS No. 141(R),“Business Combinations,”
which replaces SFAS No. 141,“ Business
Combinations,”  which, among other things, establishes
principles and requirements for how an acquirer entity recognizes and measures
in its financial statements the identifiable assets acquired, the liabilities
assumed (including intangibles) and any noncontrolling interests in the acquired
entity. SFAS No. 141(R) applies prospectively to business combinations for
which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. We are currently
evaluating what impact our adoption of SFAS No. 141(R) will have on our
financial statements.
 
 In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB
No. 51.”  SFAS No. 160 amends ARB 51 to establish
accounting and reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary. It also amends certain
of ARB 51’s consolidation procedures for consistency with the requirements of
SFAS No. 141(R). SFAS No. 160 is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after
December 15, 2008. We are currently evaluating what impact our adoption of
SFAS No. 160 will have on our financial statements.
 
 In
December 2007, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin (SAB) No. 110. This guidance allows
companies, in certain circumstances, to utilize a simplified method in
determining the expected term of stock option grants when calculating the
compensation expense to be recorded under Statement of Financial Accounting
Standards (SFAS) No. 123(R),Share-Based
Payment  . The simplified method can be used after
December 31, 2007 only if a company’s stock option exercise experience does
not provide a reasonable basis upon which to estimate the expected option term.
Through 2007, we utilized the simplified method to determine the expected option
term, based upon the vesting and original contractual terms of the option. On
January 1, 2008, we began calculating the expected option term based on our
historical option exercise data. This change did not have a significant impact
on the compensation expense recognized for stock options granted in
2008.
 
 In March
2008, the FASB issued SFAS No. 161, "Disclosures about Derivative
Instruments and Hedging Activities" ("SFAS No. 161"). SFAS No. 161
amends and expands the disclosure requirement for FASB Statement No. 133,
"Derivative Instruments and Hedging Activities" ("SFAS No. 133"). It
requires enhanced disclosure about (i) how and why an entity uses
derivative instruments, (ii) how derivative instruments and related hedged
items are accounted for under SFAS No. 133 and its related interpretations,
and (iii) how derivative instruments and related hedged items affect an
entity’s financial position, financial performance, and cash flows. SFAS
No. 161 is effective for the Company as of January 1,
2009.
 
 In
April 2008, FASB Staff Position No. 142-3, Determination of the Useful Life
of Intangible Assets (FSP 142-3) was issued. This standard amends the factors
that should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under FASB Statement
No. 142, Goodwill and Other Intangible Assets. FSP 142-3 is effective for
financial statements issued for fiscal years beginning after December 15,
2008, and interim periods within those fiscal years. Early adoption is
prohibited. The Company has not determined the impact on its financial
statements of this accounting standard.
 
 In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles.” SFAS No. 162 identifies the sources of accounting
principles and provides entities with a framework for selecting the principles
used in preparation of financial statements that are presented in conformity
with GAAP. The current GAAP hierarchy has been criticized because it is directed
to the auditor rather than the entity, it is complex, and it ranks FASB
Statements of Financial Accounting Concepts, which are subject to the same level
of due process as FASB Statements of Financial Accounting Standards, below
industry practices that are widely recognized as generally accepted but that are
not subject to due process. The Board believes the GAAP hierarchy should be
directed to entities because it is the entity (not its auditors) that is
responsible for selecting accounting principles for financial statements that
are presented in conformity with GAAP. The adoption of FASB 162 is not expected
to have a material impact on the Company’s consolidated financial position and
results of operations.
  F-10
  Settled in Cash upon
Conversion (Including Partial Cash Settlement). ” APB 14-1 requires the
issuer to separately account for the liability and equity components of
convertible debt instruments in a manner that reflects the issuer’s
nonconvertible debt borrowing rate. The guidance will result in companies
recognizing higher interest expense in the statement of operations due to
amortization of the discount that results from separating the liability and
equity components. APB 14-1 will be effective for financial statements issued
for fiscal years beginning after December 15, 2008, and interim periods within
those fiscal years. The Company is currently evaluating the impact of adopting
APB 14-1 on its consolidated financial statements.
 
 Other
accounting standards that have been issued or proposed by the FASB or other
standards-setting bodies that do not require adoption until a future date are
not expected to have a material impact on the consolidated financial statements
upon adoption.
 
 Reclassifications
 
 Certain
prior periods' balances have been reclassified to conform to the current
period's financial statement presentation. These reclassifications had no impact
on previously reported results of operations or stockholders'
equity.
  Net
Loss Per Share of Common Stock
 
 Basic net
loss per share of common stock is computed by dividing net loss available to
common stockholders by the weighted average number of shares of common stock
outstanding during the periods presented.
 
 NOTE
3- ASSETS PURCHASED BY AERO
 
 Assets
Purchased By Aero
 
 In June
of 2006, Aero, through its subsidiaries, acquired certain assets from three
entities (“the Selling Entities”) owned 100% by Aero's controlling
stockholder, Mark Daniels. The Selling Entities acquired these assets on
December 29, 2005 from an unrelated entity in exchange for assets with a fair
value of $4,540,000 and a promissory note of $2,200,000. The assets acquired
included two MIG29 Aircrafts and four flight simulators and certain intellectual
assets. The Selling Entities obtained appraisals from certified independent
appraisers dated December 2005, which valued the aircrafts and simulators at
$6,740,000.
 
 As
consideration for the purchase of these assets, Aero (i) assumed
indebtedness of $1.1 million owed to Daniels by the Selling Entities, (ii)
assumed obligations under a promissory note in the principal amount of $2.2
million, with interest at 8% per annum, which was originally issued in December
2005, in connection with the acquisition of aircraft and simulators by the
Selling Entities, and (iii) issued a $3,440,000 unsecured promissory note to
Daniels. The $1.1 million due to Daniels is collateralized by TADS assets
and is guaranteed by its subsidiaries.
 
 In
reviewing the above transaction, Management determined that it had purchased a
group of assets, rather than acquiring a business. Since Aero and the Selling
Entities are commonly controlled, the recorded value of the assets purchased for
accounting purposes is limited to the Selling Entities carrying value of the
assets, which totaled $6,740,000 in June of 2006. The difference between the
considerations provided to the Selling Entities of $7,051,255, inclusive of
accrued interest assumed of $311,255, and the carrying value of the assets sold
of $6,740,000 was $311,255. This amount was recorded as a distribution in June
of 2006. Prior to this asset purchase, Aero did not have any business
transactions with the Selling Entities.
 
 In
connection with the reverse acquisition, TADS assumed the notes payable of $2.2
million and $1.1 million and did not assume the note payable to Daniels of
$3,440,000.
 
 NOTE
4 – SALE OF STOCK
 
 Pursuant
to a 2007 Securities Purchase Agreement, in September 2007, the Company sold to
four investors 382,663 shares in the aggregate of restricted Common Stock at a
purchase price of $0.30 per share. The gross proceeds of this offering totaled
$114,781. Under the terms of the Securities Purchase Agreement, TADS offered to
sell a total of 3,333,333 shares, which could be increased to 4,000,000 shares
at the sole discretion of the Company. The share purchase price carries certain
anti-dilution rights whereby the share purchase price may be amended as follows:
if the average closing price, as quoted in the Wall Street Journal, of the
shares, during the 30-day period following the closing of the offering, is less
than the share purchase price, then the new share purchase price shall become
the anti-dilution reference price, and additional shares shall be issued to
reflect the new share purchase price. Notwithstanding any of the above, the new,
share purchase price shall not be less than $0.15. As a result of a decline in
the price of the Company’s Common Stock, the anti-dilution rights kicked in and
an additional 382,663 were issued in January 2008. Subsequently, pursuant to
certain protective rights granted to the Investors in the Share Purchase
Agreement, on January 23, 2008, and additional 382,666 shares of Common Stock
was issued to the Investors, which effectively changed the purchase price of the
Common Stock to $0.15 per share. Additionally, a fee of $14,500 and 114,800
shares of Common Stock was paid to an introducing agent as an introduction and
expense fee.
  F-11
  Pursuant
to a Securities Purchase Agreement, in May, 2008, the Company sold 2,500,000
shares of restricted Common Stock in the aggregate to two investors at a
purchase price of $0.01 per share. The gross proceeds of the offering totaled
$25,000.
 
 Pursuant
to a Securities Purchase Agreement, in September 2008, the Company sold
30,000,000 shares of restricted Common Stock in the aggregate to two investors
at a purchase price of $0.01 per share. The gross proceeds of the offering
totaled $300,000.
 
 Pursuant
to a Securities Purchase Agreement, in December, 2008, the Company sold
3,000,000 shares of restricted Common Stock to one investor at a purchase price
of $0.02 per share. The gross proceeds of the offering totaled
$60,000.
 
 Sale
of Units
 
 Pursuant
to a 2006 Private Placement, on March 2, 2007, TADS sold to eleven investors an
aggregate 629,911 units, each a “unit” at a purchase price of $0.55 per unit.
Each unit is comprised of (i) one share of Common Stock, (ii) a Class A Warrant
to purchase one share of Common Stock at $1.00 per share and expiring on March
2, 2008 and (iii) a Class B Warrant to purchase one share of Common Stock at
$1.50 per share and expiring on March 2, 2010. The gross proceeds of this
offering totaled $346,450. During 2006, TADS received the full advance from this
financing.
 
 Convertible
Debentures
 
 2006
Debentures
 
 During
2006, Aero issued to investors $200,060 aggregate principal amount of its 12%
Convertible Debentures convertible into 1,333,733 shares of TADS Common Stock
and warrants to purchase 1,333,733 shares of Common Stock at a per share
exercise price of $.15 per share. The terms of these securities are the same as
the securities issued in 2005. The Debentures mature three years from the issue
date.
 
 During
2006, Aero issued to an investor $422,176 aggregate principal amount of 8%
Convertible Debentures convertible into 939,369 shares of TADS Common Stock at a
conversion price of $.45 per share. The Debentures mature on April 18, 2009.
Under the terms of the Debentures, the Company is prohibited from making any
distribution to its Stockholders without the Debenture holders'
consent.
 
 During
2006, Aero issued to an investor $20,000 aggregate principal amount of its 12%
Convertible Debentures and warrants to purchase 40,000 shares of TADS Common
Stock at an exercise price of $.50 per share. The Debentures are convertible
into TADS shares of Common Stock on a converted basis at $.50 per share. The
terms of these securities are substantially the same as the securities issued in
2005. The Debentures mature three years from the issuance date.
 
 The gross
proceeds of the total convertible debt issued by Aero in 2006 of $642,236 were
recorded net of a debt discount of $358,417. The Debenture Warrants were
initially valued at $178,413 and the embedded derivatives were valued at
$180,004. The debt discount is being amortized over the term of the
debt.
 
 First
Quarter of 2007
 
 Between
January 1, 2007 and March 31, 2007, the Company received proceeds from loans
totaling $343,873. The Debentures are convertible into TADS Common Stock at
conversion prices ranging from $.25 to $1.00 per share and provide for warrants
to purchase 1,013,999 shares of TADS Common Stock at exercise prices ranging
from $.25 to $1.00. The Debentures bear interest of 12% and are due three years
from the date of issuance. The Debenture Warrants are exercisable at per share
exercise prices of $.25 to $1.00 per share of Common Stock, are exercisable
immediately up until the fifth anniversary of the initial warrant date, and such
exercise price is subject to adjustment for subsequent lower price issuances by
the Company and other customary events including stock splits, reverse stock
splits, issuance of convertible securities, sale of Common Stock and
spin-offs.
 
 The gross
proceeds of the $343,873 were allocated 25% or $86,084 to the Debentures and 75%
or $257,789 to the Warrants. The effective conversion price of the Debentures
was below the market price of TADS Common Stock at the date the various notes
were issued, which resulted in a beneficial conversion feature of $86,084. In
accordance with EITF 00-27 the amount allocated to the beneficial conversion
feature was limited to the net proceeds of the offering.
 
 Second
Quarter of 2007
 
 Between
April 1, 2007 and June 30, 2007, the Company received proceeds from loans
totaling $493,851. The Debentures are convertible into 1,974, 486 shares of TADS
Common Stock at a conversion price of $.25 per share and provide for warrants to
purchase 1,974,486 shares of TADS Common Stock at an exercise price of $.25. The
Debentures bear interest of 12% and are due three years from the date of
issuance. The Debenture Warrants are exercisable at a per share exercise prices
of $.25 per share of Common Stock, are exercisable immediately up until the
fifth anniversary of the initial warrant date, and such exercise price is
subject to adjustment for subsequent lower price issuances by the Company and
other customary events including stock splits, reverse stock splits, issuance of
convertible securities, sale of Common Stock and spin-offs.
  F-12
  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 December 31, 2007, the Company received proceeds from loans
totaling $229,234. The Debentures are convertible into 1,053,620 shares of TADS
Common Stock at a conversion price range of $.20 to $.25 per share and provide
for warrants to purchase 1,053,620 shares of TADS Common Stock at an exercise
price in the range of $.20 to $.25. The Debentures bear interest of 12% and are
due three years from the date of issuance. The Debenture Warrants are
exercisable at a per share exercise prices at a range of $.20 to $.25 per share
of Common Stock, are exercisable immediately up until the fifth anniversary of
the initial warrant date, and such exercise price is subject to adjustment for
subsequent lower price issuances by the Company and other customary events
including stock splits, reverse stock splits, issuance of convertible
securities, sale of Common Stock and spin-offs.
 
 The gross
proceeds of the $229,234 were allocated 30.0% or $68,394 to the Debentures and
70.0% or $160,840 to the Warrants. The effective conversion price of the
Debentures was below the market price of TADS Common Stock at the date the
various notes were issued, which resulted in a beneficial conversion feature of
$160,840. In accordance with EITF 00-27 the amount allocated to the beneficial
conversion feature was limited to the net proceeds of the offering.
  Fourth
Quarter of 2007
 
 Between
October 1, 2007 and December 31, 2007, the Company received proceeds from loans
totaling $286,719. The Debentures are convertible into TADS Common Stock at a
conversion price of $.05 per share and provide for warrants to purchase
5,734,385 shares of TADS Common Stock at an exercise price of $.05. The
Debentures bear interest of 12% and are due three years from the date of
issuance. The Debenture Warrants are exercisable at a per share exercise prices
of $.05 per share of Common Stock, are exercisable immediately up until the
fifth anniversary of the initial warrant date, and such exercise price is
subject to adjustment for subsequent lower price issuances by the Company and
other customary events including stock splits, reverse stock splits, issuance of
convertible securities, sale of Common Stock and spin-offs.
 
 The gross
proceeds of the $286,719 were allocated 26.0% or $74,657 to the Debentures and
74.0% or $212,062 to the Warrants. The effective conversion price of the
Debentures was below the market price of TADS Common Stock at the date the
various notes were issued, which resulted in a beneficial conversion feature of
$212,062. In accordance with EITF 00-27 the amount allocated to the beneficial
conversion feature was limited to the net proceeds of the offering.
  As of
December 31, 2007, all of the principal and accrued interest related to the
Debentures has been classified as a current liability as they are either in
default or due within one year.
 
 First
Quarter of 2008
 
 Between
January 1, 2008 and March 31, 2008, the Company received proceeds of loans
totaling $343,873. The Debentures are convertible into TADS 6,877,460 shares of
Common Stock at a conversion price of $0.05 per share and provide for
warrants to purchase 6,877,460 shares of TADS Common Stock at an exercise
price of $0.05. The Debentures bear interest of 12% and are due three years from
the date of issuance. The Debenture Warrants are exercisable at a per share
exercise price of $.05 per share of Common Stock, are exercisable immediately up
until the fifth anniversary of the initial warrant date, and such exercise price
is subject to adjustment for subsequent lower price issuances by the Company and
other customary events including stock splits, reverse stock splits, issuance of
convertible securities, sale of Common Stock and spin-offs.
  F-13
  The gross
proceeds of the $343,873 were allocated 25% or $86,084 to the Debentures and 75%
or $257,789 to the Warrants. The effective conversion price of the Debentures
was at the market price of TADS Common Stock at the date the various notes were
issued.
 
 Second
Quarter of 2008
 
 Between
April 1, 2008 and June 30, 2008, the Company received proceeds of loans totaling
$357,151. The Debentures are convertible into TADS 17,857,252 shares of Common
Stock at a conversion price of $0.02 per share and provide for warrants to
purchase 17,857,252 shares of TADS Common Stock at an exercise price of
$0.02. The Debentures bear interest of 12% and are due three years from the date
of issuance. The Debenture Warrants are exercisable at a per share exercise
price of $0.02 per share of Common Stock, are exercisable immediately up until
the fifth anniversary of the initial warrant date, and such exercise price is
subject to adjustment for subsequent lower price issuances by the Company and
other customary events including stock splits, reverse stock splits, issuance of
convertible securities, sale of Common Stock and spin-offs.
  The gross
proceeds of the $357,151 were allocated 30% or $107,145 to the Debentures and
70% or $250,006 to the Warrants. The effective conversion price of the
Debentures was at the market price of TADS Common Stock at the date the various
notes were issued.
 
 Third
Quarter of 2008
 
 Between
July 1, 2008 and December 31, 2008, the Company received proceeds of loans
totaling $95,489. The Debentures are convertible into TADS 4,774,450 shares of
Common Stock at a conversion price of $0.02 per share and provide for
warrants to purchase 17,857,252 shares of TADS Common Stock at an exercise
price of $0.02. The Debentures bear interest of 12% and are due three years from
the date of issuance. The Debenture Warrants are exercisable at a per share
exercise price of $0.02 per share of Common Stock, are exercisable immediately
up until the fifth anniversary of the initial warrant date, and such exercise
price is subject to adjustment for subsequent lower price issuances by the
Company and other customary events including stock splits, reverse stock splits,
issuance of convertible securities, sale of Common Stock and
spin-offs.
  The gross
proceeds of the $95,489 were allocated 25% or $23,872 to the Debentures and 70%
or $71,617 to the Warrants. The effective conversion price of the Debentures was
at the market price of TADS Common Stock at the date the various notes were
issued.
 
 Additional
Indebtedness
 
 Between
July 1, 2008 and January 31, 2009, the Company received proceeds of Short-Terms
Loans totaling $679,904, of which $175,000 was repaid in October, 2008. The
Short-Term Loans carry a term of one year, an interest rate of 12%, and 100%
stock coverage with a reference price equal to the lowest purchase price of
Common Stock of the Company sold by the Company between the date of the
Short-Term Loans and repayment of the Short-Term Loans.  The
Short-Term Loans have a lien on the receivables from the AETC Contract which
stipulates that all funds received from the AETC Contract will first be directed
towards paying down the Short-Term Loans, with the agreement that one half of
the funds repaid from the AETC receivables will be reloaned to the Company by
the lien holder.  The reference price has been renegotiated with the
lender for good and valuable consideration and is currently a price equal to a
50% discount to the lowest purchase price of Common Stock of the Company sold by
the Company between the date of the Short-Term Loans and repayment of the
Short-Term Loans, which reference price is currently $0.01 and which principle
is equal to 135,980,742 shares of the Company’s Common Stock, and which shares
have not yet been issued.
 
 Conversion
of Notes and Exercise of Warrants
 
 During
the period January 1, 2007 through June 8, 2007 the issuances of unregistered
securities were made as a result of various warrant exercises and note
conversions. In all, during this period, various holders of warrants exercised
warrants to purchase 7,611,480 shares of the Company’s Common Stock. These
warrants were exercisable at $.15 per share and were exercised through cashless
exercise method. In addition, during this period, various holders of the
convertible debentures converted $274,060 of debentures plus accrued interest of
$58,521 at conversion price of $.15 per share, resulting in the issuance of
2,236,586 shares of Common Stock.
 
 In the
second quarter of 2008, the Company issued 496,617 shares of restricted Common
Stock to Jack Ramsden in connection with the conversion of a Convertible
Promissory Note of the Company in the aggregate amount of $74,492, including
$55,000 of principle and $19,494 of accrued interest, at a conversion price of
$0.15.
 
 Agreement
to Convert All Outstanding Convertible Promissory Notes
 
 In the
second quarter of 2008, the Company reached an agreement with holders of all of
its Convertible Promissory Notes to convert all Convertible Promissory Notes and
cancel all associated Warrants, in exchange for a reduction in the conversion
price to $0.02 of all outstanding Convertible Promissory Notes.  As a
result of such conversion agreement, on November 20,2008, $9,954,287 of
principle of and accrued interest on outstanding Convertible Promissory Notes
was converted to 497,714,345 shares of the Company’s Common Stock.
 
 Cancellation
of Indebtedness and Return of Assets
 
 On May
29, 2008, the Company and Cambar & Associates (“Cambar”) executed a
Settlement and Release Agreement. In December, 2006, TADS assumed from AeroGroup
an indebtedness owed to Cambar (the “Cambar Note”) of a principle amount of
$2,200,000 for the purchase of two MiG-29 aircraft and four flight simulators
(the “Cambar Assets”), which indebtedness included interest to be paid on the
principle.
 
 With this
Settlement and Release Agreement, the Company agreed to relinquish the Cambar
Assets to Cambar, and issue to Cambar 50,000,000 Shares, as payment in full and
final settlement for any claims Cambar may have against the Company, and Cambar
agreed to reclaim the Cambar Assets, cancel the Cambar Note including any
accrued and unpaid interest, and return to the Company for retirement the
1,000,000 Shares issued in the aggregate to Cambar and NATA as compensation for
interest due on the Cambar Note in 2007, as payment in full and final settlement
for any claims the Company may have against Cambar.
  F-14
 Issuance
of Common Stock
 
 Issuance
of Common Stock to Cambar & Associates and NATA
 
 The
Company issued 500,000 restricted shares of Common Stock to NATA in the second
quarter of 2007 and 500,000 restricted shares of Common Stock to Cambar &
Associates in the third quarter of 2007, as compensation for interest due on the
Cambar Note. Notwithstanding the above, NATA and Cambar & Associates have
agreed to retire the shares as per the Settlement and Release Agreement
described above. The Company issued an additional 40,000,000 restricted shares
of Common Stock to NATA and 10,000,000 restricted shares of Common Stock to
Cambar & Associates in the third quarter of 2008, as per the terms of the
Settlement and Release Agreement described above. No registration rights were
issued in connection with these shares.
  Issuance
of Common Stock to Fred Daniels
 
 The
Company issued an aggregate of 405,000 restricted shares of Common Stock to Mr.
Fred Daniels in the first and third quarters of 2007, as compensation for
service as an Officer of the Company. The Company issued an additional 1,100,000
restricted shares of Common Stock to Mr. Fred Daniels in the third quarter of
2008 as further compensation for service as an Officer and Director of the
Company. No registration rights were issued in connection with these
shares.
 
 Issuance
of Common Stock to Mark Daniels
 
 The
Company issued an aggregate of 1,600,000 restricted shares of Common Stock to
Mr. Mark Daniels in the second quarter of 2007, as compensation in lieu of
accrued and unpaid salary for his service as President and Chief Executive
Officer of the Company. No registration rights were issued in connection with
these shares.
 
 Issuance
of Common Stock to Mark Daniels Irrevocable Trust III
 
 The
Company issued an aggregate amount of 105,000,000 restricted shares of Common
Stock to Mark Daniels Irrevocable Trust III in the 3rd  quarter of 2008, notwithstanding the above, however,
52,500,000 of these shares were duplicately issued in error and were cancelled
on November 20, 2008 by the Company’s transfer agent for retirement upon tender
to the transfer agent of a lost share affidavit by the  Mark Daniels
Irrevocable Trust III.  The shares were issued in consideration for
Mr. Daniels executing a long-term employment agreement with the Company. No
registration rights were issued in connection with these shares.
 
 Issuance
of Common Stock to Victor Miller
 
 The
Company issued an aggregate of 810,000 restricted shares of Common Stock to Mr.
Victor Miller in the second quarter of 2007, as compensation in lieu of accrued
and unpaid salary for his service as an Officer of the Company. The Company
issued an additional 2,400,000 restricted shares of Common Stock to Victor
Miller in the 1st  quarter
of 2008 in consideration of Mr. Miller retiring his 2,400,000 Series A Preferred
shares, notwithstanding the above, however, the stock certificate representing
the 2,400,000 shares of Common Stock has been lost, will be cancelled because as
of December 31, 2008, it had not yet received confirmation from the transfer
agent of the Company of the retirement 2,400,000 Series A Preferred shares. No
registration rights were issued in connection with these shares.
 
 Issuance
of Common Stock to Alexis Korybut
 
 The
Company issued an aggregate of 30,000,000 restricted shares of Common Stock to
Mr. Alexis Korybut in the first quarter of 2008, as compensation for serving as
additional President, Chief Executive Officer, Treasurer, and Principle
Accounting Officer of the Company. No registration rights were issued in
connection with these shares.
 
 Issuance
of Common Stock to John Farley
 
 The
Company issued an aggregate of 150,000 restricted shares of Common Stock to Mr.
John Farley in the first and third quarters of 2007, as compensation for his
service as an Officer of the Company. The Company issued an additional 100,000
restricted shares of Common Stock to Mr. John Farley in the first quarter of
2008, as compensation as an independent provider of services to the Company. The
Company issued an additional 300,000 restricted shares of Common Stock to Mr.
John Farley in the third quarter of 2008, as compensation as an independent
provider of services to the Company. No registration rights were issued in
connection with these shares.
 
 Issuance
of Common Stock to Lawrence Cusack
 
 The
Company issued 600,000 restricted shares of Common Stock to Mr. Lawrence Cusack
in the first quarter of 2008, as additional compensation for serving as an
employee of the Company. The Company issued an additional 400,000 restricted
shares of Common Stock to Mr. Lawrence Cusack in the third quarter of 2008, as
consideration for accrued and unpaid salary for serving as an employee of the
Company. No registration rights were issued in connection with these
shares.
  F-15
 Issuance
of Common Stock to Peter Maffitt
 
 The
Company issued 500,000 restricted shares Common Stock to Peter Maffitt, a
Director of the Company, in the 2nd quarter
of 2008 as compensation for acting as a Director of the Company. The Company
issued an additional 1,000,000 restricted shares of Common Stock to Peter
Maffitt in the 3rd quarter
of 2008 as further compensation for acting as a Director of the Company. No
registration rights were issued in connection with these shares.
 
 Issuance
of Common Stock to Charles DeAngelo
 
 The
Company issued 250,000 restricted shares of Common Stock to Charles DeAngelo, a
Director of the Company, in the 2nd  quarter of 2008 as compensation for acting as a Director of
the Company. The Company issued an additional 250,000 restricted shares of
Common Stock to Charles DeAngelo in the 3rd quarter
of 2008 as further compensation for acting as a Director of the Company. No
registration rights were issued in connection with these shares.
 
 Issuance
of Common Stock to ZA Consulting
 
 The
Company issued 250,000 restricted shares of Common Stock to ZA Consulting Group
in the first quarter of 2007, as compensation for investor relations services
and related consulting services. The Company issued an additional aggregate of
6,000,000 restricted shares of Common Stock to ZA Consulting Group in the third
quarter of 2008 in connection with a Settlement and Release Agreement reached
between the parties in the third quarter of 2008 and in connection with future
consulting services to the Company. No registration rights were issued in
connection with these shares.
  Issuance
of Common Stock to Gary Corley
 
 The
Company issued 200,000 restricted shares of Common Stock to Mr. Gary Corley Esq.
in the fourth quarter of 2007, as compensation for legal services. The Company
issued an additional 3,000,000 restricted shares of Common Stock to Mr. Gary
Corley Esq. in the third quarter of 2008 as compensation for legal services. No
registration rights were issued in connection with these shares.
  Issuance
of Common Stock to Economic Advisors, Inc.
 
 The
Company issued an aggregate of 114,800 restricted shares of Common Stock to
Economic Advisors, Inc. in the fourth quarter of 2007 and the first quarter of
2008, as compensation for introducing certain accredited investors to the
Company. The Company issued an additional 18,000,000 restricted shares of Common
Stock to Economic Advisors, Inc. in the third quarter of 2008 in connection with
a Settlement and Release Agreement reached between the parties in the third
quarter of 2008. No registration rights were issued in connection with these
shares.
 
 Issuance
of Common Stock to Federal Financial Partners, LLC
 
 The
Company issued an aggregate of 1,600,000 shares of restricted Common Stock to
Federal Financial Partners, LLC in the first and third quarters of 2007 as
compensation for consulting services to the Company. The Company issued an
additional 4,000,000 shares of restricted Common Stock to Federal Financial
Partners, LLC in February, 2008 in consideration of Mark Daniels retiring his
4,000,000 Series A Preferred shares.  Notwithstanding the above, the
stock certificate representing the 4,000,000 shares of Common Stock has been
lost, will be cancelled because as of December 31, 2008, it had not yet received
confirmation from the transfer agent of the Company of the retirement 4,000,000
Series A Preferred shares.. No registration rights were issued in connection
with these shares.
 
 Issuance
of Common Stock to Northrop Defense Consulting Corp.
 
 The
Company issued an aggregate of 2,800,000 shares restricted shares of Common
Stock to Northrop Defense Consulting Corp in the third quarters of 2007,
notwithstanding the above, Northrop Defense Consulting Corp has returned said
shares to the Company for further retirement. No registration rights were issued
in connection with these shares.
 
 Issuance
of Common Stock to Joint Strategy Group, LLC
 
 The
Company issued 5,000,000 restricted shares of Common Stock to Joint Strategy
Group, LLC in the first quarter of 2008, as compensation for consulting services
to the Company. The Company issued an additional 20,000,000 restricted shares of
Common Stock to Joint Strategy Group, LLC in the third quarter of 2008, as
consideration for executing a long-term consulting services agreement with the
Company. No registration rights were issued in connection with these
shares.
 
 Issuance
of Common Stock to Thomas Pierson
 
 The
Company issued 100,000 restricted shares of Common Stock to Thomas Pierson in
the first quarter of 2008 as compensation for consulting services to the
Company. No registration rights were issued in connection with these
shares.
  F-16
 Issuance
of Common Stock to Charles Pearlman
 
 The
Company issued 50,000 restricted shares of Common Stock to Charles Pearlman in
the second quarter of 2008 as compensation for consulting services to the
Company. No registration rights were issued in connection with these
shares.
 
 Issuance
of Common Stock to Plumtree Capital Management LLC
 
 The
Company issued 4,000,000 restricted shares Common Stock to Plumtree Capital
Management LLC in the third quarter of 2008 as compensation for accrued and
unpaid consulting fees and expenses. No registration rights were issued in
connection with these shares.
 
 Issuance
of Common Stock to M&A Advisors LLC
 
 The
Company issued 2,000,000 restricted shares of Common Stock to M&A Advisors
LLC in the third quarter of 2008 as compensation for consulting services to the
Company. No registration rights were issued in connection with these
shares.
  Issuance
of Common Stock to TCI Global Trading Ltd
 
 The
Company issued 30,000,000 restricted shares of Common Stock to TCI Global
Trading Ltd in the third quarter of 2008 as consideration for providing ongoing
consulting services to the Company. No registration rights were issued in
connection with these shares.
 
 Issuance
of Common Stock to Eurotrust Capital SPA
 
 The
Company issued to Eurotrust Capital SPA an aggregate of 4,500,000 restricted
shares of Common Stock in the third and fourth quarters of 2008 as compensation
for consulting services to the Company. No registration rights were issued in
connection with these shares.
 
 Issuance
of Common Stock to Marc Brannigan
 
 The
Company issued 7,000,000 restricted shares of Common Stock to Marc Brannigan in
the third quarter of 2008 as compensation for accrued and unpaid consulting
services to the Company. No registration rights were issued in connection with
these shares.
 
 Issuance
of Common Stock to Brad Baker
 
 The
Company issued 250,000 restricted shares of Common Stock to Brad Baker in the
third quarter of 2008 as compensation for serving on the board of advisors of
the Company. No registration rights were issued in connection with these
shares.
 
 Issuance
of Common Stock to Donald Goldstein
 
 The
Company issued 1,000,000 restricted shares of Common Stock to Donald Goldstein
in the third quarter of 2008 as compensation for prior service on the Board of
Directors of the Company. No registration rights were issued in connection with
these shares.
 
 Issuance
of Common Stock to the Sassin Law Firm
 
 The
Company issued 666,667 restricted shares of Common Stock to the Sassin Law Firm
in the third quarter of 2008 as compensation for legal services. No registration
rights were issued in connection with these shares.
 
 Issuance
of Common Stock to the Ticktin Law Group
 
 The
Company issued 3,000,000 restricted shares of Common Stock to the Tictin Law
Group in the fourht quarter of 2008 as compensation for legal services. No
registration rights were issued in connection with these shares.
 
 Issuance
of Common Stock to Julius Astrada
 
 The
Company issued 1,000,000 restricted shares of Common Stock to the Julius Astrada
in the fourth quarter of 2008 as compensation for marketing services. No
registration rights were issued in connection with these shares.
  F-17
 Series A Preferred
Stock
 
 On March
21, 2007, the Company filed a Certificate of Designation of Series A Preferred
Stock (the “Series A Certificate of Designation”) with the Secretary of State of
the State of Nevada, designating a series of 50,000,000 shares of Preferred
Stock of the Company, $.001 par value (the “Series A Preferred Stock”). Pursuant
to the Series A Certificate of Designation, holders of the Company’s Series A
Preferred Stock are entitled to:
 
 ●
                      elect
      one director to the Company’s board of directors;●
                      vote
      on all other matters on a 25 votes per share Common Stock
      basis;●
                      with
      respect to dividend rights, rights on redemption, rights on conversion and
      rights on liquidation, winding up and dissolution, rank senior to all
      Common Stock, warrants and options to purchase Common Stock established by
      the Board or the Stockholders (all of such equity securities of the
      Corporation to which the Series A Preferred Stock ranks senior are
      collectively referred to herein as “Junior Stock”);●
                      Each
      share of Series A Preferred Stock is initially convertible into 2 shares
      of the Common Stock of the Company, subject to adjustment for stock
      splits, recapitalization or other
  reorganizations.
 In
addition, the Series A Preferred Stock has weighted average antidilution
protection that will cause the conversion price to adjust downward in the event
that the Company issues shares of Common Stock or securities convertible into
Common Stock at a price of less than the conversion price of the Series A
Preferred Stock then in effect may be converted into Common Stock at the option
of the holder.
  Diluted
net loss per share reflects per share amounts that result if dilutive common
stock equivalents are converted to common stock. Common stock equivalents,
consisting of convertible debt, options and warrants were not included in the
calculation of diluted loss per share for the year ended December 31, 2008 and
2007 because their inclusion would have had been anti-dilutive.
  NOTE
5 - CONVERTIBLE DEBENTURES
 
 As part
of the reverse acquisition, the Company assumed Convertible Debentures issued by
Aero. During the period May 2002 through December 31, 2006, Aero sold 4,715,895
Convertible Debentures (“Debentures”), along with Debenture Warrants to purchase
23,968,315 shares of common stock of Aero which were assumed by the Company at
exercise prices ranging from $.15 to $1.00. All these notes were converted to
stock at various exercise price in November 2008.
 
 Debentures
and Debenture Warrants as of December 31, 2008 consist of the
following:
  Year
      Ended
                                  
                                  Debentures
                                  
                                  
                                  Debenture
                                    Warrants2002
                                  
                                  $
                                  250,000
                                  
                                  
                                  $
                                  1,666,6672003
                                  
                                  
                                  1,091,199
                                  
                                  
                                  
                                  7,141,3292004
                                  
                                  
                                  487,265
                                  
                                  
                                  
                                  3,248,4332005
                                  
                                  
                                  1,376,797
                                  
                                  
                                  
                                  9,645,311Total
      principal at December 31, 2005
                                  
                                  
                                  3,205,261
                                  
                                  
                                  
                                  21,701,7402006
                                  
                                  
                                  1,510,634
                                  
                                  
                                  
                                  2,266,575Total
      principal at December 31, 2006
                                  
                                  
                                  4,715,895
                                  
                                  
                                  
                                  23,968,3152007 
      - Issued
                                  
                                  
                                  1,353,677
                                  
                                  
                                  
                                  9,776,4942007 -
      Converted/Exercised
                                  
                                  
                                  (754,660
                                  )
                                  
                                  
                                  (8,530,755
                                  )Total
      principal at December 31, 2007
                                  
                                  
                                  5,314,912
                                  
                                  
                                  $
                                  25,274,054Accrued
      interest
                                  
                                  
                                  1,712,761Unamortized
      debt discount
                                  
                                  
                                  (2,076,820
                                  )2008-Converted/Excercised
                                  
                                  
                                  (4,950,853
                                  )Net
      Carrying Value at December 31, 2008
                                  
                                  $
                                  4,950,853
 
 Issuance
of Preferred Securities
 
 During
fiscal 2007, the Company issued an aggregate of 6,400,000 shares of its Series A
Preferred Stock; 2,400,000 shares to Mr. Victor Miller, and 4,000,000 shares to
Mr. Mark Daniels. Because the Company contends that the shares of its Series A
Preferred Stock were issued to Mr. Miller and Mr. Daniels without consideration,
the Company has been seeking to rescind said 6,400,000 Series A Preferred
shares, and have Mr. Miller and Mr. Daniels waive any accrued and unpaid
dividends associated with said Series A Preferred shares. Mr. Mark Daniels has
agreed to rescind the 4,000,000 Series A Preferred shares issued to him and to
waive any accrued and unpaid dividends associated with said 4,000,000 Series A
Preferred shares, contingent upon Mr. Miller agreeing to rescind the 2,400,000
Series A Preferred shares issued to him and to waive any accrued and unpaid
dividends associated with said 2,400,000 Series A Preferred shares. However, due
to the Company’s inability to have Mr. Miller agree to rescind the 2,400,000
shares of its Series A Preferred Stock issued to him and to waive any accrued
and unpaid dividends associated with said 2,400,000 Series A Preferred shares,
the Company is currently contemplating legal action against Mr. Miller in
connection with the issuance of said 2,400,000 shares of its Series A Preferred
Stock.. The Company believes that its contention, that the 2,400,000 shares of
its Series A Preferred Stock were issued to Mr. Miller without consideration, is
with merit, and that it would be successful in its suit to have said shares
rescinded, have any accrued and unpaid dividends waived, and have any costs and
damages to the Company in connection with the issuance of and the rescission of
said 2,400,000 shares of Series A Preferred Stock.
 
 F-18
  NOTE
6 - CONVERTIBLE NOTES PAYABLE:
 
 The
following table summarizes the Convertible Notes Payable at December 31, 2007
and December 31, 2008:
 
 Promissory note(1)
                              
                              $
                              2,200,000Secured promissory
      note(2)
                              
                              
                              1,100,000Accrued
      interest on assumed notes
                              
                              
                              542,6543,842,654Less:
      current portion
                              
                              
                              -Long-term
      portion
                              
                              
                              3,842,654Less: Unamortized
      discount(3)
                              
                              
                              (1,096,829
                              )Balance
      at December 31, 2007
                              
                              
                              2,745,825Settlement
      of debt in exchange for common stock
                              
                              $
                              (2,745,825
                              )Balance
      at December 31, 2008
                              
                              
                              -0-
 
 In
connection with the Asset Purchase Agreement entered into in June 2006, Aero
incurred the following debt:
 
 (1)
                A
      $2,200,000 promissory note that was assumed by Aero in connection with the
      June 2006 acquisition by Aero of the two MIG 29 aircraft and flight
      simulators that were ultimately acquired by Tactical Air Defense Systems.
      Under the terms of the note, it has a principal balloon payment in
      thirty-nine months of the original agreement which was dated December 31,
      2005. Interest is payable at a rate of eight percent per annum. There is
      no penalty for payment before the maturity date. This note was assumed by
      TADS as part of the acquisition by TADS (Note 3) and the debt is
      convertible into TADS common stock at a price of $0.50 per share during
      the one month period prior to the maturity date. In December 2007, the
      Company was notified by the note holder of the note issued in connection
      with the June 2006 Asset Purchase Agreement that the Company was in
      default of the agreement and that the holder was exercising their right to
      repossess the equipment. As a result, the Company recorded a charge of
      $6,740,000 which is included as a write-down of fixed assets in the
      accompanying consolidated statement of operations.  The note
      associated with this purchase was settled in the second quarter of 2008.
      The note balance including accrued interest and principle was for
      approximately $2.7 million was settled for 50 million shares of common
      stock. This settled all demands between the Company and the company the
      asset was acquired from.
  F-19
 
 (2)
                  A
      $1,100,000 secured promissory note reflecting indebtedness assumed by Aero
      in connection with the June 2006 acquisition of assets by Aero. This note
      is payable to Daniels and under the terms of the note, the note is due in
      installments beginning on July 1, 2008, and monthly thereafter, to and
      including June 30, 2011 (“the “Maturity Date”), the Company shall pay to
      the note holder a total of thirty-six (36) monthly installments of
      principal, each in the amount of $30,555, each installment of principal to
      be accompanied by payment of accrued and unpaid interest on the then
      unpaid principal balance of the Note. Interest is payable at a rate of 12%
      percent per annum. The note is guaranteed by the Company's subsidiaries
      and collateralized by all of the Company's assets. This note was assumed
      by TADS and the debt is convertible into TADS common stock at $.50 per
      share.  This note was converted into 82,105,205 shares of Common
      Stock at a conversion price of $0.02 in consideration for cancellation of
      all associated warrants.(3)
                  In
      accordance with EITF 98-5 commencing on December 15, 2006, the Company
      recorded a debt discount of $3,861,255 related to the intrinsic value of
      the beneficial conversion option of the above described debt. The embedded
      conversion options qualified as equity and their recorded value was
      limited to the gross proceeds of the debt pursuant to EITF 98-5. The debt
      discount is being amortized to interest expense over the term of the debt.
      Amortization of such debt discount totaled $2,695,318 and $69,107 for the
      years ended December 31, 2007 and 2006,
  respectfully.
  NOTE
7 - INCOME TAXES:
 
 There is
no provision for income taxes for the years December 31, 2008, 2007, and 2006.
The Company has minimal net operating loss carry forwards for income tax
purposes at December 31, 2008. The deferred tax asset primarily attributable to
the Company’s net operating loss carryforwards has been offset by a full
valuation allowance.
  The
reconciliation of the federal statutory rate to the effective tax rate is as
follows:
 
 Quarter Ended June 30,2008Federal
      statutory rate
                                      
                                      
                                      (34
                                      )%Permanent
      differences
                                        (derivative
      gains and losses and non-deductible interest)
                                      
                                      
                                      34
                                      %Effective
      Tax Rate
                                      
                                      
                                      -
 
 NOTE
7 - STOCKHOLDERS' EQUITY:
 
 Effective
as of June 25, 2008, the Company filed an amendment to its Articles of
Incorporation (the “Amendment”) to increase the Company’s authorized capital
stock from 300,000,000 shares of common stock, par value $.001 per share only,
to 1,050,000,000 shares, par value $.001 per share, of which 1,000,000,000
shares are common stock and the remaining 50,000,000 shares are a newly created
class of “blank check” preferred stock.  As of December 31, 2008, the
Company had 6,400,000 shares of Preferred stock issued.
  On the
effective date of the reverse acquisition (December 15, 2006), the Company
reclassified $45,737,637 of accumulated deficits to paid-in-capital. This amount
represented Aero’s accumulated deficit on December 15, 2006 which was not
transferred to TADS as part of reverse acquisition.
 
 Preferred
Stock
 
 On March
21, 2007, the Company filed a Certificate of Designation of Series A Preferred
Stock (the “Series A Certificate of Designation”) with the Secretary of State of
the State of Nevada, designating a series of 50,000,000 shares of Preferred
Stock of the Company, $.001 par value (the “Series A Preferred
Stock”).
 
 F-20
 
 Warrants
 
 At
December 31, 2007 and December 31, 2008 the Company has outstanding warrants to
purchase common stock as follows:
  No. of
                                        Warrants
                                      
                                      
                                      Weighted
                                        Average
                                        PriceBalance
      at January 1, 2005
                                      
                                      
                                      12,056,428
                                      
                                      
                                      $
                                      0.15Issued
      – 2005
                                      
                                      
                                      9,645,312
                                      
                                      
                                      $
                                      0.15Balance
      - December 31, 2005
                                      
                                      
                                      21,701,740
                                      
                                      
                                      $
                                      0.15Issued
      – 2006
                                      
                                      
                                      2,266,575
                                      
                                      
                                      $
                                      0.67Balance
      - December 31, 2006
                                      
                                      
                                      23,968,315
                                      
                                      
                                      $
                                      0.20Issued
      - 2007 - Debenture Warrants
                                      
                                      
                                      9,776,494
                                      
                                      
                                      $
                                      0.14Issued
      - 2007 - Financing Warrants
                                      
                                      
                                      1,259,822
                                      
                                      
                                      $
                                      1.25Exercised
      – 2007
                                      
                                      
                                      (8,530,755
                                      )
                                      
                                      $
                                      (0.15
                                      )Balance
      at December 31, 2007
                                      
                                      
                                      26,473,876
                                      
                                      
                                      $
                                      0.20Cancellation
      of warrants as per conversion of notes payable
                                      
                                      
                                      (26,473,876
                                      )Balance
      at December 31, 2008
                                      
                                      
                                      -0-
 
 NOTE
8 – COMMITMENTS:
 
 Compensation
Agreements
 
 On
September 1, 2007, the Company entered into an agreement with Joint Strategy
Group, Inc., a related party, to perform long-term strategic planning, and, in
such capacity, to provide general advice to TADS on business and financial
matters. The term of the agreement is for two years. The agreement provides for
a total fee of 500,000 restricted shares of the Company’s common stock. The
common stock shall have piggy-back registration rights and full-ratchet
anti-dilution rights in connection with a share reference price of $0.50 per
share. The President of Joint Strategy Group, Inc., Jamie Goldstein is the son
of Don Goldstein, a director of the Company. In December 2007, the Company
terminated the agreement with Joint Strategy Group, Inc.
  Pursuant
to a compensation agreement dated March 4, 2008, Alexis Korybut, the Company’s
Vice President of Finance and Administration is paid a salary of $180,000 per
annum. The agreement was for a period of two years.  Notwithstanding
the above, the compensation agreement was amended on November, 2008 whereby Mr.
Korybut thereafter receives a salary of $120,000 per year.
 
 Pursuant
to a compensation agreement dated March 17, 2008, Mark Daniels, the Company’s
Chief Executive Officer is paid a salary of $250,000 per annum. The agreement
was for a period of two years. In addition, as a signing bonus, the Chief
Executive Officer was vested in 50,000,000 restricted shares of the Company’s
common stock; no registration rights were granted. Notwithstanding
the above, the compensation agreement was amended on November, 2008 whereby Mr.
Daniels thereafter receives a salary of $120,000 per year.
 
 On June
27, 2008, the Company entered into an agreement with MBC Consulting, LLC to
perform financial support services. The term of the agreement is for one year.
The agreement provides for a total fee of 7,000,000 restricted shares of the
Company’s common stock.  No registration rights were
granted.
  F-21
  Consulting
Agreement
 
 On
September 11, 2007, Mr. Mark Daniels, the Company's former Chief Executive
Officer and director and founder of the Company's business, entered into a
Consulting Services Agreement (the "Daniels Agreement") with the Company which
was amended and restated in early November of 2007. The Daniels Agreement as
amended, provides, in relevant part, that Mr. Daniels shall assign or cause any
entity he owns or is in control of to assign, all government contracts
(including, without limitation, the CRTC Contract relating to fourth generation
fighter aircraft training) relating to flight services, flight support
services or firefighting services, to the Company.  In addition, Mr.
Daniels agreed to introduce to the Company, on an exclusive and first right
basis, any and all potential customers or contracting parties (whether
government or private sector) for services provided by the Company, and to
continue making introductions of potential contracting parties to the Company
during the one year term of the
agreement.
 
 In
addition, the Daniels Agreement provides that Mr. Daniels shall cause AeroGroup
Incorporated, the seller of certain assets acquired by the Company, to pledge
all shares of the Company owned by it through the sooner of delivery of the
CRTC Contract or September 11, 2008, to secure the Company's rights under
the Daniels Agreement.  Finally, the agreement provides for
strict confidentiality provisions with respect to Mr. Daniels as well
as three year non-disclosure and non-compete covenants with respect to Mr.
Daniel's activities.
  The Daniels
Agreement provides that, in consideration for the provision of continued
advisory services by Mr. Daniels to the Company, Mr. Daniels shall be
compensated (i) the amount of $12,000 per month (paid in arrears) through
September 11, 2008, (ii) a success fee of five (5%) percent of gross proceeds,
minus any accrued or paid monthly payments in (i) above, and (iii) reimbursement
of reasonable expenses.  In the event that the foregoing compensation is
not made, the Daniels Agreement provides that Mr. Daniel's remedy is limited to
collection of the above amounts and that the confidentiality and non-compete
provisions shall still remain binding as against Mr. Daniels.
  Lease
Agreement
 
 On
October 29, 2007, the Company signed an exclusive lease agreement with Air
Support Systems, LLC., for the use of its ILyushin IL-76 aircraft, an aerial
firefighting supertanker. The agreement with Air Support Systems, LLC for the
exclusive use of its IL-76, is for an initial five year term, renewable for two
subsequent and exclusive five year terms. The Agreement provides for hourly
usage payments of $8,000 per hour of engine usage to Air Support Systems, LLC in
connection with contracts that do not call for a fixed fee to make the aircraft
available, or, for contracts that do entail a fixed availability fee (an
“Availability Fee Contract”), the Company shall pay to Air Support Systems, LLC
half of such availability fee, and, after deducting and retaining for the
Company the first $2,000 of any hourly usage fees received in addition to the
availability fee, the Company shall pay to AirSupport Systems, LLC half of the
remaining hourly usage fee. Air Support Systems, LLC is required to cover the
cost of spare parts, with ordinary operational maintenance costs, fuel, oil,
landing fees, and similar operational expenses paid for by the
Company.
 
 Lien
Agreement
 
 The Company has granted a lien to the
holder of the Short-Term Loans on the receivables payable to the Company by the
AETC for fulfillment of the BAF Contract.  The lien holder has agreed
to reloan to the Company 50% of the funds repaid to it from the AETC
receivables.
  NOTE
9 - OTHER EVENTS:
 
 Departures
of Directors or Principal Officers; Elections of Directors; Appointments of
Principal Officers
 
 ●
                On
      January 8, 2007, Fred Daniels and Victor Miller were appointed to serve as
      a Director of the Company, joining Mark Daniels on the
    Board.●
                On
      August 3, 2007 Mark Daniels, a Director and Officer of the Company and
      Victor Miller, a Director and Officer of the Company each resigned from
      all positions with the Company, leaving Fred Daniels as the sole Director
      of the Company.●
                On
      August 3, 2007, Donald Goldstein was appointed as a Director of the
      Company by Fred Daniels, joining Fred Daniels on the Board of
      Directors.  Additionally, John Farley, our Vice President at the
      time, was also appointed  Principal Accounting
      Officer.●
                On
      August 17, 2007 John Farley, an Officer of TADS, resigned from all
      positions with the Company.●
                On
      August 17, 2007, Alexis Korybut was appointed as a Director of the
      Company, joining Donald Goldstein and Fred Daniels on the Board of
      Directors of TADS. Additionally, Korybut was also appointed as President,
      Chief Executive Officer, and Principal Accounting Officer of the
      Company.  F-22
  ●
                  On
      December 7, 2007 Donald Goldstein a Director of the Company, resigned from
      all positions with the Company, leaving Fred Daniels and Alexis Korybut as
      the two remaining Directors.●
                  On
      March 4, 2008, to fill the vacancy left by the resignation of Donald
      Goldstein, Peter Maffitt was appointed to serve as a Director by the
      majority of the Series A Preferred shares, which appointment was ratified
      by Alexis Korybut and Fred Daniels, the 2 remaining
      Directors.  Peter Maffitt joined Fred Daniels and Alexis Korybut
      on the Board of Directors;●
                  On
      March 4, 2008, Alexis Korybut resigned as President, Chief Executive
      Officer, Principal Accounting Officer, and Director, leaving Fred Daniels
      and Peter Maffitt as the 2 remaining members of the Board of
      Directors;●
                  On
      March 4, 2008, Fred Daniels and Peter Maffitt appointed Michael Cariello
      as President and Chief Executive Officer of the Company, and appointed
      Fred Daniels as Secretary and Treasurer;●
                  On
      March 7, 2008, the Board of Directors accepted the resignation of Fred
      Daniels as Secretary and Treasurer, and appointed Peter Maffitt as
      Secretary and Treasurer;●
                  On
      March 15, 2008, the Board of Directors of the Company accepted the
      resignation of Michael Cariello as President and Chief Executive Officer,
      and appointed Mark Daniels as President,  Chief Executive
      Officer, and Principle Accounting Officer;●
                  On
      April 14, 2008, Charles Deangelo was appointed by Fred Daniels and Peter
      Maffitt, the two remaining members of the Board of Directors, as the third
      Director, thereby filling the vacancy left by the departure of Alexis
      Korybut.  Charles Deangelo joined Peter Maffitt and Fred Daniels
      on the Board of Directors;●
                  On
      April 16, 2008, the Board of Directors accepted the resignation of Fred
      Daniels as Director, and appointed Mark Daniels to the vacancy created by
      the departure of Fred Daniels, where he joined Peter Maffitt and Charles
      Deangelo on the Board of Directors;●
                  On
      February 4, 2009, Mark Daniels resigned as Chief Executive Officer of the
      Company, but continues to serve as Director along with Peter Maffitt and
      Charles Deangelo;●
                  On
      February 4, 2009, James O’Brien was appointed interim Chief Executive
      Officer, Secretary, and Principle Accounting Officer of the
      Company.●
                  On
      April 14, 2009, Mr. Obrien resigned from all capacities with the
      Company.●
                  On
      April 14, 2009, Mr. Mark Daniels was appointed as Chief Executive Officer,
      Secretary, and Principle Accounting Officer of the
  Company.
  Amendment
to Articles of Incorporation
 
 On June
25, 2008, the Company, pursuant to a resolution adopted by its Board of
Directors, has amended its Articles of Incorporation. Article Three is hereby
deleted in its entirety and replaced as follows:
  The
number of shares of common stock with $0.001 par value per share that the
corporation is authorized to issue is one billion and the number of
shares of preferred stock with $0.001 par value per share that the
corporation is authorized to issue is fifty million.
 
 Submission
of Matters to a Vote of Security Holders
  On
December 4, 2008, the Company filed a Form 14A Proxy Statement and sent same to
all shareholders of record as of November 24, 2008, which required a vote of
security holders at the Annual Meeting of Shareholders held on December 28, 2008
at the executive offices of the Company, in connection with:
 
 (1)
                  To
      elect the Company's Board of Directors to hold office until the Company's
      Annual Meeting of Stockholders in 2009 or until their respective successor
      is duly elected and qualified; and(2)
                  To
      ratify the appointment of Lawrence Scharfman & Co., CPA P.A. as the
      Company's independent certified public accountant;
  and
  (3)
                    To
      increase the Company’s authorized shares from one billion shares to three
      billion shares and to enact a one for ten reverse stock split;
      and(4)
                    To
      ratify the name change from Tactical Air Defense Services, Inc. to
      AeroGroup Incorporated, to be effective as of the filing of an amendment
      to the Company's Articles of Incorporation with the Nevada Secretary of
      State; and(5)
                    To
      transact such other business as may properly come before the Annual
      Meeting and any adjournment
thereof.
 
 All items
proposed by the Company were approved by a majority of the shareholders of
the Company.
 
 Recent Share
Pledges
  The
Company has been exploring various secured and unsecured indebtedness and equity
financing opportunities as well as joint ventures.
  During
the nine months ended December 31, 2007, the Company has conditionally placed
into escrow 45,000,000 shares in the name of International Tactical
Training Center, Inc., which were improperly issued 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-23
  Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
 
 In
connection with the AeroGroup Acquisition, as of December 15, 2006, we dismissed
our accounting firm, James Stafford, Chartered Accountants, and engaged Marcum
and Kliegman, LLP, as the Company’s independent registered public accountants.
The Board has approved the change in accountants and appointment of Marcum and
Kliegman, LLP.
 
 James
Stafford, Chartered Accountant's audit report on the financial statements for
the years ended December 31, 2005 did not contain any adverse opinion or
disclaimer of opinion, and was not modified as to uncertainty, audit scope or
accounting principles. James Stafford, Chartered Accountant did not serve as our
accountants during fiscal year 2004. There have been no disagreements with James
Stafford, Chartered Accountants on any matter of accounting principles or
practices, financial statement disclosure, or auditing scopes or
procedures.
 
 Inasmuch
as we had no disagreements with our former accountants on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scopes or procedures, we did not consult with our new accountants on any such
disagreement.
 
 The
Company dismissed our accounting firm, Marcum and Kliegman, LLP, as the
Company’s independent registered public accountants, in April, 2008. The Board
of Directors of the Company approved the change in accountants and the
appointment of Lawrence Scharfman & Co., CPA PA as the Company’s independent
registered public accountants, which appointment was renewed by the shareholders
at the Annual Meeting of Shareholders on December 28, 2008.
 
 Item
8A. CONTROLS AND PROCEDURES
  (a)
                Evaluation
      of disclosure controls and
procedures
 
 As of
December 31, 2008, we do not have a full time internal chief financial officer.
Based on an evaluation of our disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of
1934, as amended) required by paragraph (b) of Rule 13a-15 or
Rule 15d-15, as of December 31, 2006, our Principal Executive Officer and
Principal Financial Officer believe that, our disclosure controls and procedures
were not effective in ensuring that information required to be disclosed by us
in the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported. Our auditors, Lawrence Scharfman & Co.
CPA, PA in performing their audit for the years ended December 31, 2008, 2007,
and 2006, discovered conditions which they deemed to be a material weakness in
the Company’s internal control related to financial reporting. Our Principal
Executive Officer and Principal Financial Officer believe that the lack of a
full time chief financial officer has been instrumental in leading to delays in
the Company’s filings and in the prompt gathering and analysis of financial
information. Management believes that hiring a full time chief financial officer
is crucial to maintaining the integrity of its financial information and reports
and intends to do so as funds permit.
  (b)
                Management’s
      Report on Internal Control Over Financial
  Reporting
 
 Management
is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act Rule 13a-15(f)
under the Securities Exchange Act of 1934.  Under the supervision and
with the participation of the Chief Executive Officer, the Chief Operating
Officer and the Chief Accounting Officer, we conducted an evaluation of the
effectiveness of our control over financial reporting based on the framework
inInternal
Control-Integrated Framework  issued by the Committee of
Sponsoring Organizations of the Treadway Commission (“COSO”).  Based
on our evaluation under the framework, management has concluded that our
internal control over financial reporting was effective as of December 31,
2007.
 
 This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial
reporting.  Management’s report was not subject to attestation by the
Company’s registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the Company to provide only
management’s report in this annual report.
 
 (c)
                Changes
      in Internal Control over Financial
Reporting
 
 There
have not been any changes in the Company’s internal controls or in other factors
that occurred during the Company’s last fiscal quarter ended December 31, 2007
that have materially affected or are reasonably likely to materially affect the
Company’s internal control over financial reporting.
 
 Item 8B. Other
Information
 
 Prohibited
Termination of Director and Principal Officer; Prohibited Election of Director;
Prohibited Appointments of Principal Officer
 
 Beginning
on or about February 10, 2008, management of the Company concluded that the
Company was the target of a improper scheme to procure a controlling interest in
the Company, and to mislead shareholders and creditors of the Company, as
follows:
  On
February 10, 2008, Mr. Victor Miller, having 2,400,000 Preferred Class A shares,
which equals 60,000,000 share voting rights, in conjunction with an additional
70,799,800 shares of common voting rights, improperly attempted to terminate Mr.
Alexis Korybut as a member of the Board of Directors of the Company, in
violation of the laws of Nevada which require a super-majority of 2/3’s of the
issued and outstanding capital shares of a company to terminate a director of a
Nevada corporation.
  Additionally,
on February 10, 2008, Mr. Victor Miller, having 2,400,000 Preferred Class A
shares, which is a minority of the 6,400,000 outstanding Preferred Class A
shares, attempted to elect Mr. Christopher Beck, an alleged resident of Costa
Rica, as a Director of the Company. However, as a majority of the Preferred
Class A shares are required to exercise the right to appoint a member of the
Board of Directors of the Company, the action was improper and not
permissible.
 
 Thereafter,
on February 10, 2008, Mr. Christopher Beck, acting as a member of the Board of
Directors of the Company (although not properly appointed) attempted to
terminate Mr. Alexis Korybut as Chief Executive Officer, President, Secretary,
Treasurer, and any and all other capacities representing the
Company.
  Additionally,
on February 10, 2008, Mr. Christopher Beck, , acting as a member of the Board of
Directors of the Company (although not properly appointed) attempted to have
himself elected and appointed as Chief Executive Officer, President and
Treasurer of the Company, and on March 3, 2008, Mr. Christopher Beck, , acting
as a member of the Board of Directors of the Company (although not properly
appointed) attempted to have himself elected and appointed as Secretary of the
Company.
  Additionally,
on February 10, 2008, Mr. Christopher Beck, , acting as a member of the Board of
Directors of the Company (although not properly appointed) attempted to cancel
any employment agreements or any other agreements with Mr. Alexis Korybut, Mr.
John Farley, Mr. Donald Goldstein, Mr. Jamie Goldstein, Mr. Gary Fears, Mr. Joel
Ramsden, and Mr. Lawrence Cusack / Whitwell.
  On
March 4, 2008, Mr. Christopher Beck, acting as a member of the Board of
Directors of the Company (although not properly appointed) improperly and
without authority issued a Form 8-K in an attempt to discredit and slander Mr.
Alexis Korybut and various creditors of the Company by questioning past stock,
note, and warrant issuances. The Company has reviewed said past stock, note, and
warrant issuances, and has determined that all issuances are legitimate, valid,
and were issued for proper consideration to the Company. The Company also
reiterates that it is a fully reporting company and that all past stock, note,
and warrant issuances have been fully audited by a certified independent
auditor, that the Company is not contemplating restating financial results for
prior periods, and that said Form 8-K improperly filed by Mr. Christopher Beck
be disregarded in its entirety.
  29
  Additionally,
on March 7, 2008, Mr. Christopher Beck, acting as a member of the Board of
Directors of the Company (although not properly appointed) improperly and
without authority issued a Form 8-K in an attempt to discredit and slander Mr.
Alexis Korybut, Mr. Donald Goldstein, Mr. Jamie Goldstein, and Mr. Joel Ramsden,
through the dissemination of erroneous and misleading information. The Company
again reiterates that it is a fully reporting company and that all past stock,
note, and warrant issuances have been fully audited by a certified independent
auditor, that the Company is not contemplating restating financial results for
prior periods, and that said Form 8-K improperly filed by Mr. Christopher Beck
be disregarded in its entirety.
  Additionally,
on or around February 12, 2008, Mr. Christopher Beck, acting as a member of
the Board of Directors of the Company (although not properly appointed)
improperly and without authority seized control of the Company’s bank accounts,
and thereafter, Mr. Beck acting as a member of the Board of Directors of the
Company (although not properly appointed) improperly and without authority paid
to himself $15,000 of Company monies, acting as a member of the Board of
Directors of the Company (although not properly appointed) improperly and
without authority paid an additional $15,000 of Company monies to Mr. Victor
Miller, and thereafter, acting as a member of the Board of Directors of the
Company (although not properly appointed) improperly and without authority used
Company monies to further attempt to implement his and Mr. Miller’s intent to
procure a controlling interest of the Company.
  Additionally,
on or around March 12, 2008, Mr. Christopher Beck , acting as a member of
the Board of Directors of the Company (although not properly appointed)
improperly and without authority returned to a lender, a recently received loan
to the Company of one million dollars ($1,000,000), and thereafter, management
believes, made false and misleading statements to the lender in an attempt to
ensure that the Company would not have access to capital to further its
business. Immediately thereafter, Mr. Beck, acting as a member of the Board of
Directors of the Company (although not properly appointed) improperly and
without authority issued another Form 8-K in an attempt to manipulate the shares
of the Company and to further the attempt to procure a controlling interest of
the Company by stating that “...the company’s financial status is in critical need
of capital to continue operation as a “going concern”, and in order to bring in
interested investors, it will be necessary for the Company to take action to
have its note holders to voluntarily, or be made to involuntarily convert notes
and warrants into common stock.”. The Company again reiterates that it is a
fully reporting Company, that it is audited by a certified independent auditor,
that the Company is not contemplating restating financial results for prior
periods, and that said Form 8-K improperly filed by Mr. Christopher Beck be
disregarded in its entirety.
 
 The
Company has successfully defended itself from the improper actions devised and
implemented by Mr. Victor Miller and Mr. Christopher Beck, and is investigating
with legal counsel its civil and criminal prosecutorial options. In addition,
the Company believes that certain individuals including Mr. Korybut and various
creditors and shareholders are also investigating their legal options as a
consequence of damages caused by Mr. Miller and Mr. Beck.
  Entry
Into Definitive Material Agreement
 
 On
October 29, 2007, the Company signed an exclusive lease agreement with Air
Support Systems, LLC., for the use of its ILyushin IL-76/78 aircraft, an aerial
fire-fighting supertanker. The agreement with Air Support Systems, LLC for the
exclusive use of its IL-76/78, is for an initial five year term, renewable for
two subsequent and exclusive five y ear terms.
 
 The
Company recently took delivery of the IL-76/78 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.
 
 The
Company intends to operate its IL-76/78 supertanker to solicit contracts for
aerial fire-fighting and mid-air refueling. The IL-76/78 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.
 
 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. We believe that
this configuration of the aircraft will achieve the further goal of
supplementing the Company’s air-to-air combat and training
business.
 
 Entry
Into Definitive Material Agreement
 
 On May 2,
2007, the Company entered into a joint-venture agreement with various parties,
including various related parties, including: International Tactical Training
Center, Inc., GJJ, LLC, Air Support Systems, LLC, Mark Daniels, Victor Miller,
Paul Parmar, and Pegasus Defense Corporation, Inc., contingent upon the
performance of certain duties, functions, and obligations by and for the mutual
benefit of all parties.
 
 On May
13, 2007, the Company entered into a second joint-venture agreement with various
parties, including various related parties, including: International Tactical
Training Center, Inc., GJJ, LLC, Air Support Systems, LLC, Mark Daniels, Victor
Miller, Paul Parmar, Pegasus Defense Corporation, Inc., AeroGroup Incorporated,
Air 1 Flight support, Inc., and Air 1 Maintenance Partnership, contingent upon
the performance of certain duties, functions, and obligations by and for the
mutual benefit of all parties.
  30
  On April
23, 2007 and July 23, 2007, the Company conditionally placed into escrow an
aggregate of 45,000,000 shares of Common Stock of the Company in the name of
International Tactical Training Center, Inc., an entity controlled at the time
by Mr. Parmar. 30,000,000 of said escrowed shares were deposited in
contemplation of collateralizing a possible secured financing transaction,
and 15,000,000 of said escrowed shares were deposited in contemplation of the
successful performance by the other parties to the joint-venture
agreement.
 
 Because
the Company has not received any proceeds from financing or a financing
commitment yet from any prospective investors as contemplated in the
joint-venture agreement or otherwise entered into any definitive transaction
document that would require such a pledge of shares of Common Stock of the
Company, the Company intends on rescinding the said issuance of the
30,000,000 shares of Common Stock.  Additionally, as a result of the
failure of International Tactical Training Center, Inc., Paul Parmar, and
Pegasus Defense Corporation, Inc., to perform their duties, functions, and
obligations described in the joint-venture agreements, on August 29, 2007, the
Company served Paul Parmar and Pegasus Defense Corporation, Inc. with notice of
Default and Termination of the joint-venture agreements, and the Company intends
on rescinding the said issuance of the 15,000,000 shares of Common
Stock.
 
 Additionally,
on August 15, 2007, the Company improperly issued 10,000,000 shares of
Common Stock of the Company in the name of Air 1 Flight Support, Inc., an entity
affiliated with Mr. Daniels, Mr. Miller, and at the time, Mr.
Parmar.  Said 10,000,000 shares were subsequently rescinded by the
Company in 2008.
  Item
9. Directors, Executive Officers, Promoters and Control Persons; Compliance with
Section 16(a) of the Exchange Act
 
 SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
 The
following table sets forth as at December 31, 2008, the name and address and the
number of shares of the Company's Common Stock, with a par value of $0.001 per
share, held of record or beneficially by each person who held of record, or was
known by the Company to own beneficially, more than 5% of the issued and
outstanding shares of the Company's Common Stock, and the name and shareholdings
of each director and of all officers and directors as a group. The amounts below
are based on a total of an aggregate of 855,203,856 shares of Common Stock and
6,400,000 shares of restricted, non-trading Series A Preferred Stock
outstanding, which are convertible into 12,800,000 shares of Common
Stock.
 
 Name
      and Address of Beneficial Owner
                            
                            Amount of
                              Beneficial Ownership
                            
                            Nature of
                              Beneficial Ownership
                            
                            Percent of ClassMark
      Daniels
                            
                            
                            184,881,195
                            
                            (2)(3)(4)
                            
                            
                            21.62
                            %Peter
      Maffitt
                            
                            
                            1,521,693
                            
                            (2)
                            
                            
                            0.18
                            %Charles
      DeAngelo
                            
                            
                            1,500,000
                            
                            (2)
                            
                            
                            0.18
                            %NATA
                            
                            
                            51,000,000
                            
                            (5)
                            
                            
                            5.96
                            %Alexis
      Korybut
                            
                            
                            47,626,633
                            
                            (6)
                            
                            
                            5.57
                            %TCI
      Global Trading
                            
                            
                            54,808,409
                            
                            
                            
                            
                            6.41
                            %Joint
      Strategy Group, Inc
                            
                            
                            63,644,402
                            
                            
                            
                            
                            7.44
                            %International
      Tactical Training Center
                            
                            
                            45,000,000
                            
                            
                            
                            
                            5.26
                            %Fears
      Family Trust
                            
                            
                            45,000,000
                            
                            
                            
                            
                            5.26
                            %Gary
      Fears Trust
                            
                            
                            45,000,000
                            
                            
                            
                            
                            5.26
                            %Dakota
      Fears Trust
                            
                            
                            45,000,000
                            
                            
                            
                            
                            5.26
                            %Officers
      and Directors as a Group (per person)
                            
                            
                            187,902,888
                            
                            
                            
                            
                            21.97
                            %
  (1)
                In
      general, a person is considered a beneficial owner of a security if that
      person has or shares the power to vote or direct the voting of such
      security, or the power to dispose of such security. A person is also
      considered to be a beneficial owner of securities which the person has the
      right to acquire beneficial ownership within of (60) days. In computing
      the number of shares beneficially owned by a person and the percentage of
      ownership of that person, we have included all shares of Common Stock
      owned or beneficially owned by that person, and the number of shares of
      Common Stock issuable upon conversion or exercise of all convertible
      securities owned or beneficially owned by such person. Those shares,
      however, are not deemed outstanding for the purpose of computing the
      percentage ownership of any other person. All Series A Preferred Stock
      vote on a 25 to 1 basis with the Common Stock holders for all matters
      submitted to vote of shareholders. In addition, the holders of the Series
      A Preferred Stock are entitled to appoint a designee to the board of
      directors.  31
  (2)
                Director(3)
                Officer(4)
                Includes
      controlling interests in AeroGroup, Federal Financial Partners, Northrop
      Defense Corp., and beneficial interest in the Mark Daniels Irrevocable
      Trust.(5)
                Includes
      controlling interest in Cambar Associates(6)
                Includes
      controlling interest in Plumtree Capital Management LLC and Innovation
      Strategies LP
 
 CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
  The
AeroGroup Acquisition
 
 At the
time we and the AeroGroup negotiated and entered into the Asset Purchase
Agreement, Mr. Mark Daniels was not an Officer, Director or affiliate of TADS.
After execution of and entry into the Asset Purchase Agreement, Mr. Daniels
became a Director and Officer on August 22, 2006 in order for us to secure the
government licenses required to be obtained as a condition to closing the
AeroGroup Acquisition. At the time of the AeroGroup Acquisition on December 15,
2006, Mark Daniels, a controlling shareholder of AeroGroup, was serving as our
sole director and as Secretary and Treasurer.
 
 As a
result of the Aero Group Acquisition, AeroGroup acquired a controlling interest
in TADS. Mr. Daniels is a controlling shareholder in AeroGroup and has voting
and dispositive control over its TADS stock. As a result, Mr. Daniels is the
beneficial owner of AeroGroup's TADS stock and owned an 81% indirect beneficial
interest in TADS as of the closing of the AeroGroup Acquisition.
  As
consideration for the AeroGroup Acquisition, TADS assumed notes and warrants
held by Mr. Daniels as follows:
 
 ●
                TADS
      assumed the Secured Daniels Note;●
                TADS
      entered into the Daniels Security Agreement;●
                TADS
      assumed Investor Notes held by Mr. Daniels in the aggregate original
      principal amount of $366,602.04;●
                TADS
      assumed Warrants to acquire stock in AeroGroup, which Warrants will now be
      exercisable for the acquisition of 2,444,014 shares of Common Stock. The
      Warrants are exercisable at an exercise price of $.15 per share. They are
      immediately exercisable and have a warrant exercise term of five years.
      The warrants were issued between April 1, 2003 and November 12,
      2005.
 The terms
and conditions of the foregoing instruments and agreements are described above
under the heading “Material Agreements Entered Into”.
 
 ●
                TADS
      assumed Warrants to acquire stock in AeroGroup, which Warrants will now be
      exercisable for the acquisition of 2,444,014 shares of Common Stock. The
      Warrants are exercisable at an exercise price of $.15 per share. They are
      immediately exercisable and have a warrant exercise term of five years.
      The warrants were issued between April 1, 2003 and November 12,
      2005.
  Mr.
Daniels is a majority Stockholder of AeroGroup Incorporated. As a result of the
AeroGroup Acquisition, TADS assumed AeroGroup’s obligations to issue shares of
AeroGroup Common Stock pursuant to the convertible notes and warrants of
AeroGroup. Conversion of those convertible securities prior to the Closing Date
would have resulted in a dilution of Mr. Daniels stock in AeroGroup,
Incorporated, which will no longer be the case.
 
 Acquisition
of Aircraft and Simulator Assets from Entities owned by Mr.
Daniels.
 
 In June
of 2006, AeroGroup acquired substantially all of the assets of three limited
liability companies owned by Mr. Daniels, OneSource Financial Holdings, LLC,
Genesis Capital Services, LLC, and Resource Financial Holdings, LLC. These
assets (the “Daniels Assets”) included two MiG 29 fighter jets and four full
motion aircraft flight simulators. The Daniels Assets were acquired by AeroGroup
in exchange for the assumption by the AeroGroup Subsidiaries of certain
indebtedness incurred by Daniels in connection with his acquisition of these
assets and certain other consideration. These assets were appraised by a
certified aircraft appraiser and AeroGroup believes that the acquisition of
these assets from Daniels was on terms that were no less favorable to it then if
the Company had attempted to acquire these assets in the open
market.
  The
Daniels Assets are part of the AeroGroup Assets acquired by the Company in the
AeroGroup Acquisition.
 
 We
believe that we have executed the AeroGroup Acquisition and all of the related
transactions set forth above on terms no less favorable to us than we could have
obtained from unaffiliated third parties on an arms-length transaction.
Additionally, all of the foregoing transactions have been approved by both a
majority of the board and a majority of disinterested directors. It is our
intention to ensure that all future transactions including loans or any other
transactions or commitments between us, our officers and directors and their
affiliates are approved by a majority of the board of disinterested board
members, and are on terms obtained at an arms-length transactions that are no
less favorable to us than we could obtain from unaffiliated third parties.
Moreover, it is our intention to obtain estimates from unaffiliated third
parties for similar goods or services to ascertain whether such transactions
with affiliates are on terms that are no less favorable to us than are otherwise
available from unaffiliated third parties.
  32
 Issuance
of Shares of Common Stock to Executive Management and Directors
 
 In
connection with compensation agreements in 2007 and 2008, the Company issued the
following shares of Common Stock in lieu of cash compensation for salary and
incentive payments through December of 2008:
  3,200,000
      shares of Common Stock to Mr. Mark Daniels in 2007;810,000
      shares of Common Stock to Mr. Victor Miller in 2007;405,000
      shares of Common Stock to Mr. Fred Daniels in 2007;2,400,000
      shares of Common Stock to Mr. Victor Miller in February,
    2008;4,000,000
      shares of Common Stock to Mr. Mark Daniels in February,
    2008;30,000,000
      of Common Stock to Mr. Alexis Korybut in February,
2008;52,500,000
      shares of Common Stock to Mr. Mark Daniels in July,
  2008;4,000,000
      of Common Stock to Mr. Alexis Korybut in July, 2008;1,100,000
      shares of Common Stock to Mr. Fred Daniels in July, 2008;
    and1,500,000
      shares of Common Stock to Mr. Peter Maffitt in May and July,
      2008;
 
 BOARD
OF DIRECTORS AND OFFICERS
 
 The
following table sets forth certain information regarding our Directors and
Officers.
  Name
                    
                    Age
                    
                    PositionMark
      Daniels
                    
                    43
                    
                    Director
      and Chairman of the Board of Directors, Secretary, and Principal Financial
      Officer since April 16, 2008, and Principal Executive Officer and
      President, since March 15, 2008Peter
      Maffitt
                    
                    68
                    
                    Director
      since March 4, 2008Charles DeAngelo
                    
                    53
                    
                    Director
      since April 14,
2008
  Mark Daniels.
Mr. Mark Daniels was appointed as a Director and Chairman of the Company and as
its Secretary and Treasurer on April 16, 2008 and was appointed President and
Chief Executive Officer as of March 15, 2008. Mr. Daniels resigned as an Officer
of the Company on February 4, 2009, and was reappointed President and Chief
Executive Officer as of April 14, 2009.  Currently, and since 2002,
Mr. Daniels has been the sole board member, President and the Chief Executive
officer of AeroGroup. Prior to that time, and since 1998, Mr. Daniels was Vice
President and a Manager of Global Aviation Associates, Inc., a Florida based
aircraft leasing company that leased military and non-military aircraft to
government and commercial contractors. Between 1988 and 1998, Mr. Daniels was
President and founder of National Search Services, Inc, an investigative
services company. Between 1989 and 2001, Mr. Daniels was elected as a director
of the National Aviation Museum, a Not-For-Profit corporation located
in Oklahoma, where Mr. Daniel’s primary responsibility was the acquisition and
importation of military fighter aircraft. Mr. Mark Daniels is primarily
responsible for the development of AeroGroup’s business as an aviation
government contractor to outsource fighter aircraft for training and other
purposes to the U.S. Government and other countries. Mr. Daniels is also an
inventor, having authored numerous patents directly related to utility and
methods of military type aircraft. Certain of these patents are owned by
AeroGroup and were acquired as part of the AeroGroup Acquisition. Mr. Daniels
was also previously President, CEO, and a Director of the Company until August
3, 2007.
  The
Directors of the Company receive stock compensation for their services as
members of the Board of Directors, and are entitled to reimbursement for
expenses incurred in connection with their attendance at Board of Directors’
meetings. Our by-laws also provide that they may be paid a fee for their
services as Directors, although we do not currently pay such fees. Officers are
appointed by the Board of Directors and serve at the discretion of the
Board.
 
 Audit
Committee
 
 Because
we are not an issuer listed on a national securities exchange or listed in an
automated inter-dealer quotation system of a national securities association, we
are not required to have an audit committee. Although we hope to have an audit
committee established at some time in the near future, we have not done so yet.
Since we have not established such a committee, we have not identified any
member of such a committee as a financial expert.
  33
 Family
Relationships
 
 There are
no family relationships among our Officers, Directors, or
affiliates.
 
 Involvement
in Certain Legal Proceedings
 
 Except as
set forth herein, no Officer or Director of the Company has, during the last
five years: (i) been convicted in or is currently subject to a pending a
criminal proceeding; (ii) been a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such proceeding
was or is subject to a judgment, decree or final order enjoining future
violations of, or prohibiting or mandating activities subject to any federal or
state securities or banking laws including, without limitation, in any way
limiting involvement in any business activity, or finding any violation with
respect to such law, nor (iii) has any bankruptcy petition been filed by or
against the business of which such person was an executive officer or a general
partner, whether at the time of the bankruptcy of for the two years prior
thereto.
 
 Compliance
with Section 16(a) of the Exchange Act
 
 Section
16(a) of the Exchange Act requires our Directors and executive Officers, and
persons who beneficially own more than 10% of a registered class of our equity
securities, to report their initial beneficial ownership and any subsequent
changes in that beneficial ownership of our securities to the Commission.
Directors, executive Officers and beneficial owners of more than 10% of our
Company’s Common Stock are required by SEC regulations to furnish us with copies
of all Section 16(a) forms that they file.
 
 EXECUTIVE
COMPENSATION
 
 The
following table sets forth information with respect to compensation paid by the
Company in fiscal 2008 to the President and compensation to named executive
officer's that exceeds $100,000 as of December 31, 2008:
  [FISCAL
YEAR] SUMMARY COMPENSATION TABLE
 
 Name and
                                                        Principal
                                                        Position
                                                      
                                                      Year
                                                      
                                                      Salary
                                                        ($)
                                                      
                                                      Bonus
                                                        ($)
                                                      
                                                      Stock
                                                        Awards
                                                        ($)
                                                      
                                                      Option
                                                        Awards
                                                        ($)
                                                      
                                                      Non-Equity
                                                        Incentive
      Plan
                                                        Compensation
                                                        ($)
                                                      
                                                      Change in
                                                        Pension
                                                        Value and
                                                        Nonqualified
                                                        Deferred
                                                        Compensation
                                                        Earnings
                                                        ($)
                                                      
                                                      All Other
                                                        Compensation
                                                        ($)
                                                      
                                                      Total
                                                        ($)CEO & President
                                                        Mark
      Daniels
                                                      
                                                      
                                                      2008
                                                      
                                                      
                                                      80,000
                                                      
                                                      
                                                      0
                                                      
                                                      
                                                      56,500,000
                                                      
                                                      
                                                      0
                                                      
                                                      
                                                      0
                                                      
                                                      
                                                      0
                                                      
                                                      
                                                      0
                                                      
                                                      
                                                      645,000
 
 Outstanding
Equity Awards At Fiscal Year-End Table
 56,500,000
shares to Mark Daniels (CEO & President)
 
 Option
Exercises And Stock Vested Table
 None.
  PENSION
BENEFITS TABLE
 None.
 
 Nonqualified
Deferred Compensation Table
 None.
 
 All
Other Compensation Table
 None.
 
 Perquisites
Table
 None.
  There are
no existing or planned option/SAR grants.
  34
 Employment
Agreements
 As of
December 31, 2008, we are a party to employment agreements with Mark Daniels,
CEO & President, and Alexis Korybut, Vice President.
 
 Options/SAR
Grants in Last Fiscal Year
 None.
 
 Aggregated
Option Exercises and Fiscal Year-End Option Value Table
 None.
  Compensation
of Directors
  Our
Directors do not receive cash compensation for their services, but may receive
stock compensation. The Company does not provide additional compensation for
committee participation or special assignments of the Board of
Directors.
  Section
16(a) Beneficial Ownership Reporting Compliance
  Section
16(a) of the Securities Exchange Act of 1934, as amended, requires our executive
officers, Directors and persons who own more than 10% of a registered class of
our equity securities to file certain reports with the SEC regarding ownership
of, and transactions in, our securities. Such officers, Directors, and 10%
shareholders are also required by the SEC to furnish us with all Section 16(a)
forms that they file.
  Based
solely on our review of such forms furnished to us and written representations
from certain reporting persons, we believe that all filing requirements
applicable to our executive officers, Directors, and more than 10% Stockholders
were complied with during the fiscal year ended December 31, 2008.
  AUDIT
AND CERTAIN OTHER FEES PAID TO ACCOUNTANTS
  Audit Fees
 
 We have
paid Larry Scharfman & Co. CPA P.A., our independent auditors fees of
$25,000 for the 2007 10-K, fees of $15,000 for the 2006 10-K, and fees of $5,000
per each 2008 10QSB.
 
 Tax and All Other
Fees
  We did
not pay any fees to Larry Scharfman & Co. CPA P.A., for tax compliance, tax
advice, tax planning or other work during our fiscal years ending December 31,
2007 and December 31, 2008.
 
 Pre-Approval Policies and
Procedures
 
 We have
implemented pre-approval policies and procedures related to the provision of
audit and non-audit services. Under these procedures, our board of directors
pre-approves all services to be provided by Larry Scharfman & Co. CPA P.A.,
the estimated fees related to these services.
 
 With
respect to the audit of our financial statements as of December 31, 2008 and for
the year then ended, none of the hours expended on Larry Scharfman & Co.
P.A, engagement to audit those financial statements were attributed to work by
persons other than Larry Scharfman & Co. CPA P.A, full-time, permanent
employees.
 
 TACTICAL
      AIR DEFENSE SERVICES,INC.By:
                        /s/
      Mark DanielsName:
      Mark DanielsTitle:
      President and Chairman (Principal
                          Executive
      and Principal Accounting
                          Officer)
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated.
    35