UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON,
D.C. 20549
 
 FORM
10-K
 
 [ X ]ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 
 For the
fiscal year ended December 31, 2009
 
 [   ]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
              88-0455809(State
      or other jurisdiction of
                incorporation
      or organization)
              (I.R.S.
      Employer
                Identification
      No.)123
      West Nye Lane, Suite 517
                Carson City, Nevada
      89706
                ________________________________________________________________________
                (Address
      of principal executive offices, including zip
  code)
 
 Registrant’s
telephone number, including area
code:                                                (775) 888-6744
 Securities
registered pursuant to Section 12(b) of the
Act:                                                 None
 Securities
registered pursuant to Section 12(g) of the
Act:                                                 $.001 par value common
stock
 
 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 [ X
]     No [   ]
 
 Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B 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.   [   ]
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes  [   ]  No
[ X ]
 
 The
issuer’s revenues for the most recent fiscal year were $0.
 
 The
aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant was approximately $7,447,011 based upon the
closing price of our common stock which was $0.007 on April 13,
2010.  Shares of common stock held by each officer and director and by
each person or group who owns 10% or more of the outstanding common stock
amounting to approximately 364,871,089 shares have been excluded in that such
persons or groups may be deemed to be affiliates.  This determination
of affiliate status is not necessarily a conclusive determination for other
purposes.
  As of
April 13, 2010 there were 1,428,729,890 shares of our common stock were issued
and outstanding.
 
 Documents
Incorporated by
Reference:                                                                                     None
 
 Transitional
Small Business Disclosure Format (Check
one):                                                 Yes  [   ]  No
[ X ]
 
    
 
 
 
 
 Tactical Air Defense Services,
Inc.
 
 Annual
Report on Form 10-K
 
 Table
of Contents
 
 Part
      I
                
                Page
      NumberItem
      1. Business
                1Item
      1A. Risk Factors
                8Item
      1B. Unresolved Staff Comments
                10Item
      2. Properties
                11Item
      3. Legal Proceedings
                11Item
      4. (Removed and Reserved)
                11Part
      IIItem
      5. Market for Registrant's Common Equity, Related Stockholder Matters and
      issuer Purchases of Equity Securities
                12Item
      6. Selected Financial Data
                22Item
      7. Management's Discussion and Analysis of Financial Condition
      and
                  Results
      of Operations
                23Item
      8. Financial Statements and Supplementary Data
                F-1Item
      9. Changes in and Disagreements with Accountants on Accounting
      and
                  Financial
      Disclosure
                26Item
      9A. Controls and Procedures
                26Item
      9B.  Other Information
                27Part
      IIIItem
      10. Directors, Executive Officers, and Corporate
Governance
                29Item
      11. Executive Compensation
                30Item
      12. Security Ownership of Certain Beneficial Owners and Management and
      related Stockholder Matters
                32Item
      13. Certain Relationships and Related Transactions, and Director
      Independence
                32Item
      14. Principal Accountant Fees and Services
                33Part
      IVItem
      15. Exhibits, Financial Statement Schedules
                33Signatures
                
                34
 
 
 
 
 
 
 
 
 
 
 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 (the “SEC” and 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.
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.
 
 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 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.                      BUSINESS
 
 Tactical
Air Defense Services, Inc. (“TADS”) is a Nevada public corporation that offers
air combat training, air to air refueling, aerial fire-fighting, and specialty
aerial services to the U.S. and U.S. approved Allied Countries 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
Company’s executive offices are located at 123 West Nye Lane, Suite 517, Carson
City, Nevada, 89706 and the Company’s phone number is (775)
888-6744.
 
 TADS Corporate
History
 
 TADS was
incorporated in the State of Nevada on July 9, 1998 under the name Natalma
Industries, Inc. Originally, TADS operated as a junior mining company engaged in
the exploration of mining properties. We were unsuccessful in locating a joint
venture partner to assist us in the development of our mining claims. As a
result, TADS was unable to pay for and perform the exploration and development
required in its agreement with the owners of its properties and lost our rights
to the mining claims. Our management at the time, therefore determined that it
was in the best interest of our shareholders that we seek potential operating
businesses and business opportunities with the intent to acquire or merge with
another business, which led to the purchase substantially all of the assets of
AeroGroup Incorporated on December 15, 2006 (the “AeroGroup Acquisition”). The
complete terms of the AeroGroup Acquisition were disclosed in our Form 8-K filed
with the SEC on December 18, 2006. AeroGroup Incorporated originally commenced
its operations and business plan as a contractor of military flight training as
AeroGroup International Corporation in January 2002, and eventually merged with
and acquired AeroGroup Incorporated.
 
 Current Business
Operations
 
 Following
the AeroGroup Acquisition, the Company acquired several key assets including the
following:
 
 -
              Two
      MiG 29 “Fulcrum” fighter aircraft, which were appraised in late 2005 at
      $2,800,000 each (pre-modification) located in the Ukraine (the “MIG
      29’s”);
 -
              Four
      Singer Link tactical jet simulators, and related equipment,
      appraised in late 2005 at $285,000 each (pre-modification)(the
      “Simulators”);
 -
              Assignments
      of copyrights to a specialized F-16 Fighter Aircraft training course
      syllabus, specially created by AeroGroup for training pilots.(the “F-16
      Training Courses”);
 -
              Assignments
      of provisional applications for utility patents filed relating to methods
      of operational training uses of fighter aircraft by civilian corporations
      of these types of military aircraft for training of military personnel,
      specifically F-16, Pat. Pend. 60805870; Kfir, Pat. Pend. 60805885; A-4
      Skyhawk, Pat Pend. 60805877; and MiG 29, Pat Pend. 60805888 (collectively
      the “Patents”);
 -
              Assignment
      of a Federal Aviation Administration issued license as an Aircraft Dealer
      (“FAA Dealer License”);
 -
              Rights
      as assignee under three subcontracts and one contract to provide combat,
      primary and other flight training, as well as training research, in the
      F-16 and various other types of aircraft to military personnel of the U.S.
      Armed Forces, NATO forces and other approved countries (“Training
      Contracts”);
 -
              Assignment
      of a sublease of facilities at the Grayson County Airport in
      Grayson, Texas, including aircraft hangars, land and office space (the
      “Grayson Sublease”);
 -
              Assignment
      of an option to enter into an exclusive agreement with Air Support
      Systems, LLC, to lease IL-78 tanker aircraft which are used primarily in
      air-to-air refueling operations (the “IL-78 Lease”) (The MIG 29’s,
      Simulators, F-16 Training Courses, Patents, FAA Dealer License, Training
      Contracts, Grayson Sublease and IL-78 Lease may collectively be referred
      to hereinafter as the “AeroGroup Assets”);
and
 -
              Exclusive
      rights to the AeroGroup name and all copyrights, trademarks, logos,
      imagery and other intellectual property, in connection with any business
      competitive to the business of the
Company.
 
  
 1
   It was
intended that the AeroGroup Assets would be used by the Company in connection
with both “basic flight training” “introduction to fight fundamentals” and
“combat flight training” of military pilots. The Company planned to use the
assets to provide U.S. and NATO military pilots with a “real life” opportunity
to train against threat-type aircraft whose performance and flight
characteristics are superior in some respects to those of U.S. and NATO fighter
aircraft.
 
 As a
result of the U.S. Base Foreclosure Act, the overall downsizing of the armed
forces of the U.S. and its foreign allies, and the advanced age of the U.S.
military air fleet, there was insufficient equipment and personnel to meet
demands for combat air training and air refueling training. The wars in Iraq and
Afghanistan and various regional conflicts and terrorist’s acts, have only added
to this crisis. The private-sector is now being asked to fill a role once the
exclusive domain of the military, and the capabilities of civilian contractors
are well recognized, and are frequently proven superior and more efficient than
public-sector contractors. In addition, due to the escalating wild fires in the
Western U.S., and the financial and environmental costs associated with this
crisis, fire-fighting preparedness and capability have become a top priority at
both the State and Federal levels of government. Again, the private sector is
being asked to provide services that were previously the domain of the
public-sector.
 
 In order
to meet present and future military, environmental, and financial threats, the
United States and its allies has been forced to continue to commit billions of
dollars to training, preparedness, and execution. These needs cannot be met
without the support of the private-sector. We believe that there is currently no
other private-sector contractor which can adequately fulfill these diverse and
urgent demands, and we believe that TADS possesses access to the aircraft,
personnel, and operational skills necessary to claim a significant piece of this
rapidly growing and highly-profitable market for diverse air support
services.
 
 Air Combat
Training
 
 Air
combat training exercises are currently conducted by the training commands of
the United States Air Force, United States Navy, and of most of our NATO, and
foreign allies. We believe neither the U. S. Department of Defense (the “DoD”)
nor its allies have sufficient personnel, support equipment, or access to
foreign enemy type aircraft, to meet current demand. In many instances our
European allies have neither the facilities nor the extensive airspace required
for fighter combat training or fighter bomber training that we hope to
provide.
 
 TADS is
able to provide the armed forces of the U.S. and its allies with a vast array of
training services and support functions including, but not limited to air combat
instruction and tactical training, actual aggressor simulated combat, classroom
instruction, and airspace scheduling, fueling, aircraft spare parts support,
aircraft maintenance and aircraft maintenance training.
 
 Air
combat simulation exercises are currently conducted by the training commands of
the United States Air Force, United States Navy, and of most of our NATO, and
foreign allies. We believe neither the DoD nor its allies have sufficient
training and support equipment and personnel to meet current demand. In many
instances, our European allies have neither the facilities nor the extensive
airspace required for fighter combat training or fighter bombing training that
TADS can provide.
 
 Our
flight training services focus on two major components; initial qualification
flight training and advanced flight training, both of which consist of ground,
and in the air flight training. In addition, we are preparing to perform other
flight training support services as described herein.
 
 Initial Qualification Flight
Training
 
 Initial
qualification flight training consists of the training of military pilots
that have only recently become qualified in their aircraft and of more
experienced pilots returning for recurrency training. Initial qualification
flight training involves aircraft specific flight theory, flight maneuvers,
aerodynamics, emergency in flight procedures as they relate to combat in a
specific aircraft. Pilots and other crew members are also trained in cockpit
resource management, which focuses on division of duties between pilot and
co-pilot and utilization of resources within the aircraft cockpit to complete
the flight plan and address emergencies. Initial qualification training involves
many hours of classroom instruction in aircraft systems operations, air-to-air
flight maneuvers, tactics, formation flying, instrument training and
air-to-ground tactics. In flight instruction is generally provided only once the
pilot has shown proficiency in ground instruction and flight simulator
instruction.
 
 Advanced  Flight
Training
 
 Advanced
flight training focuses on combat and other advanced maneuvers and is conducted
after the pilot completes initial qualification training and returns to a “full
service” training facility where he is provided refresher or upgrade training to
sharpen his or her combat skills. We intend to focus the training venue on
approved overseas customers and NATO customers who would use our facilities and
ranges to qualify, in some cases, and re-qualify in other cases in specific
combat skills like air-to-air, air-to-ground, electronic countermeasure
training, air-refueling training, and other advanced maneuvers.
    2
 
 U.S. Military
Training
 
 A crucial
component to aerial combat training involves training against actual foreign
adversary aircraft which are typically Russian, ex-Soviet bloc, or Chinese.
However, because the U.S. military has little to no access to “enemy” aircraft,
the status-quo has been to use aged U.S. military aircraft operating as the
adversarial or “Red Air” aircraft. The status-quo leaves much to be desired
because aged U.S. military aircraft do not possess the flying characteristics or
capabilities of sophisticated enemy combat aircraft, nor do they emit the same
electronic, radar signature, or visual signals.
 
 Through
its agreements with companies licensed by the U.S. Department of Justice (BATF)
to import foreignweapons of war, TADS
can provide unique Red Air aggressor aircraft, along with ILyushin IL-78’s
available in the U.S. or the Ukraine.  These are the aircraft that are
the actual fighter aircraft currently used substantially many of the former
Soviet bloc countries and non-allied nations.
 
 In
connection with contracts to provide adversary combat aircraft to the U.S.
military, TADS can supply various support services such as adversary pilots,
spare parts, service and maintenance of the adversary aircraft, tactical
training, actual aggressor simulated combat, and classroom
instruction.
 
 In 2008,
TADS was awarded a $207 million government contract to provide air combat
training and support to the U.S. military. The funding amount of the contract
has been stipulated, and the requirements of the contract have been established,
but to-date, the contract has not been funded or “tasked”, and TADS can give no
assurances that the contract will ever be tasked or funded.
 
 In 2009,
TADS received a three-month renewable contract from a private U.S. company to
provide its exclusively leased IL-78 aircraft to an allied Middle-Eastern
governmental agency.  Due to what TADS believes to be tortuous
interference from a third-party, immediately prior to TADS sending the IL-78
aircraft to the Middle-East, it was not able to provide the IL-78 aircraft and
the contract expired.
 
 Foreign Air Combat
Training
 
 Unlike
the training of the U.S. military, air combat training of foreign allied
militaries typically entails air combat training techniques and strategies using
U.S. military aircraft such as the F-16, which such foreign militaries have
already purchased. Although a commercial endeavor, it has been a strategic
decision of the U.S. government to supply U.S. fighter aircraft to its allies.
However, the ability and resources of the U.S. military to thereafter train the
foreign purchasers of its aircraft is extremely limited and
sub-par.
 
 As a
result, there is a backlog of allied countries that have purchased F-16’s and
other U.S. fighter aircraft, and that have immediate and ongoing need for air
combat training. TADS believes they are able to offer to foreign militaries
actual combat training from highly experienced U.S. fighter pilots, classroom
training, and parts, service, and maintenance protocols for their aircraft. TADS
also has the capability to either train on foreign soil and foreign military
bases to fulfill multi-year contracts, or to provide a turn-key solution by
hosting foreign militaries on U.S. soil, and therein provide not only pilots,
training protocols, and parts, service, and maintenance, but also the air-bases,
bombing ranges, fueling services, housing requirements, etc.
 
 Belgian Air Force Training
Contract
 
 On
October 23, 2007, TADS was awarded, through the AeroGroup Acquisition, contract
FA3002-08-C-0003 to train the Belgian Air Force pilots at facilities located in
Belgium (the “BAF Contract”).
 
 TADS
executed the BAF Contract for the first year but the contract was not renewed
for an additional 2 years. The BAF Contract specified providing classroom,
flight, and combat training to the Belgian Air Force. The Company was not
required to provide either aircraft or facilities as both were provided by the
Belgian Air Force.
 
 Through
the BAF Contract, TADS graduated four pilots from the Air Force of a
Middle-Eastern ally, and is currently pursuing a contract for additional
training services with said allied Air Force, although no assurances can be
given that a final contract will be awarded to TADS.
 
 In
addition, TADS is currently in the early phases of air combat training contracts
with other allied countries to provide F-16 training, support, and services, and
although TADS believes that it is well-positioned to be awarded any and all of
these foreign contracts, no assurances can be given.
 
 Ground-Threat
Support
 
 The U.S.
military regularly trains against “enemy” ground-threats, simulating Former
Soviet Union  and Chinese Air Defense surface-to-air missile
systems.  These systems make up approximately 95% of all known
ground-threats used by perceived hostile states and groups around the world such
as North Korea, Syria, Iran, the Taliban, etc.
    3
 
 Notably,
however, the U.S. DoD has been unable to acquire and support working examples of
said air defense systems with which to train. As a replacement, the U.S.
military uses replica or “same signal” practice units which offer a sub-par
training experience due to at times materially different physical and electronic
characteristics.
 
 To the
best of our knowledge, TADS, through its agreement with a supplier of Russian
systems, is the only U.S. company able to provide and support Former Soviet
Union joint-threat emitter systems in good working and overhauled condition, and
as a result we believe we can provide a much more effective and value-added
training experience to the U.S. and allied militaries.
 
 Although
TADS is not actively pursuing any ground-threat support contracts, we believe
that the demand does exist and that TADS is well-positioned to be awarded
ground-threat support contracts in the future, although no assurances can be
given.
 
 Air to Air
Refueling
 
 As
demonstrated by the debacle between Boeing and AES in the awarding of the next
generation of air refueling aircraft, air refueling is big business, and the
U.S. fleet of air refueling aircraft, which were all built in the 1950’s and
1960’s, are operating well below the required levels. With its aging fleet and
the uncertainty of the delivery of new tankers, there is an immediate need for
the military to outsource air re-fueling and air refueling
training.
 
 Until
recently, TADS had an exclusive lease agreement to operate the only ILyushin
IL-78 refueling tanker aircraft available in the U.S. The IL-78 is used for
mid-air refueling by most air forces in the world including Russia, most former
Soviet republics, China, India, Pakistan, Cuba, Libya, Syria, and many others.
The TADS IL-78 is the Midas version and is configured for mid-air refueling. It
is capable of re-fueling at an airspeed exceeding 400 knots, and can deliver
fuel to three aircraft simultaneously. In addition, the ILyushin aircraft are
the only planes ever made for the purpose of aerial fire-fighting and
water-bombing, and are recognized as far superior to any other aircraft in
existence for this purpose. TADS plans to provide the IL-78 for re-fueling
during air combat training sessions and for contract re-fueling of U.S. military
squadrons.
 
 TADS is
currently negotiating an option to lease up to two IL-78 aircraft, and believes
that there is demand for its services in connection with IL-78’s from both the
U.S. and foreign allied militaries, although no assurances can be given that
TADS will be awarded a contract in the future.
 
 Aerial
Fire-Fighting
 
 In
addition to its military operation capabilities, the IL-76/78 is the only large
aircraft ever built for the purpose of aerial water-bombing, and is considered
by most fire-fighting experts as the most capable. The ILyushin IL-76/78
aircraft are dedicated water-bombers that are capable of quickly and efficiently
disbursing large quantities of water or fire retardant to defeat the increasing
damage from the extensive forest fires in the Western U.S. and other
areas.
 
 As
exemplified by the state-of emergency declared by California recently, the
United States Forest Service estimates that forest fires will be a permanent
threat. In addition to the substantial revenue stream that TADS anticipates
could result from these services, we believe that TADS would receive valuable
high-profile publicity from providing aerial fire-fighting
services.
 
 Due to
the escalating forest fire crisis in the Western U.S., and the unique
capabilities and exclusivity of its ILyushin aircraft, prior to cancellation of
its exclusive lease, TADS had exploring opportunities with State and Federal
agencies in connection with providing aerial fire-fighting services to combat
the seemingly ever-growing devastation of forest fires, and anticipates that
should it be successful in acquiring the option to lease additional IL-78
aircraft, that there will be demand for its services, but TADS cannot guarantee
that it will be awarded a final contract in the near future.
 
 Specialty Aerial
Services
 
 In
addition to its use as an air refueling aircraft and as an aerial fire-fighter,
the unique characteristics of the IL-78 make it extremely desirable for a number
of specialty aerial services.
 
 The
IL-78aircraft is a versatile workhorse that can be configured for heavy cargo
and used for the transport of military vehicles, heavy equipment, and commercial
air cargo services. The IL-78 has unique performance capabilities and is famous
for its ability to operate in extreme conditions and from marginal landing
areas.
 
 
 
 4
 
 
 Historical Operational
Successes
 
 Since the
AeroGroup Acquisition, TADS has achieved a number of operational
successes:
 
 -
              January
      2007: TADS was contracted through U.S. Army-RDECOM/CASU to provide pilot
      training and other aircraft
services.
 -
              October
      2007-January 2009: TADS through AeroGroup, was the first commercial
      company to provide F-16 pilot training services to the Belgian Air Force,
      via a contract awarded through U.S. Air Force – Air Education and Training
      Command (AETC).
 -
              December
      2007: TADS executed an exclusive lease arrangement to lease the only
      Soviet ILyushin aircraft available in the U.S.  As of November,
      2009, the exclusive lease of the IL-78 was cancelled by the lessor,
      although TADS is currently in negotiation with the lessor to acquire an
      option to lease up to two additional IL-78 aircraft  upon their
      availability.
 
 In
addition, AeroGroup has historically provided operational training support for
the Air forces of various allied countries:
 
 -
              July
      2002: AeroGroup was 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 was 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 was 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 was awarded a contract from the United
      Kingdom Royal Air Force 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.
 
 Current Asset
Status
 
 On May
29, 2008, TADS returned the two MiG-29 and Simulators (the “Cambar Assets”)
purchased in the AeroGroup Acquisition through a Settlement and Release
Agreement (the “Cambar Settlement”) executed between the Company and Cambar
& Associates (“Cambar”). As part of the AeroGroup Acquisition, in December,
2006, TADS had assumed from AeroGroup indebtedness owed to Cambar (the “Cambar
Note”) of a principle amount of $2,200,000 for the purchase of the Cambar Assets
and, which indebtedness included interest to be paid on the
principle.  Due to the terms of the Cambar Note and the value of the
Cambar Assets, the Company determined at that time that it was in its best
interest to unwind the purchase of the Cambar Assets. With the Cambar
Settlement, the Company agreed to relinquish the Cambar Assets to Cambar and
issue to Cambar 50,000,000 Shares as payment in full and final settlement for
any claims Cambar may have against the Company. In addition, Cambar reclaimed
the Cambar Assets, the Company cancelled the Cambar Note including any accrued
and unpaid interest and retired the 1,000,000 Shares issued to Cambar and NATA
as compensation for interest due on the Cambar Note in 2007. Such terms were
considered payment in full and final settlement for any claims Cambar held
against the Company.
 
 In
November of 2009, the lessor of IL-78 aircraft pursuant to the IL-78 Lease,
cancelled the excusive lease of the IL-78 with TADS.  TADS had been
preparing the IL-78 for departure to the Middle East for execution of a
three-month contract through a U.S. intermediary party, when the IL-78 was
encumbered by an FAA lien by Victor Miller and Air 1 Flight Support for unpaid
work on the IL-78.  Subsequently, the IL-78, without the knowledge of
the lessor or TADS, was removed from the facilities in Texas. Since that time,
the aircraft has remained grounded awaiting the outcome of litigation between
Victor Miller and the lessor (See “Item 3. Legal Proceedings”
herein).  Although TADS believes that the action by Mr. Miller and Air
1 Flight Support are without merit, the result has been the loss of the
exclusive lease of the IL-78 and the loss of its first contract in connection
with the IL-78. Notwithstanding the above,  TADS is currently
negotiating an option with the lessor for the option to lease up to two of its
remaining IL-78 aircraft currently located in the Ukraine for use in connection
with potential contracts outside of the U.S.
 
 We
abandoned Grayson Field some time last year because it was determined that the
faciliites at Grayson were not adequate to support the type of aircraft
connected to the training services we intend to provide.
    5
 
 Customers and
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, air re-fueling, military
air cargo, and fire-fighting businesses. In addition, TADS believes that its
ability to procure, support, and maintain Russian and Ukrainian military
aircraft and ground-threat support equipment gives it a distinct advantage over
the competition.
 
 We are
dependent on a small, limited pool of customers for our services. The Company’s
aerial training and air refueling services will only be requested, if at all, by
United States and allied military agencies with specific needs, and by
contractors for these services who sub-contract to us.
 
 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 most of these services, no assurance can be made that new
entities with more resources then us will enter into this business.
 
 The
Company’s business is dependent on our ability to bid for, negotiate, secure,
and perform under specialized government and agency contracts. We have
historically 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.
 
 Government Approval,
Regulation and Licensing
 
 In order
to own and operate military aircraft and to enter into government contracts we
are required to have certain government licenses and permits. 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.
 
 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 and, as of
the date of this filing, such license has lapsed but we believe it can be
renewed in a matter of weeks when needed. 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 were also registered as a government contractor
through the United States Central Contractors Registration office and became
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. We are required to renew
this registration annually and, as of the date of this filing, such license has
lapsed but we believe it can be renewed in a matter of weeks when
needed.
 
 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 special 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 and ground training rules along with medical certification for
pilots.
 
 In
addition to the foregoing, government agencies will require that we have and
maintain a proper safety program, an approved spare parts program and an
approved aircraft inspection 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
potential F-16 training contracts, we would also be 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 would not be in compliance we could be fined and could risk suspension or
loss of the contract.
 
 Additionally,
we could be subject to rules of foreign governments with respect to operations
of our aircraft over their territories.
    
 6
 
 
 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.  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. 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
maintain several 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
 
 We are
required to renew such patent applications and, as of the date of this filing,
such applications has lapsed without renewal; however, we believe it can be
renewed in a matter of weeks when needed. 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.
  Employees
 
 As of
December 31, 2009, we have two full time employees. In addition, we hire
independent contractor labor for executive management, legal, accounting and
other administrative functions, on an as needed basis and have entered into
consulting arrangements with certain directors and advisory board members in
exchange for stock or derivative securities. We have not entered into a
collective bargaining agreement with any union.
 
 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 have be
reflected in the financial statements and have been 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.
 
 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.
    7
  
 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.
 
 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.
 
 
 
 8
 
 
 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.
 
 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.
 
 
 
  9
 
  Shareholders
should be aware that, according to SEC Release No. 34-29093, the market for
penny stocks has suffered in recent years from patterns of fraud and abuse. Such
patterns include (1) control of the market for the security by one or a few
broker-dealers that are often related to the promoter or issuer;
(2) manipulation of prices through prearranged matching of purchases and
sales and false and misleading press releases; (3) boiler room practices
involving high-pressure sales tactics and unrealistic price projections by
inexperienced sales persons; (4) excessive and undisclosed bid-ask
differential and markups by selling broker-dealers; and (5) the wholesale
dumping of the same securities by promoters and broker-dealers after prices have
been manipulated to a desired level, along with the resulting inevitable
collapse of those prices and with consequent investor losses. Our management is
aware of the abuses that have occurred historically in the penny stock market.
Although we do not expect to be in a position to dictate the behavior of the
market or of broker-dealers who participate in the market, management will
strive within the confines of practical limitations to prevent the described
patterns from being established with respect to our securities. The occurrence
of these patterns or practices could increase the volatility of our share
price.
 
 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.
 
 THE
AFOREMENTIONED RISK FACTORS DO NOT CONSTITUTE A FULL AND COMPLETE LISTING OF ALL
POSSIBLE RISK FACTORS ASSOCIATED WITH OUR COMPANY OR AN INVESTMENT IN OUR
COMPANY. 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.
 
 ITEM
1B.                      UNRESOLVED
STAFF COMMENTS
 
 Not
applicable.
    
 
 
 10
 
 
 ITEM
2.                      PROPERTIES
 
 The
Company’s executive offices are located at 123 West Nye Lane, Suite 517, Carson
City, Nevada, 89706 and the Company’s phone number is (775) 888-6744. We believe that all
our properties have been adequately maintained, are generally in good condition,
and are suitable and adequate for our business.
 
 ITEM
3.                      LEGAL
PROCEEDINGS
 
 Mr.
Charlie Searock, a former executive officer of our company, has brought a laws
suit in the District Court of the 336 th
Judicial District of Grayson County, Texas against us and seven other defendants
on February 6, 2007, on claims of breach of an employment agreement between
Searock and International Tactical Training Center, Inc. (“ITTC”). (Charles J.
Searock, Jr., vs. Tactical Air Defense Services, Inc., International Tactical
training Center, Inc., Mark Daniels, Victor Miller, John Farley, Gary Fears,
Jamie Goldstein, and Joel Ramsden, Cause No.07-0322-336). ITTC and the Company
are the only two corporate defendants named in the Searock lawsuit. Of the six
individuals named as defendants, three are former ITTC management.  
Searock asserts that the Company is liable for ITTC’s breach of employment
agreement because he alleges that the Company acquired ITTC’s assets, and that
ITTC was a former subsidiary of AeroGroup, Inc., an entity not named as a
defendant in the Searock lawsuit. In addition to his claim for breach of the
ITTC employment contract, Searock also asserts theories of tort liability
against the defendants.   The Company denies any liability to Searock on
his claim for breach of the ITTC employment contract and denies Searock has any
factual basis to impose liability on the Company under any of his theories of
tort liability. Specifically, the Company denies that it acquired, owns or
controls ITTC’s former assets. The Company believes that this claim is without
merit and is working towards resolution of the same.
 
 In June
of 2009, Victor Miller and Air 1 Flight Support, an entity controlled by Victor
Miller, caused an injunction to be placed on the Company to not relocate the
IL-78, which the Company leases from a third party, as a result of a lien Victor
Miller and Air 1 Flight Support placed on the IL-78 for unpaid services provided
to the third-party leasing the IL-78 to the Company.  The Company
believes that the lien and injunction are completely without merit based upon
Victor Miller and Air 1 Flight Support being party to a settlement agreement
between the parties including the third-party subject to the
lien.  Victor Miller and Air 1 Flight Support subsequently filed a
motion for contempt of court against the Company subsequent to the IL-78 having
been relocated by a third-party to which the Company leases the IL-78, without
the knowledge or assistance of the Company.  Victor Miller and Air 1
Flight Support subsequently filed a legal proceeding against the Company in
Michigan in connection with the lien, which has resulted in a judgment against
the Company.  The Company intends to contest the judgment which it was
not given the opportunity to defend against for what it believes to be a
fraudulent lien. The Company believes that these motions and proceedings are
without merit, and the Company intends to vigorously defend itself, and pursue
Victor Miller and Air 1 Flight Support for tortuous interference and material
damages to the Company.
 
 On March
4, 2010, TADS sued Mark Daniels, the Company’s former President and Chief
Executive Officer, and various entities affiliated with or controlled by Mr.
Daniels, in The Circuit Court of the 15th
Judicial Circuit in and for Palm Beach County, Florida, for temporary and
permanent injunctive relief, damages, and other relief for breach of contract,
breach of fiduciary duty and duty of loyalty, tortuous interference with
advantageous and contractual relationships, and misappropriation, misuse and
conversion of trade secrets and confidential business information. Although the
Court did not grant our Emergency Motion for Preliminary Injunction, the court
did find that here continues to be a valid and enforceable agreement between the
parties. The Company will continue to pursue all claims and remedies against the
defendant in such action.
 
 As of the
date of this Annual Report, TADS is not a party to any pending litigation or
legal proceeding that is not described herein or in the ordinary course of
business. To our knowledge, no such proceedings exist or are threatened other
than those described herein.
 
 ITEM
4.                      (REMOVED
AND RESERVED)
 
 
 
 
 
 
 
 
 
 
 
 
 11
 
 
 PART
II
 
 ITEM
5.                       MARKET FOR REGISTRANT'S COMMON
EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASE OF EQUITY
SECURITIES
 
 (a) Market
Information
 
 The
common stock of the Company, $.001 par value, is currently traded over the
counter and is listed on the OTC Bulletin Board under the symbol "TADF" The
availability of historical trading prices of our common stock is limited, with
periods of little or no trading activity. The following table sets forth the
available approximate range of high and low closing prices for the common stock
of the Company during the periods indicated. The quotations presented
are  adjusted to reflect splits in our common stock and reflect
inter-dealer prices, without retail markup, markdown, or commissions, and may
not necessarily represent actual transactions in the common stock.
 
 
 2009
              Low
              HighFirst
      Quarter
              $0.011
              $0.08Second
      Quarter
              0.001
              0.048Third
      Quarter
              0.0013
              0.0033Fourth
      Quarter
              0.0013
              0.00252008
              Low
              HighFirst
      Quarter
              $0.02
              $0.08Second
      Quarter
              0.02
              0.04Third
      Quarter
              0.017
              0.04Fourth
      Quarter
              0.011
              0.024
  On April
13, 2010 the closing quotation for our common stock was $0.007 per share. As
reflected by the high and low prices on the foregoing table, the trading price
of the common stock of the Company can be volatile with dramatic changes over
short periods. The trading price may reflect imbalances in the supply and demand
for shares of the Company, market reaction to perceived changes in the industry
in which the Company sells products and services, general economic conditions,
and other factors. Investors are cautioned that the trading price of the common
stock can change dramatically based on changing market perceptions that may be
unrelated to the Company and its activities.
 
 (b) Approximate number of
equity security holders
 
 As of
April 13, 2010, there were approximately 243 holders of record of our common
stock.  This number excludes the shares of our common stock owned by
stockholders holding stock under nominee security position listings. In
aggregate, we had 1,428,729,890 shares of common stock outstanding as of April
13, 2010.
 
 (c)
Dividends
 
 We have
never declared or paid a cash dividend and do not foresee paying one in the near
future.  Any future decisions regarding dividends will be made by our board
of directors.  We currently intend to retain and use any future
earnings for the development and expansion of our business and do not anticipate
paying any cash dividends in the foreseeable future.  Our board of
directors has complete discretion on whether to pay dividends, subject to the
approval of our stockholders.  Even if our board of directors decides
to pay dividends, the form, frequency and amount will depend upon our future
operations and earnings, capital requirements and surplus, general financial
condition, contractual restrictions and other factors that the board of
directors may deem relevant.
 
 (d) Securities authorized
for issuance under equity compensation plans
 
 The
Company does not currently maintain any stock option plan, whether approved by
shareholders or otherwise, however, the Company does, on occasion issue equity
or options as compensation to consultants and employees. Additional detailed
information relating to stock and option grants during 2009 can be found below
in “Item 11, Executive Compensation” and Item 5(e) “Recent sales of unregistered
securities”, the provisions of which are incorporated herein.
 
   12
 
 (e) Recent sales of
unregistered securities.
 
 Pursuant
to a 2007 Securities Purchase Agreement, in September 2007, the Company sold to
four investors 382,663 shares in the aggregate of restricted Common Stock at a
purchase price of $0.30 per share. The gross proceeds of this offering totaled
$114,781. The share purchase price carried certain anti-dilution rights whereby
the share purchase price would be amended if the average closing price of the
shares, during the 30-day period following the closing of the offering, was less
than the share purchase price.  The new share purchase price would
become the anti-dilution reference price, and additional shares would be issued
to reflect the new share purchase price. Notwithstanding any of the above, the
new, share purchase price would not be less than $0.15. As a result of a decline
in the price of the Company’s Common Stock, the anti-dilution rights kicked in
and an additional 382,663 were issued in January 2008. Subsequently, pursuant to
certain protective rights granted to the Investors in the Share Purchase
Agreement, on January 23, 2008, and additional 382,666 shares of Common Stock
was issued to the Investors, which effectively changed the purchase price of the
Common Stock to $0.15 per share.
 
 Pursuant
to a Securities Purchase Agreement, in March, 2008, the Company sold 3,000,000
shares of restricted Common Stock to one investor at a purchase price of $0.01
per share. The gross proceeds of the offering totaled $30,000.
 
 Pursuant
to a Securities Purchase Agreement, in May, 2008, the Company sold 2,500,000
shares of restricted Common Stock in the aggregate to two investors at a
purchase price of $0.01 per share. The gross proceeds of the offering totaled
$25,000.
 
 Pursuant
to a Securities Purchase Agreement, in September, 2008, the Company sold
30,000,000 shares of restricted Common Stock in the aggregate to two investors
at a purchase price of $0.01 per share. The gross proceeds of the offering
totaled $300,000.
 
 Pursuant
to a Securities Purchase Agreement, in December, 2008, the Company sold
3,000,000 shares of restricted Common Stock to one investor at a purchase price
of $0.02 per share. The gross proceeds of the offering totaled
$60,000.
 
 Pursuant
to a Securities Purchase Agreement, in May, 2009, the Company sold 5,000,000
shares of restricted Common Stock to one investor at a purchase price of $0.005
per share. The gross proceeds of the offering totaled $25,000.
 
 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.
 
   
 13
   First
Quarter of 2007
 
 Between
January 1, 2007 and March 31, 2007, the Company received proceeds from loans
totaling $343,873. The Debentures are convertible into TADS Common Stock at
conversion prices ranging from $.25 to $1.00 per share and provide for warrants
to purchase 1,013,999 shares of TADS Common Stock at exercise prices ranging
from $.25 to $1.00. The Debentures bear interest of 12% and are due three years
from the date of issuance. The Debenture Warrants are exercisable at per share
exercise prices of $.25 to $1.00 per share of Common Stock, are exercisable
immediately up until the fifth anniversary of the initial warrant date, and such
exercise price is subject to adjustment for subsequent lower price issuances by
the Company and other customary events including stock splits, reverse stock
splits, issuance of convertible securities, sale of Common Stock and
spin-offs.
 
 The gross
proceeds of the $343,873 were allocated 25% or $86,084 to the Debentures and 75%
or $257,789 to the Warrants. The effective conversion price of the Debentures
was below the market price of TADS Common Stock at the date the various notes
were issued, which resulted in a beneficial conversion feature of $86,084. In
accordance with EITF 00-27 the amount allocated to the beneficial conversion
feature was limited to the net proceeds of the offering.
 
 Second
Quarter of 2007
 
 Between
April 1, 2007 and September 30, 2007, the Company received proceeds from loans
totaling $493,851. The Debentures are convertible into 1,974, 486 shares of TADS
Common Stock at a conversion price of $.25 per share and provide for warrants to
purchase 1,974,486 shares of TADS Common Stock at an exercise price of $.25. The
Debentures bear interest of 12% and are due three years from the date of
issuance. The Debenture Warrants are exercisable at a per share exercise prices
of $.25 per share of Common Stock, are exercisable immediately up until the
fifth anniversary of the initial warrant date, and such exercise price is
subject to adjustment for subsequent lower price issuances by the Company and
other customary events including stock splits, reverse stock splits, issuance of
convertible securities, sale of Common Stock and spin-offs.
 
 The gross
proceeds of the $493,851 were allocated 24.2% or $120,731 to the Debentures and
75.8% or $373,120 to the Warrants. The effective conversion price of the
Debentures was below the market price of TADS Common Stock at the date the
various notes were issued, which resulted in a beneficial conversion feature of
$120,731. In accordance with EITF 00-27 the amount allocated to the beneficial
conversion feature was limited to the net proceeds of the offering.
 
 Third
Quarter of 2007
 
 Between
July 1, 2007 and September 30, 2007, the Company received proceeds from loans
totaling $229,234. The Debentures are convertible into 1,053,620 shares of TADS
Common Stock at a conversion price range of $.20 to $.25 per share and provide
for warrants to purchase 1,053,620 shares of TADS Common Stock at an exercise
price in the range of $.20 to $.25. The Debentures bear interest of 12% and are
due three years from the date of issuance. The Debenture Warrants are
exercisable at a per share exercise prices at a range of $.20 to $.25 per share
of Common Stock, are exercisable immediately up until the fifth anniversary of
the initial warrant date, and such exercise price is subject to adjustment for
subsequent lower price issuances by the Company and other customary events
including stock splits, reverse stock splits, issuance of convertible
securities, sale of Common Stock and spin-offs.
 
 The gross
proceeds of the $229,234 were allocated 30.0% or $68,394 to the Debentures and
70.0% or $160,840 to the Warrants. The effective conversion price of the
Debentures was below the market price of TADS Common Stock at the date the
various notes were issued, which resulted in a beneficial conversion feature of
$160,840. In accordance with EITF 00-27 the amount allocated to the beneficial
conversion feature was limited to the net proceeds of the offering.
 
 Fourth
Quarter of 2007
 
 Between
October 1, 2007 and December 31, 2007, the Company received proceeds from loans
totaling $286,719. The Debentures are convertible into TADS Common Stock at a
conversion price of $.05 per share and provide for warrants to purchase
5,734,385 shares of TADS Common Stock at an exercise price of $.05. The
Debentures bear interest of 12% and are due three years from the date of
issuance. The Debenture Warrants are exercisable at a per share exercise prices
of $.05 per share of Common Stock, are exercisable immediately up until the
fifth anniversary of the initial warrant date, and such exercise price is
subject to adjustment for subsequent lower price issuances by the Company and
other customary events including stock splits, reverse stock splits, issuance of
convertible securities, sale of Common Stock and spin-offs.
 
 The gross
proceeds of the $286,719 were allocated 26.0% or $74,657 to the Debentures and
74.0% or $212,062 to the Warrants. The effective conversion price of the
Debentures was below the market price of TADS Common Stock at the date the
various notes were issued, which resulted in a beneficial conversion feature of
$212,062. In accordance with EITF 00-27 the amount allocated to the beneficial
conversion feature was limited to the net proceeds of the offering.
 
   14
   As of
December 31, 2007, all of the principal and accrued interest related to the
Debentures has been classified as a current liability as they are either in
default or due within one year.
 
 First
Quarter of 2008
 
 Between
January 1, 2008 and March 31, 2008, the Company issued $343,873 of Debentures as
consideration for  loans totaling $343,873. The Debentures are
convertible into TADS 6,877,460 shares of Common Stock at a conversion
price of $0.05 per share and provide for warrants to
purchase 6,877,460 shares of TADS Common Stock at an exercise price of
$0.05. The Debentures bear interest of 12% and are due three years from the date
of issuance. The Debenture Warrants are exercisable at a per share exercise
price of $.05 per share of Common Stock, are exercisable immediately up until
the fifth anniversary of the initial warrant date, and such exercise price is
subject to adjustment for subsequent lower price issuances by the Company and
other customary events including stock splits, reverse stock splits, issuance of
convertible securities, sale of Common Stock and spin-offs.
 
 The gross
proceeds of the $343,873 were allocated 25% or $86,084 to the Debentures and 75%
or $257,789 to the Warrants. The effective conversion price of the Debentures
was at the market price of TADS Common Stock at the date the various notes were
issued.
 
 Second
Quarter of 2008
 
 Between
April 1, 2008 and September 30, 2008, the Company issued $357,151 of Debentures
as consideration for loans totaling $357,151. The Debentures are convertible
into 17,857,252 shares of Common Stock at a conversion price of $0.02 per
share and provide for warrants to purchase 17,857,252 shares of TADS Common
Stock at an exercise price of $0.02. The Debentures bear interest of 12% and are
due three years from the date of issuance. The Debenture Warrants are
exercisable at a per share exercise price of $0.02 per share of Common Stock,
are exercisable immediately up until the fifth anniversary of the initial
warrant date, and such exercise price is subject to adjustment for subsequent
lower price issuances by the Company and other customary events including stock
splits, reverse stock splits, issuance of convertible securities, sale of Common
Stock and spin-offs.
 
 The gross
proceeds of the $357,151 were allocated 30% or $107,145 to the Debentures and
70% or $250,006 to the Warrants. The effective conversion price of the
Debentures was at the market price of TADS Common Stock at the date the various
notes were issued.
 
 Third
Quarter of 2008
 
 Between
July 1, 2008 and September 30, 2008, the Company issued $95,489 of Debentures as
consideration for loans totaling $95,489. The Debentures are convertible into
4,774,450 shares of Common Stock at a conversion price of $0.02 per share
and provide for warrants to purchase 17,857,252 shares of TADS Common Stock
at an exercise price of $0.02. The Debentures bear interest of 12% and are due
three years from the date of issuance. The Debenture Warrants are exercisable at
a per share exercise price of $0.02 per share of Common Stock, are exercisable
immediately up until the fifth anniversary of the initial warrant date, and such
exercise price is subject to adjustment for subsequent lower price issuances by
the Company and other customary events including stock splits, reverse stock
splits, issuance of convertible securities, sale of Common Stock and
spin-offs.
 
 The gross
proceeds of the $95,489 were allocated 25% or $23,872 to the Debentures and 70%
or $71,617 to the Warrants. The effective conversion price of the Debentures was
at the market price of TADS Common Stock at the date the various notes were
issued.
 
 First
Quarter of 2009
 
 In the
first quarter of 2009, the Company issued $30,000 of Debentures as consideration
for unpaid fees to service providers.  The Debentures are convertible
into 1,730 shares of Common Stock at a conversion price of $0.02 per
share.  The Debentures have a term of three years, an interest rate of
12%, and full-ratchet anti-dilution protection
 
 Third
Quarter of 2009
 
 Between
July 31, 2009 and November 15, 2009, the Company issued  $57,542.46 of
Debentures as consideration for  loans totaling
$57,542.46.  The Debentures have a term of three years, an interest
rate of 12%, are convertible into 46,033,968 shares of Common Stock at a
conversion price of $0.00125 per share, and have full-ratchet anti-dilution
protection.
 
 On July
31, 2009, the Company retired $753,457.42 of Short-Term Loans, and as
consideration, issued $753,457.42 of Debentures convertible into 602,765,936
shares of Common Stock at a conversion price of $0.00125 per
share.  The Debentures have a term of three years, an interest rate of
12%, and full-ratchet anti-dilution protection.
    15
 
 On
September 3, 2009, the Company retired Promissory Notes totaling $162,964.54,
and as consideration, issued $162,964.54 of Debentures convertible into
130,371,634 shares of Common Stock at a conversion price of $0.00125 per
share.  The Debentures have a term of three years, an interest rate of
12%, and full-ratchet anti-dilution protection.
 
 Additionally
on September 3, 2009, the Company issued $274,603.11 of Debentures to employees
and consultants as consideration for accrued salary, expenses, and fees, and for
the retirement of 116,885,154 shares of Common Stock of the
Company.  The Debentures are convertible into 219,682,488 shares of
Common Stock at a conversion price of $0.00125 per share.  The
Debentures have a term of three years, an interest rate of 12%, and full-ratchet
anti-dilution protection
 
 Additional
Indebtedness
 
 Between
July 1, 2008 and April 30, 2009, the Company received proceeds of Short-Terms
loans (the “Short-Term Loans”) totaling $742,863of which $175,000 was
repaid in October, 2008. The Short-Term Loans carry a term of one year, an
interest rate of 12%, and carried 100% stock coverage with a reference price
equal to the lowest purchase price of Common Stock of the Company sold by the
Company between the date of the Short-Term Loans and repayment of the Short-Term
Loans.  The Short-Term Loans have a lien on the receivables from the
AETC Contract which stipulates that all funds received from the AETC Contract
will first be directed towards paying down the Short-Term loans, with the
agreement that one half of the funds repaid from the AETC receivables will be
reloaned to the Company by the lien holders. The reference price was
renegotiated with the lender and is currently equal to a 50% discount to the
lowest purchase price of Common Stock of the Company sold by the Company between
the date of the Short-Term Loans and repayment of the Short-Term Loans, which
lowest purchase price is currently $0.01 and which principle is equal to
148,572,658 shares of the Company’s Common Stock, which Common Stock has been
issued.  On July 31, 2009 the Short-Term Loans including accrued
interest to-date were retired.
 
 Between
April 30, 2009 and July 31, 2009, the Company received proceeds of Short-Terms
loans (the “Short-Term Loans”) totaling $109,188. The Short-Term Loans carry a
term of one year, an interest rate of 12%, and 100% stock coverage with a
reference price equal to the lowest purchase price of Common Stock of the
Company sold by the Company between the date of the Short-Term Loans and
repayment of the Short-Term Loans.  The reference price is equal to a
50% discount to the lowest purchase price of Common Stock of the Company sold by
the Company between the date of the Short-Term Loans and repayment of the
Short-Term Loans, which lowest purchase price is currently $0.005 and which
principle new loans equals 51,774,471 shares of the Company’s Common Stock,
which Common Stock has not yet been issued. On July 31, 2009 the Short-Term
Loans including accrued interest to-date were retired.
 
 On April
15, 2009, the Company issued a Promissory Note to Mark Daniels for $159,878.63
in consideration for unpaid salary and expenses accrued from April 1, 2008
through April 15, 2009.  The terms of the Promissory Note have been
revised to increase the term of 120 days with an annual interest rate 12%, and
in the event of non-payment in full by the due-date of the Promissory Note, on
the unpaid balance, the annual interest rate increases retroactively to 18% and
the note-holder shall receive additional consideration of 100% annual stock
coverage at a share reference price equal to a 50% discount to the 30-day
trailing average price of the Common Stock of the Company.
 
 On April
15, 2009, the Company issued a Promissory Note to Alexis Korybut for
$114,425.77in
consideration for unpaid salary and expenses accrued from April 1, 2008 through
April 15, 2009.  The terms of the Promissory Note have been revised to
increase the term to 120 days with an annual interest rate 12%, and in the event
of non-payment in full by the due-date of the Promissory Note, on the unpaid
balance, the annual interest rate increases retroactively to 18% and the
note-holder shall receive additional consideration of 100% annual stock coverage
at a share reference price equal to a 50% discount to the 30-day trailing
average price of the Common Stock of the Company.  On September 3,
2009, the Promissory Note was retired.
 
 On April
15, 2009, the Company issued a Promissory Note to Joint Strategy Group, Inc. for
$41,319.04in
consideration for unpaid consulting fees and expenses accrued from July 1, 2008
through April 15, 2009.  The terms of the Promissory Note have been
revised to increase the term to 120 days with an annual interest rate
12%.  In the event of non-payment in full by the due-date of the
Promissory Note, on the unpaid balance, the annual interest rate increases
retroactively to 18% and the note-holder shall receive additional consideration
of 100% annual stock coverage at a share reference price equal to a 50% discount
to the 30-day trailing average price of the Common Stock of the
Company.  On September 3, 2009, the Promissory Note was
retired.
 
 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.
    16
  
 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.
 
 Cancellation of Indebtedness
and Return of Assets
 
 On May
29, 2008, the Company returned the two MiG-29 aircraft and four flight
simulators (the “Cambar Assets”) it had purchased through the AeroGroup
Acquisition.  The Company and Cambar & Associates (“Cambar”)
executed a Settlement and Release Agreement. In December, 2006, TADS assumed
from AeroGroup an indebtedness owed to Cambar (the “Cambar Note”) of a principle
amount of $2,200,000 for the purchase of, the Cambar Assets, which indebtedness
included interest to be paid on the principle.
 
 With the
Settlement and Release Agreement, the Company agreed to relinquish the Cambar
Assets to Cambar, and issue to Cambar 50,000,000 Shares, as payment in full and
final settlement for any claims Cambar may have against the Company, and Cambar
agreed to reclaim the Cambar Assets, cancel the Cambar Note including any
accrued and unpaid interest, and return to the Company for retirement the
1,000,000 Shares issued in the aggregate to Cambar and NATA as compensation for
interest due on the Cambar Note in 2007, as payment in full and final settlement
for any claims the Company may have against Cambar.
 
 Issuance of Common
Stock
 
 Issuance
of Common Stock to Cambar & Associates and NATA
 
 The
Company issued 500,000 restricted shares of Common Stock to NATA in the second
quarter of 2007 and 500,000 restricted shares of Common Stock to Cambar &
Associates in the third quarter of 2007, as compensation for interest due on the
Cambar Note. Notwithstanding the above, NATA and Cambar & Associates have
agreed to retire the shares as per the Settlement and Release Agreement
described above. The Company issued an additional 40,000,000 restricted shares
of Common Stock to NATA and 10,000,000 restricted shares of Common Stock to
Cambar & Associates in the third quarter of 2008, as per the terms of the
Settlement and Release Agreement described above. No registration rights were
issued in connection with these shares.
 
 Issuance
of Common Stock to Fred Daniel
 
 The
Company issued an aggregate of 405,000 restricted shares of Common Stock to Mr.
Fred Daniels in the first and third quarters of 2007, as compensation for
service as an Officer of the Company. The Company issued an additional 1,100,000
restricted shares of Common Stock to Mr. Fred Daniels in the third quarter of
2008 as further compensation for service as an Officer and Director of the
Company through April 16, 2008. No registration rights were issued in connection
with these shares.
 
 Issuance
of Common Stock to Mark Daniels
 
 The
Company issued an aggregate of 1,600,000 restricted shares of Common Stock to
Mr. Mark Daniels in the second quarter of 2007, as compensation in lieu of
accrued and unpaid salary for his service as President and Chief Executive
Officer of the Company. No registration rights were issued in connection with
these shares.
 
 Issuance
of Common Stock to Mark Daniels Irrevocable Trust III
 
 The
Company issued an aggregate amount of 105,000,000 restricted shares of Common
Stock to Mark Daniels Irrevocable Trust III in the third quarter of
2008.  Notwithstanding the above, 52,500,000 of these shares were
duplicately issued in error and were cancelled on November 20, 2008 by the
Company’s transfer agent for retirement by tender to the transfer agent of a
lost share affidavit by the Mark Daniels Irrevocable Trust III.  The
shares were issued in consideration for Mr. Daniels executing a new employment
agreement with the Company and for accrued and unpaid salary. The Company issued
an aggregate amount of 121,975,720 restricted shares of Common Stock to Mark
Daniels Irrevocable Trust III in April, 2009.  The shares were issued
in consideration for accrued and unpaid salary and expenses owed to Mr. Daniels,
for his retirement of 4,000,000 Series A Preferred Shares including cancellation
of any accrued dividends, and for Mr. Daniels executing a new employment
agreement with the Company upon his assuming the role of Chief Executive
Officer. No registration rights were issued in connection with these
shares.
    17
 
 Issuance
of Common Stock to Victor Miller
 
 The
Company issued an aggregate of 810,000 restricted shares of Common Stock to Mr.
Victor Miller in the second quarter of 2007, as compensation in lieu of accrued
and unpaid salary for his service as an Officer of the Company. The Company
issued an additional 2,400,000 restricted shares of Common Stock to Victor
Miller in February, 2008 in consideration of Mr. Miller retiring his 2,400,000
Series A Preferred shares including any accrued dividends, which Preferred share
retirement occurred in April, 2009. In addition, in April, 2009, the Company
issued to Mr. Miller 10,000,000 shares of Common Stock as per a Settlement
Agreement signed between Mr. Miller and the Company and other parties in April,
2009.  No registration rights were issued in connection with these
shares.
 
 Issuance
of Common Stock to Alexis Korybut
 
 The
Company issued an aggregate of 30,000,000 restricted shares of Common Stock to
Mr. Alexis Korybut in the first quarter of 2008, as compensation for serving as
additional President, Chief Executive Officer, Treasurer, and Principle
Accounting Officer of the Company. No registration rights were issued in
connection with these shares.  The shares of Common Stock have
subsequently been retired as per agreement between the Company and Alexis
Korybut.
 
 Issuance
of Common Stock to John Farley
 
 The
Company issued an aggregate of 150,000 restricted shares of Common Stock to Mr.
John Farley in the first and third quarters of 2007, as compensation for his
service as an Officer of the Company. The Company issued an additional 100,000
restricted shares of Common Stock to Mr. John Farley in the first quarter of
2008, as compensation as an independent provider of services to the Company. The
Company issued an additional 300,000 restricted shares of Common Stock to Mr.
John Farley in the third quarter of 2008, as compensation as an independent
provider of services to the Company. No registration rights were issued in
connection with these shares.
 
 Issuance
of Common Stock to Lawrence Cusack
 
 The
Company issued 600,000 restricted shares of Common Stock to Mr. Lawrence Cusack
in the first quarter of 2008, as additional compensation for serving as an
employee of the Company. The Company issued an additional 400,000 restricted
shares of Common Stock to Mr. Lawrence Cusack in the third quarter of 2008, as
consideration for accrued and unpaid salary for serving as an employee of the
Company.  The Company issued 1,000,000 restricted shares of Common
Stock to Mr. Lawrence Cusack in April, 2009, as consideration for unpaid salary
while serving as an employee of the Company in 2008.  No registration
rights were issued in connection with these shares.
 
 Issuance
of Common Stock to Peter Maffitt
 
 The
Company issued 500,000 restricted shares Common Stock to Peter Maffitt, a
Director of the Company, in the second quarter of 2008 as compensation for
acting as a Director of the Company. The Company issued an additional 1,000,000
restricted shares of Common Stock to Peter Maffitt in the third quarter of 2008
as further compensation for acting as a Director of the Company. The Company
issued 1,000,000 restricted shares Common Stock to Peter Maffitt, a Director of
the Company, in April, 2009, as compensation for acting as a Director of the
Company.  No registration rights were issued in connection with these
shares.
 
 Issuance
of Common Stock to Charles DeAngelo
 
 The
Company issued 250,000 restricted shares of Common Stock to Charles DeAngelo, a
Director of the Company, in the second  quarter of 2008 as
compensation for acting as a Director of the Company. The Company issued an
additional 750,000 restricted shares of Common Stock to Charles DeAngelo in the
third quarter of 2008 as further compensation for acting as a Director of the
Company. The Company issued 1,000,000 restricted shares of Common Stock to
Charles DeAngelo, a Director of the Company, in April, 2009 as compensation for
acting as a Director of the Company. No registration rights were issued in
connection with these shares.
 
 Issuance
of Common Stock to ZA Consulting
 
 The
Company issued 250,000 restricted shares of Common Stock to ZA Consulting Group
in the first quarter of 2007, as compensation for investor relations services
and related consulting services. The Company issued an additional aggregate of
6,000,000 restricted shares of Common Stock to ZA Consulting Group in the third
quarter of 2008 in connection with a Settlement and Release Agreement reached
between the parties in the third quarter of 2008 and in connection with future
consulting services to the Company. No registration rights were issued in
connection with these shares.
 
   18
   Issuance
of Common Stock to Gary Corley
 
 The
Company issued 200,000 restricted shares of Common Stock to Mr. Gary Corley Esq.
in the fourth quarter of 2007, as compensation for legal services. The Company
issued an additional 3,000,000 restricted shares of Common Stock to Mr. Gary
Corley Esq. in the third quarter of 2008 as compensation for legal services. No
registration rights were issued in connection with these shares.
 
 Issuance
of Common Stock to Economic Advisors, Inc.
 
 The
Company issued an aggregate of 114,800 restricted shares of Common Stock to
Economic Advisors, Inc. in the fourth quarter of 2007 and the first quarter of
2008, as compensation for introducing certain accredited investors to the
Company. The Company issued an additional 18,000,000 restricted shares of Common
Stock to Economic Advisors, Inc. in the third quarter of 2008 in connection with
a Settlement and Release Agreement reached between the parties in the third
quarter of 2008. No registration rights were issued in connection with these
shares.
 
 Issuance
of Common Stock to Federal Financial Partners, LLC
 
 The
Company issued an aggregate of 1,600,000 shares of restricted Common Stock to
Federal Financial Partners, LLC in the first and third quarters of 2007 as
compensation for consulting services to the Company. The Company issued an
additional 4,000,000 shares of restricted Common Stock to Federal Financial
Partners, LLC in February, 2008 in consideration of Mark Daniels retiring his
4,000,000 Series A Preferred shares.  Notwithstanding the above, the
stock certificate representing the 4,000,000 shares of Common Stock was
cancelled on April 30, 2009.  No registration rights were issued in
connection with these shares.
 
 Issuance
of Common Stock to Northrop Defense Consulting Corp.
 
 The
Company issued an aggregate of 2,800,000 shares restricted shares of Common
Stock to Northrop Defense Consulting Corp for consulting services in the third
quarter of 2007.  No registration rights were issued in connection
with these shares.
 
 Issuance
of Common Stock to Joint Strategy Group, Inc.
 
 The
Company issued 5,000,000 restricted shares of Common Stock to Joint Strategy
Group, Inc. in the first quarter of 2008, as compensation for consulting
services to the Company. The Company issued an additional 20,000,000 restricted
shares of Common Stock to Joint Strategy Group, LLC in the third quarter of
2008, as consideration for executing a long-term consulting services agreement
with the Company. The Company issued 68,263,808 restricted shares of Common
Stock to Joint Strategy Group, Inc. in April, 2009, as consideration for unpaid
consulting fees accrued from July 1, 2008 through April 15, 2009, and as
consideration for a new consulting agreement with the Company. No registration
rights were issued in connection with these shares.
 
 Issuance
of Common Stock to Thomas Pierson
 
 The
Company issued 100,000 restricted shares of Common Stock to Thomas Pierson in
the first quarter of 2008 as compensation for consulting services to the
Company. No registration rights were issued in connection with these
shares.
 
 Issuance
of Common Stock to Charles Pearlman
 
 The
Company issued 50,000 restricted shares of Common Stock to Charles Pearlman in
the second quarter of 2008 as compensation for consulting services to the
Company. No registration rights were issued in connection with these
shares.
 
 Issuance
of Common Stock to Plumtree Capital Management LLC
 
 The
Company issued 4,000,000 restricted shares of Common Stock to Plumtree Capital
Management LLC in July, 2008 as compensation for accrued and unpaid consulting
fees and expenses to July, 2008. The Company issued 82,885,154 restricted shares
of Common Stock to Plumtree Capital Management LLC in April, 2009 as
consideration for unpaid salary and expenses accrued from July 1, 2008 through
April 15, 2009, and as consideration for a new employment agreement with the
Company. No registration rights were issued in connection with these
shares.  The shares of Common Stock have subsequently been retired as
per agreement between the Company and Plumtree Capital Management
LLC.
 
   19
   Issuance
of Common Stock to M&A Advisors LLC
 
 The
Company issued 2,000,000 restricted shares of Common Stock  in the
third quarter of 2008 and 2,000,000 restricted shares of Common Stock in April,
2009, to M&A Advisors LLC as compensation for consulting services to the
Company. No registration rights were issued in connection with these
shares.
 
 Issuance
of Common Stock to TCI Global Trading Ltd
 
 The
Company issued 30,000,000 restricted shares of Common Stock to TCI Global
Trading Ltd in the third quarter of 2008 as consideration for providing ongoing
consulting services to the Company. No registration rights were issued in
connection with these shares.
 
 Issuance
of Common Stock to Eurotrust Capital SPA
 
 The
Company issued to Eurotrust Capital SPA an aggregate of 4,500,000 restricted
shares of Common Stock in the third and fourth quarters of 2008 as compensation
for consulting services to the Company. No registration rights were issued in
connection with these shares.
 
 Issuance
of Common Stock to Marc Brannigan
 
 The
Company issued 7,000,000 restricted shares of Common Stock to MBC Consulting LLC
in the third quarter of 2008 as compensation for accrued and unpaid consulting
services to the Company. No registration rights were issued in connection with
these shares.
 
 Issuance
of Common Stock to Brad Baker
 
 The
Company issued 250,000 restricted shares of Common Stock to Brad Baker in the
third quarter of 2008 as compensation for serving on the board of advisors of
the Company. No registration rights were issued in connection with these
shares.
 
 Issuance
of Common Stock to Donald Goldstein
 
 The
Company issued 1,000,000 restricted shares of Common Stock to Donald Goldstein
in the third quarter of 2008 as compensation for prior service on the Board of
Directors of the Company. No registration rights were issued in connection with
these shares.
 
 Issuance
of Common Stock to the Sassin Law Firm
 
 The
Company issued 666,667 restricted shares of Common Stock to the Sassin Law Firm
in the third quarter of 2008 as compensation for legal services. No registration
rights were issued in connection with these shares.
 
 Issuance
of Common Stock to the Ticktin Law Group
 
 The
Company issued 3,000,000 restricted shares of Common Stock in the fourth quarter
of 2008 and 3,000,000 restricted shares of Common Stock in April, 2009, to the
Tictin Law Group as compensation for legal services. No registration rights were
issued in connection with these shares.
 
 Issuance
of Common Stock to Julius Astrada
 
 The
Company issued 1,000,000 restricted shares of Common Stock to Julius Astrada in
the fourth quarter of 2008 as compensation for marketing services. No
registration rights were issued in connection with these shares.
 
 Issuance
of Common Stock to Bradley Hacker
 
 The
Company issued 1,000,000 restricted shares of Common Stock to Bradley
Hacker in April, 2009 as compensation for fees associated with bookkeeping
services for the third and fourth quarters of 2008 and the first quarter of
2009. No registration rights were issued in connection with these
shares.
 
 Issuance
of Common Stock to Air Support Systems, LLC
 
 The
Company issued 100,000,000 restricted shares of Common Stock to Air Support
Systems, LLC in April, 2009 as consideration under the terms of an agreement
between Air Support Systems, LLC and the Company for the exclusive lease of its
ILyushin IL-78 aircraft. No registration rights were issued in connection with
these shares.  The shares of Common Stock have subsequently been
retired as per agreement between the Company and Air Support Systems,
LLC.
    20
 
 Issuance
of Common Stock to Dakota Aviation Consultants, LLC
 
 The
Company issued 100,000,000 restricted shares of Common Stock to Dakota Aviation
Consultants, LLC in April, 2009 as consideration under the terms of a consulting
agreement between Dakota Aviation Consultants, LLC and the Company. No
registration rights were issued in connection with these shares.
 
 Issuance
of Common Stock to the Dakota Fears Trust
 
 The
Company issued 100,000,000 restricted shares of Common Stock to the Dakota Fears
Trust in April, 2009 as consideration under the terms of a Short-Term Loan
agreement between the Dakota Fears Trust and the Company. No registration rights
were issued in connection with these shares.
 
 Issuance
of Common Stock to the Gary Fears Trust
 
 The
Company issued 83,980,742 restricted shares of Common Stock to the Gary Fears
Trust in April, 2009, of which 30,000,000 shares were issued as consideration
for an investment of $300,000 in September of 2008, and 53,980,742 shares were
issued under the terms of a Short-Term Loan agreement between the Gary Fears
Trust and the Company. No registration rights were issued in connection with
these shares.
 
 Issuance
of Common Stock to Phillip Scott
 
 The
Company issued 45,805,758 unrestricted shares of Common Stock to Phillip
Scott  in March, 2010 per the terms of a settlement agreement between
the Company and DS Enterprises.
 
 Issuance
of Common Stock to Alexis Korybut
 
 The
Company issued 50,000,000 restricted shares of Common Stock to Alexis Korybut in
March, 2010 as a signing bonus per the terms of his employment agreement of
January 1, 20101.  No registration rights were issued in connection
with these shares.
 
 Issuance of Common Stock to Michael
Cariello
 
 The
Company issued 50,000,000 restricted shares of Common Stock to Michael Cariello
in March, 2010 as a signing bonus per the terms of his employment agreement of
January 1, 20101.  No registration rights were issued in connection
with these shares.
 
 Retirement of Common
Stock
 
 The
Company retired 45,000,000 shares of its Common Stock in May, 2009, which had
been issued to International Tactical Training Center, Inc. in advance
consideration for services which services were subsequently not
delivered.
 
 The
Company retired 30,000,000 shares of its Common Stock in November, 2009, which
had been issued to Alexis Korybut, pursuant to an agreement between the Company
and Alexis Korybut.
 
 The
Company retired 86,885,154 shares of its Common Stock in March, 2010, which had
been issued to Plumtree Capital Management, LLC, pursuant to an agreement
between the Company and Plumtree Capital Management LLC in November,
2009.
 
 The
Company retired 100,000,000 shares of its Common Stock in November, 2009, which
had been issued to Air Support Systems, LLC, pursuant to an agreement between
the Company and Air Support Systems, LLC.
 
 
 
 
    
 21
 
 Series A Preferred
Stock
 
 On March
21, 2007, the Company filed a Certificate of Designation of Series A Preferred
Stock (the “Series A Certificate of Designation”) with the Secretary of State of
the State of Nevada, designating a series of 50,000,000 shares of Preferred
Stock of the Company, $.001 par value (the “Series A Preferred Stock”). Pursuant
to the Series A Certificate of Designation, holders of the Company’s Series A
Preferred Stock are entitled to:
 
 -
              Elect
      one director to the Company’s board of
  directors;
 -
              Vote
      on all other matters on a 25 votes per share Common Stock
      basis.
 -
              With
      respect to dividend rights, rights on redemption, rights on conversion and
      rights on liquidation, winding up and dissolution, rank senior to all
      Common Stock, warrants and options to purchase Common Stock established by
      the Board or the Stockholders (all of such equity securities of the
      Corporation to which the Series A Preferred Stock ranks senior are
      collectively referred to herein as “Junior
  Stock”).
 -
              Each
      share of Series A Preferred Stock is initially convertible into 2 shares
      of the Common Stock of the Company, subject to adjustment for stock
      splits, recapitalization or other
  reorganizations.
 
 In
addition, the Series A Preferred Stock:
 
 -
              has
      weighted average antidilution protection that will cause the conversion
      price to adjust downward in the event that the Company issues shares of
      Common Stock or securities convertible into Common Stock at a price of
      less than the conversion price of the Series A Preferred Stock then in
      effect may be converted into Common Stock at the option of the holder;
      and
 -
              Diluted
      net loss per share reflects per share amounts that result if dilutive
      common stock equivalents are converted to common stock. Common stock
      equivalents, consisting of convertible debt, options and warrants were not
      included in the calculation of diluted loss per share for the three months
      ended March 31, 2008 and 2009 because their inclusion would have had been
      anti-dilutive.
 
 Issuance of Series A
Preferred Stock
 
 During
fiscal 2007, the Company issued an aggregate of 6,400,000 shares of its Series A
Preferred Stock; 2,400,000 shares to Mr. Victor Miller, and 4,000,000 shares to
Federal Financial Partners, LLC.
 
 Retirement of Series A
Preferred Stock
 
 In April,
2009, the 6,400,000 shares of Series A Preferred Stock, of which 4,000,000
shares had been issued to Federal Financial Partners, LLC and 2,400,000 shares
had been issued to Victor Miller, were cancelled and retired, as per a
settlement agreement between Federal Financial Partners, LLC and Victor Miller,
and the Company in which Federal Financial Partners, LLC and Victor Miller each
receive 10,000,000 shares of Common Stock of the Company as consideration for
the retirement of their Series A Preferred Stock and cancellation of any accrued
and unpaid dividends owed to them.
 
 As of
April 15, 2010, there are no shares of Series A Preferred Stock
outstanding.
 
 (f) Purchases of equity
securities by the small business issuer and affiliated
purchasers
 
 During
the year ended December 31, 2009, neither the Company nor any of its affiliates
purchased any equity securities of the Company or on behalf of the
Company.
 
 ITEM
6.                      SELECTED
FINANCIAL DATA
 
 Not
applicable.
 
 
 
 
 
 
 
 
 22
 
 ITEM
7.                      MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
 
 The
following discussion and analysis should be read in conjunction with our audited
consolidated financial statements and related notes included in this report.
This report contains “forward-looking statements” within the meaning of the
Private Securities Litigation Reform Act of 1995. The statements contained in
this report that are not historic in nature, particularly those that utilize
terminology such as “may,” “will,” “should,” “expects,” “anticipates,”
“estimates,” “believes,” or “plans” or comparable terminology are
forward-looking statements based on current expectations and
assumptions.
 
 The
forward-looking events discussed in this report, the documents to which we refer
you and other statements made from time to time by us or our representatives,
may not occur, and actual events and results may differ materially and are
subject to risks, uncertainties and assumptions about us.  For these
statements, we claim the protection of the “bespeaks caution”
doctrine.  All forward-looking statements in this document are based
on information currently available to us as of the date of this report, and we
assume no obligation to update any forward-looking statements. Forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause the actual results to differ materially from any future results,
performance or achievements expressed or implied by such forward-looking
statements.
 
 The
Company has experienced substantial delays and hurdles in its business
operations as a result of its inability to raise capital and the result of
interference from third-parties in its contracts and business.
 
 Critical Accounting
Policies
 
 Our
critical and significant accounting policies, including the assumptions and
judgments underlying them, are disclosed in the Notes to the Financial
Statements.  These policies have been consistently applied in all
material respects and address such matters as revenue recognition and
depreciation methods.  The preparation of the financial statements in
conformity with generally accepted accounting principles in the United States
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reported period.  Actual results
could differ from those estimates.  The accounting treatment of a
particular transaction is specifically dictated by accounting principles,
generally accepted in the United States of America, with no need for
management’s judgment in their application.  There are also areas in
which management’s judgment in selecting any viable alternative would not
produce a materially different result.  See our audited financial
statements and notes thereto which contain accounting policies and other
disclosures required by accounting principles, generally accepted in the United
States of America.
 
 Results of
Operations
  Revenues
 
 Year
                Ended
      December 312008
              
              2009Total
      Sales
              $0
              
              $0
 
 We had no
revenues for the year ended December 31, 2009 or for the year ended December 31,
2008.
 
 Operating
Expenses
 
 Year
                Ended
      December 312009
              
              2008Operating
      Expense
              $603,600
              
              $1,962,780
 
 Total
costs and expenses of $603,600 for the year ended December 31, 2009 and
$1,962,780 for the year ended December 31, 2008 consisted of general and
administrative expenses, including the compensatory element of stock
issuances.
    23
   Net Profit
(Loss)
 
 Year
                Ended
      December 312009
              
              2008Net
      Profit (Loss)
              ($633,660)
              
              ($2,514,380)
 
 For the
year ended December 31, 2009, we sustained net losses of $633,660 as compared
with net losses of $2,514,380 for the year ended December 31, 2008.
 
 Liquidity and Capital
Resources
 
 At
December 31, 2009, the Company had total assets of $88,000 comprised mainly of
property and equipment.  There were liabilities of $1,450,191
comprised of $18,378 in accounts payable and $1,431,813 in short term debentures
payable. Assets of $88,000 and liabilities of $1,450,191 resulted in a working
capital deficiency of $1,362,191. The Company reported total stockholders’
deficit of $1,362,191 at December 31, 2009. We anticipate that our current cash
on hand of $0 as of December 31, 2009 is not sufficient to satisfy our cash
requirements without additional funding.  The Company has funded its
operations and met its capital expenditures requirements primarily through cash
generated from contributions from the issuance of convertible debt securities
and short-term promissory notes. We do not have any financing commitments and no
assurance can be made that we will be obtaining financing at the times and terms
needed. Therefore, there is substantial doubt that we will be able to continue
as a going concern. In addition, we will need substantial additional capital
during the next 12 months on order to complete our business plan.
 
 During
the year ended December 31, 2010, the Company believes that it will expend funds
on the following:
 
 -
              Expenses
      related to the acquisition of potential
  contracts;
 -
              Leasing
      and refurbishment of certain military aircraft and
    equipment;
 -
              Leasing
      and refurbishment of training facilities to fulfill potential contracts;
      and
 -
              Hiring
      of additional employees and independent contractors to fulfill potential
      contracts.
 
 Need for Additional
Capital
 
 As
indicated above, management does not believe that the Company has sufficient
capital to sustain its operations without raising additional
capital.  We presently do not have any available credit, bank
financing or other external sources of liquidity.  Accordingly, we
expect that we will require additional funding through additional equity and/or
debt financings.  However, there can be no assurance that any
additional financing will become available to us, and if available, on terms
acceptable to us.
 
 Any
financing, if available, may involve restrictive covenants that may impact our
ability to conduct our business or raise additional funds on acceptable
terms.  If we are unable to raise additional capital when required or
on acceptable terms, we may have to delay, scale back or discontinue our
expansion plans.  In the event we are unable to raise additional
capital we will not be able to sustain any growth or continue to
operate.
 
 Effects of
Inflation
 
 Inflation
and changing prices have not had a material effect on our business and we do not
expect that inflation or changing prices will materially affect our business in
the foreseeable future. However, our management will closely monitor the price
change and continually maintain effective cost control in
operations.
 
 Off Balance Sheet
Arrangements
 
 We do not
have any off balance sheet arrangements that are reasonably likely to have a
current or future effect on our financial condition, revenues, and results of
operations, liquidity or capital expenditures.
 
 ITEM
7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISK
 
 Not
applicable.
 
 
 
 24
 
 
 
 
 ITEM
8.                      FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
 
 INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Report
      of Independent Registered Public Accounting Firm
              
              F-1Consolidated
      Balance Sheet at December 31, 2009 and 2008
              
              F-2Consolidated
      Statements of Operations for the Years Ended December 31, 2009 and
      2008
              
              F-3Consolidated
      Statements of Stockholders' (Deficiency) Equity for the Years
      Ended
                December
      31, 2009 and 2008
              
              F-4Consolidated
      Statements of Cash Flows for the Years Ended December 31, 2009 and
      2008
              
              F-5Notes
      to the Consolidated Financial Statements
              
              F-6
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 25
 
 
 REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Larry
O'Donnell, CPA, P.C.
 
 Telephone
      (303) 745-4545
                Fax
      (303) 369-9384
                Email
      larryodonnellcpa@comcast.net
                www.larryodonnellcpa.com
              2228
      South Fraser Street, Unit I
                Aurora,
      Colorado 80014
 
 
 Board of
Director
 Tactical
Air Defense Services, Inc.
 Fort
Lauderdale, Florida
 
 I have audited the
accompanying consolidated balance sheet of Tactical Air Defense Services, Inc.,
and subsidiaries as of December 31, 2009 and 2008, and the related consolidated
statements of operations, stockholders’ (deficiency) equity and cash flows for
the years then ended. These financial statements are the responsibility of
management. My responsibility is to express an opinion on these financial
statements based on my audit.
 
 I
conducted my audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that I plan and perform the audit 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 statement
presentation.  I believe that my audit provides a reasonable basis for
my opinion.
 
 In my
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Tactical Air Defense
Services, Inc. as of December 31, 2009 and 2008, and the results of operations
and its cash flows for for the years then ended, in conformity with accounting
principles generally accepted in the United States.
 
 These
consolidated financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 1 to the consolidated
financial statements, the Company has operating and liquidity concerns, has
incurred an accumulated deficit of $38,524,104 through the period ended December
31, 2009. This condition raises substantial doubt about the Company's ability to
continue as a going concern. Management's plans as to these matters are also
described in Note 1. The consolidated financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of these uncertainties.
 
 /s/ Larry O’Donnelll, CPA,
PC
 
 Larry
O’Donnell, CPA, PC
 April 14,
2010
 
 
 
 
 
 
 
 
    
 
 F-1
 
 
 
 TACTICAL
      AIR DEFENSE SERVICES, INC. AND SUBSIDIARIESCONSOLIDATED
      BALANCE SHEETSDecember
      31
              
              December
      31,2009
              
              2008ASSETSCurrent
      Assets:Cash
              $                           -
              
              $                23,156Accounts
      Receivable-Net of Allowance for Doubtful Accounts-$250,000
              -
              
              250,000Total
      Current Assets
              -
              
              273,156Property
      and Equipment, net
              88,000
              
              88,000TOTAL
      ASSETS
              $                   88,000
              
              $              361,156LIABILITIES AND STOCKHOLDERS'
      EQUITYCurrent
      Liabilities:Accounts
      payable
              $                   18,378
              
              $                  7,762Accrued
      liabilities
              -
              
              473,454Short-Term
      Debentures, including accrued interest
              1,431,813
              
              504,904-Total
      Current Liabilities
              1,450,191
              
              986,120TOTAL
      LIABILITIES
              1,450,191
              
              986,120COMMITMENTSSTOCKHOLDERS'
      DEFICIENCY:Preferred
      stock-$.001 par value; 50,000,000 shares authorized; --0-
      shares issued and outstanding
              --
              
              6,400Common
      stock-$.001 par value;30,000,000,000 shares authorized; -1,428,730,286
      and 855,203,856  shares issued and outstandingat
      December 31, 2005 and 2006 (unaudited), respectively
              1,428,730
              
              855,204Additional
      paid-in-capital
              35,733,183
              
              36,403,936Accumulated
      deficit
              (38,524,104)
              
              (37,890,504)TOTAL
      STOCKHOLDERS' DEFICIENCY
              (1,362,191)
              
              (624,964)TOTAL
      LIABILITIES AND STOCKHOLDERS' DEFICIENCY
              $                   88,000
              
              $              361,156
 
 
 
 
 
 F-2
 
 
 
 
 TACTICAL
      AIR DEFENSE SERVICES, INC. AND SUBSIDIARIESCONSOLIDATED
      STATEMENT OF OPERATIONS2009
              2008REVENUES
              $
              $Operating
      costs
              
              350,010General
      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
              603,600
              1,612,770TOTAL
      COSTS
              603,600
              1,612,770OPERATING
      LOSS
              (603,600)
              (1,962,780)OTHER
      (EXPENSE) INCOME:Write-down
      of fixed assets
              -
              -Interest
      expense
              (30,000)
              (551,600)OtherTOTAL
      OTHER EXPENSES
              (30,000)
              (551,600)NET
      LOSS
              $     (633,600)
              $  (2,514,380)NET
      LOSS APPLICABLE TO COMMON STOCKHOLDERS
              $     (633,600)
              $  (2,514,380)Loss
      per common share - basic and diluted
              $                -
              $            0.01Weighted
      average number of shares outstanding - basic and diluted
              899,300,964
              296,300,964
 
 
 
 
 
      
 F-3
 
  
 
 TACTICAL
      AIR DEFENSE SERVICES, INC. AND SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF STOCKHOLDERS (DEFICIENCY) EQUITYDeficitAccumulated
              TotalDuring
              Stockholders’Common
      Stock
              Preferred
      Stock
              Additional
      Paid
              Development
              (Deficiency)Shares
              
              Amount
              Shares
              
              Amount
              in
      Capital
              Stage
              EquityBalance -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, 2008
              
              855,203,856
              
              $
              855,204
              
              6,400,000
              
              $
              6,400
              $
              36,403,936
              $
              (37,890,504)
              $
              (624,964
              )Stock
      issued for services to consultants and employees-net of stock
      retired
              
              553,526,430
              
              
              553,526
              
              -
              
              
              -
              
              -657,153
              
              -
              
              -103,627Issuance
      of common stock upon retirement of preferred stock
              
              
              
              
              20,000
              
              -6,400,000
              
              
              (6,400)-
              
              -13,600
              
              -Net
      loss
              
              
              
              
              
              
              -
              
              
              -
              
              -
              
              (633,600)
              
              (633,600
              )Balance
      -December 31, 2009
              
              1,428,730,286
              
              $
              1,428,730
              
              --
              
              $
              --
              $
              35,733,183
              $
              (38,524,104)
              $
              (1,362,191
              )
 
 
 
 
 
 
 
 
 
 
 
 
 
 F-4
 
 
 
 
 TACTICAL
      AIR DEFENSE SERVICES, INC. AND SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF CASH FLOWS2009
              
              2008CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      (loss)
              
              $
              (633,600
              )
              (2,514,380)Adjustments
      to reconcile net loss to net cash used in operating
      activities:Stock-based
      compensation
              
              
              296,651
              
              888,892Bad
      debt reserve
              
              
              250,000Changes
      in operating assets and liabilities:Accounts
      payable
              
              
              10,633
              
              (272,565)Accrued
      liabilities
              
              
              
              
              183,937Net
      Cash Used in Operating Activities
              
              
              (76,316)
              
              (1,760,116)CASH
      USED IN INVESTING ACTIVITIESNet
      Cash Used in Investing Activities
              
              
              -
              
              -CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from sale of common stock
              
              
              25,000
              
              360,000Proceeds
      from Short Term Loan
              
              
              
              
              639,904Proceeds
      from convertible debentures
              
              
              28,160
              
              737,368Net
      Cash Provided by Financing Activities
              
              
              53,160
              
              1,737,272Increase
      (Decrease) in cash
              
              
              (23,156)
              
              23,156Cash
      - Beginning of period
              
              
              23,156
              
              -Cash
      - End of period
              
              $
              -
              
              23,156Interest
      paidTaxes
      paidNon-cash
      Transactions:Stock
      issued to settle accrued compensation
              
              $
              
              
              467,000Conversion
      of debt plus accrued interest to equity
              
              
              
              
              2,706,224
 
 
 
     
 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, maintenance training, ground-threat
support, and specialty aerial services to the U.S. and Foreign Militaries and
other Federal and State Agencies. TADS is certified by the United States
Government as a private-sector military contractor and has been granted the
required security clearances.
 
 TADS was
incorporated in the State of Nevada on July 9, 1998 under the name Natalma
Industries, Inc. Originally, TADS operated as a junior mining company engaged in
the exploration of mining properties. We were unsuccessful in locating a joint
venture partner to assist us in the development of our mining claims. As a
result, TADS was unable to pay for and perform the exploration and development
required in its agreement with the owners of its properties and lost our rights
to the mining claims. Our management at the time, therefore determined that it
was in the best interest of our shareholders that we seek potential operating
businesses and business opportunities with the intent to acquire or merge with
another business, which led to the purchase substantially all of the assets of
AeroGroup Incorporated (the “AeroGroup Acquisition”).
 
 On
December 15, 2006 (the “Closing Date”), TADS and three of its wholly-owned
subsidiaries, Resource Financial Aviation Holdings Inc., OneSource Aviation
Acquisition Inc. and Genesis Aviation Acquisition Inc., each a Nevada
corporation (the “TADS Subsidiaries” and, collectively with TADS,”) acquired
substantially all of the assets of AeroGroup Incorporated (“Aero or AeroGroup”),
a Utah corporation, and its three wholly owned subsidiaries, OneSource
Acquisition, Inc., Genesis Acquisition, Inc. and Resource Financial Holding
Acquisition, Inc., each a Delaware corporation (the “AeroGroup Subsidiaries”
and, collectively with AeroGroup Incorporated, “AeroGroup”), pursuant to an
Asset Purchase Agreement dated July 14, 2006, as amended (the “Asset Purchase
Agreement”) and in consideration of the acquisition issued stock and assumed
certain indebtedness and other obligations under various warrants, a real
property sublease, government and non-government aviation contracts and certain
other contracts of AeroGroup (the “AeroGroup Acquisition”). As a result of the
asset purchase, the Company intends to be a provider of outsourced military
fighter jet pilot training to military personnel, including certain flight
support services.
 
 Since the
AeroGroup Acquisition was settled through the issuance of a controlling interest
in TADS Common Stock, AeroGroup is deemed to be the acquirer for accounting
purposes. Furthermore, since TADS is deemed to be a shell company prior to the
acquisition, purchase accounting was not applied. Therefore, the transaction was
accounted for as a reverse acquisition and recapitalization of AeroGroup.
Accordingly, the historical financial statements presented in the financial
statements are those of AeroGroup as adjusted to reflect the recapitalization
and elimination of certain assets and liabilities that were not assumed by TADS.
The net liabilities not assumed by TADS were recorded as a contribution to
capital totaling $4,505,560. These liabilities substantially consisted of
indebtedness due to Aero’s controlling stockholder, Mark Daniels
(“Daniels”).
 
 The
accompanying share information for Aero has been retroactively restated to
reflect the recapitalization transactions, including the exchange of Common
Stock and Common Stock equivalents of Aero for Common Stock and Common Stock
equivalents of TADS based on the exchange ratio of 50 to 1.
 
 In
connection with the reverse acquisition, the consideration paid to Aero Group
for the assets consisted of:
 
 -
              14,989,900
      shares of restricted Common Stock of TADS, constituting a majority of the
      then outstanding Common Stock of
TADS.
 -
              Assumption
      by TADS of Aero’s obligations under its convertible debentures totaling
      approximately $5.6 million, inclusive of accrued interest, all convertible
      into shares of TADS Common Stock at prices ranging $0.15 to $1.00 per
      share.
 -
              Assumption
      by TADS of Aero’s obligation under a convertible note issued in connection
      with a settlement agreement in the principal amount of $250,000, with an
      interest rate of 12%, payable in 36 equal monthly installments of
      principal, plus interest. The note has a maturity date of April 13, 2011.
      The note is convertible into shares of Common Stock at a rate of $.50 per
      share.
 -
              Assumption
      by TADS of Aero’s obligation under an assumed secured note payable to
      Daniels in the principal amount of $1,100,000, plus interest, at the rate
      of 12% per annum. The outstanding principal and interest is convertible
      into shares of TADS Common Stock at a conversion price of $.0.50 per
      share.
 -
              Assumption
      by TADS of Aero’s' obligation under a note assumed by the Company in
      connection with its June 2006 asset purchase (Note 5) in the principal
      amount of $2.2 million, plus interest at the rate of 8% per annum. The
      outstanding principal and interest is convertible into shares of TADS
      Common Stock at a conversion price of $0.50 per
  share.
 -
              Assumption
      by TADS of Aero’s obligations under certain outstanding warrants to
      purchase 23,968,315 shares of Common Stock exercisable at $0.15 per
      share.
 -
              Assumption
      by TADS of Aero’s obligations under government contracts and subcontracts
      and of leases relating to its Grayson Airport facilities, a $300,000
      consulting contract and property
leases.
 -
              Assumption
      by TADS of Aero’s obligations for accrued expenses totaling
      $136,000.
 
   F-6
   Aero is a
Utah corporation, which was incorporated on July 31, 1984 under the name
Diversified Resources Group, Inc. Aero was a provider of outsourced military
fighter jet pilot training to military personnel, including certain flight
support services. Effective January 1, 2006, Aero became a development stage
company as it was devoting all of its present efforts to securing and
establishing a new business.
 
 Basis of
Presentation
 
 In the
opinion of management, the accompanying audited consolidated financial
statements contain all adjustments, consisting of normal recurring accruals,
necessary for a fair statement of the results of operations and cash flows for
the periods presented and the condensed consolidated balance sheet for the year
ended  December 31, 2009. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted pursuant to the SEC rules and regulations.
 
 Going Concern and
Management's Plan
 
 The
accompanying consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of America,
which contemplate the continuation of the Company as a going concern. However,
as shown in the accompanying consolidated financial statements,the Company has incurred
losses from operations since inception and has a significant working capital
deficiency as of December 31, 2009 of approximately $38,000,000.
 
 December
15, 2006, TADS acquired substantially all of the assets of Aero and assumed
certain contracts in exchange for the assumption by TADS of certain liabilities
of Aero. Management believes the Company can raise adequate capital for the
Company’s required working capital needs for 2010. Management also believes that
it still needs substantial capital in order to carry out its business plan,
which is to become a civilian provider of outsourced military aviation services
which includes fighter jet pilot training, maintenance training, aerial
fire-fighting, ground-threat support, and other aerial services. No assurance
can be given that the Company can obtain the required estimated additional
working capital, or if obtained, that such funding will not cause substantial
dilution to stockholders of the Company. Being a development stage company, the
Company is subject to all the risks inherent in the establishment of a new
enterprise and the marketing of a new product, many of which risks are beyond
the control of the Company. All of the factors discussed above raise substantial
doubt about the Company's ability to continue as a going concern. During 2006,
Aero raised from various stockholders approximately $1,510,634 through the
issuance of convertible debt securities and warrants. During 2007-2009, the
Company has raised from various financing sources approximately $1,353,677
through the issuance of convertible debt. Also, the Company received proceeds
totaling $346,450 from the sale of 629,911 units comprising of one share of
Common Stock and warrants to purchase Common Stock. In addition, the Company
received proceeds totaling $114,781 from the sales of 382,663 shares of the
Company’s Common Stock.
 
 These
consolidated financial statements do not include any adjustments relating to the
recoverability of recorded asset amounts that might be necessary as a result of
the above uncertainty.
 
 NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 BASIS OF
PRESENTATION
 
 The
consolidated financial statements are prepared in accordance with generally
accepted accounting principles in the United States of America ("US GAAP"). All
material intercompany balances and transactions have been
eliminated
 
 Financial
Reporting
 
 The
Company prepares its financial statements in conformity with accounting
principles generally accepted in the United States of America. Revenues and
expenses are reported on the accrual basis, which means that income is
recognized as it is earned and expenses are recognized as they are
incurred.
 
    F-7
 
 
 Use
of Estimates
 
 The
Company’s significant estimates include allowance for doubtful accounts and
accrued expenses. These estimates and assumptions affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. While the Company
believes that such estimates are fair when considered in conjunction with the
financial statements taken as a whole, the actual amounts of such estimates,
when known, will vary from these estimates. If actual results significantly
differ from the Company’s estimates, the Company’s financial condition and
results of operations could be materially impacted.
 
 Cash
and Cash Equivalents
 
 Cash and
cash equivalents include all interest-bearing deposits or investments with
maturities of three and nine months or less.
 
 CONCENTRATION
OF CREDIT RISK
 
 Financial
instruments that potentially subject the Company to concentrations of
credit risk consist principally of cash. The
Company maintains cash balances at one financial
institution, which is insured by the Federal Deposit Insurance Corporation
(“FDIC”). The FDIC insured institution insures up to $250,000 on account
balances. The amounts that are not insured by FDIC limitations are held in
short-term securities.
 
 Fair
value of financial instruments
 
 The
carrying amounts reported in the balance sheet for cash, accounts receivable,
accounts payable and accrued expenses, debenture and loans payable approximate
their fair market value based on the short-term maturity of these
instruments.
 
 Accounts
Receivable
 
 The
Company extends credit to its customers in the normal course of business.
Further, the Company regularly reviews outstanding receivables, and provides
estimated losses through an allowance for doubtful accounts. In evaluating the
level of established loss reserves, the Company makes judgments regarding its
customers’ ability to make required payments, economic events and other factors.
As the financial condition of these parties change, circumstances develop or
additional information becomes available, adjustments to the allowance for
doubtful accounts may be required. The Company maintains reserves for potential
credit losses, and such losses traditionally have been within its
expectations.
 
 IMPAIRMENT
OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
 
 The
Company accounts for the impairment of long-lived assets in accordance with
Statement of Financial Accounting Standards No. 144, “Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of”
(“SFAS No. 144”). SFAS No. 144 requires write-downs to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets’ carrying amount.
 
 GOODWILL
AND OTHER INTANGIBLE ASSETS
 
 In June
2001, the FASB issued Statement No. 142 Goodwill and Other Intangible Assets.
This statement addresses financial accounting and reporting for acquired
goodwill and other intangible assets and supersedes APB Opinion No. 17,
Intangible Assets. It addresses how intangible assets that are acquired
individually or with a group of other assets (but not those acquired in a
business combination) should be accounted for in financial statements upon their
acquisition. This Statement also addresses how goodwill and other intangible
assets should be accounted for after they have been initially recognized in the
financial statements.
 
 Goodwill
and intangible assets with indefinite useful lives are not amortized. Intangible
assets with finite useful lives are amortized generally on a straight-line basis
over the periods benefited, with a weighted average useful life of 15
years.
 
 In
performing this assessment, management uses the income approach and the similar
transactions method of the market approach to develop the fair value of the
acquisition in order to assess its potential impairment of goodwill. The income
approach is based on a discounted cash flow model which relies on a number of
factors, including operating results, business plans, economic projections and
anticipated future cash flows. Rates used to discount future cash flows are
dependent upon interest rates and the cost of capital at a point in time. The
similar transactions method is a market approach methodology in which the fair
value of a business is estimated by analyzing the prices at which companies
similar to the subject, which are used as guidelines, have sold in controlling
interest transactions (mergers and acquisitions). Target companies are compared
to the subject company, and multiples paid in transactions are analyzed and
applied to subject company data, resulting in value indications. Comparability
can be affected by, among other things, the product or service produced or sold,
geographic markets served, competitive position, profitability, growth
expectations, size, risk perception, and capital structure. There are inherent
uncertainties related to these factors and management’s judgment in applying
them to the analysis of goodwill impairment. It is possible that assumptions
underlying the impairment analysis will change in such a manner that impairment
in value may occur in the future.
    F-8
 
 REVENUE
RECOGNITION
 
 Revenue
for services and goods is recognized monthly as provided pursuant to the terms
of contracts or purchase orders, which have prices that are fixed and
determinable. The Company assesses the client’s ability to meet the contract
terms, including meeting payment obligations, before entering into the contract.
Deferred revenue results from customers who are billed for monitoring in advance
of the period in which the services are provided, on a monthly, quarterly or
annual basis.
 
 The
Company follows Staff Accounting Bulletin 104 (SAB 104), which requires the
Company to defer certain revenue and expenses. The capitalized costs and
deferred revenues related to the installation are then amortized over the life
of an average customer relationship, on a straight line basis. If the customer
is discontinued prior to the expiration of the original expected life, the
unamortized portion of the deferred installation revenue and related capitalized
costs are recognized in the period the discontinuation becomes effective. In
accordance with EITF 00-21, “Revenue Arrangements with Multiple Deliverables”,
the service contracts that include both installation and video streaming are
considered a single unit of accounting.
 
 PROPERTY
AND EQUIPMENT
 
 Property
and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets.
Expenditures for major betterments and additions are capitalized
while replacement, maintenance and repairs, which do not extend the lives
of the respective assets, are currently charged to expense. Any gain
or loss on disposition of assets is recognized currently in the statement
of income.
 
 FAIR
VALUE OF FINANCIAL INSTRUMENTS
 
 The
Company's financial instruments consist primarily of cash, accounts payable and
accrued expenses, and debt. The carrying amounts of such financial instruments
approximate their respective estimated fair value due to the short-term
maturities and approximate market interest rates of these instruments. The
estimated fair value is not necessarily indicative of the amounts the Company
would realize in a current market exchange or from future earnings or
cash flows.
 
 INCOME
TAXES
 
 The
Company adopted Financial Accounting Standards Board (“FASB”) Interpretation No.
(FIN) 48, “Accounting for Uncertainty in Income Taxes.” FIN 48 clarifies the
accounting for uncertainty in income taxes recognized in financial statements in
accordance with SFAS No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return. FIN 48 requires that the Company determine whether the benefits of
the Company’s tax positions are more likely than not of being sustained upon
audit based on the technical merits of the tax position. The provisions of FIN
48 also provide guidance on de-recognition, classification, interest and
penalties, accounting in interim periods, and disclosure. The Company did not
have any unrecognized tax benefits and there was no effect on the financial
condition or results of operations as a result of implementing FIN 48. The
Company does not have any interest and penalties in the statement of operations
for the years ended December 31, 2009 and 2008.
 
 EARNINGS
(LOSS) PER SHARE
 
 Earnings
(loss) per share is computed in accordance with SFAS No. 128, "Earnings per
Share". Basic earnings (loss) per share is computed by dividing net income
(loss), after deducting preferred stock dividends accumulated during the period,
by the weighted-average number of shares of common stock outstanding during each
period. Diluted earnings per share is computed by dividing net income by the
weighted-average number of shares of common stock, common stock equivalents and
other potentially dilutive securities outstanding during the period. The
outstanding warrants for the years ended December 31, 2009 and 2008
respectively are anti-dilutive and therefore are not included in earnings (loss)
per share.
 
 ACCOUNTING
FOR STOCK-BASED COMPENSATION
 
 The
Company adopted SFAS No. 123R, "Accounting for Stock-Based Compensation". This
statement requires a public entity to measure the cost of employee services
received in exchange for an award of equity instruments based on the grant-date
fair value of the award (with limited exceptions). That cost will be recognized
over the period during which an employee is required to provide
service.
 
 In
addition, a public entity is required to measure the cost of employee services
received in exchange for an award of liability instruments based on its current
fair value. The fair value of that award has been re-measured subsequently at
each reporting date through the settlement date. Changes in fair value during
the requisite service period will be recognized as compensation cost over that
period.
 
 For the
year ended December 31, 2008 and 2009, the Company did not grant any stock
options.
     F-9
 
 NON-EMPLOYEE
STOCK BASED COMPENSATION
 
 The cost
of stock based compensation awards issued to non-employees for services are
recorded at either the fair value of the services rendered or the instruments
issued in exchange for such services, whichever is more readily determinable,
using the measurement date guidelines enumerated in Emerging Issues Task Force
Issue (“EITF”) 96-18, “Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services” (“EITF 96-18”).
 
 COMMON
STOCK PURCHASE WARRANTS
 
 The
Company accounts for common stock purchase warrants in accordance with the
provisions of Emerging Issues Task Force Issue (“EITF”) issue No. 00-19
“Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Company’s Own Stock” (“EITF 00-19”). Based on the provisions of
EITF 00-19, the Company classifies as equity any contracts that (i) require
physical settlement or net-share settlement, or (ii) gives the company a choice
of net-cash settlement or settlement in its own shares (physical settlement or
net-share settlement). The Company classifies as assets or liabilities any
contracts that (i) require net-cash settlement (including a requirement to net
cash settle the contract if an event occurs and if that event is outside the
control of the company), or (ii) give the counterparty a choice of net-cash
settlement or settlement in shares (physical settlement or net-share
settlement).
 
 INCOME
TAXES
 
 The
Company accounts for income taxes using SFAS No. 109, "Accounting for Income
Taxes," which requires recognition of deferred tax liabilities and assets for
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference between the
financial statement and tax bases of assets
and liabilities using enacted tax rates in effect for the
year in which the differences are expected to reverse. A
valuation allowance is recorded for deferred tax assets if it is more
likely than not that some portion or all of the deferred tax
assets will not be realized. Beginning after December 15, 2006. The Company does
not expect that this interpretation will have a material impact on its financial
position, results of operations, or cash flows.
 
 In May
2007, the FASB issued FASB Staff Position No. FIN 48-1,Definition of Settlement in FASB
Interpretation No. 48 (“the FSP”). The FSP provides guidance about
how an enterprise should determine whether a tax position is effectively settled
for the purpose of recognizing previously unrecognized tax benefits. Under the
FSP, a tax position could be effectively settled on completion of examination by
a taxing authority if the entity does not intend to appeal or litigate the
result and it is remote that the taxing authority would examine or re-examine
the tax position. The Company does not expect that this interpretation will have
a material impact on its financial position, results of operations, or cash
flows.
 
 NOTE
3 - RECENT ACCOUNTING PRONOUNCEMENTS
 
 Accounting Standards
Codification
 
 In
June 2009, the FASB issued Statement of Financial Accounting Standards
(“SFAS”) No. 168, The
FASB Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles(the “Codification”). This standard replaces SFAS
No. 162, The Hierarchy of
Generally Accepted Accounting Principles, and establishes only two levels
of U.S. generally accepted accounting principles (“GAAP”), authoritative and
nonauthoritative. The FASB ASC has become the source of authoritative,
nongovernmental GAAP, except for rules and interpretive releases of the SEC,
which are sources of authoritative GAAP for SEC registrants. All other
nongrandfathered, non-SEC accounting literature not included in the Codification
will become nonauthoritative. This standard is effective for financial
statements for interim or annual reporting periods ending after
September 15, 2009. The adoption of the Codification changed the Company’s
references to GAAP accounting standards but did not impact the Company’s results
of operations, financial position or liquidity.
    F-10
   Participating Securities Granted in
Share-Based Transactions
 
 Effective
January 1, 2009, the Company adopted a new accounting standard included in
ASC 260, Earnings Per Share(formerly FASB Staff Position (“FSP”) Emerging Issues Task Force (“EITF”)
03-6-1, Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating
Securities).The new guidance clarifies that non-vested share-based
payment awards that entitle their holders to receive nonforfeitable dividends or
dividend equivalents before vesting should be considered participating
securities and included in basic earnings per share. The Company’s adoption of
the new accounting standard did not have a material effect on previously issued
or current earnings per share.
 
 Business Combinations and
Noncontrolling Interests
 
 Effective
January 1, 2009, the Company adopted a new accounting standard included in
ASC 805, Business Combinations(formerly SFAS No. 141(R), Business Combinations).The
new standard applies to all transactions or other events in which an entity
obtains control of one or more businesses. Additionally, the new standard
requires the acquiring entity in a business combination to recognize all (and
only) the assets acquired and liabilities assumed in the transaction;
establishes the acquisition-date fair value as the measurement date for all
assets acquired and liabilities assumed; and requires the acquirer to disclose
additional information needed to evaluate and understand the nature and
financial effect of the business combination. The Company’s adoption of the new
accounting standard did not have a material effect on the Company’s consolidated
financial statements.
 
 Effective
January 1, 2009, the Company adopted a new accounting standard included in
ASC 810, Consolidations(formerly SFAS 160, Noncontrolling Interests in
Consolidated Financial Statements). The new accounting standard
establishes accounting and reporting standards for the noncontrolling interest
(or minority interests) in a subsidiary and for the deconsolidation of a
subsidiary by requiring all noncontrolling interests in subsidiaries be reported
in the same way, as equity in the consolidated financial statements. As such,
this guidance has eliminated the diversity in accounting for transactions
between an entity and noncontrolling interests by requiring they be treated as
equity transactions. The Company’s adoption of this new accounting standard did
not have a material effect on the Company’s consolidated financial
statements.
 
 Fair Value Measurement and
Disclosure
 
 Effective
January 1, 2009, the Company adopted a new accounting standard included in
ASC 820, Fair Value
Measurements and Disclosures(“ASC 820”) (formerly FASB FSP No 157-2,
Effective Date of FASB
Statement No. 157),which delayed the effective date for disclosing
all non-financial assets and non-financial liabilities, except for items that
are recognized or disclosed at fair value on a recurring basis (at least
annually). This standard did not have a material impact on the Company’s
consolidated financial statements.
 
 In
April 2009, the FASB issued new guidance for determining when a transaction
is not orderly and for estimating fair value when there has been a significant
decrease in the volume and level of activity for an asset or liability. The new
guidance, which is now part of ASC 820 (formerly FSP 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased Identifying Transactions That Are Not Orderly), requires
disclosure of the inputs and valuation techniques used, as well as any changes
in valuation techniques and inputs used during the period, to measure fair value
in interim and annual periods. In addition, the presentation of the fair value
hierarchy is required to be presented by major security type as described in ASC
320, Investments — Debt and
Equity Securities. The provisions of the new standard were effective for
interim periods ending after June 15, 2009. The adoption of the new
standard on April 1, 2009 did not have a material effect on the Company’s
consolidated financial statements.
 
 In
April 2009, the Company adopted a new accounting standard included in ASC
820, (formerly FSP 107-1 and Accounting Principles Board (“APB”) 28-1, Interim Disclosures about Fair Value
of Financial Instruments.The new standard requires disclosures of the
fair value of financial instruments for interim reporting periods of publicly
traded companies in addition to the annual disclosure required at year-end. The
provisions of the new standard were effective for the interim periods ending
after June 15, 2009. The Company’s adoption of this new accounting standard
did not have a material effect on the Company’s consolidated financial
statements.
 
 In
August 2009, the FASB issued new guidance relating to the accounting for
the fair value measurement of liabilities. The new guidance, which is now part
of ASC 820, provides clarification that in certain circumstances in which a
quoted price in an active market for the identical liability is not available, a
company is required to measure fair value using one or more of the following
valuation techniques: the quoted price of the identical liability when traded as
an asset, the quoted prices for similar liabilities or similar liabilities when
traded as assets, or another valuation technique that is consistent with the
principles of fair value measurements. The new guidance clarifies that a company
is not required to include an adjustment for restrictions that prevent the
transfer of the liability and if an adjustment is applied to the quoted price
used in a valuation technique, the result is a Level 2 or 3 fair value
measurement. The new guidance is effective for interim and annual periods
beginning after August 27, 2009. The Company’s adoption of the new guidance
did not have a material effect on the Company’s consolidated financial
statements.
 
   
 F-11
 
 Derivative Instruments and Hedging
Activities
 
 Effective
January 1, 2009, the Company adopted a new accounting standard included in
ASC 815, Derivatives and
Hedging(SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities, an amendment of SFAS No. 133).
The new accounting standard requires enhanced disclosures about an entity’s
derivative and hedging activities and is effective for fiscal years and interim
periods beginning after November 15, 2008. Since the new accounting
standard only required additional disclosure, the adoption did not impact the
Company’s consolidated financial statements.
 
 Other-Than-Temporary
Impairments
 
 In
April 2009, the FASB issued new guidance for the accounting for
other-than-temporary impairments. Under the new guidance, which is part of ASC
320, Investments — Debt and
Equity Securities(formerly FSP 115-2 and 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments),an other-than-temporary impairment is
recognized when an entity has the intent to sell a debt security or when it is
more likely than not that an entity will be required to sell the debt security
before its anticipated recovery in value.The new guidance does not
amend existing recognition and measurement guidance related to
other-than-temporary impairments of equity securities and is effective for
interim and annual reporting periods ending after June 15, 2009. The
Company’s adoption of the new guidance did not have a material effect on the
Company’s consolidated financial statements.
 
 Subsequent
Events
 
 In
May 2009, the FASB issued new guidance for subsequent events. The new
guidance, which is part of ASC 855, Subsequent Events(formerly
SFAS No. 165, Subsequent
Events)is intended to establish general standards of accounting for and
disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. Specifically,
this guidance sets forth the period after the balance sheet date during which
management of a reporting entity should evaluate events or transactions that may
occur for potential recognition or disclosure in the financial statements, the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements, and the
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. The new guidance is effective for fiscal
years and interim periods ended after June 15, 2009 and will be applied
prospectively. The Company’s adoption of the new guidance did not have a
material effect on the Company’s consolidated financial statements. The Company
evaluated subsequent events through the date the accompanying financial
statements were issued.
 
 Accounting
Standards Not Yet Effective
 
 Accounting for the Transfers of
Financial Assets
 
 In
June 2009, the FASB issued new guidance relating to the accounting for
transfers of financial assets. The new guidance, which was issued as SFAS
No. 166, Accounting for
Transfers of Financial Assets, an amendment to SFAS No.140,
was adopted into Codification in December 2009 through the issuance of
Accounting Standards Updated (“ASU”) 2009-16. The new standard eliminates the
concept of a “qualifying special-purpose entity,” changes the requirements for
derecognizing financial assets, and requires additional disclosures in order to
enhance information reported to users of financial statements by providing
greater transparency about transfers of financial assets, including
securitization transactions, and an entity’s continuing involvement in and
exposure to the risks related to transferred financial assets. The new guidance
is effective for fiscal years beginning after November 15, 2009. The
Company will adopt the new guidance in 2010 and is evaluating the impact it will
have to the Company’s consolidated financial statements.
 
 Accounting
for Variable Interest Entities
 
 In
June 2009, the FASB issued revised guidance on the accounting for variable
interest entities. The revised guidance, which was issued as SFAS No. 167,
Amending FASB Interpretation
No. 46(R),was adopted into Codification in December 2009
through the issuance of ASU 2009-17. The revised guidance amends FASB
Interpretation No. 46(R), Consolidation of Variable Interest
Entities, in determining whether an enterprise has a controlling
financial interest in a variable interest entity. This determination identifies
the primary beneficiary of a variable interest entity as the enterprise that has
both the power to direct the activities of a variable interest entity that most
significantly impacts the entity’s economic performance, and the obligation to
absorb losses or the right to receive benefits of the entity that could
potentially be significant to the variable interest entity. The revised guidance
requires ongoing reassessments of whether an enterprise is the primary
beneficiary and eliminates the quantitative approach previously required for
determining the primary beneficiary. The Company does not expect that the
provisions of the new guidance will have a material effect on its consolidated
financial statements.
 
 
 
 F-12
   Revenue
Recognition
 
 In
October 2009, the FASB issued ASU 2009-13, Multiple-Deliverable Revenue
Arrangements. The new standard changes the requirements for establishing
separate units of accounting in a multiple element arrangement and requires the
allocation of arrangement consideration to each deliverable based on the
relative selling price. The selling price for each deliverable is based on
vendor-specific objective evidence (“VSOE”) if available, third-party evidence
if VSOE is not available, or estimated selling price if neither VSOE or
third-party evidence is available. ASU 2009-13 is effective for revenue
arrangements entered into in fiscal years beginning on or after June 15,
2010. The Company does not expect that the provisions of the new guidance will
have a material effect on its consolidated financial statements.
 
 In
October 2009, the FASB issued Accounting Standards Update No. 2009-14,
"Certain Revenue Arrangements That Include Software Elements"("ASU No. 2009-14").
ASU No. 2009-14 amends guidance included within ASC Topic 985-605 to exclude
tangible products containing software components and non-software components
that function together to deliver the product’s essential
functionality.  Entities that sell joint hardware and software
products that meet this scope exception will be required to follow the guidance
of ASU No. 2009-13.  ASU No. 2009-14 is effective prospectively for
revenue arrangements entered into or materially modified in fiscal years
beginning on or after June 15, 2010.  Early adoption and
retrospective application are also permitted.  The company is
currently evaluating the impact of adopting the provisions of ASU No.
2009-14.
 
 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.
 
 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
4- ASSETS PURCHASED BY AERO
 
 Assets Purchased By
Aero
 
 In June
of 2006, Aero, through its subsidiaries, acquired certain assets from three
entities (“the Selling Entities”) owned 100% by Aero's controlling
stockholder, Mark Daniels. The Selling Entities acquired these assets on
December 29, 2005 from an unrelated entity in exchange for assets with a fair
value of $4,540,000 and a promissory note of $2,200,000. The assets acquired
included two MIG29 Aircrafts and four flight simulators and certain intellectual
assets. The Selling Entities obtained appraisals from certified independent
appraisers dated December 2005, which valued the aircrafts and simulators at
$6,740,000.
 
 As
consideration for the purchase of these assets, Aero (i) assumed
indebtedness of $1.1 million owed to Daniels by the Selling Entities, (ii)
assumed obligations under a promissory note in the principal amount of $2.2
million, with interest at 8% per annum, which was originally issued in December
2005, in connection with the acquisition of aircraft and simulators by the
Selling Entities, and (iii) issued a $3,440,000 unsecured promissory note to
Daniels. The $1.1 million due to Daniels is collateralized by TADS assets
and is guaranteed by its subsidiaries.
 
 In
reviewing the above transaction, Management determined that it had purchased a
group of assets, rather than acquiring a business. Since Aero and the Selling
Entities are commonly controlled, the recorded value of the assets purchased for
accounting purposes is limited to the Selling Entities carrying value of the
assets, which totaled $6,740,000 in June of 2006. The difference between the
considerations provided to the Selling Entities of $7,051,255, inclusive of
accrued interest assumed of $311,255, and the carrying value of the assets sold
of $6,740,000 was $311,255. This amount was recorded as a distribution in June
of 2006. Prior to this asset purchase, Aero did not have any business
transactions with the Selling Entities.
 
 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.
    F-13
   NOTE 5 – SALE OF
STOCK
 
 Pursuant
to a 2007 Securities Purchase Agreement, in September 2007, the Company sold to
four investors 382,663 shares in the aggregate of restricted Common Stock at a
purchase price of $0.30 per share. The gross proceeds of this offering totaled
$114,781. The share purchase price carried certain anti-dilution rights whereby
the share purchase price would be amended if the average closing price of the
shares, during the 30-day period following the closing of the offering, was less
than the share purchase price.  The new share purchase price would
become the anti-dilution reference price, and additional shares would be issued
to reflect the new share purchase price. Notwithstanding any of the above, the
new, share purchase price would not be less than $0.15. As a result of a decline
in the price of the Company’s Common Stock, the anti-dilution rights kicked in
and an additional 382,663 were issued in January 2008. Subsequently, pursuant to
certain protective rights granted to the Investors in the Share Purchase
Agreement, on January 23, 2008, and additional 382,666 shares of Common Stock
was issued to the Investors, which effectively changed the purchase price of the
Common Stock to $0.15 per share.
 
 Pursuant
to a Securities Purchase Agreement, in March, 2008, the Company sold 3,000,000
shares of restricted Common Stock to one investor at a purchase price of $0.01
per share. The gross proceeds of the offering totaled $30,000.
 
 Pursuant
to a Securities Purchase Agreement, in May, 2008, the Company sold 2,500,000
shares of restricted Common Stock in the aggregate to two investors at a
purchase price of $0.01 per share. The gross proceeds of the offering totaled
$25,000.
 
 Pursuant
to a Securities Purchase Agreement, in September, 2008, the Company sold
30,000,000 shares of restricted Common Stock in the aggregate to two investors
at a purchase price of $0.01 per share. The gross proceeds of the offering
totaled $300,000.
 
 Pursuant
to a Securities Purchase Agreement, in December, 2008, the Company sold
3,000,000 shares of restricted Common Stock to one investor at a purchase price
of $0.02 per share. The gross proceeds of the offering totaled
$60,000.
 
 Pursuant
to a Securities Purchase Agreement, in May, 2009, the Company sold 5,000,000
shares of restricted Common Stock to one investor at a purchase price of $0.005
per share. The gross proceeds of the offering totaled $25,000.
 
 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.
 
   
 F-14
  
 First
Quarter of 2007
 
 Between
January 1, 2007 and March 31, 2007, the Company received proceeds from loans
totaling $343,873. The Debentures are convertible into TADS Common Stock at
conversion prices ranging from $.25 to $1.00 per share and provide for warrants
to purchase 1,013,999 shares of TADS Common Stock at exercise prices ranging
from $.25 to $1.00. The Debentures bear interest of 12% and are due three years
from the date of issuance. The Debenture Warrants are exercisable at per share
exercise prices of $.25 to $1.00 per share of Common Stock, are exercisable
immediately up until the fifth anniversary of the initial warrant date, and such
exercise price is subject to adjustment for subsequent lower price issuances by
the Company and other customary events including stock splits, reverse stock
splits, issuance of convertible securities, sale of Common Stock and
spin-offs.
 
 The gross
proceeds of the $343,873 were allocated 25% or $86,084 to the Debentures and 75%
or $257,789 to the Warrants. The effective conversion price of the Debentures
was below the market price of TADS Common Stock at the date the various notes
were issued, which resulted in a beneficial conversion feature of $86,084. In
accordance with EITF 00-27 the amount allocated to the beneficial conversion
feature was limited to the net proceeds of the offering.
 
 Second
Quarter of 2007
 
 Between
April 1, 2007 and September 30, 2007, the Company received proceeds from loans
totaling $493,851. The Debentures are convertible into 1,974, 486 shares of TADS
Common Stock at a conversion price of $.25 per share and provide for warrants to
purchase 1,974,486 shares of TADS Common Stock at an exercise price of $.25. The
Debentures bear interest of 12% and are due three years from the date of
issuance. The Debenture Warrants are exercisable at a per share exercise prices
of $.25 per share of Common Stock, are exercisable immediately up until the
fifth anniversary of the initial warrant date, and such exercise price is
subject to adjustment for subsequent lower price issuances by the Company and
other customary events including stock splits, reverse stock splits, issuance of
convertible securities, sale of Common Stock and spin-offs.
 
 The gross
proceeds of the $493,851 were allocated 24.2% or $120,731 to the Debentures and
75.8% or $373,120 to the Warrants. The effective conversion price of the
Debentures was below the market price of TADS Common Stock at the date the
various notes were issued, which resulted in a beneficial conversion feature of
$120,731. In accordance with EITF 00-27 the amount allocated to the beneficial
conversion feature was limited to the net proceeds of the offering.
 
 Third
Quarter of 2007
 
 Between
July 1, 2007 and September 30, 2007, the Company received proceeds from loans
totaling $229,234. The Debentures are convertible into 1,053,620 shares of TADS
Common Stock at a conversion price range of $.20 to $.25 per share and provide
for warrants to purchase 1,053,620 shares of TADS Common Stock at an exercise
price in the range of $.20 to $.25. The Debentures bear interest of 12% and are
due three years from the date of issuance. The Debenture Warrants are
exercisable at a per share exercise prices at a range of $.20 to $.25 per share
of Common Stock, are exercisable immediately up until the fifth anniversary of
the initial warrant date, and such exercise price is subject to adjustment for
subsequent lower price issuances by the Company and other customary events
including stock splits, reverse stock splits, issuance of convertible
securities, sale of Common Stock and spin-offs.
 
 The gross
proceeds of the $229,234 were allocated 30.0% or $68,394 to the Debentures and
70.0% or $160,840 to the Warrants. The effective conversion price of the
Debentures was below the market price of TADS Common Stock at the date the
various notes were issued, which resulted in a beneficial conversion feature of
$160,840. In accordance with EITF 00-27 the amount allocated to the beneficial
conversion feature was limited to the net proceeds of the offering.
 
 Fourth
Quarter of 2007
 
 Between
October 1, 2007 and December 31, 2007, the Company received proceeds from loans
totaling $286,719. The Debentures are convertible into TADS Common Stock at a
conversion price of $.05 per share and provide for warrants to purchase
5,734,385 shares of TADS Common Stock at an exercise price of $.05. The
Debentures bear interest of 12% and are due three years from the date of
issuance. The Debenture Warrants are exercisable at a per share exercise prices
of $.05 per share of Common Stock, are exercisable immediately up until the
fifth anniversary of the initial warrant date, and such exercise price is
subject to adjustment for subsequent lower price issuances by the Company and
other customary events including stock splits, reverse stock splits, issuance of
convertible securities, sale of Common Stock and spin-offs.
 
 The gross
proceeds of the $286,719 were allocated 26.0% or $74,657 to the Debentures and
74.0% or $212,062 to the Warrants. The effective conversion price of the
Debentures was below the market price of TADS Common Stock at the date the
various notes were issued, which resulted in a beneficial conversion feature of
$212,062. In accordance with EITF 00-27 the amount allocated to the beneficial
conversion feature was limited to the net proceeds of the offering.
 
 As of
December 31, 2007, all of the principal and accrued interest related to the
Debentures has been classified as a current liability as they are either in
default or due within one year.
    F-15
 
 First
Quarter of 2008
 
 Between
January 1, 2008 and March 31, 2008, the Company issued $343,873 of Debentures as
consideration for  loans totaling $343,873. The Debentures are
convertible into TADS 6,877,460 shares of Common Stock at a conversion
price of $0.05 per share and provide for warrants to
purchase 6,877,460 shares of TADS Common Stock at an exercise price of
$0.05. The Debentures bear interest of 12% and are due three years from the date
of issuance. The Debenture Warrants are exercisable at a per share exercise
price of $.05 per share of Common Stock, are exercisable immediately up until
the fifth anniversary of the initial warrant date, and such exercise price is
subject to adjustment for subsequent lower price issuances by the Company and
other customary events including stock splits, reverse stock splits, issuance of
convertible securities, sale of Common Stock and spin-offs.
 
 The gross
proceeds of the $343,873 were allocated 25% or $86,084 to the Debentures and 75%
or $257,789 to the Warrants. The effective conversion price of the Debentures
was at the market price of TADS Common Stock at the date the various notes were
issued.
 
 Second
Quarter of 2008
 
 Between
April 1, 2008 and September 30, 2008, the Company issued $357,151 of Debentures
as consideration for loans totaling $357,151. The Debentures are convertible
into 17,857,252 shares of Common Stock at a conversion price of $0.02 per
share and provide for warrants to purchase 17,857,252 shares of TADS Common
Stock at an exercise price of $0.02. The Debentures bear interest of 12% and are
due three years from the date of issuance. The Debenture Warrants are
exercisable at a per share exercise price of $0.02 per share of Common Stock,
are exercisable immediately up until the fifth anniversary of the initial
warrant date, and such exercise price is subject to adjustment for subsequent
lower price issuances by the Company and other customary events including stock
splits, reverse stock splits, issuance of convertible securities, sale of Common
Stock and spin-offs.
 
 The gross
proceeds of the $357,151 were allocated 30% or $107,145 to the Debentures and
70% or $250,006 to the Warrants. The effective conversion price of the
Debentures was at the market price of TADS Common Stock at the date the various
notes were issued.
 
 Third
Quarter of 2008
 
 Between
July 1, 2008 and September 30, 2008, the Company issued $95,489 of Debentures as
consideration for loans totaling $95,489. The Debentures are convertible into
4,774,450 shares of Common Stock at a conversion price of $0.02 per share
and provide for warrants to purchase 17,857,252 shares of TADS Common Stock
at an exercise price of $0.02. The Debentures bear interest of 12% and are due
three years from the date of issuance. The Debenture Warrants are exercisable at
a per share exercise price of $0.02 per share of Common Stock, are exercisable
immediately up until the fifth anniversary of the initial warrant date, and such
exercise price is subject to adjustment for subsequent lower price issuances by
the Company and other customary events including stock splits, reverse stock
splits, issuance of convertible securities, sale of Common Stock and
spin-offs.
 
 The gross
proceeds of the $95,489 were allocated 25% or $23,872 to the Debentures and 70%
or $71,617 to the Warrants. The effective conversion price of the Debentures was
at the market price of TADS Common Stock at the date the various notes were
issued.
 
 First
Quarter of 2009
 
 In the
first quarter of 2009, the Company issued $30,000 of Debentures as consideration
for unpaid fees to service providers.  The Debentures are convertible
into 1,730 shares of Common Stock at a conversion price of $0.02 per
share.  The Debentures have a term of three years, an interest rate of
12%, and full-ratchet anti-dilution protection
 
 Third
Quarter of 2009
 
 Between
July 31, 2009 and November 15, 2009, the Company issued  $57,542.46 of
Debentures as consideration for  loans totaling
$57,542.46.  The Debentures have a term of three years, an interest
rate of 12%, are convertible into 46,033,968 shares of Common Stock at a
conversion price of $0.00125 per share, and have full-ratchet anti-dilution
protection.
 
 On July
31, 2009, the Company retired $753,457.42 of Short-Term Loans, and as
consideration, issued $753,457.42 of Debentures convertible into 602,765,936
shares of Common Stock at a conversion price of $0.00125 per
share.  The Debentures have a term of three years, an interest rate of
12%, and full-ratchet anti-dilution protection.
     F-16
 
 On
September 3, 2009, the Company retired Promissory Notes totaling $162,964.54,
and as consideration, issued $162,964.54 of Debentures convertible into
130,371,634 shares of Common Stock at a conversion price of $0.00125 per
share.  The Debentures have a term of three years, an interest rate of
12%, and full-ratchet anti-dilution protection.
 
 Additionally
on September 3, 2009, the Company issued $274,603.11 of Debentures to employees
and consultants as consideration for accrued salary, expenses, and fees, and for
the retirement of 116,885,154 shares of Common Stock of the
Company.  The Debentures are convertible into 219,682,488 shares of
Common Stock at a conversion price of $0.00125 per share.  The
Debentures have a term of three years, an interest rate of 12%, and full-ratchet
anti-dilution protection
 
 Additional
Indebtedness
 
 Between
July 1, 2008 and April 30, 2009, the Company received proceeds of Short-Terms
loans (the “Short-Term Loans”) totaling $742,863of which $175,000 was
repaid in October, 2008. The Short-Term Loans carry a term of one year, an
interest rate of 12%, and carried 100% stock coverage with a reference price
equal to the lowest purchase price of Common Stock of the Company sold by the
Company between the date of the Short-Term Loans and repayment of the Short-Term
Loans.  The Short-Term Loans have a lien on the receivables from the
AETC Contract which stipulates that all funds received from the AETC Contract
will first be directed towards paying down the Short-Term loans, with the
agreement that one half of the funds repaid from the AETC receivables will be
reloaned to the Company by the lien holders. The reference price was
renegotiated with the lender and is currently equal to a 50% discount to the
lowest purchase price of Common Stock of the Company sold by the Company between
the date of the Short-Term Loans and repayment of the Short-Term Loans, which
lowest purchase price is currently $0.01 and which principle is equal to
148,572,658 shares of the Company’s Common Stock, which Common Stock has been
issued.  On July 31, 2009 the Short-Term Loans including accrued
interest to-date were retired.
 
 Between
April 30, 2009 and July 31, 2009, the Company received proceeds of Short-Terms
loans (the “Short-Term Loans”) totaling $109,188. The Short-Term Loans carry a
term of one year, an interest rate of 12%, and 100% stock coverage with a
reference price equal to the lowest purchase price of Common Stock of the
Company sold by the Company between the date of the Short-Term Loans and
repayment of the Short-Term Loans.  The reference price is equal to a
50% discount to the lowest purchase price of Common Stock of the Company sold by
the Company between the date of the Short-Term Loans and repayment of the
Short-Term Loans, which lowest purchase price is currently $0.005 and which
principle new loans equals 51,774,471 shares of the Company’s Common Stock,
which Common Stock has not yet been issued. On July 31, 2009 the Short-Term
Loans including accrued interest to-date were retired.
 
 On April
15, 2009, the Company issued a Promissory Note to Mark Daniels for $159,878.63
in consideration for unpaid salary and expenses accrued from April 1, 2008
through April 15, 2009.  The terms of the Promissory Note have been
revised to increase the term of 120 days with an annual interest rate 12%, and
in the event of non-payment in full by the due-date of the Promissory Note, on
the unpaid balance, the annual interest rate increases retroactively to 18% and
the note-holder shall receive additional consideration of 100% annual stock
coverage at a share reference price equal to a 50% discount to the 30-day
trailing average price of the Common Stock of the Company.
 
 On April
15, 2009, the Company issued a Promissory Note to Alexis Korybut for
$114,425.77in
consideration for unpaid salary and expenses accrued from April 1, 2008 through
April 15, 2009.  The terms of the Promissory Note have been revised to
increase the term to 120 days with an annual interest rate 12%, and in the event
of non-payment in full by the due-date of the Promissory Note, on the unpaid
balance, the annual interest rate increases retroactively to 18% and the
note-holder shall receive additional consideration of 100% annual stock coverage
at a share reference price equal to a 50% discount to the 30-day trailing
average price of the Common Stock of the Company.  On September 3,
2009, the Promissory Note was retired.
 
 On April
15, 2009, the Company issued a Promissory Note to Joint Strategy Group, Inc. for
$41,319.04in
consideration for unpaid consulting fees and expenses accrued from July 1, 2008
through April 15, 2009.  The terms of the Promissory Note have been
revised to increase the term to 120 days with an annual interest rate
12%.  In the event of non-payment in full by the due-date of the
Promissory Note, on the unpaid balance, the annual interest rate increases
retroactively to 18% and the note-holder shall receive additional consideration
of 100% annual stock coverage at a share reference price equal to a 50% discount
to the 30-day trailing average price of the Common Stock of the
Company.  On September 3, 2009, the Promissory Note was
retired.
 
 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.
    F-17
 
 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.
 
 Cancellation
of Indebtedness and Return of Assets
 
 On May
29, 2008, the Company returned the two MiG-29 aircraft and four flight
simulators (the “Cambar Assets”) it had purchased hrough the Aerogroup
Acquisiion.  The Company and Cambar & Associates (“Cambar”)
executed a Settlement and Release Agreement. In December, 2006, TADS assumed
from AeroGroup an indebtedness owed to Cambar (the “Cambar Note”) of a principle
amount of $2,200,000 for the purchase of, the Cambar Assets, which indebtedness
included interest to be paid on the principle.
 
 With the
Settlement and Release Agreement, the Company agreed to relinquish the Cambar
Assets to Cambar, and issue to Cambar 50,000,000 Shares, as payment in full and
final settlement for any claims Cambar may have against the Company, and Cambar
agreed to reclaim the Cambar Assets, cancel the Cambar Note including any
accrued and unpaid interest, and return to the Company for retirement the
1,000,000 Shares issued in the aggregate to Cambar and NATA as compensation for
interest due on the Cambar Note in 2007, as payment in full and final settlement
for any claims the Company may have against Cambar.
 
 Issuance
of Common Stock
 
 Issuance
of Common Stock to Cambar & Associates and NATA
 
 The
Company issued 500,000 restricted shares of Common Stock to NATA in the second
quarter of 2007 and 500,000 restricted shares of Common Stock to Cambar &
Associates in the third quarter of 2007, as compensation for interest due on the
Cambar Note. Notwithstanding the above, NATA and Cambar & Associates have
agreed to retire the shares as per the Settlement and Release Agreement
described above. The Company issued an additional 40,000,000 restricted shares
of Common Stock to NATA and 10,000,000 restricted shares of Common Stock to
Cambar & Associates in the third quarter of 2008, as per the terms of the
Settlement and Release Agreement described above. No registration rights were
issued in connection with these shares.
 
 Issuance
of Common Stock to Fred Daniel
 
 The
Company issued an aggregate of 405,000 restricted shares of Common Stock to Mr.
Fred Daniels in the first and third quarters of 2007, as compensation for
service as an Officer of the Company. The Company issued an additional 1,100,000
restricted shares of Common Stock to Mr. Fred Daniels in the third quarter of
2008 as further compensation for service as an Officer and Director of the
Company through April 16, 2008. No registration rights were issued in connection
with these shares.
 
 Issuance
of Common Stock to Mark Daniels
 
 The
Company issued an aggregate of 1,600,000 restricted shares of Common Stock to
Mr. Mark Daniels in the second quarter of 2007, as compensation in lieu of
accrued and unpaid salary for his service as President and Chief Executive
Officer of the Company. No registration rights were issued in connection with
these shares.
 
 Issuance
of Common Stock to Mark Daniels Irrevocable Trust III
 
 The
Company issued an aggregate amount of 105,000,000 restricted shares of Common
Stock to Mark Daniels Irrevocable Trust III in the third quarter of
2008.  Notwithstanding the above, 52,500,000 of these shares were
duplicately issued in error and were cancelled on November 20, 2008 by the
Company’s transfer agent for retirement by tender to the transfer agent of a
lost share affidavit by the Mark Daniels Irrevocable Trust III.  The
shares were issued in consideration for Mr. Daniels executing a new employment
agreement with the Company and for accrued and unpaid salary. The Company issued
an aggregate amount of 121,975,720 restricted shares of Common Stock to Mark
Daniels Irrevocable Trust III in April, 2009.  The shares were issued
in consideration for accrued and unpaid salary and expenses owed to Mr. Daniels,
for his retirement of 4,000,000 Series A Preferred Shares including cancellation
of any accrued dividends, and for Mr. Daniels executing a new employment
agreement with the Company upon his assuming the role of Chief Executive
Officer. No registration rights were issued in connection with these
shares.
    F-18
 
 Issuance
of Common Stock to Victor Miller
 
 The
Company issued an aggregate of 810,000 restricted shares of Common Stock to Mr.
Victor Miller in the second quarter of 2007, as compensation in lieu of accrued
and unpaid salary for his service as an Officer of the Company. The Company
issued an additional 2,400,000 restricted shares of Common Stock to Victor
Miller in February, 2008 in consideration of Mr. Miller retiring his 2,400,000
Series A Preferred shares including any accrued dividends, which Preferred share
retirement occurred in April, 2009. In addition, in April, 2009, the Company
issued to Mr. Miller 10,000,000 shares of Common Stock as per a Settlement
Agreement signed between Mr. Miller and the Company and other parties in April,
2009.  No registration rights were issued in connection with these
shares.
 
 Issuance
of Common Stock to Alexis Korybut
 
 The
Company issued an aggregate of 30,000,000 restricted shares of Common Stock to
Mr. Alexis Korybut in the first quarter of 2008, as compensation for serving as
additional President, Chief Executive Officer, Treasurer, and Principle
Accounting Officer of the Company. No registration rights were issued in
connection with these shares.  The shares of Common Stock have
subsequently been retired as per agreement between the Company and Alexis
Korybut.
 
 Issuance
of Common Stock to John Farley
 
 The
Company issued an aggregate of 150,000 restricted shares of Common Stock to Mr.
John Farley in the first and third quarters of 2007, as compensation for his
service as an Officer of the Company. The Company issued an additional 100,000
restricted shares of Common Stock to Mr. John Farley in the first quarter of
2008, as compensation as an independent provider of services to the Company. The
Company issued an additional 300,000 restricted shares of Common Stock to Mr.
John Farley in the third quarter of 2008, as compensation as an independent
provider of services to the Company. No registration rights were issued in
connection with these shares.
 
 Issuance
of Common Stock to Lawrence Cusack
 
 The
Company issued 600,000 restricted shares of Common Stock to Mr. Lawrence Cusack
in the first quarter of 2008, as additional compensation for serving as an
employee of the Company. The Company issued an additional 400,000 restricted
shares of Common Stock to Mr. Lawrence Cusack in the third quarter of 2008, as
consideration for accrued and unpaid salary for serving as an employee of the
Company.  The Company issued 1,000,000 restricted shares of Common
Stock to Mr. Lawrence Cusack in April, 2009, as consideration for unpaid salary
while serving as an employee of the Company in 2008.  No registration
rights were issued in connection with these shares.
 
 Issuance
of Common Stock to Peter Maffitt
 
 The
Company issued 500,000 restricted shares Common Stock to Peter Maffitt, a
Director of the Company, in the second quarter of 2008 as compensation for
acting as a Director of the Company. The Company issued an additional 1,000,000
restricted shares of Common Stock to Peter Maffitt in the third quarter of 2008
as further compensation for acting as a Director of the Company. The Company
issued 1,000,000 restricted shares Common Stock to Peter Maffitt, a Director of
the Company, in April, 2009, as compensation for acting as a Director of the
Company.  No registration rights were issued in connection with these
shares.
 
 Issuance
of Common Stock to Charles DeAngelo
 
 The
Company issued 250,000 restricted shares of Common Stock to Charles DeAngelo, a
Director of the Company, in the second  quarter of 2008 as
compensation for acting as a Director of the Company. The Company issued an
additional 750,000 restricted shares of Common Stock to Charles DeAngelo in the
third quarter of 2008 as further compensation for acting as a Director of the
Company. The Company issued 1,000,000 restricted shares of Common Stock to
Charles DeAngelo, a Director of the Company, in April, 2009 as compensation for
acting as a Director of the Company. No registration rights were issued in
connection with these shares.
 
 Issuance
of Common Stock to ZA Consulting
 
 The
Company issued 250,000 restricted shares of Common Stock to ZA Consulting Group
in the first quarter of 2007, as compensation for investor relations services
and related consulting services. The Company issued an additional aggregate of
6,000,000 restricted shares of Common Stock to ZA Consulting Group in the third
quarter of 2008 in connection with a Settlement and Release Agreement reached
between the parties in the third quarter of 2008 and in connection with future
consulting services to the Company. No registration rights were issued in
connection with these shares.
 
   F-19
   Issuance
of Common Stock to Gary Corley
 
 The
Company issued 200,000 restricted shares of Common Stock to Mr. Gary Corley Esq.
in the fourth quarter of 2007, as compensation for legal services. The Company
issued an additional 3,000,000 restricted shares of Common Stock to Mr. Gary
Corley Esq. in the third quarter of 2008 as compensation for legal services. No
registration rights were issued in connection with these shares.
 
 Issuance
of Common Stock to Economic Advisors, Inc.
 
 The
Company issued an aggregate of 114,800 restricted shares of Common Stock to
Economic Advisors, Inc. in the fourth quarter of 2007 and the first quarter of
2008, as compensation for introducing certain accredited investors to the
Company. The Company issued an additional 18,000,000 restricted shares of Common
Stock to Economic Advisors, Inc. in the third quarter of 2008 in connection with
a Settlement and Release Agreement reached between the parties in the third
quarter of 2008. No registration rights were issued in connection with these
shares.
 
 Issuance
of Common Stock to Federal Financial Partners, LLC
 
 The
Company issued an aggregate of 1,600,000 shares of restricted Common Stock to
Federal Financial Partners, LLC in the first and third quarters of 2007 as
compensation for consulting services to the Company. The Company issued an
additional 4,000,000 shares of restricted Common Stock to Federal Financial
Partners, LLC in February, 2008 in consideration of Mark Daniels retiring his
4,000,000 Series A Preferred shares.  Notwithstanding the above, the
stock certificate representing the 4,000,000 shares of Common Stock was
cancelled on April 30, 2009.  No registration rights were issued in
connection with these shares.
 
 Issuance
of Common Stock to Northrop Defense Consulting Corp.
 
 The
Company issued an aggregate of 2,800,000 shares restricted shares of Common
Stock to Northrop Defense Consulting Corp for consulting services in the third
quarter of 2007.  No registration rights were issued in connection
with these shares.
 
 Issuance
of Common Stock to Joint Strategy Group, Inc.
 
 The
Company issued 5,000,000 restricted shares of Common Stock to Joint Strategy
Group, Inc. in the first quarter of 2008, as compensation for consulting
services to the Company. The Company issued an additional 20,000,000 restricted
shares of Common Stock to Joint Strategy Group, LLC in the third quarter of
2008, as consideration for executing a long-term consulting services agreement
with the Company. The Company issued 68,263,808 restricted shares of Common
Stock to Joint Strategy Group, Inc. in April, 2009, as consideration for unpaid
consulting fees accrued from July 1, 2008 through April 15, 2009, and as
consideration for a new consulting agreement with the Company. No registration
rights were issued in connection with these shares.
 
 Issuance
of Common Stock to Thomas Pierson
 
 The
Company issued 100,000 restricted shares of Common Stock to Thomas Pierson in
the first quarter of 2008 as compensation for consulting services to the
Company. No registration rights were issued in connection with these
shares.
 
 Issuance
of Common Stock to Charles Pearlman
 
 The
Company issued 50,000 restricted shares of Common Stock to Charles Pearlman in
the second quarter of 2008 as compensation for consulting services to the
Company. No registration rights were issued in connection with these
shares.
 
 Issuance
of Common Stock to Plumtree Capital Management LLC
 
 The
Company issued 4,000,000 restricted shares of Common Stock to Plumtree Capital
Management LLC in July, 2008 as compensation for accrued and unpaid consulting
fees and expenses to July, 2008. The Company issued 82,885,154 restricted shares
of Common Stock to Plumtree Capital Management LLC in April, 2009 as
consideration for unpaid salary and expenses accrued from July 1, 2008 through
April 15, 2009, and as consideration for a new employment agreement with the
Company. No registration rights were issued in connection with these
shares.  The shares of Common Stock have subsequently been retired as
per agreement between the Company and Plumtree Capital Management
LLC.
 
   F-20
 
 Issuance
of Common Stock to M&A Advisors LLC
 
 The
Company issued 2,000,000 restricted shares of Common Stock  in the
third quarter of 2008 and 2,000,000 restricted shares of Common Stock in April,
2009, to M&A Advisors LLC as compensation for consulting services to the
Company. No registration rights were issued in connection with these
shares.
 
 Issuance
of Common Stock to TCI Global Trading Ltd
 
 The
Company issued 30,000,000 restricted shares of Common Stock to TCI Global
Trading Ltd in the third quarter of 2008 as consideration for providing ongoing
consulting services to the Company. No registration rights were issued in
connection with these shares.
 
 Issuance
of Common Stock to Eurotrust Capital SPA
 
 The
Company issued to Eurotrust Capital SPA an aggregate of 4,500,000 restricted
shares of Common Stock in the third and fourth quarters of 2008 as compensation
for consulting services to the Company. No registration rights were issued in
connection with these shares.
 
 Issuance
of Common Stock to Marc Brannigan
 
 The
Company issued 7,000,000 restricted shares of Common Stock to MBC Consulting LLC
in the third quarter of 2008 as compensation for accrued and unpaid consulting
services to the Company. No registration rights were issued in connection with
these shares.
 
 Issuance
of Common Stock to Brad Baker
 
 The
Company issued 250,000 restricted shares of Common Stock to Brad Baker in the
third quarter of 2008 as compensation for serving on the board of advisors of
the Company. No registration rights were issued in connection with these
shares.
 
 Issuance
of Common Stock to Donald Goldstein
 
 The
Company issued 1,000,000 restricted shares of Common Stock to Donald Goldstein
in the third quarter of 2008 as compensation for prior service on the Board of
Directors of the Company. No registration rights were issued in connection with
these shares.
 
 Issuance
of Common Stock to the Sassin Law Firm
 
 The
Company issued 666,667 restricted shares of Common Stock to the Sassin Law Firm
in the third quarter of 2008 as compensation for legal services. No registration
rights were issued in connection with these shares.
 
 Issuance
of Common Stock to the Ticktin Law Group
 
 The
Company issued 3,000,000 restricted shares of Common Stock in the fourth quarter
of 2008 and 3,000,000 restricted shares of Common Stock in April, 2009, to the
Tictin Law Group as compensation for legal services. No registration rights were
issued in connection with these shares.
 
 Issuance
of Common Stock to Julius Astrada
 
 The
Company issued 1,000,000 restricted shares of Common Stock to Julius Astrada in
the fourth quarter of 2008 as compensation for marketing services. No
registration rights were issued in connection with these shares.
 
 Issuance
of Common Stock to Bradley Hacker
 
 The
Company issued 1,000,000 restricted shares of Common Stock to Bradley
Hacker in April, 2009 as compensation for fees associated with bookkeeping
services for the third and fourth quarters of 2008 and the first quarter of
2009. No registration rights were issued in connection with these
shares.
 
 Issuance
of Common Stock to Air Support Systems, LLC
 
 The
Company issued 100,000,000 restricted shares of Common Stock to Air Support
Systems, LLC in April, 2009 as consideration under the terms of an agreement
between Air Support Systems, LLC and the Company for the exclusive lease of its
ILyushin IL-78 aircraft. No registration rights were issued in connection with
these shares.  The shares of Common Stock have subsequently been
retired as per agreement between the Company and Air Support Systems,
LLC.
   F-21
 
 Issuance
of Common Stock to Dakota Aviation Consultants, LLC
 
 The
Company issued 100,000,000 restricted shares of Common Stock to Dakota Aviation
Consultants, LLC in April, 2009 as consideration under the terms of a consulting
agreement between Dakota Aviation Consultants, LLC and the Company. No
registration rights were issued in connection with these shares.
 
 Issuance
of Common Stock to the Dakota Fears Trust
 
 The
Company issued 100,000,000 restricted shares of Common Stock to the Dakota Fears
Trust in April, 2009 as consideration under the terms of a Short-Term Loan
agreement between the Dakota Fears Trust and the Company. No registration rights
were issued in connection with these shares.
 
 Issuance
of Common Stock to the Gary Fears Trust
 
 The
Company issued 83,980,742 restricted shares of Common Stock to the Gary Fears
Trust in April, 2009, of which 30,000,000 shares were issued as consideration
for an investment of $300,000 in September of 2008, and 53,980,742 shares were
issued under the terms of a Short-Term Loan agreement between the Gary Fears
Trust and the Company. No registration rights were issued in connection with
these shares.
 
 Issuance
of Common Stock to Phillip Scott
 
 The
Company issued 45,805,758 unrestricted shares of Common Stock to Phillip
Scott  in March, 2010 per the terms of a settlement agreement between
the Company and DS Enterprises.
 
 Issuance
of Common Stock to Alexis Korybut
 
 The
Company issued 50,000,000 restricted shares of Common Stock to Alexis Korybut in
March, 2010 as a signing bonus per the terms of his employment agreement of
January 1, 20101.  No registration rights were issued in connection
with these shares.
 
 Issuance of Common Stock to Michael
Cariello
 
 The
Company issued 50,000,000 restricted shares of Common Stock to Michael Cariello
in March, 2010 as a signing bonus per the terms of his employment agreement of
January 1, 20101.  No registration rights were issued in connection
with these shares.
 
 Retirement
of Common Stock
 
 The
Company retired 45,000,000 shares of its Common Stock in May, 2009, which had
been issued to International Tactical Training Center, Inc. in advance
consideration for services which services were subsequently not
delivered.
 
 The
Company retired 30,000,000 shares of its Common Stock in November, 2009, which
had been issued to Alexis Korybut, pursuant to an agreement between the Company
and Alexis Korybut.
 
 The
Company retired 86,885,154 shares of its Common Stock in March, 2010, which had
been issued to Plumtree Capital Management, LLC, pursuant to an agreement
between the Company and Plumtree Capital Management LLC in November,
2009.
 
 The
Company retired 100,000,000 shares of its Common Stock in November, 2009, which
had been issued to Air Support Systems, LLC, pursuant to an agreement between
the Company and Air Support Systems, LLC.
      
 F-22
 
 
 Series
A Preferred Stock
 
 On March
21, 2007, the Company filed a Certificate of Designation of Series A Preferred
Stock (the “Series A Certificate of Designation”) with the Secretary of State of
the State of Nevada, designating a series of 50,000,000 shares of Preferred
Stock of the Company, $.001 par value (the “Series A Preferred Stock”). Pursuant
to the Series A Certificate of Designation, holders of the Company’s Series A
Preferred Stock are entitled to:
 
 -
              Elect
      one director to the Company’s board of
  directors;
 -
              Vote
      on all other matters on a 25 votes per share Common Stock
      basis.
 -
              With
      respect to dividend rights, rights on redemption, rights on conversion and
      rights on liquidation, winding up and dissolution, rank senior to all
      Common Stock, warrants and options to purchase Common Stock established by
      the Board or the Stockholders (all of such equity securities of the
      Corporation to which the Series A Preferred Stock ranks senior are
      collectively referred to herein as “Junior
  Stock”).
 -
              Each
      share of Series A Preferred Stock is initially convertible into 2 shares
      of the Common Stock of the Company, subject to adjustment for stock
      splits, recapitalization or other
  reorganizations.
 
 In
addition, the Series A Preferred Stock:
 
 -
              has
      weighted average antidilution protection that will cause the conversion
      price to adjust downward in the event that the Company issues shares of
      Common Stock or securities convertible into Common Stock at a price of
      less than the conversion price of the Series A Preferred Stock then in
      effect may be converted into Common Stock at the option of the holder;
      and
 -
              Diluted
      net loss per share reflects per share amounts that result if dilutive
      common stock equivalents are converted to common stock. Common stock
      equivalents, consisting of convertible debt, options and warrants were not
      included in the calculation of diluted loss per share for the three months
      ended March 31, 2008 and 2009 because their inclusion would have had been
      anti-dilutive.
 
 Issuance
of Series A Preferred Stock
 
 During
fiscal 2007, the Company issued an aggregate of 6,400,000 shares of its Series A
Preferred Stock; 2,400,000 shares to Mr. Victor Miller, and 4,000,000 shares to
Federal Financial Partners, LLC.
 
 Retirement
of Series A Preferred Stock
 
 In April,
2009, the 6,400,000 shares of Series A Preferred Stock, of which 4,000,000
shares had been issued to Federal Financial Partners, LLC and 2,400,000 shares
had been issued to Victor Miller, were cancelled and retired, as per a
settlement agreement between Federal Financial Partners, LLC and Victor Miller,
and the Company in which Federal Financial Partners, LLC and Victor Miller each
receive 10,000,000 shares of Common Stock of the Company as consideration for
the retirement of their Series A Preferred Stock and cancellation of any accrued
and unpaid dividends owed to them.
 
 As of
April 15, 2010, there is no Series A Preferred Stock outstanding.
 
 NOTE
6 - 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, 2009 consist of the
following:
 
 Year
      Ended
              
              Debentures
              
              
              Debenture
                WarrantsTotal
      principal at December 31, 2007
              
              
              5,314,912
              
              
              $
              25,274,054Accrued
      interest
              
              
              1,712,761Unamortized
      debt discount
              
              
              (2,076,820
              )2008-Converted/Excercised
              
              
              (4,950,853
              )Net
      Carrying Value at December 31, 2008 and December 31, 2009
              
              $
              -0-
 
 
 
 
 
 
 F-23
 
 NOTE
7 - INCOME TAXES:
 
 There is
no provision for income taxes for the year December 31, 2009. The Company has
minimal net operating loss carry forwards for income tax purposes at December
31, 2009. The deferred tax asset primarily attributable to the Company’s net
operating loss carryforwards has been offset by a full valuation
allowance.
 
 The
reconciliation of the federal statutory rate to the effective tax rate is as
follows:
 
 Year Ended
                December
      31,2009Federal
      statutory rate
              
              
              (34
              )%Permanent
      differences
                (derivative
      gains and losses and non-deductible interest)
              
              
              34
              %Effective
      Tax Rate
              
              
              -
 
 NOTE
8 - STOCKHOLDERS' EQUITY:
 
 Effective
as of December 20, 2006, the Company filed an amendment to its Articles of
Incorporation (the “Amendment”) to increase the Company’s authorized capital
stock from 100,000,000 shares of Common Stock, par value $.001 per share only,
to 350,000,000 shares, par value $.001 per share, of which 300,000,000 shares
are Common Stock and the remaining 50,000,000 shares are a newly created class
of “blank check” preferred stock. As of December 31, 2006, the Company has no
shares of preferred stock issued or reserved for issuance, and the Company’s
board of directors has never designated the rights, preferences or privileges of
a preferred stock.
 
 Effective
as of June 25, 2008, the Company filed an amendment to its Articles of
Incorporation (the “Amendment”) to increase the Company’s authorized capital
stock from 300,000,000 shares of Common Stock, par value $.001 per share only,
to 1,050,000,000 shares, par value $.001 per share, of which 1,000,000,000
shares are Common Stock and the remaining 50,000,000 shares are a newly created
class of “blank check” preferred stock.
 
 Effective
as of April 24, 2009, the Company filed an amendment to its Articles of
Incorporation (the “Amendment”) to increase the Company’s authorized capital
stock from 1,050,000,000 shares of Common Stock, par value $.001 per share only,
to 3,050,000,000 shares, par value $.001 per share, of which 3,000,000,000
shares are Common Stock and the remaining 50,000,000 shares are a newly created
class of “blank check” preferred stock.
 
 On the
effective date of the reverse acquisition (December 15, 2006), the Company
reclassified $45,737,637 of accumulated deficits to paid-in-capital. This amount
represented Aero’s accumulated deficit on December 15, 2006 which was not
transferred to TADS as part of reverse acquisition.
 
 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-24
 
 Warrants
 
 At
December 31, 2009 the Company has outstanding warrants to purchase Common Stock
as follows:
 
 No. of
                Warrants
              
              
              Weighted
                Average
                PriceBalance
      at January 1, 2005
              
              
              12,056,428
              
              
              $
              0.15Issued
      – 2005
              
              
              9,645,312
              
              
              $
              0.15Balance
      - December 31, 2005
              
              
              21,701,740
              
              
              $
              0.15Issued
      – 2006
              
              
              2,266,575
              
              
              $
              0.67Balance
      - December 31, 2006
              
              
              23,968,315
              
              
              $
              0.20Issued
      - 2007 - Debenture Warrants
              
              
              9,776,494
              
              
              $
              0.14Issued
      - 2007 - Financing Warrants
              
              
              1,259,822
              
              
              $
              1.25Exercised
      – 2007
              
              
              (8,530,755
              )
              
              $
              (0.15
              )Balance
      at December 31, 2007
              
              
              26,473,876
              
              
              $
              0.20Cancellation
      of warrants as per conversion of notes payable
              
              
              (26,473,876
              )Balance
      at December 31, 2008 and December 31, 2009
              
              
              -0-
 
 NOTE
9 – COMMITMENTS:
 
 Compensation
Agreements
 On March
4, 2008, the Company entered into a consulting agreement with Plumtree Capital
Management LLC to provide administration services to the Company.  The
term of the agreement is for one year, and provides for an annual fees of
$180,000 and did not provide for a signing bonus of restricted shares of the
Company’s Common Stock, nor for participation in the profits of the
Company.
 On June
27, 2008, the Company entered into a consulting agreement with MBC Consulting,
LLC to provide financial support services. The term of the agreement is for one
year. The agreement provides for a total fee of 7,000,000 restricted shares of
the Company’s Common Stock.  No registration rights were
granted
 
 Pursuant
to an employment agreement dated November, 2008, the Company hired David Perin,
as the Company’s Chief Technology Officer and Facilities Officer at an annual
salary of $60,000.  The agreement was for a period of one year. In
addition, Mr. Perin was to be vested with 6,000,000 restricted shares of the
Company’s Common Stock over a two-year period, which shares he has not been
issued.  However, Mr. Perin was terminated by the Company’s Board
of Directors in all capacities on April 14, 2009, and the Company believes that
no further compensation is due to Mr. Perin.
 
 Pursuant
to an employment agreement dated February, 2009, the Company hired James O’Brien
as the Company’s interim Chief Executive Officer at an annual salary of
$120,000. The agreement was for a period of one year. In addition, Mr. O’Brien
was to be vested with 6,000,000 restricted shares of the Company’s Common
Stock and was to receive an additional 6,000,000 restricted shares of the
Company’s Common Stock, which shares have not been issued to Mr.
O’Brien.  Mr. O’Brien was terminated by the Company’s Board of
Directors in all capacities on April 14, 2009, and the Company believes that no
further compensation is due to Mr.  O’Brien.
 
 On April
15, 2009, the Company entered into an employment agreement with Mark Daniels as
Chief Executive Officer of the Company.  The term of the agreement is
for one year, and provides for an annual salary of $160,000 and a signing bonus
of 80,000,000 restricted shares of the Company’s Common Stock.  The
agreement also provides for participation by Mr. Daniels in the management bonus
pool.
 
 On April
15, 2009, the Company entered into an employment agreement with Alexis Korybut
as Vice President of the Company.  The term of the agreement is for
one year, and provides for an annual salary of $120,000 and a signing bonus of
60,000,000 restricted shares of the Company’s Common Stock.  The
agreement also provides for participation by Mr. Korybut in the management bonus
pool.
 
 On April
15, 2009, the Company entered into a consulting agreement with Joint Strategy
Group, LLC to provide consulting services to the Company.  The term of
the agreement is for one year, and provides for a monthly fee of $5,000 and a
signing bonus of 60,000,000 restricted shares of the Company’s Common
Stock.  The agreement also provides for participation by Joint
Strategy Group, LLC in the management bonus pool.
 
 On June
8, 2009, the Company entered into an employment agreement with Michael Cariello
as Chief Operating Officer of the Company.  The term of the agreement
is for one year, and provides for an annual salary of $60,000 and a signing
bonus of 20,000,000 restricted shares of the Company’s Common Stock, which
shares of Common Stock were never issued.  The agreement also provides
for participation by Mr. Cariello in the management bonus pool.
    F-25
 
 On
January 1, 2010, the Company entered into a new employment agreement with Alexis
Korybut as President, Chief Executive Officer, and Chief Financial Officer of
the Company.  The term of the agreement is for one year, and provides
for an annual salary of $120,000 and a signing bonus of 50,000,000 restricted
shares of the Company’s Common Stock.  The agreement also provides for
participation by Mr. Korybut in the management bonus pool.
 
 On
January 1, 2010, the Company entered into a new employment agreement with
Michael Cariello as Chief Operating Officer of the Company.  The term
of the agreement is for one year, and provides for an annual salary of $120,000
and a signing bonus of 50,000,000 restricted shares of the Company’s Common
Stock.  The agreement also provides for participation by Mr. Cariello
in the management bonus pool.
 
 Additional
Consulting Agreement
 
 On
September 11, 2007, Mr. Mark Daniels, the Company's former Chief Executive
Officer and director and founder of the Company's business, entered into a
Consulting Services Agreement (the "Daniels Agreement") with the Company which
was amended and restated in early November of 2007. The Daniels Agreement as
amended, provides, in relevant part, that Mr. Daniels shall assign or cause any
entity he owns or is in control of to assign, all government contracts
(including, without limitation, the CRTC Contract relating to fourth generation
fighter aircraft training) relating to flight services, flight support
services or firefighting services, to the Company.  In addition, Mr.
Daniels agreed to introduce to the Company, on an exclusive and first right
basis, any and all potential customers or contracting parties (whether
government or private sector) for services provided by the Company, and to
continue making introductions of potential contracting parties to the Company
during the one year term of the
agreement.
 
 In
addition, the Daniels Agreement provides that Mr. Daniels shall cause AeroGroup
Incorporated, the seller of certain assets acquired by the Company, to pledge
all shares of the Company owned by it through the sooner of delivery of the
CRTC Contract or September 11, 2008, to secure the Company's rights under
the Daniels Agreement.  Finally, the agreement provides for
strict confidentiality provisions with respect to Mr. Daniels as well
as three year non-disclosure and non-compete covenants with respect to Mr.
Daniel's activities.
 
 The Daniels
Agreement provides that, in consideration for the provision of continued
advisory services by Mr. Daniels to the Company, Mr. Daniels shall be
compensated (i) the amount of $12,000 per month (paid in arrears) through
September 11, 2008, (ii) a success fee of five (5%) percent of gross proceeds,
minus any accrued or paid monthly payments in (i) above, and (iii) reimbursement
of reasonable expenses.  In the event that the foregoing compensation is
not made, the Daniels Agreement provides that Mr. Daniel's remedy is limited to
collection of the above amounts and that the confidentiality and non-compete
provisions shall still remain binding as against Mr. Daniels.
 
 Lease Agreement
 
 On April
15, 2008, the Company signed a lease agreement with Air Support Systems, LLC.
for the exclusive use of its ILyushin IL-78 aerial refueling and fire-fighting
aircraft. The agreement was subsequently cancelled by the lessor in November of
2009 due to litigation between Air Support Systems, LLC and Victor Miller/Air 1
Flight Support.  Notwithstanding the above, the Company is currently
negotiating with Air Support Systems, LLC an option to lease up to two IL-78
aircraft currently located in the Ukraine..
 
 Lien
Agreement
 
 The
Company has granted a lien to the holder of the Short-Term Loans on the
receivables payable to the Company by the AETC for fulfillment of the BAF
Contract.  The lien holder has agreed to reloan to the Company 50% of
the funds repaid to it from the AETC receivables.  On July 31, 2009,
the Company determined that it would not be able to repay the Short-Term Loans
from the proceeds from the BAF contract, and therefore cancelled the Short-Term
Loans in favor of Debentures convertible in shares of restricted Common Stock at
a conversion price of $0.00125 per share.
      
 F-26
 
 
 NOTE
10 - OTHER EVENTS:
 
 Departures
of Directors or Principal Officers; Elections of Directors; Appointments of
Principal Officers
 
 
 -
              On
      January 8, 2007, Fred Daniels and Victor Miller were appointed to serve as
      a Director of the Company, joining Mark Daniels on the
    Board;
 -
              On
      August 3, 2007 Mark Daniels, a Director and Officer of the Company and
      Victor Miller, a Director and Officer of the Company each resigned from
      all positions with the Company, leaving Fred Daniels as the sole Director
      of the Company;
 -
              On
      August 3, 2007, Donald Goldstein was appointed as a Director of the
      Company by Fred Daniels, joining Fred Daniels on the Board of
      Directors.  Additionally, John Farley, our Vice President at the
      time, was also appointed  Principal Accounting
      Officer;
 -
              On
      August 17, 2007 John Farley, an Officer of TADS, resigned from all
      positions with the Company;
 -
              On
      August 17, 2007, Alexis Korybut was appointed as a Director of the
      Company, joining Donald Goldstein and Fred Daniels on the Board of
      Directors of TADS. Additionally, Korybut was also appointed as President,
      Chief Executive Officer, and Principal Accounting Officer of the
      Company;
 -
              On
      December 7, 2007 Donald Goldstein a Director of the Company, resigned from
      all positions with the Company, leaving Fred Daniels and Alexis Korybut as
      the two remaining Directors;
 -
              On
      March 4, 2008, to fill the vacancy left by the resignation of Donald
      Goldstein, Peter Maffitt was appointed to serve as a Director by the
      majority of the Series A Preferred shares, which appointment was ratified
      by Alexis Korybut and Fred Daniels, the 2 remaining
      Directors.  Peter Maffitt joined Fred Daniels and Alexis Korybut
      on the Board of Directors;
 -
              On
      March 4, 2008, Alexis Korybut resigned as President, Chief Executive
      Officer, Principal Accounting Officer, and Director, leaving Fred Daniels
      and Peter Maffitt as the 2 remaining members of the Board of
      Directors;
 -
              On
      March 4, 2008, Fred Daniels and Peter Maffitt appointed Michael Cariello
      as President and Chief Executive Officer of the Company, and appointed
      Fred Daniels as Secretary and
Treasurer;
 -
              On
      March 7, 2008, the Board of Directors accepted the resignation of Fred
      Daniels as Secretary and Treasurer, and appointed Peter Maffitt as
      Secretary and Treasurer;
 -
              On
      March 15, 2008, the Board of Directors of the Company accepted the
      resignation of Michael Cariello as President and Chief Executive Officer,
      and appointed Mark Daniels as President,  Chief Executive
      Officer, and Principle Accounting
Officer;
 -
              On
      April 14, 2008, Charles Deangelo was appointed by Fred Daniels and Peter
      Maffitt, the two remaining members of the Board of Directors, as the third
      Director, thereby filling the vacancy left by the departure of Alexis
      Korybut.  Charles Deangelo joined Peter Maffitt and Fred Daniels
      on the Board of Directors;
 -
              On
      April 16, 2008, the Board of Directors accepted the resignation of Fred
      Daniels as Director, and appointed Mark Daniels to the vacancy created by
      the departure of Fred Daniels, where he joined Peter Maffitt and Charles
      Deangelo on the Board of Directors;
 -
              On
      February 4, 2009, Mark Daniels resigned as Chief Executive Officer of the
      Company, but continues to serve as Director along with Peter Maffitt and
      Charles Deangelo;
 -
              On
      February 4, 2009, James O’Brien was appointed interim Chief Executive
      Officer, Secretary, and Principle Accounting Officer of the
      Company;
 -
              On
      April 14, 2009, Mr. Obrien was terminated from all capacities with the
      Company;
 -
              On
      April 14, 2009, Mr. Mark Daniels was appointed as Chief Executive Officer,
      Secretary, and Principle Accounting Officer of the
  Company;
 -
              On
      June 8, 2009, Michael Cariello was appointed by the Board of Directors of
      the Company as Chief Operating Officer of the
  Company;
 -
              On
      July 10, 2009, Alexis Korybut was appointed by the Board of Directors of
      the Company as Principle Accounting Officer of the
  Company;
 -
              On
      July 10, 2009, Peter Maffitt and Charles Deangelo resigned from the Board
      of Directors of the Company, leaving Mark Daniels as the sole member of
      the Board of Directors of the
Company;
 -
              On
      July 10, 2009, Mark Daniels, acting as the sole member of the Board of
      Directors of the Company, appointed Michael Cariello and Alexis Korybut to
      the Board of Directors of the Company, where they joined Mark Daniels as
      the three members of the Board of Directors of the
  Company;
 -
              On
      November 23, 2009, Mark Daniels resigned from all capacities as an Officer
      of the Company including as President, Chief Executive Officer, Treasurer,
      and Secretary, and also resigned from the Board of Directors of the
      Company, leaving Alexis Korybut and Michael Cariello as the remaining two
      member of the Board of Directors of the
Company;
 -
              On
      November 23, 2009, Michael Cariello and Alexis Korybut, acting as the
      Board of Directors of the Company, appointed Alexis Korybut as President,
      Chief Executive Officer, and Treasurer of the Company, and appointed
      Michael Cariello as Secretary of the
Company;
 -
              November
      23, 2009, Michael Cariello and Alexis Korybut, acting as the Board of
      Directors of the Company, appointed Mark Shubin to the Board of Directors
      of the Company, where he joined Michael Cariello and Alexis Korybut as the
      three members of the Board of Directors of the Company;
  and
 -
              November
      23, 2009, Mark Shubin resigned from the Board of Directors of the Company,
      leaving Michael Cariello and Alexis Korybut as the remaining two members
      of the Board of Directors of the
Company.
 
 Increase
in Authorized Shares
 
 Pursuant
to a vote of the shareholders of the Company, on April 24, 2009, the authorized
number of shares of Common Stock of the Company was increased from 1,000,000,000
to 3,000,000,000.  The authorized number of shares of the Company’s
Series A Preferred shares remained at 50,000,000.
    F-27
 
 Legal
Proceedings
 
 Mr.
Charlie Searock, a former executive officer of our company, has brought a laws
suit in the District Court of the 336 th Judicial District of Grayson County,
Texas against us and seven other defendants on February 6, 2007, on claims of
breach of an employment agreement between Searock and International Tactical
Training Center, Inc. (“ITTC”). (Charles J. Searock, Jr., vs. Tactical Air
Defense Services, Inc., International Tactical training Center, Inc., Mark
Daniels, Victor Miller, John Farley, Gary Fears, Jamie Goldstein, and Joel
Ramsden, Cause No.07-0322-336). ITTC and the Company are the only two corporate
defendants named in the Searock lawsuit. Of the six individuals named as
defendants, three are former ITTC management.   Searock asserts that the
Company is liable for ITTC’s breach of employment agreement because he alleges
that the Company acquired ITTC’s assets, and that ITTC was a former subsidiary
of AeroGroup, Inc., an entity not named as a defendant in the Searock lawsuit.
In addition to his claim for breach of the ITTC employment contract, Searock
also asserts theories of tort liability against the defendants.   The
Company denies any liability to Searock on his claim for breach of the ITTC
employment contract and denies Searock has any factual basis to impose liability
on the Company under any of his theories of tort liability. Specifically, the
Company denies that it acquired, owns or controls ITTC’s former assets. The
Company believes that this claim is without merit and is working towards
resolution of the same.
 
 In June
of 2009, Victor Miller and Air 1 Flight support, an entity controlled by Victor
Miller, caused an injunction to be placed on the Company to not relocate the
IL-78, which the Company leases from a third party, as a result of a lien Victor
Miller and Air 1 Flight Support placed on the IL-78 for unpaid services provided
to the third-party leasing the IL-78 to the Company.  The Company
believes that the lien and injunction are completely without merit based upon
Victor Miller and Air 1 Flight Support being party to a settlement agreement
between the parties including the third-party subject to the
lien.  Victor Miller and Air 1 Flight Support subsequently filed a
motion for contempt of court against the Company subsequent to the IL-78 having
been relocated by a third-party to which the Company leases the IL-78, without
the knowledge or assistance of the Company.  Victor Miller and Air 1
Flight Support subsequently filed a legal proceeding against the Company in
Michigan in connection with the lien, which has resulted in a judgment against
the Company.  The Company intends to contest the judgment which it was
not given the opportunity to defend against for what it believes to be a
fraudulent lien. The Company believes that these motions and proceedings are
without merit, and the Company intends to vigorously defend itself, and pursue
Victor Miller and Air 1 Flight Support for tortuous interference and material
damages to the Company.
 
 On March
4, 2010, TADS sued Mark Daniels, the Company’s former President and Chief
Executive Officer, and various entities affiliated with or controlled by Mr.
Daniels, in The Circuit Court of The 15th
Judicial Circuit in and for Palm Beach County, Florida, for temporary and
permanent injunctive relief, damages, and other relief for breach of contract;
breach of fiduciary duty and duty of loyalty; tortuous interference with
advantageous and contractual relationships, and misappropriation, misuse and
conversion of trade secrets and confidential business information. Although the
Court did not grant our Emergency Motion for Preliminary Injunction, the court
did find that here continues to be a valid and enforceable agreement between the
parties.
 
 TADS is
currently preparing its case against Mr. Daniels and the other defendants to
seek permanent injunctive relief and damages, and we believe that we will
prevail in this action, although no assurances can be given.
 
 As of
December 31, 2009, TADS is not a party to any pending litigation or legal
proceeding that is not in the ordinary course of business. To our knowledge, no
such proceedings are threatened other than a threat of lawsuits from General
Searock and Victor Miller/Air 1 Flight Support.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 F-28
   ITEM
9.                      CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
 
 In April
of 2008, pursuant to direction and approval from our Board of Directors, we
dismissed our then accounting firm, Marcum and Kliegman, LLP, and engaged
Lawrence Scharfman & Co., CPA PA, as the Company’s independent registered
public accountants. Marcum and Kliegman, LLP’s audit report on the financial
statements for the year ended December 31, 2007 did not contain any adverse
opinion or disclaimer of opinion, and was not modified as to uncertainty, audit
scope or accounting principles. At the time of dismissal, there had been no
disagreements with Marcum and Kliegman, LLP on any matter of accounting
principles or practices, financial statement disclosure, or auditing scopes or
procedures.
 
 On or
about August 11, 2009, Lawrence Scharfman & Co., CPA PA’s registration with
the Public Companies Accounting Oversight Board, (PCAOB), was revoked by the
PCAOB. On August 15, 2009, pursuant to direction and approval from our Board of
Directors, we dismissed Lawrence Scharfman & Co., CPA PA and engaged Larry
O’Donnell, CPA, PC, as the Company’s independent registered public accountants.
Lawrence Scharfman & Co., CPA PA’s audit report on the financial statements
for the years ended December 31, 2008 did not contain any adverse opinion or
disclaimer of opinion, and was not modified as to uncertainty, audit scope or
accounting principles. At the time of dismissal, there had been no disagreements
with Lawrence Scharfman & Co., CPA PA on any matter of accounting principles
or practices, financial statement disclosure, or auditing scopes or
procedures.
 
 ITEM
9A.                      CONTROLS
AND PROCEDURES
 
 (A) Evaluation of disclosure
controls and procedures.
 
 We
maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under
the Exchange Act) that are designed to ensure that information that would be
required to be disclosed in Exchange Act reports is recorded, processed,
summarized and reported within the time period specified in the SEC’s rules and
forms, and that such information is accumulated and communicated to our
management, including to our Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosure.
 
 As
required by Rule 13a-15 under the Exchange Act, our management,
including our Chief Executive Officer and Chief Financial Officer,
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures as of December 31, 2009.  Based on that
evaluation, our Chief Executive Officer and Chief Financial
Officer concluded that as of December 31, 2009, and as of the date that the
evaluation of the effectiveness of our disclosure controls and procedures was
completed, our disclosure controls and procedures were not effective to satisfy
the objectives for which they are intended.
 (B) Management’s report on
internal controls over financial reporting.
 The
Company’s management is responsible for establishing and maintaining effective
internal control over financial reporting (as defined in Rule 13a-15(f) of
the Securities Exchange Act). Management assessed the effectiveness of the
Company’s internal control over financial reporting as of December 31,
2009. In making this assessment, management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based
on that assessment, management believes that, as of December 31, 2009, the
Company’s internal control over financial reporting was ineffective based on the
COSO criteria, due to the following material weakness listed below.
 
 Insufficient segregation of duties
in our finance and accounting functions due to limited personnel.
 During the year ended December 31, 2009, the company internally performed
all aspects of our financial reporting process, including, but not limited to,
access to the underlying accounting records and systems, the ability to post and
record journal entries and responsibility for the preparation of the financial
statements.  Due to the fact these duties were performed oftentimes by the
same people, a lack of review was created over the financial reporting process
that might result in a failure to detect errors in spreadsheets, calculations,
or assumptions used to compile the financial statements and related disclosures
as filed with the SEC.  These control deficiencies could result in a
material misstatement to our interim or annual financial statements that would
not be prevented or detected.
 
 Insufficient corporate governance
policies.  Our corporate governance activities and processes are not
always formally documented.  Specifically, decisions made by the board to
be carried out by management should be documented and communicated on a timely
basis to reduce the likelihood of any misunderstandings regarding key decisions
affecting our operations and management.
 We intend
to take appropriate and reasonable steps to make the necessary improvements to
remediate these deficiencies and we intend to consider the results of our
remediation efforts and related testing as part of our next year-end assessment
of the effectiveness of our internal control over financial
reporting.
 
 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.
    26
 
 (C) Changes in internal
controls over financial reporting.
 
 During
the period covered by this report, there were no changes in the Company's
internal control over financial reporting that occurred during the last fiscal
quarter that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
 
 ITEM
9B.                      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.
 
   27
   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.
 
 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.
 
 Cancellation of Indebtedness
and Return of Assets (Cambar/MiGs and Flight Simulators)
 
 On May
29, 2008, TADS returned the two MiG-29 and Simulators (the “Cambar Assets”)
purchased in the AeroGroup Acquisition through a Settlement and Release
Agreement (the “Cambar Settlement”) executed between the Company and Cambar
& Associates (“Cambar”). As part of the AeroGroup Acquisition, in December,
2006, TADS had assumed from AeroGroup indebtedness owed to Cambar (the “Cambar
Note”) of a principle amount of $2,200,000 for the purchase of the Cambar Assets
and, which indebtedness included interest to be paid on the
principle.  Due to the terms of the Cambar Note and the value of the
Cambar Assets, the Company determined at that time that it was in its best
interest to unwind the purchase of the Cambar Assets. With the Cambar
Settlement, the Company agreed to relinquish the Cambar Assets to Cambar and
issue to Cambar 50,000,000 Shares as payment in full and final settlement for
any claims Cambar may have against the Company. In addition, Cambar reclaimed
the Cambar Assets, the Company cancelled the Cambar Note including any accrued
and unpaid interest and retired the 1,000,000 Shares issued to Cambar and NATA
as compensation for interest due on the Cambar Note in 2007. Such terms were
considered payment in full and final settlement for any claims Cambar held
against the Company.
 
 Cancellation of IL-78 Lease
and Loss of Contract
 
 In
November of 2009, the lessor of IL-78 aircraft pursuant to the IL-78 Lease,
cancelled the excusive lease of the IL-78 with TADS.  TADS had been
preparing the IL-78 for departure to the Middle East for execution of a
three-month contract through a U.S. intermediary party, when the IL-78 was
encumbered by an FAA lien by Victor Miller and Air 1 Flight Support for unpaid
work on the IL-78.  Subsequently, the IL-78, without the knowledge of
the lessor or TADS, was removed from the facilities in Texas. Since that time,
the aircraft has remained grounded awaiting the outcome of litigation between
Victor Miller and the lessor (See “Item 3. Legal Proceedings”
herein).  Although TADS believes that the action by Mr. Miller and Air
1 Flight Support are without merit, the result has been the loss of the
exclusive lease of the IL-78 and the loss of its first contract in connection
with the IL-78. Notwithstanding the above,  TADS is currently
negotiating an option with the lessor for the option to lease up to two of its
remaining IL-78 aircraft currently located in the Ukraine for use in connection
with potential contracts outside of the U.S.
 
 DS Enterprises, Inc.
Settlement Agreement
 
 In March
of 2010, the Company entered into a Settlement and Release Agreement with DS
Enterprises, Inc. (“DSE”) in connection with an unpaid convertible promissory
note.  TADS issued DS Enterprises, Inc. 45,805,758 unrestricted shares
of Common Stock as full and complete settlement of all claims held by DSE
against the Company.
 
 
 
 28
 
 PART
III
 
 ITEM
10.                      DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 
 Board
of  Directors and Officers
 
 As of
April 15, 2010, our executive officers and directors, the positions held by
them, and their ages are as follows:
 
 
 Name
              Age
              PositionAlexis
      Korybut
              44
              Chairman
      of the Board of Directors, President, Chief Executive Officer and Chief
      Financial OfficerMichael
      Cariello
              49
              Director,
      Chief Operating Officer and
Secretary
  Alexis
C. Korybut, Chairman of the Board of Directors, President, Chief Executive
Officer and Chief Financial Officer
 
 Mr.
Korybut brings to the Company a wealth of corporate,administrative, and
financial management experience in both the domestic and international arenas,
having achieved success at some of the most respected firms in the financial
services industry such as Salomon Brothers and Smith Barney where he worked with
both private and public companies to raise capital through the international
debt and equity markets
 
 Mr.
Korybut has also been the Managing Partner of Plumtree Capital Management LLC, a
public-venture fund management firm since 2005, and the Managing Partner of
Plumtree Consulting Group LLC, a firm offering consulting services to
high-growth public companies, since 2008.  From 1999 through 2004, Mr.
Korybut was President of Sterling Financial Group of Companies, Inc, a
Florida-based financial services firm with offices throughout the United States,
Europe, and Latin America. His management expertise and strategic guidance
enabled Sterling Financial to be recognized in 2002 and 2003 by Inc. Magazine as
the 8th and 26th fastest growing privately-held company in the United States,
respectively, and as the number one fastest growing privately-held company in
the State of Florida over the same period.
 
 Mr.
Korybut received a BA from Georgetown University in 1988 and an MBA in finance
from the University of Michigan Business School in 1994. In addition to his
native English, Mr. Korybut speaks French, Spanish, and Portuguese.
 
 Mike
“Ratso” Cariello, Chief Operating Officer and Secretary
 
 Mr.
Cariello is one of the most renowned pilots to have served in the U.S. military
in recent decades.  He has flown civilian and military aircraft for
over 30 years, and has accumulated over 9,000 flight-hours, mostly in high
performance jet fighters such as, F/A-18, F-16, A-4 Skyhawk.  Mr.
Cariello has a distinguished career having served in the U.S. Marine Corp for
over 14 years. He retired from the Marine Corps in 1998 following his 3 year
appointment as Adversary Officer at the Top Gun Fighter Weapons School for the
Navy and Marine Corps.  Mr. Cariello has also served as the 767
Program Manager and Pilot for Blackwater, Inc., one of the largest U.S. Defense
contractors in Iraq from July 2005 through December 2007.  He has also
been a qualified 767 Captain for American Airlines since 2000, flying
internationally to Europe and South America from Miami, Florida.
 
 Mr.
Cariello’s reputation and his experience in all facets of air combat training
and adversary programs has brought a level of professionalism and credibility to
the Company that has been recognized and lauded by our past, current, and
potential customers.
 
 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.
 
  
 29
 Family
Relationships
 
 There is
no family relationship among any of our officers or directors.
 
 Director
Compensation
 
 The
Directors of the Company may 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.
 
 Section 16(a) Beneficial
Ownership Reporting Compliance
 
 Section 16(a)
of the Securities Exchange Act of 1934, as amended, requires our directors,
executive officers, and stockholders holding more than 10% of our outstanding
common stock, to file with the Securities and Exchange Commission initial
reports of ownership and reports of changes in beneficial ownership of our
common stock.  Executive officers, directors and greater-than-10%
stockholders are required by SEC regulations to furnish us with copies of all
Section 16(a) reports they file.  To our knowledge, based solely
on review of the copies of such reports furnished to us for the year ended
December 31, 2009, no Section 16(a) reports required to be filed by our
executive officers, directors and greater-than-10% stockholders were filed on a
timely basis.
 
 ITEM
11.                      EXECUTIVE
COMPENSATION
 
 Set forth
below is information concerning the compensation paid for services in all
capacities to our President and Executive Officers for the years ended December
31, 2009 and 2008.
 
 Name
      and Position
              Year
              Salary
      ($)
              Bonus
      ($)
              Stock
      Awards ($)
              Option
      Awards($)
              Non-Equity
      Incentive Plan Compensation ($)
              Nonqualified
      Deferred Compensation Earnings (4)
              All
      Other Compensation ($)
              Total    ($)Alexis
      Korybut
              2009
              120,000
              -0-
              75,000
              -0-
              -0-
              -0-
              -0-
              195,000Chief
      Executive OfficerChief
      Financial Officer
              2008
              -0-
              -0-
              -0-
              -0-
              -0-
              -0-
              -0-
              -0-Chairman
      and formerVice
      PresidentMichael
      Cariello
              2009
              30,000
              -0-
              -0-
              -0-
              -0-
              -0-
              -0-
              30,000Chief
      Operating Officer andSecretary
              2008
              -0-
              -0-
              -0-
              -0-
              -0-
              -0-
              -0-
              -0-Mark
      Daniels
              2009
              90,000
              -0-
              100,000
              -0-
              -0-
              -0-
              -0-
              190,000Former
      Chief ExecutiveOfficer
      and Chief
              2008
              250,000
              -0-
              131,250
              -0-
              -0-
              -0-
              -0-
              381,250Financial
      OfficerJames
      O’Brien
              2009
              20,000
              -0-
              7,500
              -0-
              -0-
              -0-
              -0-
              27,500Former
      Chief ExecutiveOfficer
      and Chief Financial Officer
              2008
              -0-
              -0-
              -0-
              -0-
              -0-
              -0-
              -0-
              -0-
 
 Option/SAR
Grants in Fiscal Year 2009
 
 None.
     30
 
 Employment
Agreements
 
 On March
4, 2008, the Company entered into an employment agreement with Alexis Korybut as
director of finance and administration of the Company.  The term of
the agreement is for one year, and provides for an annual salary of $1 and did
not provide for a signing bonus of restricted shares of the Company’s Common
Stock.  The agreement also provides for Mr. Korybut to participate in
the profits of the Company.
 
 On March
4, 2008, the Company entered into a consulting agreement with Plumtree Capital
Management LLC, an entity controlled by Alexis Korybut, to provide
administration services to the Company.  The term of the agreement is
for one year, and provides for an annual salary of $180,000 and did not provide
for a signing bonus of restricted shares of the Company’s Common Stock, nor for
participation in the profits of the Company.
 
 On March
17, 2008, the Company entered into an employment agreement with Mark Daniels as
Chief Executive Officer of the Company.  The term of the agreement is
for one year, and provides for an annual salary of $250,000 and a signing bonus
of 50,000,000 restricted shares of the Company’s Common Stock.  The
agreement also provides for Mr. Daniels to participate in the profits of the
Company.
 
 On
November 1, 2008, the Company entered into an employment agreement with David
Perin, as the Company’s Chief Technology Officer and Facilities Officer at an
annual salary of $60,000.  The agreement was for a period of one year.
In addition, Mr. Perin was to be vested with 6,000,000 restricted shares of the
Company’s Common Stock over a two-year period, which shares he has not been
issued.  However, Mr. Perin was terminated by the Company’s Board
of Directors in all capacities on April 14, 2009, and the Company believes that
no further compensation is due to Mr. Perin.
 
 On
February 4, 2009, the Company entered into an employment agreement with James
O’Brien as the Company’s interim Chief Executive Officer at an annual salary of
$120,000. The agreement was for a period of one year. In addition, Mr. O’Brien
was to be vested with 6,000,000 restricted shares of the Company’s Common
Stock and was to receive an additional 6,000,000 restricted shares of the
Company’s Common Stock, which shares have not been issued to Mr.
O’Brien.  Mr. O’Brien was terminated by the Company’s Board of
Directors in all capacities on April 14, 2009, and the Company believes that no
further compensation is due to Mr.  O’Brien.
 
 On April
15, 2009, the Company entered into an employment agreement with Mark Daniels as
Chief Executive Officer of the Company.  The term of the agreement is
for one year, and provides for an annual salary of $160,000 and a signing fee of
80,000,000 restricted shares of the Company’s Common Stock.  The
agreement also provides for participation by Mr. Daniels in the management bonus
pool.
 
 On April
15, 2009, the Company entered into an employment agreement with Alexis Korybut
as Vice President of the Company.  The term of the agreement is for
one year, and provides for an annual salary of $120,000 and a signing fee of
60,000,000 restricted shares of the Company’s Common Stock.  The
agreement also provides for participation by Mr. Korybut in the management bonus
pool.
 
 On June
8, 2009, the Company entered into an employment agreement with Michael Cariello
as Chief Operating Officer of the Company.  The term of the agreement
is for one year, and provides for an annual salary of $60,000 and a signing fee
of 20,000,000 restricted shares of the Company’s Common Stock.  The
agreement also provides for participation by Mr. Cariello in the management
bonus pool.
 
 On
January 1, 2010, the Company entered into an employment agreement with Alexis
Korybut as President, Chief Executive Officer, and Chief Financial Officer of
the Company.  The term of the agreement is for one year, and provides
for an annual salary of $120,000 and a signing bonus of 50,000,000 restricted
shares of the Company’s Common Stock.  The agreement also provides for
participation by Mr. Korybut in the management bonus pool.
 
 On
January 1, 2010, the Company entered into an employment agreement with Michael
Cariello as Chief Operating Officer of the Company.  The term of the
agreement is for one year, and provides for an annual salary of $120,000 and a
signing bonus of an additional 30,000,000 restricted shares of the Company’s
Common Stock.  The agreement also provides for participation by Mr.
Cariello in the management bonus pool.
 
 Issuance
of Shares of Common Stock to Executive Management and Directors
 
 In
connection with compensation agreements in 2008 and 2009, the Company issued the
following shares of Common Stock in lieu of cash compensation for salary and
incentive payments through December of 2009:
 
 -
              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 2008, which shares were
      subsequently retired;
 -
              1,000,000
      shares of Common Stock to Mr. Charles DeAngelo in
  2008;
 -
              1,100,000
      shares of Common Stock to Mr. Fred Daniels in July,
  2008;
 -
              1,000,000
      shares of Common Stock to Mr. Donald Goldstein in September,
      2008;
 -
              1,500,000
      shares of Common Stock in the aggregate to Mr. Peter Maffitt in May and
      July, 2008;
 -
              52,500,000
      shares of Common Stock to Mr. Mark Daniels in July,
  2008;
 -
              4,000,000
      shares of Common Stock to Mr. Alexis Korybut in July, 2008, which shares
      were subsequently retired ;
 -
              80,000,000
      shares of Common Stock to Mr. Mark Daniels in April,
  2009;
 -
              60,000,000
      shares of Common Stock to Mr. Alexis Korybut in April, 2009, which shares
      were subsequently retired;
 -
              50,000,000
      shares of Common Stock to Mr. Michael Cariello in March, 2010;
      and
 -
              50,000,000
      shares of Common Stock to Mr. Alexis Korybut in March,
    2010.
   
 31
 
 ITEM
12.                      SECURIY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
 
 The
following table presents information about the beneficial ownership of our
shares of common stock as of March 3, 2010 by: (i) each person or entity who is
known by us to own beneficially more than 5% of the outstanding shares of our
share of common stock; and (ii) each of our directors and each of our named
executive officers and all directors and executive officers as a
group.
 
 Name
      And Address
              Number
      Of Shares
                Beneficially
      Owned
              Percentage
      OwnedMark
      Daniels(1)
              290,761,921
              20.00%Dakota
      Aviation Consultants, LLC(2)
              100,000,000
              7.00%Dakota
      Fears Trust(3)
              100,000,000
              7.00%Gary
      Fears Trust(4)
              88,980,742
              6.23%Michael
      Cariello(5)
              50,000,000
              3.50%Alexis
      Korybut(6)
              24,109,168
              1.69%All
      directors, officers and 5% shareholders as a group
              653,851,831
              45.42%
 
 (1)
              Includes
      shares owned by Mark Daniels Irrevocable Trust III, AeroGroup, Inc. and
      Federal Financial Partners, LLC, which the Company believes are under the
      dispositive control of Mark Daniels. The address of record for Mr. Daniels
      is 527 Pheasant Lane, Jupiter, Florida
33458.
 (2)
              Mr.
      Charles Deangelo is the manager of Dakota Aviation Consultants, LLC and
      maintains dispositive control over the shares held in such name. The
      address is 798 Havana Drive, Boca Raton, Florida
  33487.
 (3)
              Mr.
      Anthony Tumminello is the trustee of Dakota Fears Trust and maintains
      dispositive control over the shares held in such name. The address is
      10349 Watson Road, Saint Louis, Missouri
63127.
 (4)
              Mr.
      Gary Fears is the trustee of Gary Fears Trust and maintains dispositive
      control over the shares held in such name. The address is 1425 Brickell
      Avenue, #47F, Miami, Florida 33131.
 (5)
              The
      address is 10907 Carrolwood Drive, Tampa, Florida
  33618.
 (6)
              The
      address is 3667 Park Lane, Miami, Florida
33313.
 
 Beneficial
ownership is determined in accordance with the rules and regulations of the
SEC.  The number of shares and the percentage beneficially owned by
each individual listed above include shares that are subject to options held by
that individual that are immediately exercisable or exercisable within 60 days
from the date of this report and the number of shares and the percentage
beneficially owned by all officers and directors as a group includes shares
subject to options held by all officers and directors as a group that are
immediately exercisable or exercisable within 60 days from the date of this
report.
  ITEM
13.                      CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
 
 None.
      32
   ITEM
14.                      PRINCIPAL
ACCOUNANT FEES AND SERVICES
 
 Audit
Fees
 
 We have
paid Larry Scharfman & Co. C.P.A., P.A., our former
auditor,  independent auditor fees of $5,000 per each of the first two
quarters of the 2009 10Q’s.  We have paid Larry O’Donnell, C.P.A.,
P.A., our current auditor, independent auditor fees of $5,000 for  the
2008 10-K re-audit, $5,000 for the third quarter review and $25,000 for the 2009
10-K. Please see “Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.”
 
 Tax
and All Other Fees
 
 We did
not pay any fees to any auditor for tax compliance, tax advice, tax planning or
other work during our fiscal years ending December 31, 2008 and December 31,
2009.
 
 Pre-Approval
Policies and Procedures
 
 Under the
Sarbanes-Oxley Act of 2002, all audit and non-audit services performed by our
auditors must be approved in advance by our board of directors to assure that
such services do not impair the auditors’ independence from us.  In
accordance with its policies and procedures, our board of directors pre-approved
the audit and non-audit service performed by our auditors for our consolidated
financial statements as of and for the years ended December 31, 2008 and
2009.
 
 ITEM
15.                      EXHIBITS,
FINANCIAL STATEMENTS AND SCHEDULES
 
 Financial Statements and
Schedules
 
 The
financial statements are set forth under Item 8 of this Annual Report on Form
10-K. Financial statement schedules have been omitted since they are either not
required, not applicable, or the information is otherwise included.
 
 Exhibits
 
 
 Exhibit
      #
              Title3.1
              Articles
      of Incorporation. (Attached as an exhibit to our Form SB-2 filed with the
      SEC on May 27, 1999 and incorporated herein by
  reference).3.2
              Bylaws
      (Attached as an exhibit to our Form SB-2 filed with the SEC on May 27,
      1999 and incorporated herein by reference).23.1
              Consent
      of Independent Registered Public Accounting Firm Larry O’Donnell, CPA,
      P.C.31.1
              Certification
      of the Principal Executive Officer pursuant to Section 302
                of
      the Sarbanes-Oxley Act of 200231.2
              Certification
      of the Principal Financial Officer pursuant to Section 302
                of
      the Sarbanes-Oxley Act of 200232.1
              Certification
      of the Principal Executive Officer  pursuant to U.S.C. Section
      1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      200232.2
              Certification
      of the Principal Financial Officer pursuant to U.S.C. Section 1350 as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002
 
 
 
 
 
 
 
 
 33
 
 
 
 
 SIGNATURES
  In
accordance with section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant caused this Report on Form 10-K to be signed on its behalf by the
undersigned, thereto duly authorized individual.
  Date:
April 15, 2010
  
 Signature
              Title
              Date/s/ Alexis Korybut
              
              April
      15, 2010Alexis
      Korybut
              Chairman
      of the Board of Directors, President, Chief Executive Officer and Chief
      Financial Officer
                (Principal
      Executive Officer, Principal Financial Officer and Principal Accounting
      Officer)
  
 
  34