**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-KSB**




Amendment
      number one





o  ANNUAL
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For
      the
      fiscal year ended December 31, 2007





o  TRANSITION
      REPORT UNDER
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934




For
      the
      transition period from _______ to ________




*Commission
      file number: 333-79405*




**Tactical
      Air Defense Services, Inc.**


(Name
      of
      small business issuer on its charter)





**NEVADA**
            **88-0455809**State
                or other jurisdiction of incorporation or organization
            (I.R.S.
                Employer Identification Number)





**1515
      Perimeter Rd.,** **Suite
      218**


**West
      Palm Beach, FL** **33406**


(Address,
      Including Zip Code of Principal Executive Offices)





**(561)
      398-8196**


(Issuer's
      telephone number)





Securities
      registered under Section 12(b) of the Exchange Act:


NONE




Securities
      registered under Section 12(g) of the Exchange Act:


Common
      stock, par value $0.001 (Title of class)





Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such reports), and (2) has been subject
      to such filing requirements for the past 90 days.


Yes o
      No o





Check
      if
      no disclosure of delinquent filers in response to Item 405 of Regulation S-B
      is
      contained in this form, and no disclosure will be contained, to the best of
      registrant's knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-KSB or any amendment
      to
      this Form 10-KSB. o





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





State
      issuer's revenues for its most recent fiscal year: $0





State
      the
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates computed by reference to the price at which the common equity
      was
      sold, or the average bid and asked price of such common equity, as of a
      specified date within the past 60 days: Based on the closing sale price on
      the
      OTC Bulletin Board on June 13, 2007, the aggregate market value of the
      registrant's common stock held by non-affiliates was approximately $8,629,200
      .
      For purposes of this computation, all directors and executive officers of the
      registrant are considered to be affiliates of the registrant. This assumption
      is
      not to be deemed an admission by the persons that they are affiliates of the
      registrant.










**TABLE
      OF CONTENTS**


PART
                  IITEM
                  1.
              DESCRIPTION
                  OF BUSINESS
              4ITEM
                  2.
              DESCRIPTION
                  OF PROPERTY
              23ITEM
                  3.
              LEGAL
                  PROCEEDINGS
              23ITEM
                  4.
              SUBMISSION
                  OF MATTERS TO A VOTE OF SECURITY HOLDERS
              23PART IIITEM
                  5.
              MARKET
                  FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
              23ITEM
                  6.
              MANAGEMENT'S
                  DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
              29ITEM
                  7.
              FINANCIAL
                  STATEMENTS
              31ITEM
                  8.
              CHANGES
                  IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                  DISCLOSURE
              31ITEM
                  8A.
              CONTROLS
                  AND PROCEDURES
              32ITEM
                  8B.
              OTHER
                  INFORMATION
              32PART IIIITEM
                  9.
              DIRECTORS,
                  EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
                  SECTION
                  16 (A) OF THE EXCHANGE ACT
              36ITEM
                  10.
              EXECUTIVE
                  COMPENSATION
              39ITEM
                  11.
              SECURITIES
                  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
                  STOCKHOLDER MATTERS
              49ITEM
                  12.
              CERTAIN
                  RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
                  INDEPENDENCE
              50ITEM
                  13.
              EXHIBITS
              53ITEM
                  14.
              PRINCIPAL
                  ACCOUNTANT FEES AND SERVICES
              54
  2





**Forward
      Looking Statements**




This
      Annual Report on Form 10-KSB and all other reports filed by Tactical Air Defense
      Services, Inc., a  Nevada corporation (“TADS”), from time to time with
      the Securities and Exchange Commission (collectively the “Filings”) contain or
      may contain forward looking statements and information that are based upon
      beliefs of, and information currently available to, the management of TADS
      as
      well as estimates and assumptions made by TADS management. When used in the
      filings the words “may”, “will”, “should”, “estimates”,  “anticipate”,
“believe”, “estimate”, “expect”, “future”, “intend”, “plan” or the negative of
      these terms and similar expressions as they relate to TADS or its management,
      identify forward looking statements. Such statements reflect the current view
      of
      TADS and with respect to future events and are subject to risks, uncertainties,
      assumptions and other factors (including the risks contained in the section
      of
      this report entitled “Risk Factors”) relating to TADS, its ability to raise
      capital and to acquire, lease and operate F-16 or other fourth generation
      aircraft in order to fulfill its contracts, its ability to acquire, lease and
      operate air-to-air tanker refueling aircraft, its ability to complete and
      maintain parts, safety and maintenance programs that will be acceptable to
      the
      government contracting parties that it does business with, its ability to
      procure and fulfill government contracts, and its results of operations and
      any
      businesses that may be acquired by TADS. Should one or more of these risks
      or
      uncertainties materialize, or should the underlying assumptions prove incorrect,
      actual results may differ significantly from those anticipated, believed,
      estimated, expected, intended or planned.




Although
      TADS believes that the expectations reflected in the forward looking statements
      are reasonable, we cannot guarantee future results, levels of activity,
      performance or achievements. Except as required by applicable law, including
      the
      securities laws of the United States, management does not intend to update
      any
      of the forward-looking statements to conform these statements to actual results.
      The following discussion should be read in conjunction with TADS’ consolidated
      financial statements and the related notes filed herewith.




3




**PART
      I**





All
      references in this Annual Report on Form 10/KSB to the “Company,” “we,” “our,”
or “us,” ” refer to TADS and its subsidiaries as constituted subsequent to the
      acquisition of substantially all of the assets of AeroGroup Incorporated on
      December 15, 2006, except where the context makes clear that the reference
      is
      only to TADS. Information about the Company and the principal terms of this
      acquisition are set forth below.




**Item
      1.****Description
      of Business**





Tactical
      Air Defense Services, Inc. (TADS) is a Nevada public corporation that trades
      on
      the over-the-counter Bulletin Board under the ticker symbol of TADF.OB. TADS
      currently provides air combat training, and is in discussions to provide mid-air
      refueling, aerial fire-fighting, and other airborne support services to U.S.
      and
      foreign agencies including the U.S. Department of Defense, the defense
      departments of its allies, and other State and Federal agencies.





The
      executive offices of TADS are located in Dallas, Texas. The aviation operations
      and training facilities are located at Grayson field, the former Perrin air
      force base, located in Denison, Texas.





As
      a
      result of the U.S. Base Foreclosure Act, the overall downsizing of the armed
      forces of the U.S. and its foreign allies, and the advanced age of the U.S.
      military air fleet, there is insufficient equipment and personnel to meet
      demands for combat air training and mid-air refueling training. The wars in
      Iraq
      and Afghanistan and various regional conflicts and terrorist’s acts, have only
      added to this crisis. The private-sector is now being asked to fill a role
      once
      the exclusive domain of the military, and the capabilities of civilian
      contractors are well recognized, and are frequently proven superior and more
      efficient than public-sector contractors.





Due
      to
      the escalating forest fire crisis in the Western U.S., and the financial and
      environmental costs associated with this crisis, fire-fighting preparedness
      and
      capability have become a top priority at both the State and Federal levels
      of
      government. Again, the private sector is being asked to provide services that
      were previously the domain of the public-sector.




In
      order
      to meet present and future military, environmental, and financial threats,
      the
      United States and its allies must continue
      to commit billions of dollars to training, preparedness, and execution. These
      needs cannot
      be met without the support of the private-sector. We believe that there is
      currently no other private-sector contractor which
      can
      adequately fulfill these diverse and urgent demands, and we believe that TADS
      possesses the aircraft, personnel, and operational skills necessary to claim
      a
      significant piece of this rapidly growing and highly-profitable market
      for diverse air support services.





*TADS
      Corporate History*





TADS
      was
      incorporated in the State of Nevada on July 9, 1998 under the name Natalma
      Industries, Inc. Originally, TADS operated as a junior mining company engaged
      in
      the exploration of mining properties. We were unsuccessful in locating a joint
      venture partner to assist us in the development of our mining claims. As a
      result, TADS was unable to pay for and perform the exploration and development
      required in its agreement with the owners of its properties and lost our rights
      to the mining claims. Our management at the time, therefore determined that
      it
      was in the best interest of our shareholders that we seek potential operating
      businesses and business opportunities with the intent to acquire or merge with
      another business, which led to the purchase substantially all of the assets
      of
      AeroGroup Incorporated (the “AeroGroup Acquisition”).




4




*AeroGroup
      Corporate History*





AeroGroup
      Incorporated commenced its operations and business plan as a contractor of
      military flight training as AeroGroup International Corporation in January
      2002, **** and
      eventually merged with and acquired AeroGroup Incorporated, which was, prior
      to
      such time, a non-operating entity called Diversified Resources Group,
      Inc.





5




In
      June
      of 2006, AeroGroup, through its subsidiaries, acquired two MiG 29 aircraft
      in
      Ukraine, and four flight simulators (which we then purchased from AeroGroup
      in
      the AeroGroup Acquisition) from three entities controlled by Mark Daniels,
      a
      Director, majority beneficial shareholder, and an Officer of TADS.
      AeroGroup also acquired various government licenses and permits that enable
      it
      to trade, own and operate military class aircraft and to bid for government
      contracts. Specifically, AeroGroup acquired the following intellectual property
      from Mark Daniels:




·
            Copyrights
                to a specialized F-16 Fighter Aircraft training course syllabus,
                specially
                created by AeroGroup in training pilots to use this aircraft’s Flight
                Control Navigation Panel; and




·
            Assignments
                of Provisional applications for utility patents****filed relating to methods of operational training uses of fighter
                aircraft
                by civilian corporations of these type of military aircraft for training
                of military personnel, specifically F-16, Pat. Pend. 60805870; Kfir,
                Pat.
                Pend. 60805885; A-4 Skyhawk, Pat Pend. 60805877; and MiG 29, Pat
                Pend.
                60805888.





AeroGroup
      has provided operational training support for F-16 Flight training with the
      Royal Netherlands Air Force in Melbourne Florida in 2003 and in Jacksonville
      Florida in 2004.





*Flight
      & Combat Training, and Other Aerial Support Services*





TADS
      intends to provide the armed forces of the U.S. and its allies with a vast
      array
      of training services and support functions including, but not limited to,
      military-grade facilities and bombing ranges, air combat instruction and
      tactical training, actual aggressor simulated combat, classroom instruction,
      and
      air combat and basic and advanced jet fighter flight simulation, and would
      also
      provide the airspace scheduling, fueling, aircraft parts, service, and
      maintenance.




Air
      combat simulation exercises are currently conducted by the training commands
      of
      the United States Air Force, United States Navy, and of most of our NATO, SEATO,
      and foreign allies. Neither the U. S. Department of Defense nor its allies
      have
      sufficient training and support equipment and personnel to meet current demand.
      In many instances, our European allies have neither the facilities nor the
      extensive airspace required for fighter combat training or fighter bombing
      training that TADS can provide.





Our
      flight training services will focus on two major components, “initial
      qualification” flight training and continuation flight training, both of which
      consist of ground, simulator and in the air flight training. In addition, we
      are
      preparing to perform other flight training support services as described
      herein.




TADS
      is
      currently in discussion with a
      division of the U.S. Department of Defense to provide aerial training services
      and other services, and anticipates but cannot guarantee that these
      discussions will lead to the final award of a contract.





*Initial
      Qualification Flight Training*





Initial
      qualification flight training consists of the training of military pilots
      that have only recently become qualified in their aircraft and of more
      experienced pilots returning for recurrency training. Initial qualification
      flight training involves aircraft specific flight theory, flight maneuvers,
      aerodynamics, emergency in flight procedures as they relate to combat in a
      specific aircraft. Pilots and other crew members are also trained in cockpit
      resource management, which focuses on division of duties between pilot and
      co-pilot and utilization of resources within the aircraft cockpit to complete
      the flight plan and address emergencies. Initial qualification training involves
      many hours of classroom instruction in aircraft systems operations, air-to-air
      flight maneuvers, tactics, formation flying, instrument training and
      air-to-ground tactics. In flight instruction is generally provided only once
      the
      pilot has shown proficiency in ground instruction and flight simulator
      instruction.




6




*Continuation
      Flight Training*





Continuation
      flight training focuses on combat and other advanced maneuvers and is conducted
      after the pilot completes initial qualification training and returns to a “full
      service” training facility where he is provided refresher or upgrade training to
      sharpen his or her combat skills. We intend to focus the training venue on
      NATO
      customers who would use our facilities and ranges to qualify, in some cases,
      and
      re-qualify in other cases in specific combat skills like air-to-air,
      air-to-ground, electronic countermeasure training, air-refueling training,
      and
      other advanced maneuvers. We anticipate that we will utilize our flight
      simulators to aid in ground training for continuation flight training.
      Additionally, we believe that use of “foreign” aircraft, such as MiG 29 aircraft
      greatly enhances the air-to-air / Red Air combat training program.





*Mid-Air
      Refueling*





TADS
      has
      under exclusive contract the only Ilyushin IL-76/78 refueling tanker aircraft
      available in the U.S., and is discussions to acquire contracts for additional
      aircraft. The IL-76/78 is used by countries around the world, including Russia,
      most former Soviet republics, China, India, Pakistan, Cuba, Libya, Syria, and
      many others, for mid-air refueling, military air cargo, troop transport, and
      other heavy-lift duties, and is capable of operating in extreme conditions.
      The
      IL-76/78 aircraft are the largest and fastest aircraft of this category in
      the
      world. The TADS IL-76/78 is presently undergoing final preparation for
      certification by TADS, is configured for mid-air refueling, is capable of
      re-fueling at an airspeed exceeding 400 knots, and can deliver fuel to three
      aircraft simultaneously. TADS intends to provide these aircraft for re-fueling
      during the air-combat training sessions and for contract re-fueling of U.S.
      military squadrons.




TADS
      is
      currently in discussion with a
      division of the U.S. Department of Defense to provide airborne refueling
      training services, and other services, and anticipates but cannot guarantee
      that these
      discussions will lead to the final award of a contract.





*Aerial
      Fire-Fighting*





In
      addition to its military operation capabilities ,
      t he
      IL-76/78 is the only large aircraft ever
      built for the purpose of aerial water-bombing, and
      is
      considered by most fire-fighting experts as the most capable.  The
      Ilyushin IL-76/78 aircraft are dedicated water-bombers that are capable of
      quickly and efficiently disbursing large quantities of water or fire retardant
      to defeat the increasing damage from the extensive forest fires in the Western
      U.S. and other areas. Due to the escalating forest fire crisis in the Western
      U.S., and the unique capabilities and exclusivity of its Ilyushin aircraft,
      TADS
      has experienced a significant increase in demand for water-bombing services
      from
      both Federal and State agencies.





With
      a
      cruising speed of up to 800 knots per hour, the IL-76/78 can reach most
      locations in the world in approximately twelve hours. When fitted with a
      triple-tank reservoir system, it can hold approximately 18,000 gallons of water
      or fire-retardant, the largest capacity of any water-bombing aircraft in
      existence. In a single pass over a forest fire the IL-76/78 can disburse enough
      liquid to cover an area exceeding 200 yards wide and 600 yards long which is
      over a third of a mile in length and the equivalent of two rows of six football
      fields. To see the IL-76/78 disburse thousands of gallons over a wide area
      at
      extremely low altitude is overwhelming and convincing of its superiority in
      this
      role. The IL-76/78 can then be re-filled and ready to take off for another
      cycle
      within minutes.





As
      exemplified by the state-of emergency declared by California recently, the
      United States Forest Service estimates that forest fires will be a permanent
      threat, and TADS is preparing to lease additional IL-76/78 aircraft specifically
      configured for water-bombing. In addition to the substantial revenue stream
      that
      TADS anticipates from these services, we believe that the publicity that can
      result from these fire-fighting operations will be priceless.




7




TADS
      is
      currently in discussion with various State and Federal agencies in connection
      with providing aerial fire-fighting services to combat the seemingly
      ever-growing devastation of forest fires, and
      anticipates but cannot guarantee that these
      discussions will lead to the final award of a contract.





*Government
      Licenses*





In
      order
      to own and operate military aircraft and to enter into government contracts
      we
      are required to have certain government licenses and permits.




The
      Company, through the AeroGroup Acquisition, as of September 21, 2006, was issued
      a license as a registered importer of “Implements of War: former military
      aircraft and related parts,” with the exclusion of guns and ammunition, from the
      United States Bureau of Alcohol, Tobacco and Firearms (Registration No.
      A-67-262-0921). We are required to renew this registration annually. We must
      maintain this license in order to import, own, and operate the kinds of military
      aircraft that we need in order to fulfill our training contracts. We are
      dependent on having qualified personnel as members of our management in order
      to
      maintain this license.




Through
      the AeroGroup Acquisition, we are also registered as a government contractor
      through the United States Central Contractors Registration office, and we have
      recently become registered with the United States Department of Defense Trade
      Control. We are required to maintain our registration with the Central
      Contractor Registration in order to be eligible to bid on government
      contracts.




*Government
      Contracts*





The
      Company’s business is dependent on our ability to bid for, negotiate, secure,
      and perform under specialized government and agency contracts. We have recently
      been awarded a number of service contracts, and we are in various stages of
      discussions for the awarding of additional service contracts related to flight
      and combat training, mid-air refueling, aerial fire-fighting, and other aerial
      support services, although no assurances can be given that these discussions
      will lead to the awarding of additional contracts.





*Belgian
      Air Force Training Contract*





On
      October 23, 2007, Tads was awarded, through the AeroGroup Acquisition, contract
      FA3002-08-C-0003 to train the Belgian Air Force pilots at facilities located
      in
      Belgium (the “BAF Contract”).





The
      BAF
      Contract is a 1-year contract which can be renewed annually for an additional
      2
      years in the aggregate. The BAF Contract specifies providing classroom, flight,
      and combat training to the Belgian Air Force using up to 8 of our pilots. The
      Company is not required to provide either aircraft or facilities as both are
      provided by the Belgian Air Force.





Recently,
      in February of 2008, after a delay due to a protest of the awarding of the
      BAF
      Contract to the Company by a competitor, which protest was resolved in favor
      of
      the Company, and due to the interference of third-party, the Company
      successfully began execution of the BAF Contract, commencing with an initial
      2
      training pilots. We currently have 4 training pilots in operation in Belgium,
      and have been requested to increase the number of training pilots to 8 which
      we
      anticipate achieving within the next 60 to 90 days, although assurances can
      be
      given.





*F-16
      Training Contract*





In
      November of 2006, AeroGroup entered into a definitive F-16 Training Contract
      with the U.S. Army RDECOM memorializing the terms of the Justification and
      Approval and further expanding the scope of services to permit use of fourth
      generation fighter aircraft other than the F-16, such as our MiG 29 jets (the
      “F-16 Training Contract”). The F-16 Training Contract, which has been assigned
      to TADS, initially will require us to have access to at least seven F-16 jet
      aircraft and other fourth generation fighter jet aircraft ( *i.e.* MiG-29,
      SU-27, F-15 or F-16) and to provide basic and continuation combat flight
      training.




8




The
      F-16
      Training Contract specifically requires that we have in place, prior to
      accepting performance obligations thereunder, parts, maintenance and safety
      programs that are satisfactory based on government standards. While we
      originally anticipated beginning performance on this contract in April 2007,
      we
      have not been able to do so as a result of funding constraints and the
      interference of a third party. These programs are designed to ensure the
      reliability and dispatch readiness of our aircraft. We will be required to
      update and keep these programs current. We will be subject to regular
      inspections by the contracting party for compliance with these
      programs.





In
      addition, the F-16 Training Contract requires that program managers, pilots,
      ground crew, and other personnel we utilize in connection with our services
      have
      certain minimum training and experience qualifications.





*Other
      Service Contracts*





We
      are
      also parties to the below listed subcontracts. However, due to the age of these
      contracts, we do not anticipate being requested to provide services under these
      contracts. Additionally, we intend to dedicate our resources to performance
      under the F-16 Training Contract and other contracts to provide flight
      training.





*Prospective
      Contract to Provide F-16 Ground and Air Training*





Pursuant
      to a Subcontract Agreement dated as of August 15, 2003 with Airborne Tactical
      Advantage Company, LLC, we have agreed to provide F-16 aircraft, equipment,
      technical assistance and maintenance services for work under Primary Contract
      N0019-02-D-3158, known as the “CAS-MOS” contract, with the U.S. Navy, Naval Air
      Systems Command. Specifically, this contract will require us to provide the
      U.S.
      Navy with air-to-air and air-to-ship simulated combat scenarios and simulated
      maritime missile attack training. The agreement is conditioned upon our
      acquiring the necessary aircraft and equipment to perform, including an
      F-16.





*Subcontract
      to Provide Maintenance to Parts*





Pursuant
      to a Subcontract Agreement dated as of May 20, 2003 with Advanced Information
      Engineering Services, Inc., we have agreed to provide, in-flight simulation
      and
      research relating to flight control and flight characteristics to the U.S.
      Air
      Force under Prime Contract Number F04611-02-D-0007, dated March 1, 1999.
      Specifically, this contract will require us to provide aircraft to conduct
      research on flight control handling, flight characteristics stability control,
      cockpit displays and ergonomics. Under this contract we may also be requested
      to
      provide F-16 aircraft to developed software for use in these aircraft. ****





*Subcontract
      to Provide Safety Chase, Target Towing and Photography Support*





Pursuant
      to Subcontract Agreement dated June 21, 2004 with Lockheed Martin Aeronautics
      Company - Fort Worth (LM Aero), we have agreed to provide, upon request, certain
      safety chase, target towing and photo chase support in connection with F-16
      flight training.




9




We
      may
      not be able to perform services under the above contracts until and unless
      we
      have acquired or leased F-16 fighter jet aircraft or, in the case of the F-17
      Training Contract, other fourth generation fighter jet aircraft. In addition,
      certain contracts require us to provide maintenance personnel or flight
      instructor personnel and to have developed, among other things, adequate safety
      programs and a pilot syllabus. While we believe that the market provides a
      sufficient number of retiring military F-16 flight instructor candidates, pilots
      and maintenance professionals we are likely to allocate these resources and
      personnel towards other operations. Additionally, we may need substantial
      additional capital in order to complete these programs and acquire or lease
      F-16
      or other acceptable fourth generation aircraft.




*Customers
      and Competition*




We
      are
      dependent on a small, limited pool of customers for our services. The Company’s
      aerial training and mid-air refueling services will only be requested, if at
      all, by United States and NATO aligned military agencies with specific needs,
      and by contractors for these services who sub-contract to us. Our fire-fighting
      and water-bombing services will only be requested, if at all, by various State
      and Federal agencies.





The
      contract procurement process is lengthy and the government military
      organizations and the State and Federal agencies that are our primary target
      customers are often delayed and cautious when issuing contracts such as we
      are
      pursuing. These customers have strict regulations and policies with respect
      to
      procuring services from private-sector companies for fulfillment of their
      contracts. In addition, unless no other competitors are available, the contracts
      we target are generally required to request bids before awarding contracts.
      While we believe, based on our experience, that no other entities are currently
      able to provide services most of these services, no assurance can be made that
      new entities with more resources then us will enter into this
      business.





*Parts
      Availability*





Almost
      all parts used in the aircraft that we fly have limitations on their useful
      life. The useful life of the parts used in our aircraft are based on the number
      of hours flown and/or the age of the parts. In addition, many parts have
      performance limitations that require replacement or inspection in the event
      of
      accident or flight that exceeds the flight envelope of the aircraft. Finally,
      developments such as accidents of similar aircraft may lead us to replace or
      repair suspect parts to prevent such accidents on our aircraft. Therefore,
      in
      order to maintain our aircraft in airworthy condition, we will be required
      to
      obtain and utilize an inventory of surplus parts. We will also be required
      to
      keep excess parts in locations other than our headquarters so as to enable
      on-site repairs when providing services outside of Grayson County Airport.
      In
      addition, the aircraft we intend to utilize will be specialized military
      aircraft some of which were manufactured overseas. These parts are available
      from very few manufacturers and can be difficult to procure.





With
      respect to United States jet aircraft that we might operate, a number of both
      domestic and foreign parts manufacturers are available who supply F-16 and
      F-15
      related parts. Additionally, based on management’s experience in restoration and
      operation of other aircraft, we believe that certain surplus parts for United
      States military aircraft can be easily retrieved at reasonable or nominal
      prices, from AMARC (Aerospace Maintenance and Regeneration Center), which is
      also commonly known as the military aircraft “bone-yard” that is part of
      Davis-Monthan Air Force Base at Tucson Arizona.





If
      we are
      not able to maintain an adequate supply of replacement parts, we will not be
      able to develop or maintain a parts program or a maintenance program and will
      therefore, not be eligible to accept work orders under our
      contracts.




10




*Intellectual
      Property*





We
      own
      patent applications to a number of procedures that related to the methods of
      conversion of military aircraft for use by civilian entities in training
      military personnel. These patents, which were acquired through the AeroGroup
      Acquisition, are as follows:





**Aircraft**
            
            **Patent**F-16
                Falcon
            
            
            Pat.
                Pend. 60805870Kfir
            
            
            Pat.
                Pend. 60805885A-4
                Skyhawk
            
            
            Pat
                Pend. 60805877MiG
                29
            
            
            Pat
                Pend. 60805888




No
      assurance can be made that we will be awarded patents or that they will not
      be
      challenged. Moreover, no assurance can be made that competitors will not utilize
      similar procedures to privatize military aircraft.





Additionally,
      we have a copyright on an F-16 Pilot Training Syllabus used in training F-16
      pilots in use of a fire control navigation panel.




*Government
      Approval and Regulation*





Our
      proposed business is heavily regulated. All of our operations involve intense
      government approval and oversight. Prior to awarding contracts other than on
      a
“bid for service” basis, military agencies are required to publish their
      proposed award of a contract with details of such contract. During this time
      period, other persons may submit objections or counter bids on these
      contracts.





Our
      aircraft operations will also be subject to all regulations of the Federal
      Aviation Administration that relate to civil “experimental” aircraft, and will
      be subject to airworthiness standards and operating procedures of the Federal
      Aviation Administration. Additionally, our pilots, instructors and mechanics
      also must generally be appropriately certified to perform their duties by the
      Federal Aviation Administration and are required to comply with strict
      recurrency flight training rules and medical certification.





In
      addition to the foregoing, government agencies will require that we have and
      maintain a proper safety program, an approved parts program and an approved
      maintenance program, each of which must be sufficient to support the contracts
      that we undertake to perform and each of which must be continually kept
      current.





Under
      our
      F-16 Training Contract, we are also subject to audit and inspection to ensure
      that we are in compliance with all of the foregoing requirements insofar as
      they
      relate to providing services under this agreement. If we are not in compliance
      we could be fined and we risk suspension or loss of the contract.





Additionally,
      we may be subject to rules of foreign governments with respect to operations
      of
      our aircraft over their territories.





*Effect
      of Government Regulation*





As
      evidenced by the Justification and Approval for the F-16 Training Contract,
      we
      believe that it is not common for branches of the United States military to
      issue contracts to private entities for the training of military personnel
      in
      combat and other military exercises. No assurance can be made, therefore, that
      other government agencies will outsource their training or flight support
      services, or that the government agencies that we deal with will not change
      their policy with respect to such contracts to not renew or issue new contracts
      to us or others in our business sector. Additionally, due to terrorist or other
      national safety concerns, no assurance can be made that Bureau of Alcohol,
      Tobacco, and Firearms will not restrict or prohibit the renewal of a permit
      to
      private companies such as us, to own and operate our military
      aircraft.




11




*Development
      of Programs*





During
      fiscal 2005 we spent approximately $88,000 in developing
      our training syllabus with an no expenditures in fiscal 2006 or fiscal 2007
      for these programs. We believe that we are required to have a strong and
      efficient training syllabus in order to maintain and bid for additional military
      training contracts. We have also begun development of an approved parts program,
      a safety program and maintenance program, all of which are required to be in
      effect prior to being tasked on any military contracts.





*Employees*





As
      of
      December 31, 2007, we had three full time employees.





*Accounting
      Treatment; Change Of Control*




The
      AeroGroup Acquisition has been accounted for as a "reverse acquisition," as
      AeroGroup owns a vast majority of the outstanding shares of the Company's Common
      Stock as a result of the AeroGroup Acquisition. Consequently, AeroGroup is
      deemed to be the accounting acquirer in the reverse acquisition and TADS is
      deemed the legal acquirer. Therefore the assets and liabilities and the
      historical operations of AeroGroup prior to the AeroGroup Acquisition will
      be
      reflected in the financial statements and will be recorded at the historical
      cost basis of AeroGroup. The consolidated financial statements for the Company
      after completion of the Acquisition includes the assets and liabilities of
      both
      TADS and AeroGroup, historical operations of AeroGroup, and operations of TADS
      from the closing date of the AeroGroup Acquisition.





Except
      as
      described herein and under the Asset Purchase Agreement, as amended, no
      arrangements or understandings exist among present or former controlling
      stockholders with respect to the election of members of the Company's board
      of
      directors and, to our knowledge, no other arrangements exist that might result
      in a future change of control of the Company.




*AeroGroup
      Assets Acquired*





The
      AeroGroup assets (the “AeroGroup Assets”) acquired from AeroGroup in December
      2006 include:




·
            Two
                MiG 29 “Fulcrum” fighter aircraft, which were appraised in late 2005 at
                $2,800,000 each (pre-modification) which are located in the Ukraine
                and
                are being prepared to be shipped to the United States for
                reassembly;




·
            Four
                Singer Link tactical jet simulators, and related equipment, recently
                appraised in late 2005 $285,000 each (pre-modification)
                currently located at the Company’s facility at the Grayson County
                Airport;




·
            Assignments
                of copyrights to a specialized F-16 Fighter Aircraft training course
                syllabus, specially created by AeroGroup for training pilots to use
                this
                aircraft’s Flight Control Navigation
                Panel;




·
            Assignments
                of provisional applications for utility patents****filed relating to methods of operational training uses of fighter
                aircraft
                by civilian corporations of these type of military aircraft for training
                of military personnel, specifically F-16, Pat. Pend. 60805870; Kfir,
                Pat.
                Pend. 60805885; A-4 Skyhawk, Pat Pend. 60805877; and MiG 29, Pat
                Pend.
                60805888;




·
            Assignment
                of a Federal Aviation Administration issued license as an Aircraft
                Dealer;




12




·
            Rights
                as assignee under three subcontracts and one contract to provide
                combat,
                primary and other flight training, as well as training research,
                in the
                F-16 and various other types of aircraft to military personnel of
                the U.S.
                Armed Forces and to the armed forces of certain NATO aligned countries
                (the “Training Contracts”);




·
            Assignment
                of a sublease of facilities at the Grayson County Airport in Grayson,
                Texas, including aircraft hangars, land and office space;
                and




·
            Assignment
                of an option to enter into an exclusive agreement with Air Support
                Systems, LLC, to lease IL-78 tanker aircraft which are used primarily
                in
                air-to-air refueling operations.





It
      is
      intended that the AeroGroup Assets will be used by the Company in connection
      with both “basic flight training” and “combat flight training” of military
      pilots. The Company may use the MiG’s and other assets to provide U.S. and NATO
      military pilots with a “real life” opportunity to train against threat-type
      aircraft whose performance and flight characteristics are superior in some
      respects to those of U.S. and NATO fighter aircraft.





13





**RISK
      FACTORS**





*We
      are subject to a number of risks, including those enumerated below. Any or
      all
      of these risks could have a material adverse effect on our business, financial
      condition, results of operations, and cash flows and on the market price of
      our
      Common Stock.*  *Additional
      risks and uncertainties that we do not presently know about or that we currently
      believe are immaterial may also adversely impact our business operations.
      Negative consequences associated with the following risks would likely cause
      our
      business, financial condition or results of operations to
      suffer.*





*Risks
      Relating to Our Company*





**Our
      auditors have expressed substantial doubt in their report on our financial
      statements about our ability to continue business.**





Our
      auditors have included an explanatory paragraph in their report on our
      consolidated financial statements for the years ended December 31, 2006 and
      2005, indicating that there is substantial doubt regarding our ability to
      continue as a going concern. The financial statements included elsewhere in
      this
      current report do not include any adjustments to asset values or recorded
      liability amounts that might be necessary in the event we are unable to continue
      as a going concern. If we are in fact unable to continue as a going concern,
      you
      may lose your entire investment in our company. We will therefore need immediate
      additional substantial capital in order to continue to operate.





**We
      have a history of losses since our inception, we expect future
      losses, have minimal revenues, and we may never achieve or sustain
      profitability** .





We
      have
      incurred net losses each year since our inception. Additionally, we have only
      two viable contracts, the BAF Contract and the F-16 Training Contract. We cannot
      perform service under the F-16 Contract until we acquire or lease additional
      aircraft and complete our parts, maintenance, and safety programs.





**We
      have a significant amount of secured and unsecured indebtedness. We have
      substantial debt interest payments under our Investor Notes, Additional Notes,
      Secured Daniels Note, and Cambar Note. We had no revenues in 2006 and 2007
      and
      will likely be in default if we do not earn revenues or raise additional capital
      to repay these debts.**





We
      have
      been funded to date primarily from the sales of convertible promissory notes
      and
      warrants. Additionally, the AeroGroup Assets were acquired with a purchase
      money
      note of $2.2 Million issued to Cambar Associates. These significant amounts
      of
      indebtedness are required to be repaid. Interest on the Investor Notes and
      Additional Notes are paid quarterly. We are likely to be in default in a
      substantial portion of this indebtedness in the near future if we are not able
      to raise additional capital to repay them.





Additionally,
      all of the foregoing indebtedness, is convertible at prices ranging between
      $.15
      and $1.00 per share, while our share price at the time of the assumption of
      this
      indebtedness was far above this. This may act as a deterrent for future
      investors who wish to invest in the Company.





We
      expect
      to continue to incur net operating losses until at least the third quarter
      of
      our fiscal year 2008 and these losses may be substantial. To implement our
      business strategy, we will have to incur a high level of fixed operating
      expenses and we will continue to incur considerable business development
      expenses and capital expenditures relating to our acquisition or lease of
      aircraft and development of our parts, maintenance, and safety programs.
      Accordingly, if we are unable to generate substantial revenues and positive
      cash
      flows we will not achieve profitability. Even if we do achieve profitability,
      we
      may not be able to sustain or increase our profitability on a quarterly or
      annual basis. We are therefore dependant on our ability to raise substantial
      additional capital as further discussed herein.




14




No
      assurance can be made that we will be able to acquire the modern aircraft
      necessary to the operation of our business. Additionally, even if we acquire
      the
      necessary aircraft they must be modified for our purposes. No assurance can
      be
      made that we will be able to successfully implement our acquisition strategy
      for
      these aircraft, or, if we do acquire the aircraft, that we will be able to
      maintain and operate them efficiently.





**Our
      business plan is based on an unproven business model and limited or no public
      information is readily available for civilian companies that provide military
      flight training.**




All
      efforts that were previously initiated by us in an attempt to develop a viable
      business plan have been abandoned in light of the acquisition of the AeroGroup
      Assets and related business. In place thereof, we have adopted as a new plan
      of
      operations the strategy that has been developed and evolving since 2002. To
      date, implementation of our business strategy relating to civilian training
      of
      military personnel has been limited, with only one contract and several
      subcontracts having been entered into. Accordingly, our business and operations
      are in the development stage, subject to all of the risks inherent in the
      establishment of new business ventures. There can be no assurance that our
      intended business and operations will be successful. Any future success that
      we
      might enjoy will depend upon many factors including factors which may be beyond
      our control, or which cannot be predicted at this time. We may encounter
      unforeseen difficulties or delays in the implementation of our business plan.
      There can be no assurance that such difficulties or delays will not have a
      material adverse effect upon our financial condition, business prospects and
      operations and the value of an investment in us.





We
      can
      also be adversely affected by a number of external factors, such as conditions
      prevailing in the securities markets and/or the economy generally. Consequently,
      an investment in the Company is highly speculative and no assurance can be
      given
      that purchasers of our securities will realize any return on their investment
      or
      that purchasers will not lose their entire investment.





**Recent
      Securities and Exchange Commission interpretations of rules relating to
      registration of securities acquired in private placements could adversely affect
      the trading market of our Common Stock or our ability to raise
      capital.**





The
      company believes that SEC staff has recently taken the position with respect
      to
      recently filed shelf registration statement filings covering selling shareholder
      stock that if a large percentage of the company’s outstanding restricted
      securities are being registered, those selling shareholders are deemed to be
      underwriters who must sell into the market at a fixed price. In addition, for
      selling shareholder shelf offerings related to stock underlying convertible
      securities, we believe some of the staff has indicated in comment letters that
      the registration statements cannot be filed until the convertible security
      has
      been converted. The SEC has not issued any specific guidance or interpretation
      on this issue. However, these positions regarding selling security holders
      registration statements could severely restrict our ability to raise capital
      through private offerings. Potential financing sources, such as funds and
      wealthy private investors, may re-think their investment strategies and not
      want
      to invest in small public companies where they are restricted in this manner
      from liquidating their investments through registration and resale of their
      securities. As a result, our cost of capital may increase or we may not be
      able
      to access private investments at all.




15




**We
      are currently in a growth-stage and may experience setbacks in business
      development and expansion.**





We
      are
      subject to all of the risks inherent in the creation of a new business. As
      a
      growth-stage company, our cash flows may be insufficient to meet expenses
      relating to our operations and the growth of our business, and may be
      insufficient to allow us to service new and additional contracts.




**Potential
      foreign customers may not be able to obtain permission from the U.S. Government
      to train in the U.S.**




In
      the
      event that any foreign country wishes to engage us to provide training services
      in the U.S., they must obtain the approval of the U.S. government. If they
      are
      not able to obtain such approval, they may not be able to retain our services.
      This may restrict the size of our market and our ability to enter into new
      contracts.





**The
      auditors of AeroGroup’s financial statements have found certain deficiencies in
      the reports for the years ended 2006 and 2005.**





In
      connection with the audit of the financial statements for AeroGroup,
      Incorporated for the years ended December 31, 2006 and 2005, the auditors for
      AeroGroup communicated to AeroGroup's Board of Directors, the existence of
      material weaknesses in the internal controls related to financial
      reporting. Specifically, they communicated the occurrence of
      significant adjusting journal entries, principally related to the accounting
      for
      derivative instruments, and deficiencies related to disclosures
      in the notes to the financial statements. In connection with our plan of
      operations during the next twelve months, we plan on hiring a full time CFO,
      adding additional accounting staff, and strengthening the
      internal controls over our financial reporting.





**The
      loss of the services of key personnel would adversely affect our business,
      and
      could cause us to lose our government permits or
      contracts.**





Our
      future success depends to a significant degree on the skills, experience and
      efforts of our executive officers, particularly our senior management and staff.
      Specifically, and without limitation, we do not currently have any employment
      agreements with Mark Daniels. Loss of Mark Daniels would be detrimental to
      our
      overall business. We also depend significantly upon our skilled training staff
      and mechanics. The specialized nature of our military flight and mid-air
      refueling training businesses require our training staff to have specialized
      skills and expertise. In order to maintain our aircraft we need specially
      trained jet mechanics. If we are not able to obtain and retain personnel with
      the appropriate skill and licensing, we may not be able to fulfill our
      obligations under our contracts and it may limit our ability to enter into
      future contacts, if we do not have the employees necessary to fulfill
      them.





**Because
      there are a limited number of suppliers, we may not be able to acquire aircraft
      or replacement parts necessary for the operation of our
      business.**





In
      order
      to operate our business, we must have sufficient aircraft in operating condition
      to fulfill our contractual obligations. The aircraft and replacement parts
      which
      we need in order to operate our business are manufactured in only a few
      locations by a limited number of manufacturers. If any of those manufacturers
      ceases to manufacture required replacement parts, or we cannot obtain those
      parts because, for example, restrictions are placed upon the export and import
      of those parts, and we are otherwise not able to obtain such parts in the open
      market, we may not be able to keep our aircraft in operating condition. In
      addition, if we cannot replace aircraft when we need to or expand our fleet
      when
      we wish to, it will negatively affect our ability to perform our contracts,
      and
      to enter into new contracts. As a result, not only may existing revenue
      potential decrease, we will not be able to expand our business.





16




**We
      depend heavily on government contracts that may not be fully funded or may
      be
      terminated, and the failure to receive funding or the termination of one or
      more
      of these contracts could reduce our revenue and increase our
      costs.**





Some
      of
      our contracts may not be fully appropriated when entered into and may be subject
      to future legislative appropriations. Legislatures may appropriate funds for
      a
      given program on a year-by-year basis, even though contract performance may
      take
      more than one year. As a result, the contract may only be partially funded,
      and
      additional funding is normally committed only as appropriations are made in
      each
      subsequent year. These appropriations, and the timing of payment of appropriated
      amounts, may be influenced by, among other things, the state of the economy,
      competing political priorities, curtailments in the use of government
      contracting firms, budget constraints, the timing and amount of tax receipts
      and
      the overall level of government expenditures. If appropriations are not made
      in
      subsequent years of a multiple-year contract, we may not realize all of our
      potential revenues and profits from that contract.





**If
      we are unable to accurately estimate and control our contract costs, then we
      may
      incur losses on our contracts, which may result in decreases in our operating
      margins and in a significant reduction or elimination of our
      profits.**





It
      is
      important for us to control our contract costs so that we can maintain positive
      operating margins. We anticipate that the nature of our flight training
      contracts will provide for fixed hourly fee payments to us for flight time.
      Additionally, parts and fuel may be requested under a “cost-plus” contract.
      Under cost-plus contracts, which may be subject to contract ceiling amounts,
      we
      are reimbursed for allowable costs and fees, which may be fixed or
      performance-based. If our costs exceed the contract ceiling or are not allowable
      under the provisions of the contract or any applicable regulations, we may
      not
      be reimbursed for all our costs. Under fixed-price contracts, we receive a
      fixed
      price per hour of flight operations regardless of what our actual costs will
      be.
      Additionally, we may be penalized if the percentage of aborted flights during
      any month exceed a percentage (for example 10%) of the actual flight hours.
      Consequently, we realize a profit on fixed-price contracts only if we control
      our costs and prevent cost over-runs on the contracts. Under each type of
      contract, if we are unable to control costs, we may incur losses on our
      contracts, which may result in decreases in our operating margins and in a
      significant reduction or elimination of our profits.





**If
      we fail to timely complete, miss a required performance standard or otherwise
      fail to adequately perform on a contract above a specified percentage, then
      we
      may incur a loss on that contract, which may affect our overall
      profitability.**





Our
      contracts will likely require us to be available with our aircraft and training
      personnel at a particular time and place. If we fail to be present on a timely
      basis and a training exercise needs to be aborted, we may not be paid for such
      tasking.




**Our
      future revenues depend on our ability to consistently bid and win new contracts
      and renew existing contracts and, therefore, our failure to effectively obtain
      future contracts could adversely affect our profitability.**





Our
      future revenues and overall results of operations require us to successfully
      bid
      on new contracts and renew existing contracts. Contract proposals and
      negotiations are complex and frequently involve a lengthy bidding and selection
      process, which is affected by a number of factors, such as market conditions,
      equipment availability and required governmental approvals. If negative market
      conditions arise, if the required governmental approval is not obtained, if
      we
      lose any of our government licenses, or are unable to develop parts, safety
      and
      maintenance programs, we may not be able to pursue particular projects, which
      will adversely affect our profitability.




17




**We
      previously operated as a mining company and may have liabilities associated
      with
      that business.**




We
      were
      incorporated in Nevada in July, 1998 under the name Natalma Industries, Inc.
      for
      the purpose of engaging in the exploration and development 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, we were unable to pay for and
      perform the exploration and development required in our agreement with the
      owners of our properties and we lost our rights to our mining claims. We then
      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 AeroGroup Acquisition.
      While we are no longer engaged in the mining business, we could incur
      unanticipated liabilities relating to our previous operations such as claims
      relating to violations of environmental law or claims for property damage or
      personal injury.




**Risks
      Relating to Government Contractors and Flight Training
      Services**





**As
      a government contractor, we may be subject to audit and review on certain of
      our
      contracts. A negative outcome of any such audit and review could have a negative
      impact on our business and results of operation.**





As
      a
      government contractor, we are subject to a number of procurement laws,
      regulations and government audits; a violation of any such laws and regulations
      could result in sanctions, contract termination, forfeiture of profit, harm
      to
      our reputation or loss of our status as an eligible government contractor.
      These
      laws and regulations affect how we transact business with our clients and in
      some instances, impose additional costs to our business operations. Even though
      we take precautions to prevent and deter fraud and misconduct, we face the
      risk
      that our employees or outside partners may engage in misconduct, fraud or other
      improper activities. Government agencies, such as the U.S. Defense Contracting
      Audit Agency (“ DCAA ”), routinely audit and investigate government contractors.
      These government agencies review and audit a government contractor’s performance
      under its contracts and cost structure, and compliance with applicable laws,
      regulations and standards. We can provide no assurance that the DCAA or other
      government audits will not result in material disallowances for incurred costs
      in the future. Government contract violations could result in the imposition
      of
      civil and criminal penalties or sanctions, contract termination, forfeiture
      of
      profit, and/or suspension of payment, any of which could make us lose our status
      as an eligible government contractor. We could also suffer serious harm to
      our
      reputation, which would have a negative impact on our revenue and profitability
      and could have a negative effect on our reputation and ability to procure other
      government contracts in the future.





**Significant
      existing or additional governmental regulation could subject us to unanticipated
      delays and costs, which would adversely affect our
      revenues.**





Nearly
      every aspect of our business is highly regulated by one or more government
      agencies. We are subject to compliance with regulatory rules imposed by aviation
      authorities, the acquisition of aircraft in foreign jurisdictions may be
      regulated in those jurisdictions, and the import of those aircraft into the
      U.S.
      is regulated in the U.S. These laws and regulations may change without notice,
      resulting in disruptions to our operations. Additional laws and regulations
      that
      are applicable to our business may be enacted. The interpretation of any future
      laws, regulations, applications or enforcements or changes in the
      interpretations or enforcement of existing law or regulation and their effect
      on
      our business cannot be predicted. Any changes imposed by a regulatory agency,
      including changes imposed by aviation authorities such as the U.S. Federal
      Aviation Administration to safety standards, could require us to make unplanned
      modifications to our services or may result in delays or cancellations of
      contracts, all of which could have a materially adverse effect on our operations
      and financial condition. Moreover, if we do not comply with existing or future
      laws, we could be subject to enforcement actions by U.S., as well as foreign
      governments. We could incur fines or civil penalties; we could be subject to
      injunctions prohibiting us from taking certain actions necessary to the
      operation of our business; it may be recommended that we not be allowed to
      enter
      into government contracts; and/or we may be subject to criminal
      prosecution.




18




In
      addition, our operations include the use, generation, storage, handling and
      disposal of hazardous materials. New laws and regulations, stricter enforcement
      of existing laws and regulations, the discovery of previously unknown
      contamination or the imposition of new clean-up requirements may require us
      to
      incur substantial costs in the future which could have a materially adverse
      effect on our financial condition and results of operations.





**We
      are subject to fluctuations in military spending and a downturn in such spending
      could result in a decrease in our anticipated future
      revenues.**





We
      will
      derive most of our revenue from sales to military customers and State and
      Federal agencies. We also may wish to enter into contracts with military
      customers in other countries. The termination of funding for a government
      program could result in a loss of the anticipated future revenue attributable
      to
      that program, which could have a negative impact on our operations. While
      spending authorization for defense-related programs has increased in recent
      years due to greater homeland security and foreign military commitments, as
      well
      as the trend to outsource federal government jobs to the private sector, these
      spending levels may not be sustainable. Future levels of expenditures and
      authorizations for these programs may decrease, remain constant or shift to
      programs in areas where we do not provide services. As a result, a general
      decline in U.S. defense spending could harm our operations and significantly
      reduce our future revenues.




**We
      face competition in our industry, and many of our competitors have substantially
      greater experience and resources than we do.**





While
      we
      do not believe that we face significant competition for private military flight
      training, the markets in which we sell our simulation training services are
      highly competitive, with new entrants emerging and positioning themselves to
      take advantage of our market. Some of our competitors in the flight simulation
      sector are larger than we are and have greater financial, technical, marketing,
      manufacturing, and distribution resources. In addition, some competitors have
      well-established relationships with aircraft manufacturers, airlines and
      governments which may give them an advantage over us in winning contracts with
      these organizations. We obtain our contracts through competitive bidding
      processes that subject us to the risk that we will expend substantial time
      and
      effort on proposals for contracts that may not be awarded to us. We cannot
      assure investors that we will win competitively awarded contracts.




**Liability
      claims from casualty loss could cause us to incur significant payment
      obligations. This is compounded by the fact that liability insurance is not
      readily available for the kinds of operations we
      conduct.**





We
      may be
      subject to liability claims arising out of accidents or disasters involving
      our
      aircraft, including claims for serious personal injury or death. Conventional
      aviation liability and casualty insurance carriers do not cover hull, liability
      or casualty insurance for the kinds of operations we intend to conduct making
      finding insurance difficult and expensive. While some of our government
      contracts allocate the risk of loss from an aircraft accident to the government
      entity with whom we have contracted, those entities have not assumed one hundred
      percent of the risk. If an accident is found to have occurred as a result of
      our
      negligence or wrongful act, such as a failure to properly maintain our aircraft,
      or if it occurs at a time other than during training exercises, we might be
      found liable and might have to pay significant damages to others for their
      losses. Additionally, if the accident happens while an aircraft is not
      conducting operations for a government contract providing for risk assumption
      by
      the government, the Company will be subject to material liability. We cannot
      be
      certain that we will find adequate and reasonable insurance or that our
      insurance coverage will be sufficient to cover one or more substantial
      claims.




19




**Risks
      Relating to Our Securities**





**We
      have a large number of notes and warrants outstanding, which are convertible
      into shares of our Common Stock at prices below our current trading price.
      Therefore, investors in the Company’s Common Stock could experience immediate
      and substantial dilution from the conversion of these notes or exercise of
      these
      warrants.**




We
      have
      assumed over $10 million in outstanding indebtedness, convertible primarily
      at
      prices ranging between $.05 per share and $1.00 per share. These notes are
      convertible into approximately 46 million shares of TADS Common Stock.
      Additionally, we have assumed warrants to acquire over 30 million shares at
      similar prices. Therefore, shareholders who acquire our stock at current market
      prices may suffer substantial dilution in the event that such noteholders and
      warrantholders elect to convert their notes or exercise their
      warrants.





Additionally,
      the overhang from convertible notes and warrants with low conversion prices
      and
      exercise prices could cause resistance in the marketplace for our Common Stock
      and prevent our stock price from increasing.





**There
      is no established public trading market for our securities, which could
      adversely affect the ability of investors in our Company to sell their
      securities in the public market.**





Our
      Common Stock, which is quoted on the OTC Bulletin Board, or OTCBB, is thinly
      traded. We cannot predict the extent to which a trading market will develop
      or
      how liquid that market might become. Accordingly, holders of our Common Stock
      may be required to retain their shares for an indefinite period of
      time.





The
      OTCBB
      is an inter-dealer, over-the-counter market that provides significantly less
      liquidity than stock exchanges. Quotes for stocks included on the OTCBB are
      not
      listed in the financial sections of newspapers, as are those for the exchanges.
      Therefore, prices for securities traded solely on the OTCBB may be difficult
      to
      obtain and holders of Common Stock may be unable to resell their securities
      at
      or near their original acquisition price or at any price. Market prices for
      our
      Common Stock will be influenced by a number of factors, including:




·
            the
                issuance of new equity securities pursuant to future
                offering;·
            changes
                in interest rates;·
            competitive
                developments, including announcements by our
                competitors;·
            New
                services or significant contracts, acquisitions;·
            strategic
                partnerships, joint ventures or capital
                commitments;·
            variations
                in quarterly operating results;·
            change
                in financial estimates by securities analysts;·
            the
                depth and liquidity of the market for our Common Stock;·
            investor
                perceptions of us and of the aviation military training industry
                generally; and·
            general
                economic and other national and international
                conditions.




20




**Our
      Common Stock is considered a "penny stock" and may be difficult to
      sell.**





Our
      Common Stock is currently quoted on the OTCBB, and trades below $5.00 per share;
      therefore, our Common Stock is considered to be a “penny stock” and, as such,
      the market for our Common Stock may be further limited by certain SEC rules
      applicable to penny stocks. To the extent the price of our Common Stock remains
      below $5.00 per share or we have net tangible assets of $2,000,000 or less,
      our
      common shares will be subject to certain “penny stock” rules promulgated by the
      SEC. Those rules impose certain sales practice requirements on brokers who
      sell
      penny stock to persons other than established customers and accredited
      investors. For transactions covered by the penny stock rules, the broker must
      make a special suitability determination for the purchaser and receive the
      purchaser’s written consent to the transaction prior to the sale. Furthermore,
      the penny stock rules generally require, among other things, that brokers
      engaged in secondary trading of penny stocks provide customers with written
      disclosure documents, monthly statements of the market value of penny stocks,
      disclosure of the bid and asked prices and disclosure of the compensation to
      the
      brokerage firm and disclosure of the sales person working for the brokerage
      firm. These rules and regulations adversely affect the ability of brokers to
      sell our common shares and limit the liquidity of our securities.




**We
      may not be able to borrow money when we need or wish to because our significant
      assets are subject to a lien securing an outstanding indebtedness to our
      majority stockholder and because a covenant in one of outstanding debt
      instruments does not permit us to borrow money without that lender’s consent. We
      also face the risk of losing our assets in foreclosure of the lien on them
      if we
      default on our loan.**





We
      are
      indebted to our majority shareholder and that loan is secured by a lien on
      our
      significant assets. If we defaulted on the loan, those assets may be foreclosed
      upon and we will not have the assets necessary for the operation of our
      business. We might not be able to fulfill our existing or future
      contracts.




In
      addition, even if we do not default on the loan, the presence of a lien on
      our
      assets may prevent us from obtaining financing elsewhere. Both institutional
      lenders and private lenders may only be willing to lend us money if they have
      a
      first lien on our assets. If our majority shareholder does not subordinate
      or
      release his lien, we may not be able to obtain other loans if
      required.





We
      also
      have issued an 8% Convertible Debenture to Davenport Reserve Holding, LLC which
      contains a covenant that prohibits us from borrowing money other than
      indebtedness existing at the time of the debenture, trade payables, borrowings
      in the ordinary in the ordinary course of business and for general corporate
      purposes or borrowings to repay the debenture.




**We
      do not intend to pay dividends in the near future, if at
      all** ***.***




We
      do not
      intend to pay any dividends and we do not foresee making any cash distributions
      in the manner of a dividend or otherwise. Our board of directors presently
      intends to follow a policy of retaining earnings, if any. In addition, the
      8%
      Convertible Debenture held by Davenport Reserve Holding, LLC which we assumed
      in
      the AeroGroup Acquisition prohibits us from making any distribution to our
      stockholders without their consent. Even if we had funds to declare and pay
      dividends, we could not do so without Davenport Reserve’s consent.





**Our
      anticipated cash requirements are significant and we may attempt to raise
      capital through the issuance of Common Stock, a series of preferred stock or
      we
      may incur debt or issue other securities convertible or exercisable into out
      stock resulting in dilution of our existing shareholders’ ownership of the
      Company.**





Because
      we anticipate our current cash on hand and revenue from operations may not
      be
      sufficient to fund our anticipated needs, we may attempt raise capital through
      a
      private offering of securities. The issuance of significant amounts of equity
      or
      instruments convertible or exercisable into equity will dilute the ownership
      interest of our existing stockholders.




21




**To
      the extent we finance the acquisition of our aircraft and training equipment,
      we
      may be subject to loan covenants restricting the conduct of our business, or
      loss of assets used as collateral if we default on a loan.**





We
      intend
      to finance the acquisition of our aircraft and training equipment by borrowing
      from lenders, including banks. Typically, such financing requires us to agree
      to
      certain negative and affirmative covenants which may limit the way in which
      we
      conduct our business. In addition, if we breach any of these covenants we may
      be
      declared in default and be required to repay the outstanding balance of such
      loans. If we fail to pay such amounts when due, upon acceleration or otherwise,
      any assets which were used as collateral for the loans could be foreclosed
      upon
      by our lenders, which may prevent us from performing some or all of our
      contracts.





22




**Item
      2. Description of Property**





The
      Company’s address is 100 Crescent Court, 7 th floor,
      Dallas, Texas 75201, and the Company’s phone number is (214) 459-8272. The
      property of the company is located at the Grayson County Airport in Sherman,
      Texas.





**Item
      3. Legal Proceedings**





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




Sichenzia
      & Ross LLP is pursuing a claim against the Company for unpaid services. We
      believe that this claim is without merit and are working towards resolution
      of
      the same.





General
      Charles Searock, the former Chief Executive Officer of International Tactical
      Training Center, Inc. is pursuing a claim in Texas against TADS for unpaid
      wages. We believe that this claim is without merit and are working towards
      resolution of the same.





TADS
      is
      not a party to any pending litigation or legal proceeding that is not in the
      ordinary course of business. To our knowledge, no such proceedings are
      threatened other than a threat of lawsuits from Mr. Peer, Sichenzia &Ross,
      and General Searock.




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




During
      fiscal 2007, no action was taken by the Company which required a vote of
      security holders.





**Item
      5.****Market
      for Common Equity and Related Stockholder Matters**





The
      TADS
      Common Stock is quoted on the Over-the-Counter Bulletin Board, under the symbol,
      "TADF.OB". Trading in the Common Stock in the over-the-counter market has been
      limited and sporadic, and the quotations set forth below are not necessarily
      indicative of actual market conditions. Further, these prices reflect
      inter-dealer prices without retail mark-up, mark-down, or commission, and may
      not necessarily reflect actual transactions.





**Fiscal
                Period:****High**
            
            **Low****2007****April
                1, 2007 through April 1, 2008**
            
            $
            1.19
            
            $
            0.02**2006**December
                31, 2006September
                30, 2006
            
            $
            4.00
            
            $
            2.00June
                30, 2006
            
            $
            5.37
            
            $
            1.80March
                31, 2006
            
            $
            3.96
            
            $
            1.50**2005**December
                31, 2005
            
            $
            1.60
            
            $
            0.55September
                30, 2005
            
            $
            1.56
            
            $
            0.45June
                30, 2005
            
            $
            0.80
            
            $
            0.45March
                31, 2005
            
            $
            0.80
            
            $
            0.46**2004**December
                31, 2004
            
            $
            0.70
            
            $
            0.37September
                30, 2004
            
            $
            0.74
            
            $
            0.47June
                30, 2004
            
            $
            1.06
            
            $
            0.60March
                31, 2004
            
            $
            3.00
            
            $
            0.56




23




As
      of
      December 31, 2007 there were 164 record holders of TADS outstanding Common
      Stock.





We
      have
      not declared or paid dividends to our stockholders during this or our three
      most
      recently completed fiscal years. We do not anticipate that we will pay dividends
      any time in the near future. In addition, the 8% Convertible Debenture held
      by
      Davenport Reserve Holding, LLC which we assumed in the AeroGroup Acquisition,
      prohibits us from making any distribution to our stockholders without
      Davenport’s consent. Even if we had funds with which to declare and pay
      dividends, we could not do so without Davenport Reserve’s consent.





Shareholders
      of AeroGroup will not be issued any of the shares issued to AeroGroup itself.
      Additionally, any such distribution is likely to require registration under
      the
      Securities Act.





*Recent
      Sales of Unregistered Securities*





On
      March
      2, 2007, pursuant to binding Unit Purchase Agreements with 11 accredited
      investors (each, an “Investor”) submitted by such Investors in 2006, we accepted
      subscriptions for, and sold to such Investors, an aggregate of 629,911 Units
      (each, a “Unit”) at a purchase price of $.55 per Unit. Each Unit is comprised of
      (i) one share of our common stock, par value $.001 per share (the “Common
      Stock”), (ii) a Class A Warrant to purchase one share of Common Stock at $1.00
      per share and which expired 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 to the Company of the offering was $346,451.05.





On
      October 30, 2007, pursuant to binding Share Purchase Agreements (the “Share
      Purchase Agreement”) with 4 accredited investors (each, an “Investor”) submitted
      by such Investors in 2007, we accepted subscriptions for, and sold to such
      Investors, an aggregate of 382,666 shares of common stock( the “Common Stock”),
      at a purchase price of $.30 per share. The gross proceeds to the Company of
      the
      offering was $114,500. 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 $.15 per share.
      Additionally, a fee of $14,500 and 114,800 shares of Common Stock was paid
      to an
      introducing agent as an introduction and expense fee.




*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.







24




*Issuance
      of Common Stock to Cambar & Associates*





The
      Company issued an aggregate of 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. No registration rights were issued in
      connection with these shares.




*Issuance
      of Common Stock to Fred Daniels*





The
      Company issued an aggregate of 405,000 restricted shares of Common Stock to
      Mr.
      Fred Daniels in the first and third quarters of 2007, as compensation for
      service as an Officer of the Company. 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 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. 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. However, Mr. Korybut has agreed to return
      21,000,000 of said shares to the Company for rescission. No registration rights
      were issued in connection with these shares.





*Issuance
      of Common Stock to John Farley*





The
      Company issued an aggregate of 150,000 restricted shares of Common Stock to
      Mr.
      John Farley in the first and third quarters of 2007, as compensation for his
      service as an Officer of the Company. The Company issued an additional 100,000
      restricted shares of Common Stock to Mr. John Farley in the first quarter of
      2008, as compensation as an independent provider of services to the Company.
      No
      registration rights were issued in connection with these shares.





*Issuance
      of Common Stock to Lawrence Cusack*





The
      Company issued an aggregate of 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. No registration rights were issued in
      connection with these shares




25




*Issuance
      of Shares of Common Stock for Services*




During
      fiscal 2007 and the first quarter of 2008, the Company issued a net aggregate
      of
      7,164,800 shares in satisfaction of invoices to various services providers.
      These shares are restricted and no registration rights were granted in
      connection with these issuances.





*Issuance
      of Common Stock to ZA Consulting*





The
      Company issued an aggregate of 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. No registration rights
      were
      issued in connection with these shares.





*Issuance
      of Common Stock to Gary Corley*





The
      Company issued an aggregate of 200,000 restricted shares of Common Stock to
      Mr.
      Gary Corley Esq. in the fourth quarter of 2007, 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. 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 restricted shares of Common
      Stock to Federal Financial Partners, LLC in the first and third quarters of
      2007, as compensation for consulting services to the Company. No registration
      rights were issued in connection with these shares.





*Issuance
      of Common Stock to Northrup Defense Consulting Corp.*





The
      Company issued an aggregate of 2,800,000 shares restricted shares of Common
      Stock to Northrup Defense Consulting Corp in the third quarters of 2007, however
      Northrup Defense Consulting Corp has returned said shares to the Company for
      rescission.





*Issuance
      of Common Stock to Joint Strategy Group, LLC*





The
      Company issued an aggregate of 5,000,000 shares restricted shares of Common
      Stock to Joint Strategy Group, LLC in the first quarter of 2008, as compensation
      for consulting services to the Company. No registration rights were issued
      in
      connection with these shares.




26




**Series
      A Preferred Stock Issuances**





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





·
            elect
                one director to the Company’s board of directors·
            vote
                on all other matters on a 25 votes per share Common Stock
                basis.·
            with
                respect to dividend rights, rights on redemption, rights on conversion
                and
                rights on liquidation, winding up and dissolution, rank senior to
                all
                Common Stock, warrants and options to purchase Common Stock established
                by
                the Board or the Stockholders (all of such equity securities of the
                Corporation to which the Series A Preferred Stock ranks senior are
                collectively referred to herein as “Junior Stock”).·
            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.





In
      addition, at any time after the closing bid price for the Company’s Common Stock
      on the NASDAQ OTCBB or the primary United States exchange on which the Common
      Stock is then traded exceeds $5.00 during any five consecutive trading days,
      the
      Company may, at its sole option, convert the Series A Preferred and any accrued
      but unpaid dividends into common shares at the then-applicable conversion price
      by providing written notice of such conversion to the holders of the Series
      A
      Preferred; provided that there is an effective registration statement under
      the
      Securities Act registering the resale of the Common Stock to be issued upon
      such
      conversion.





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





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




27




*Issuance
      of Preferred Securities*





During
      fiscal 2007, the Company issued an aggregate of 6,400,000 shares of its Series
      A
      Preferred Stock; 2,400,000 shares to Mr. Victor Miller, and 4,000,000 shares
      to
      Mr. Mark Daniels, both of whom were Officers and Directors at the time of
      issuance of the shares. Because the Company contends that the shares of its
      Series A Preferred Stock were issued to Mr. Miller and Mr. Daniels without
      consideration, the Company has been seeking to rescind said 6,400,000 Series
      A
      Preferred shares, and have Mr. Miller and Mr. Daniels waive any accrued and
      unpaid dividends associated with said Series A Preferred shares. Mr. Mark
      Daniels has agreed to rescind the 4,000,000 Series A Preferred shares issued
      to
      him and to waive any accrued and unpaid dividends associated with said 4,000,000
      Series A Preferred shares, contingent upon Mr. Miller agreeing to rescind the
      2,400,000 Series A Preferred shares issued to him and to waive any accrued
      and
      unpaid dividends associated with said 2,400,000 Series A Preferred shares.
      However, due to the Company’s inability to have Mr. Miller agree to rescind the
      2,400,000 shares of its Series A Preferred Stock issued to him and to waive
      any
      accrued and unpaid dividends associated with said 2,400,000 Series A Preferred
      shares, the Company is currently preparing a legal action against Mr. Miller
      in
      connection with the issuance of said 2,400,000 shares of its Series A Preferred
      Stock.. The Company believes that its contention, that the 2,400,000 shares
      of
      its Series A Preferred Stock were issued to Mr. Miller without consideration,
      is
      with merit, and that it will be successful in its suit to have said shares
      rescinded, have any accrued and unpaid dividends waived, and have any costs
      and
      damages to the Company in connection with the issuance of and the rescission
      of
      said 2,400,000 shares of Series A Preferred Stock repaid to the Company by
      Mr.
      Miller.




28





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





THE
      FOLLOWING DISCUSSION SHOULD BE READ TOGETHER WITH THE INFORMATION CONTAINED
      IN
      THE FINANCIAL STATEMENTS AND RELATED NO TES INCLUDED IN THIS ANNUAL REPORT
      ON
      FORM 10- KSB, THE FORWARD LOOKING STATEMENTS PROVISIONS ABOVE, AND THE RISK
      FACTORS ABOVE.





The
      Company has experienced substantial delays as a result of its inability to
      raise
      capital and the result of interference from third-parties in its contracts
      and
      business.





**Plan
      of Operation**




**Liquidity
      and Capital Resources**





Our
      predecessor, AeroGroup, has had no revenues during 2006 and 2007. We anticipate
      that our current cash on hand of $0.00 as of December 31, 2007 is insufficient
      to satisfy our cash requirements only through the end of June of 2008. We
      do not have any financing commitments and no assurance can be made that we
      will
      be obtaining financing at the times and terms needed. Therefore, there is
      substantial doubt that we will be able to continue as a going concern. In
      addition, we will need substantial additional capital during the next 12 months
      on order to complete our business plan.





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





AeroGroup
      has funded its operations and met its capital expenditures requirements
      primarily through cash generated from contributions from the issuance of
      convertible debt securities and warrants.





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





As
      of
      December 31, 2005, AeroGroup had negative working capital in the amount of
      $6,870,838. Cash used by operating activities were $967,573 for the year ended
      December 31, 2005.




Net
      cash
      provided by financing activities for the year ended December 31, 2006 was
      $1,443,150 compared to $967,319 for the year ended December 31, 2005. The
      increase was predominantly due to increased debt raised in
      2006.





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





Cash
      used
      in investing activities was $150,241 in 2006 with no cash invested in
      2005.





During
      the year ended December 2008, the Company believes that it will expend funds
      on
      the following:





·
            Completion
                of development of the safety, parts and maintenance programs which
                we
                anticipate will cost a minimum of another $250,000 to
                complete,·
            Leasing
                of new fourth generation military aircraft and/or tanker
                aircraft.·
            Hiring
                of a Chief Financial Officer and dispatch and other personnel with
                military aviation experience.




29




We
      anticipate that if we are able to raise sufficient capital that we will be
      able
      to complete our programs and import our MiG 29 aircraft by mid 2007. If we
      are
      not able to do so, we will not be able to perform under the F-16 Training
      Contract or to bid under newer contracts.





**Immediate
      Expenses and Cost of Equipment**





We
      will
      be required to make additional expenditures to complete the certification of
      the
      IL-76/78 under lease in order to perform our certain parts of our contracts.
      We
      anticipate the cost to be approximately $250,000. Thereafter, we may lease
      additional aircraft if sufficient financing alternatives are not available.
      Additionally, we will be required to allocated capital towards completion of
      our
      parts, maintenance, and safety programs. We anticipate that it will cost us
      approximately $2500,000 through December of 2008 to complete these
      programs.




**Employees**





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





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




**Off
      Balance Sheet Arrangements**





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





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





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




30




**Item
      7. Financial Statements**




**INDEX
      TO CONSOLIDATED FINANCIAL STATEMENTS**




Report
                of Independent Registered Public Accounting Firm
            
            F-1Consolidated
                Balance Sheet at December 31, 2007
            
            F-2Consolidated
                Statements of Operations for the Years Ended December 31, 2007
                (commencement as a development stage company) and 2005
            
            F-3Consolidated
                Statements of Stockholders' (Deficiency) Equity for the Years Ended
                December 31, 2007 and 2006
            
            F-4Consolidated
                Statements of Cash Flows for the Years Ended December 31, 2007
                (commencement as a development stage company) and 2006
            
            F-5Notes
                to the Consolidated Financial Statements
            
            F-6
                to F-22




**Item
      8. Changes in and Disagreements with Accountants on Accounting and Financial
      Disclosure**





In
      connection with the AeroGroup Acquisition, as of December 15, 2006, we dismissed
      our accounting firm, James Stafford, Chartered Accountants and engaged Marcum
      and Kliegman, LLP, as the Company’s independent registered public accountants.
      The Board has approved the change in accountants and appointment of Marcum
      and
      Kliegman, LLP.





Stafford,
      Chartered Accountant's audit report on the financial statements for the years
      ended December 31, 2005 did not contain any adverse opinion or disclaimer of
      opinion, and was not modified as to uncertainty, audit scope or accounting
      principles. James Stafford, Chartered Accountant did not serve as our
      accountants during fiscal year 2004. There have been no disagreements with
      James
      Stafford, Chartered Accountants on any matter of accounting principles or
      practices, financial statement disclosure, or auditing scopes or
      procedures.





Inasmuch
      as we had no disagreements with our former accountants on any matter of
      accounting principles or practices, financial statement disclosure, or auditing
      scopes or procedures, we did not consult with our new accountants on any such
      disagreement. The company has not consulted with Marcum and Kliegman, LLP during
      the last two fiscal years or any subsequent interim period on either the
      application of accounting principles or the type of audit opinion that might
      be
      provided on the Company’s financial statement.




31








**TACTICAL
      AIR DEFENSE SERVICES, INC.**


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


**CONSOLIDATED
      BALANCE SHEET**


**December
      31, 2007**




ASSETSProperty
                and Equipment, net
            
            $
            88,000TOTAL
                ASSETS
            
            $
            88,000LIABILITIES
                AND STOCKHOLDERS' DEFICIENCYLiabilities:Accounts
                payable
            
            $
            7,762Accrued
                liabilities
            
            
            1,755,829Convertible
                Debentures including
                accrued interest net of debt discount of $2,076,820
            
            
            4,483,651Convertible
                Notes Payable net of
                discount of $1,096,830, includes related party debt of
                $1,330,729
            
            
            2,514,426TOTAL
                LIABILITIES
            
            $
            8,761,668COMMITMENTSSTOCKHOLDERS'
                EQUITY:Series
                A Preferred stock-$.001 par value; 50,000,000 shares authorized;
                - shares
                issued and outstanding - 6,400,000
            
            $
            6,400Common
                stock-$.001 par value; 300,000,000 shares authorized; - 45,248,296
                shares
                issued and outstanding
            
            
            45,248Additional
                paid-in-capital
            
            
            26,650,808Deficit
                accumulated during the development stage
            
            
            (35,376,124
            )TOTAL
                STOCKHOLDERS' EQUITY
            
            $
            (8,673,668
            )TOTAL
                LIABILITIES AND STOCKHOLDERS' DEFICIENCY
            
            $
            88,000





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




1




**TACTICAL
      AIR DEFENSE SERVICES, INC.**


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


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


Years Ended December 31,
              
              For the Period from
                  January 1, 2006
                  (Commencement asa DevelopmentStage Company) to2007
              
              2006
              
              December 31, 2007REVENUES
              
              $
              -
              
              $
              -
              
              $
              -Operating
                  costs
              
              
              183,980
              
              
              337,346
              
              
              521,326General
                  and administrative, including compensatory element of stock issuance
                  of
                  $21,089,116 and $144,773 for the years ended December 31, 2007
                  and 2006,
                  respectively, and $21,233,889 for the period January 1, 2006 to
                  December
                  31, 2007
              
              
              22,777,067
              
              
              1,658,628
              
              
              24,435,695TOTAL
                  COSTS
              
              
              22,961,047
              
              
              1,995,974
              
              
              24,957,021OPERATING
                  LOSS
              
              
              (22,961,047
              )
              
              (1,995,974
              )
              
              (24,957,021
              )OTHER
                  (EXPENSE) INCOME:Derivative
                  loss on derivative liabilities
              
              
              -
              
              
              (27,599,597
              )
              
              (27,599,597
              )Write-down
                  of fixed assets
              
              
              (7,066,985
              )
              
              -
              
              
              (7,066,985
              )Forgiveness
                  of liquidated damages
              
              
              -
              
              
              1,074,188
              
              
              1,074,188Interest
                  expense
              
              
              (4,861,198
              )
              
              (1,466,590
              )
              
              (6,327,788
              )Other
              
              
              -
              
              
              (2,386
              )
              
              (2,386
              )TOTAL
                  EXPENSES
              
              
              (11,928,183
              )
              
              (27,994,385
              )
              
              (39,922,568
              )NET
                  LOSS
              
              $
              (34,889,230
              )
              $
              (29,990,359
              )
              $
              (64,879,589
              )Preferred
                  stock dividend
              
              
              342,521
              
              
              311,255
              
              
              653,776NET
                  LOSS APPLICABLE TO COMMON STOCKHOLDERS
              
              $
              (35,231,751
              )
              $
              (30,301,614
              )
              $
              (65,533,365
              )Loss
                  per common share - basic and diluted
              
              $
              (1.09
              )
              $
              (2.00
              )Weighted
                  average number of shares outstanding-basic and diluted
              
              
              32,311,450
              
              
              15,138,190





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




2




**TACTICAL
      AIR DEFENSE SERVICES, INC.**


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


**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS' (DEFICIENCY) EQUITY**




DeficitAccumulated
              
              TotalDuring
              
              Stockholders’Common
                  Stock
              
              Preferred
                  Stock
              
              Additional
                  Paid
              
              Unearned
              
              Development
              
              (Deficiency)Shares
              
              Amount
              
              Shares
              
              Amount
              
              in
                  Capital
              
              Compensation
              
              Stage
              
              EquityBALANCE –
                  January 1, 2005, (Note 1)
              
              
              11,089,926
              
              $
              11,090
              
              
              -
              
              $
              -
              
              $
              8,786,468
              
              $
              -
              
              $
              (19,178,201
              )
              $
              (10,380,643
              )Net
                  income
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              3,597,805
              
              
              3,597,805BALANCE
                  - December 31, 2005
              
              
              11,089,926
              
              
              11,090
              
              
              -
              
              
              -
              
              
              8,786,468
              
              
              -
              
              
              (15,580,396
              )
              
              (6,782,838
              )Stock
                  issued to settle accruedCompensation-
                  First Quarter 2006- $.10 per share
              
              
              2,452,254
              
              
              2,452
              
              
              -
              
              
              -
              
              
              242,775
              
              
              -
              
              
              -
              
              
              245,227Stock
                  issued for compensation-First Quarter 2006-$.10 per share
              
              
              1,447,720
              
              
              1,448
              
              
              -
              
              
              -
              
              
              143,325
              
              
              -
              
              
              -
              
              
              144,773Preferred
                  distribution to stockholder-Second Quarter 2006
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (311,255
              )
              
              (311,255
              )Warrants
                  issued with convertible debentures-Fourth Quarter 2006
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              676,529
              
              
              -
              
              
              -
              
              
              676,529Fair
                  value assigned to beneficial conversions of debt-Fourth Quarter
                  2006
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              4,053,125
              
              
              -
              
              
              -
              
              
              4,053,125Liabilities
                  not assumed in reverse acquisition- Fourth Quarter 2006
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              4,505,560
              
              
              -
              
              
              -
              
              
              4,505,560Reclassification
                  of derivative liability to equity-Fourth Quarter 2006
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              29,930,094
              
              
              -
              
              
              -
              
              
              29,930,094Stockholders
                  Deficiency of TADS at date of reverse acquisition Fourth Quarter
                  2006
              
              
              3,925,755
              
              
              3,926
              
              
              -
              
              
              -
              
              
              (36,289
              )
              
              -
              
              
              -
              
              
              (32,363
              )Reclassification
                  of accumulated deficit of Aero to paid in capital (Note 7)
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (45,737,637
              )
              
              -
              
              
              45,737,637
              
              
              -Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (29,990,359
              )
              
              (29,990,359
              )BALANCE
                  - December 31, 2006
              
              
              18,915,655
              
              
              18,916
              
              
              -
              
              
              -
              
              
              2,563,950
              
              
              -
              
              
              (144,373
              )
              
              2,438,493Stock-based
                  compensation issued to employees-$0.48- $1.05 per share
              
              
              7,490,000
              
              
              7,490
              
              
              6,400,000
              
              
              6,400
              
              
              18,315,910
              
              
              -
              
              
              -
              
              
              18,329,800Stock
                  - based compensation issued to consultants- $.30- $2.40 per share
              
              
              3,144,734
              
              
              3,145
              
              
              -
              
              
              -
              
              
              2,420,171
              
              
              (250,000
              )
              
              -
              
              
              2,173,316Stock
                  issued for services-$1.05 per share
              
              
              320,000
              
              
              320
              
              
              -
              
              
              -
              
              
              335,680
              
              
              -
              
              
              -
              
              
              336,000Issuance
                  of common stock upon conversion of debentures
              
              
              6,533,003
              
              
              6,533
              
              
              -
              
              
              -
              
              
              970,513
              
              
              -
              
              
              -
              
              
              977,046Issuance
                  of common stock under private placement-$.30-$.55
              
              
              1,012,574
              
              
              1,012
              
              
              -
              
              
              -
              
              
              460,219
              
              
              -
              
              
              -
              
              
              461,231Shares
                  issued in connection with equity financing
              
              
              57,400
              
              
              57
              
              
              
              
              
              
              
              
              (11,537
              )
              
              
              
              
              
              
              
              (11,480
              )Cashless
                  exercise of warrants for common stock
              
              
              7,274,930
              
              
              7,275
              
              
              -
              
              
              -
              
              
              (7,275
              )
              
              -
              
              
              -
              
              
              -Amortization
                  of unearned compensation
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              250,000
              
              
              -
              
              
              250,000Conversion
                  of note payable
              
              
              500,000
              
              
              500
              
              
              -
              
              
              -
              
              
              249,500
              
              
              -
              
              
              -
              
              
              250,000Fair
                  value of warrants issued with convertible debt
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,003,811
              
              
              -
              
              
              -
              
              
              1,003,811Beneficial
                  conversion feature under convertible debt
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              349,866
              
              
              -
              
              
              -
              
              
              349,866Dividend
                  to preferred stockholders
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (342,521
              )
              
              (342,521
              )Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (34,889,230
              )
              
              (34,889,230
              )Balance
                  -December 31, 2007
              
              
              45,248,296
              
              $
              45,248
              
              
              6,400,000
              
              $
              6,400
              
              $
              26,650,808
              
              $
              -
              
              $
              (35,376,124
              )
              **$**
              (8,673,668
              )




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




3




**TACTICAL
      AIR DEFENSE SERVICES, INC.**


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


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**




Years
                  Ended December 31,
              
              For
                  the Period From
                January
                  1, 2006
                (Commencement
                  as a
                Development
                  Stage
                Company)
                  to December2007
              
              2006
              
              31,
                  2007CASH
                  FLOWS FROM OPERATING ACTIVITIESNet
                  (loss)
              
              $
              (34,889,230
              )
              $
              (29,990,359
              )
              $
              (
                  64,879,589
              )Adjustments
                  to reconcile net loss to net cash used in
                operating
                  activities:Loss
                  on derivative liabilities
              
              
              -
              
              
              27,599,597
              
              
              27,599,597(Forgiveness)
                  provision of liquidated damages
              
              
              -
              
              
              (1,074,188
              )
              
              (1,074,188
              )Write-down
                  of fixed assets
              
              
              7,040,985
              
              
              -
              
              
              7,040,985Stock-based
                  compensation
              
              
              21,233,889
              
              
              -
              
              
              21,378,662Excess
                  of initial derivative liability over debt
                Discount
              
              
              -
              
              
              -
              
              
              -Debt
                  discount amortization
              
              
              3,936,922
              
              
              638,788
              
              
              4,575,710Changes
                  in operating assets and liabilities:Accounts
                  payable
              
              
              -
              
              
              7,762
              
              
              7,762Accrued
                  liabilities
              
              
              1,072,918
              
              
              1,516,056
              
              
              2,589,694Net
                  Cash Used in Operating Activities
              
              $
              (1,604,516
              )
              $
              (1,517,571
              )
              $
              (2,761,367
              )CASH
                  USED IN INVESTING ACTIVITIESPurchase
                  of property and equipment
              
              
              -
              
              
              (300,985
              )
              
              (300,985
              )Cash
                  received from the reverse acquisition
              
              
              -
              
              
              -
              
              
              150,744Net
                  Cash Used in Investing Activities
              
              
              
              
              
              (300,985
              )
              
              (150,241
              )CASH
                  FLOWS FROM FINANCING ACTIVITIESProceeds
                  from sale of common stock
              
              
              114,781
              
              
              -
              
              
              114,781Due
                  to related parties, net
              
              
              -
              
              
              (67,484
              )
              
              (67,484
              )Proceeds
                  from convertible debentures
              
              
              1,353,677
              
              
              1,510,634
              
              
              2,864,311Net
                  Cash Provided by Financing Activities
              
              
              1,468,458
              
              
              1,090,263
              
              
              2,911,608Increase
                  (Decrease) in cash
              
              
              (136,058
              )
              
              135,338
              
              
              -Cash
                  - Beginning of period
              
              
              136,058
              
              
              720
              
              
              -Cash
                  - End of period
              
              $
              -
              
              $
              136,058
              
              $
              -Interest
                  paid
              
              $
              -
              
              $
              -Taxes
                  paid
              
              $
              -
              
              $
              -Non-cash
                  Transactions:Stock
                  issued to settle accrued compensation
              
              $
              -
              
              $
              390,000
              
              $
              390,000Dividend
                  to preferred stockholders
              
              $
              342,521
              
              $
              -
              
              $
              342,521Liabilities
                  not assumed in reverse acquisition
              
              $
              -
              
              $
              4,505,560
              
              $
              4,505,560Reclassification
                  of derivative liability
              
              $
              -
              
              $
              29,930,094
              
              $
              29,930,094Conversion
                  of debt plus accrued interest to equity
              
              $
              1,227,046
              
              $
              -
              
              $
              1,227,046Common
                  stock issued for leasehold improvements
              
              $
              26,000
              
              $
              -
              
              $
              26,000Acquisition
                  of assets for issuance of debt
              
              $
              -
              
              $
              6,740,000
              
              $
              6,740,000Beneficial
                  conversion feature under convertible debt
              
              $
              349,866
              
              $
              4,053,125
              
              $
              4,402,981Fair
                  value of warrants issued with convertible debt
              
              $
              1,003,811
              
              $
              676,529
              
              $
              1,680,340Distribution
                  to stockholder
              
              $
              -
              
              $
              311,525
              
              $
              311,525Assets
                  and Liabilities of TADS on December 15, 2006:Cash
              
              $
              -
              
              $
              150,744
              
              $
              -Prepaid
                  expenses
              
              
              -
              
              
              324,529
              
              
              -Advances
                  from private placement subscription
              
              
              -
              
              
              (346,451
              )
              
              -Accrued
                  liabilities
              
              
              -
              
              
              (161,185
              )
              
              -Net
                  Deficiency of TADS on December 15, 2006
              
              $
              -
              
              
              (32,363
              )
              
              -





4


**TACTICAL
      AIR DEFENSE SERVICES, INC.**


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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**YEARS
      ENDED IN DECEMBER 31, 2007 AND 2006**





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





**General**





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





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





Since
      the
      AeroGroup Acquisition was settled through the issuance of a controlling interest
      in TADS common stock, AeroGroup is deemed to be the acquirer for accounting
      purposes. Furthermore, since TADS is deemed to be a shell company prior to
      the
      acquisition, purchase accounting was not applied. Therefore, the transaction
      was
      accounted for as a reverse acquisition and recapitalization of AeroGroup.
      Accordingly, the historical financial statements presented in the financial
      statements are those of AeroGroup as adjusted to reflect the recapitalization
      and elimination of certain assets and liabilities that were not assumed by
      TADS.
      The net liabilities not assumed by TADS 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.


5


**TACTICAL
      AIR DEFENSE SERVICES, INC.**


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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**YEARS
      ENDED IN DECEMBER 31, 2007 AND 2006**





**NOTE
      1 - COMPANY AND BASIS OF PRESENTATION (Continued):**





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





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





**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, 2007 of $8,673,668.





As
      discussed above, on December 15, 2006, TADS acquired all of the assets of Aero
      and assumed certain contracts in exchange for the assumption by TADS of certain
      liabilities of Aero. Management believes the Company can raise adequate capital
      for the Company’s required working capital needs for 2007 including additional
      modifications to its aircrafts necessary to make them operational. Management
      also believes that it still needs substantial capital in order to carry out
      its
      business plan, which is to become a civilian provider of outsourced military
      aviation services which includes fighter jet pilot training, operational
      deployment training, aviator combat support and close air support for “Forward
      Controllers,”. No assurance can be given that the Company can obtain the
      required estimated additional working capital, or if obtained, that such funding
      will not cause substantial dilution to stockholders of the Company. Being a
      development stage company, the Company is subject to all the risks inherent
      in
      the establishment of a new enterprise and the marketing of a new product, many
      of which risks are beyond the control of the Company. All of the factors
      discussed above raise substantial doubt about the Company's ability to continue
      as a going concern. During 2006, Aero raised from various stockholders
      approximately $1,510,634 through the issuance of convertible debt securities
      and
      warrants. During 2007, the Company has raised from various financing
      sources approximately $1,353,677 through the issuance of convertible debt.
      Also,
      the Company received proceeds totaling $346,450 from the sale of 629,911 units
      comprising of one share of common stock and warrants to purchase common stock.
      In addition, the Company received proceeds totaling $114,781 from the sales
      of
      382,663 shares of the Company’s common stock.





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





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





**Principals
      of Consolidation**





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





**Use
      of Estimates**





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


6


**TACTICAL
      AIR DEFENSE SERVICES, INC.**


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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**YEARS
      ENDED IN DECEMBER 31, 2007 AND 2006**





**NOTE
      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (Continued):**





**Property
      and Equipment**





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





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





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





The
      Aircraft acquired pursuant to the June 2006 Asset Purchase Agreement (Note
      5)
      are stationed in the Ukraine awaiting for disassembly and shipment to the United
      States of America. Additional modifications are necessary to make them
      operational for use within the United States of America. The Company estimates
      that it will cost approximately $200,000 to ship the MIGs to the United States
      of America, and approximately $420,000 to get the MIGs fully operational. In
      December 2007, the Company was notified by the note holder of the note issued
      in
      connection with the June 2006 Asset Purchase Agreement, that the Company was
      in
      default of the agreement and that the holder was exercising their right to
      repossess the equipment. As a result, the Company recorded a charge of
      $6,740,000 which is included a write-down of fixed assets in the accompanying
      consolidated statement of operations.





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





**Fair
      Value of Financial Instruments**





The
      recorded carrying values of accounts payable and accrued liabilities and
      interest bearing indebtedness approximate the fair value of such financial
      instruments. The derivative liabilities are recorded at fair value and are
      marked-to-market at each balance sheet date.





**Cash
      and Cash Equivalents**





For
      purposes of the statement of cash flows, the Company considers all short-term
      investments with original maturities of three months or less when purchased
      to
      be cash equivalents. The Company had no cash equivalents as of December 31,
      2007.





**Concentration
      of Credit Risk**





The
      Company places its cash in what it believes to be creditworthy financial
      institutions. However, cash balances may exceed FDIC insured levels at various
      times during the year.





**Impairment
      of Long-Lived Assets**





In
      accordance with Statement of Financial Accounting Standards ("SFAS") No. 144,
      "Accounting for the Impairment or Disposal of Long-Lived Assets," the Company
      reviews the carrying amount of long-lived assets on a regular basis for the
      existence of facts or circumstances, both internally and externally, that
      suggest impairment. The Company determines if the carrying amount of a
      long-lived asset is impaired based on anticipated undiscounted cash flows before
      interest from the use of the asset. In the event of


impairment,
      a loss is recognized based on the amount by which the carrying amount exceeds
      the fair value of the asset. Fair value is determined based on appraised value
      of the assets or the anticipated cash flows from the use of the asset,
      discounted at a rate commensurate with the risk involved. There were no
      impairment charges recorded during each of the years ended December 31, 2006
      and
      2005.


7


**TACTICAL
      AIR DEFENSE SERVICES, INC.**


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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**YEARS
      ENDED IN DECEMBER 31, 2007 AND 2006**





**NOTE
      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (Continued):**





**Income
      Taxes**





The
      Company provides for federal and state income taxes payable, as well as for
      those deferred because of the timing differences between reporting income and
      expenses for financial statement purposes versus tax purposes. Deferred tax
      assets and liabilities are recognized
      for the future tax consequences attributable to differences between the carrying
      amount of assets and liabilities for financial reporting purposes and the
      amounts used for income tax purposes. Deferred tax assets and liabilities are
      measured using the enacted
      tax rates expected to apply to taxable income in the years in which those
      temporary differences are expected to be recoverable or settled. The effect
      of a
      change in tax rates is recognized as income or expense in the period of the
      change. A valuation allowance is established, when necessary, to reduce deferred
      income tax assets to the amount that is more likely than not to be realized.





**Revenue
      Recognition**





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





**Net
      (Loss) Income Per Share of Common Stock**





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





Diluted
      net (loss) income per share reflects per share amounts that result if
      dilutive common stock equivalents are converted to common stock. Common stock
      equivalents, consisting of convertible debt, options and warrants, discussed
      in
      Note 7, were not included in the calculation of diluted (loss) income per share
      for the years ended December 31, 2007 and 2006 because their inclusion would
      have had been anti-dilutive.


8


**TACTICAL
        AIR DEFENSE SERVICES, INC.**
 **(A
        Development Stage Company, Commencing January 1, 2006)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **YEARS
        ENDED IN DECEMBER 31, 2007 AND 2006**


**NOTE
        2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
        (Continued):**
 
 Years
                  Ended December 31,2007
              
              2006Numerator:Net
                  (loss) income applicable to common stockholders - numerator for
                  basic
              
              $
              (35,231,751
              )
              $
              (30,301,614
              )Effect
                  of dilutive securities:Interest
                  related to Debentures
              
              
              N/A
              
              
              N/ADerivative
                  gain - Debentures
              
              
              N/A
              
              
              N/ANumerator
                  for diluted (loss) income per share - loss
                attributable
                  to common stockholders after assumed
                conversions
              
              
              (35,231,751
              )
              
              (30,301,614
              )Denominator:Denominator
                  for basic (loss) income per share
                -
                  weighted average shares
              
              
              -
              
              
              15,138,190Effect
                  of diluted securities:Convertible
                  debentures and accrued interest
              
              
              N/A
              
              
              N/AWarrants
              
              
              N/A
              
              
              N/ATotal
                  potentially dilutive securities
              
              
              -
              
              
              -Denominator
                  for diluted (loss) income per
                -
                  adjusted weighted average shares and assumed
                Conversions
              
              
              -
              
              
              15,138,190Basic
                  net (loss) income per share
              
              $
              -
              
              $
              (2.00
              )Diluted
                  net (loss) income per share
              
              $
              -
              
              $
              (2.00
              )
 
 **Convertible
        Notes and Warrants**
 
 The
        Company accounts for conversion options embedded in convertible notes in
        accordance with SFAS No. 133 "Accounting for Derivative Instruments and Hedging
        Activities" ("SFAS 133") and Emerging Issues Task Force EITF 00-19, "Accounting
        for Derivative Financial Instruments Indexed to, and Potentially Settled
        in, a
        Company's Own Stock" ("EITF 00-19"). SFAS 133 generally requires companies
        to
        bifurcate conversion options embedded in convertible notes from their host
        instruments and to account for them as free standing derivative financial
        instruments in accordance with EITF 00-19. SFAS 133 provides for an exception
        to
        this rule when convertible notes, as host instruments, are deemed to be
        conventional as that term is described in the implementation guidance under
        Appendix A to SFAS 133 and further clarified in EITF 05-2 "The Meaning of
        "Conventional Convertible Debt Instrument" in Issue No. 00-19.”
 
 The
        Company accounts for convertible notes deemed conventional and conversion
        options embedded in non-convertible notes which qualify as equity under EITF
        00-19, in accordance with the provisions of Emerging Issues Task Force Issue
        ("EITF") 98-5 "Accounting for Convertible Securities with Beneficial Conversion
        Features," and EITF 00-27 "Application of EITF 98-5 to Certain Convertible
        Instruments". Accordingly, the Company records, as a discount to convertible
        notes, the intrinsic value of such conversion options based upon the differences
        between the fair value of the underlying common stock at the commitment date
        of
        the note transaction and the effective conversion price embedded in the note.
        Debt discounts under these arrangements are amortized over the term of the
        related debt.
  9


**TACTICAL
      AIR DEFENSE SERVICES, INC.**


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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**YEARS
      ENDED IN DECEMBER 31, 2007 AND 2006**





**NOTE
      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):**





As
      of
      December 31, 2007, the Company had no derivative financial instruments.





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


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





·
            Expected
                volatility - 350%-450%·
            Expected
                dividend - none·
            Risk-free
                interest rate - 4.75%-5.00%·
            Contractual
                term - 3-5 years





**Non-Employee
      Stock Based Compensation**





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





**Recently
      Adopted Accounting Policies**





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





In
      accordance with FIN 48, interest costs related to unrecognized tax benefits
      are
      required to be calculated (if applicable) and would be classified as "Interest
      Expense, net" in the condensed consolidated statements of operations. Penalties
      would be recognized as a component of "General and administrative expenses".
      No
      interest or penalties were required to be recorded during the period ended
      December 31, 2007.





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





The
      adoption of the provisions of FIN 48 did not have a material impact on the
      Company's condensed consolidated financial position and results of operations.
      As of January 1, 2007 and December 31, 2007, no liability for unrecognized
      tax
      benefits was required to be recorded.




10
 
 **TACTICAL
          AIR DEFENSE SERVICES, INC.**
 **(A
          Development Stage Company, Commencing January 1, 2006)**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **YEARS
          ENDED IN DECEMBER 31, 2007 AND 2006**


**NOTE
      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):**





Effective
      in the first quarter of 2007 the Company adopted FASB Staff Position No EITF
      00-19-2 "Accounting for Registration Payment Arrangements" issued on December
      21, 2006 ("FSP 00-19-2"). FSP 00-19-2 specifies that the contingent obligation
      to make future payments or otherwise transfer consideration under a registration
      payment, whether issued as a separate agreement or included as a provision
      of a
      financial instrument or other agreement, should be separately recognized and
      measured in accordance with FASB Statement No. 5, "Accounting for Contingencies.
      For registration payment arrangements and financial instruments subject to
      those
      arrangements that were entered into prior to the issuance of FSP 00-19-2, this
      guidance is effective for financial statements issued for


fiscal
      years beginning after December 15, 2006 and interim periods within those fiscal
      years. The adoption of FSP 00-19-2 did not have a material impact on the
      Company’s condensed consolidated financial position and results of operations.





**Recent
      Accounting Pronouncements**





In
      December 2007, the FASB issued SFAS No. 141R, “Business Combinations” (“SFAS
      141R”), which replaces SFAS No. 141, “Business Combinations.” SFAS 141R
      establishes principles and requirements for determining how an enterprise
      recognizes and measures the fair value of certain assets and liabilities
      acquired in a business combination, including non-controlling interests,
      contingent consideration, and certain acquired contingencies. SFAS 141R also
      requires acquisition-related transaction expenses and restructuring costs be
      expensed as incurred rather than capitalized as a component of the business
      combination. SFAS 141R will be applicable prospectively to business combinations
      for which the acquisition date is on or after the beginning of the first annual
      reporting period beginning on or after December 15, 2008. SFAS 141R would have
      an impact on accounting for any businesses acquired after the effective date
      of
      this pronouncement.





In
      September 2006, the FASB issued Statement of SFAS No. 157, "Fair Value
      Measurements" (“SFAS 157”). SFAS 157 clarifies the principle that fair value
      should be based on the assumptions market participants would use when pricing
      an
      asset or liability and establishes a fair value hierarchy that prioritizes
      the
      information used to develop those assumptions. SFAS 157 requires fair value
      measurements to be separately disclosed by level within the fair value
      hierarchy. SFAS 157 is effective for financial statements issued for fiscal
      years beginning after November 15, 2007, and interim periods within those fiscal
      years. The Company does not believe the provisions of this standard will have
      a
      significant effect on its consolidated financial statements.





In
      February 2007, the FASB issued SFAS No. 159 “The Fair Value Option for Financial
      Assets and Financial Liabilities - Including an amendment of FASB Statement
      No.
      115” (“SFAS No. 159”), which permits entities to choose to measure many
      financial instruments and certain other items at fair value.  The fair
      value option established by this Statement permits all entities to choose to
      measure eligible items at fair value at specified election dates. A business
      entity shall report unrealized gains and losses on items for which the fair
      value option has been elected in earnings at each subsequent reporting
      date.  Adoption is required for fiscal years beginning after November
      15, 2007.  Early adoption is permitted as of the beginning of a fiscal
      year that begins on or before November 15, 2007, provided the entity also elects
      to apply the provisions of SFAS  No. 159.   The
      adoption of this pronouncement is not expected to have any material effects
      on
      the Company’s consolidated financial position, results of operations or cash
      flows.





In
      December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in
      Consolidated Financial Statements - An Amendment of ARB No. 51” (“SFAS 160”).
      SFAS 160 establishes accounting and reporting standards for the non-controlling
      interest in a subsidiary (previously referred to as minority interests). SFAS
      160 also requires that a retained non-controlling interest upon the
      deconsolidation of a subsidiary be initially measured at its fair value. Upon
      adoption of SFAS 160, the Company would be required to report any
      non-controlling interests as a separate component of stockholders’
equity.  The Company would also be required to present any net income
      allocable to non-controlling interests and net income attributable to the
      stockholders of the Company separately in its consolidated statements of
      operations. SFAS 160 is effective for fiscal years, and interim periods within
      those fiscal years, beginning on or after December 15, 2008. SFAS 160 requires
      retroactive adoption of the presentation and disclosure requirements for
      existing minority interests. All other requirements of SFAS 160 shall be applied
      prospectively. SFAS 160 would have an impact on the presentation and disclosure
      of the non-controlling interests of any non wholly-owned businesses acquired
      in
      the future.




11


**TACTICAL
        AIR DEFENSE SERVICES, INC.**
 **(A
        Development Stage Company, Commencing January 1, 2006)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **YEARS
        ENDED IN DECEMBER 31, 2007 AND 2006**





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





**Assets
      Purchased By Aero**





In
      June
      of 2006, Aero, through its subsidiaries, acquired certain assets from three
      entities the (“Selling Entities”) owned 100% by Aero's controlling stockholder,
      Mark Daniels. The Selling Entities acquired these assets on December 29, 2005
      from an unrelated entity in exchange for assets with a fair value of $4,540,000
      and a promissory note of $2,200,000. The assets acquired included two MIG29
      Aircrafts and four flight simulators and certain intellectual assets. The
      Selling Entities obtained appraisals from certified independent appraisers
      dated
      December 2005, which valued the aircrafts and simulators at $6,740,000. In
      December 2007, the Company was notified by the note holder of the note issued
      in
      connection with the June 2006 Asset Purchase Agreement that the Company was
      in
      default of the agreement and that the holder was exercising their right to
      repossess the equipment. As a result, the Company recorded a charge of
      $6,740,000 which is included as a write-down of fixed assets in the accompanying
      consolidated statement of operations.





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





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





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





**NOTE
      4 - 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.


12


**TACTICAL
      AIR DEFENSE SERVICES, INC.**


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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**YEARS
      ENDED IN DECEMBER 31, 2007 AND 2006**


**NOTE
      4 - CONVERTIBLE DEBENTURES (Continued):**




Debentures
      and Debenture Warrants as of December 31, 2007 consist of the following:








Year
                Ended
            
            Debentures
            
            Debenture
              Warrants2002
            
            $
            250,000
            
            $
            1,666,6672003
            
            
            1,091,199
            
            
            7,141,3292004
            
            
            487,265
            
            
            3,248,4332005
            
            
            1,376,797
            
            
            9,645,311Total
                principal at December 31, 2005
            
            
            3,205,261
            
            
            21,701,7402006
            
            
            1,510,634
            
            
            2,266,575Total
                principal at December 31, 2006
            
            
            4,715,895
            
            
            23,968,3152007 
                - Issued
            
            
            1,353,677
            
            
            9,776,4942007 -
                Converted/Exercised
            
            
            (754,660
            )
            
            (8,530,755
            )Total
                principal at December 31, 2007
            
            
            5,314,912
            
            $
            25,274,054Accrued
                interest
            
            
            1,245,559Unamortized
                debt discount
            
            
            (2,076,820
            )Net
                Carrying Value at December 31, 2007
            
            $
            4,483,651





Included
      in principal at December 31, 2007 is $1,232,801 due to the Company's majority
      stockholder which was converted in 2005 from shareholder loans to Convertible
      Debentures.





**2002-2005
      Convertible Debentures**





The
      Debentures bear interest at 12% per annum on a simple non-compounded basis
      and
      were due and payable in three years from their respective issuance date. The
      Company was currently in default on substantially all of these Debentures as
      of
      December 31, 2006 and subsequently has received a waiver extending the maturity
      date of the notes which were in default through August 31, 2007. The
      Debentures and related accrued interest are convertible, at the holder's
      option, into shares of the Company’s common stock at a conversion rate equal to
      a range of $.15 to $1.00. The holder may accelerate the maturity date of the
      Debentures following the occurrence of certain events of default as defined
      under the Debenture Agreement.





The
      Debenture Warrants are exercisable at per share exercise prices of $.15 and
      $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. Pursuant to a
      September, 2006 agreement and amended agreement signed in June of 2007,
      all dilutive adjustments have been waived by the holders of the warrants
      from inception through August 31, 2007.





Aero
      did
      not have sufficient authorized and unissued common stock to settle conversion
      and exercises under the Debentures and Debenture Warrants. In accordance with
      EITF issue No. 00-19 "Accounting for Derivative Financial Instruments Indexed
      to
      and Potentially Settled in a Company's Own Stock", Aero had classified all
      of
      its conversion options embedded in its Debentures and the Debenture Warrants
      as
      derivative obligations.





These
      derivative liabilities were measured at fair value with changes in fair value
      reported in operations as long as they remain classified as liabilities.





Aero
      valued the embedded derivative obligations using the Lattice Model and uses
      the
      Black-Scholes Pricing Model for its warrant derivatives. Aero valued the initial
      derivative obligations at the date of grant/issuance and recorded a debt
      discount up to the amount of the proceeds of the Debentures. Any excess of
      the
      value of the derivative obligations at issuance/grant date over the proceeds
      of
      the Debenture was immediately charged to interest expense.





During
      the year ended December 31, 2005, $2,577,988 was charged to interest expense
      related to the excess discussed above.





13


**TACTICAL
        AIR DEFENSE SERVICES, INC.**
 **(A
        Development Stage Company, Commencing January 1, 2006)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **YEARS
        ENDED IN DECEMBER 31, 2007 AND 2006**


**NOTE
      4 - CONVERTIBLE DEBENTURES (Continued** ):





Since
      TADS has adequate authorized and unissued shares to settle the conversion and
      exercises under the Debenture and Debenture Warrants and these contracts could
      be settled in unregistered shares of TADS common stock, upon the closing of
      the
      reverse


acquisition,
      the warrants and embedded derivatives qualified as equity in accordance with
      EITF No. 00-19 and were reclassified to additional paid-in capital.





The
      fair
      value of all of the Company’s derivative obligations prior to the reverse merger
      acquisition on December 15, 2006 totaled $29,930,094. The change in the fair
      value of the derivative liabilities from January 1, 2006 through December 15,
      2006 and the year ended December 31, 2005 resulted in a loss of $27,599,597
      on
      derivative obligations for the year ended December 31, 2006 and a gain of
      $8,659,065 on derivative obligations for the year ended December 31, 2005.





**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.





**December
      15****th****2006
      Financing**





Between
      January 1, 2006 and December 14, 2006, Aero received proceeds of loans totaling
      $868,398. These original loans did not provide for interest. Commencing with
      the
      reverse acquisition, these notes were modified to conform to the above described
      Convertible Debentures. The Debentures are convertible into TADS common stock
      at
      conversion prices ranging from $.45 to $1.00 per share and provide for warrants
      to purchase 892,842 shares of TADS common stock at exercise prices ranging
      from
      $.45 to $1.00. The Debentures bear interest of 12% and are due on October 19,
      2009. The Debenture Warrants are exercisable at per share exercise prices of
      $.15 and $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 $868,398 were allocated 22.1% or $191,869 to the Debentures
      and
      77.9% or $676,529 to the Warrants. The effective conversion price of the
      Debentures was below the market price of TADS common stock at December 15,
      2006,
      which resulted in a beneficial conversion feature of $191,869. In accordance
      with EITF 00-27 the amount allocated to the beneficial conversion feature was
      limited to the net proceeds of the offering less the value allocated to the
      Warrants.





As
      of
      December 31, 2006, all of the principal and accrued interest related to the
      Convertible Debentures has been classified as a current liability as they
      are either in default or due within one year.





14






**TACTICAL
        AIR DEFENSE SERVICES, INC.**
 **(A
        Development Stage Company, Commencing January 1, 2006)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **YEARS
        ENDED IN DECEMBER 31, 2007 AND 2006**
 
 **NOTE
        4 - CONVERTIBLE DEBENTURES (Continued):**
 
 **First
        Quarter of 2007**
 
 Between
        January 1, 2007 and March 31, 2007, the Company received proceeds from loans
        totaling $343,873. The Debentures are convertible into 1,013 shares of TADS
        common stock at conversion prices ranging from $.25 to $1.00 per share and
        provide for warrants to purchase 1,013,999 shares of TADS common stock at
        exercise prices ranging from $.25 to $1.00. The Debentures bear interest
        of 12%
        and are due three years from the date of issuance. The Debenture Warrants
        are
        exercisable at per share exercise prices of $.25 to $1.00 per share of common
        stock, are exercisable immediately up until the fifth anniversary of the
        initial
        warrant date, and such exercise price is
 subject
        to adjustment for subsequent lower price issuances by the Company and other
        customary events including stock splits, reverse stock splits, issuance of
        convertible securities, sale of common stock and spin-offs.
 
 The
        gross
        proceeds of the $343,873 were allocated 25% or $86,084 to the Debentures
        and 75%
        or $257,789 to the Warrants. The effective conversion price of the Debentures
        was below the market price of TADS common stock at the date the various notes
        were issued, which resulted in a beneficial conversion feature of $86,084.
        In
        accordance with EITF 00-27 the amount allocated to the beneficial conversion
        feature was limited to the net proceeds of the offering.
 
 **Second
        Quarter of 2007**
 
 Between
        April 1, 2007 and June 30, 2007, the Company received proceeds from loans
        totaling $493,851. The Debentures are convertible into 1,974,486 shares of
        TADS
        common stock at a conversion price of $.25 per share and provide for warrants
        to
        purchase 1,974,486 shares of TADS common stock at an exercise price of $.25.
        The
        Debentures bear interest of 12% and are due three years from the date of
        issuance. The Debenture Warrants are exercisable at a per share exercise
        prices
        of $.25 per share of common stock, are exercisable immediately up until the
        fifth anniversary of the initial warrant date, and such exercise price is
        subject to adjustment for subsequent lower price issuances by the Company
        and
        other customary events including stock splits, reverse stock splits, issuance
        of
        convertible securities, sale of common stock and spin-offs.
 
 The
        gross
        proceeds of the $493,851 were allocated 24.2% or $120,731 to the Debentures
        and
        75.8% or $373,120 to the Warrants. The effective conversion price of the
        Debentures was below the market price of TADS common stock at the date the
        various notes were issued, which resulted in a beneficial conversion feature
        of
        $120,731. In accordance with EITF 00-27 the amount allocated to the beneficial
        conversion feature was limited to the net proceeds of the offering.
 
 **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 5,734,385 shares of
        TADS
        common stock at a conversion price of $.05 per share and provide for warrants
        to
        purchase
 
 15
  **TACTICAL
        AIR DEFENSE SERVICES, INC.**
 **(A
        Development Stage Company, Commencing January 1, 2006)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **YEARS
        ENDED IN DECEMBER 31, 2007 AND 2006**
 
 **NOTE
        4 - CONVERTIBLE DEBENTURES (Continued):**
 
 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.
 
 **Registration
        Rights**
 
 In
        connection with the issuance of the Debentures, the Company is required to
        file
        a Registration Statement to register the shares of common stock issuable
        upon
        the conversion of the Debentures and the exercise of the Debenture Warrants.
        The
        Company will be obligated
        to pay the holders of the Debentures certain liquidated damages in the event
        the
        shares are not registered within sixty days of the date of issuance. The
        Company
        has not filed the Registration Statement and therefore must pay the holders
        of
        the Debentures liquidated damages in the aggregate amount equal to two percent
        (2%) for each (thirty) days (or part thereof) per month until such Registration
        Statement is filed and declared effective. In October 2007 Debenture holders
        agreed to waive the registration requirement. In September of 2006, the holders
        of Debentures waived the right to receive such liquidating damages and agreed
        to
        postpone this registration requirement through January 31, 2007 and in June
        of
        2007 agreed to postpone the registration requirement through August 31, 2007.
        During the year ended December 31, 2006, the Company eliminated the accrued
        liability which resulted in income of $1,074,188.
 
 **NOTE
        5 - CONVERTIBLE NOTES PAYABLE:**
 
 The
        following table summarizes the Convertible Notes Payable at December 31,
        2007:
 
 Promissory
                  note(1)
              
              $
              2,200,000Secured
                  promissory note(2)
              
              
              1,100,000Accrued
                  interest on assumed notes
              
              
              311,2553,611,255Less:
                  current portion
              
              
              -Long-term
                  portion
              
              
              3,861,255Less:
                  Unamortized discount(3)
              
              
              (1,096,829
              )Balance
                  at December 31, 2007
              
              $
              2,514,426
 
 16
  **TACTICAL
        AIR DEFENSE SERVICES, INC.**
 **(A
        Development Stage Company, Commencing January 1, 2006)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **YEARS
        ENDED IN DECEMBER 31, 2007 AND 2006**
 
 **NOTE
        5 - CONVERTIBLE NOTES PAYABLE (Continued):**
 
 In
        connection with the Asset Purchase Agreement entered into in June 2006, Aero
        incurred the following debt:
 
 (1)
              A
                  $2,200,000 promissory note that was assumed by Aero in connection
                  with the
                  June 2006 acquisition by Aero of the two MIG 29 aircraft and flight
                  simulators that were ultimately acquired by Tactical Air Defense
                  Systems.
                  Under the terms of the note, it has a principal balloon payment
                  in
                  thirty-six months of the original agreement which was dated December
                  31,
                  2005. Interest is payable at a rate of eight percent per annum.
                  There is
                  no penalty for payment before the maturity date. This note was
                  assumed by
                  TADS as part of the acquisition by TADS (Note 3) and the debt is
                  convertible into TADS common stock at a price of $0.50 per share
                  during
                  the one month period prior to the maturity date. In December 2007,
                  the
                  Company was notified by the note holder of the note issued in connection
                  with the June 2006 Asset Purchase Agreement that the Company was
                  in
                  default of the agreement and that the holder was exercising their
                  right to
                  repossess the equipment. As a result, the Company recorded a charge
                  of
                  $6,740,000 which is included as a write-down of fixed assets in
                  the
                  accompanying consolidated statement of operations.
 
 (2)
              A
                  $1,100,000 secured promissory note reflecting indebtedness assumed
                  by Aero
                  in connection with the June 2006 acquisition of assets by Aero.
                  This note
                  is payable to Daniels and under the terms of the note, the note
                  is due in
                  installments beginning on July 1, 2008, and monthly thereafter,
                  to and
                  including June 30, 2011 (“the “Maturity Date”), the Company shall pay to
                  the note holder a total of thirty-six (36) monthly installments
                  of
                  principal, each in the amount of $30,555, each installment of principal
                  to
                  be accompanied by payment of accrued and unpaid interest on the
                  then
                  unpaid principal balance of the Note. Interest is payable at a
                  rate of 12%
                  percent per annum. The note is guaranteed by the Company's subsidiaries
                  and collateralized by all of the Company's assets. This note was
                  assumed
                  by TADS and the debt is convertible into TADS common stock at $.50
                  per
                  share.
 
 (3)
              In
                  accordance with EITF 98-5 commencing on December 15, 2006, the
                  Company
                  recorded a debt discount of $3,861,255 related to the intrinsic
                  value of
                  the beneficial conversion option of the above described debt. The
                  embedded
                  conversion options qualified as equity and their recorded value
                  was
                  limited to the gross proceeds of the debt pursuant to EITF 98-5.
                  The debt
                  discount is being amortized to interest expense over the term of
                  the debt.
                  Amortization of such debt discount totaled $2,695,318 and $69,107
                  for the
                  years ended December 31, 2007 and 2006,
                  respectfully.
 
 **NOTE
        6 - INCOME TAXES:**
 
 There
        is
        no provision for income taxes for the years December 31, 2007 and 2006. The
        Company has minimal net operating loss carry forwards for income tax purposes
        at
        December 31, 2007. The deferred tax asset primarily attributable to the
        Company’s net operating loss carryforwards has been offset by a full valuation
        allowance.
 The
        Company has minimal net operating loss carry forwards for income tax purposes
        at
        December 31, 2006. Any resultant deferred tax asset has been offset by a
        valuation allowance.
 
 The
        reconciliation of the federal statutory rate to the effective tax rate is
        as
        follows:
 
 Years
                  Ended December 31,2007
              
              2006Federal
                  statutory rate
              
              
              (34
              )%
              
              (34
              )%Permanent
                  differences
                (derivative
                  gains and losses and non-deductible interest)
              
              
              34
              %
              
              34
              %Effective
                  Tax Rate
              
              
              -
              
              
              -0-
 
 **NOTE
        7 - STOCKHOLDERS' EQUITY:**
 Effective
          as of December 20, 2006, the Company filed an amendment to its Articles
          of
          Incorporation (the “Amendment”) to increase the Company’s authorized capital
          stock from 100,000,000 shares of common stock, par value $.001 per share
          only,
          to 350,000,000 shares, par value $.001 per share, of which 300,000,000
          shares
          are common stock and the remaining 50,000,000 shares are a newly created
          class
          of “blank check” preferred stock. As of December 31, 2006, the Company has no
          shares of preferred stock issued or reserved for issuance, and the Company’s
          board of directors has never designated the rights, preferences or privileges
          of
          a preferred stock.
 
 17
  **TACTICAL
        AIR DEFENSE SERVICES, INC.**
 **(A
        Development Stage Company, Commencing January 1, 2006)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **YEARS
        ENDED IN DECEMBER 31, 2007 AND 2006**
 
 **NOTE
        7 - STOCKHOLDERS' EQUITY (Continued):**
 
 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”).
 
 Pursuant
        to the Series A Certificate of Designation, holders are entitled to:
 
 ·
              Elect
                    one director to the Company’s board of
                    directors
 ·
                Vote
                        on all other matters on a 25 votes per share common stock
                        basis.
 ·
              The
                  Series A Preferred Stock shall, with respect to dividend rights,
                  rights on
                  redemption, rights on conversion and rights on liquidation, winding
                  up and
                  dissolution, rank senior to all common stock, warrants and options
                  to
                  purchase common stock established by the Board or the Stockholders
                  (all of
                  such equity securities of the Corporation to which the Series A
                  Preferred
                  Stock ranks senior are collectively referred to herein as “JUNIOR STOCK”).
 
 ·
              Each
                  share of Series A Preferred Stock is initially convertible into
                  2 shares
                  of the Common Stock of the Company, subject to adjustment for stock
                  splits, recapitalization or other reorganizations.
 
 In
        addition, the Series A Preferred Stock:
 
 ·
              Have
                  broad-based weighted average antidilution protection that will
                  cause the
                  conversion price to adjust downward in the event that the Company
                  issues
                  shares of common stock or securities convertible into common stock
                  at a
                  price of less than the conversion price of the Series A Preferred
                  Stock
                  then in effect.
 
 ·
              The
                  shares of Series A Preferred Stock may be converted into common
                  stock at
                  the option of the holder. In addition, at any time after the closing
                  bid
                  price for the Company’s common stock on the NASDAQ OTCBB or the primary
                  United States exchange on which the common stock is then traded
                  exceeds
                  $5.00 during any five consecutive trading days, the Company may,
                  at its
                  sole option, convert the Series A Preferred and any accrued but
                  unpaid
                  dividends into common shares at the then-applicable conversion
                  price by
                  providing written notice of such conversion to the holders of the
                  Series A
                  Preferred; provided that there is an effective registration statement
                  under the Securities Act registering the resale of the common stock
                  to be
                  issued upon such conversion.
 
 Each
        share of Series A Preferred Stock is entitled to receive a per share dividend
        of
        $.07 per annum ($7,441 for the 1st quarter of 2007). The dividend begins
        to
        accrue on January 1, 2007 and will be payable quarterly thereafter. The dividend
        is cumulative. In the event of a liquidation or acquisition of the Company,
        the
        holders of the Series A Preferred Stock will be entitled to receive an amount
        equal to any accrued and unpaid dividend prior and in preference to any
        distributions to the holders of the common stock. Thereafter, the holders
        of the
        Series A Preferred Stock will be entitled to participate in distributions
        on an
        as converted to common stock basis.
 
 18
  **TACTICAL
        AIR DEFENSE SERVICES, INC.**
 **(A
        Development Stage Company, Commencing January 1, 2006)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **YEARS
        ENDED IN DECEMBER 31, 2007 AND 2006**
 
 **NOTE
        7 - STOCKHOLDERS’ EQUITY (Continued):**
 
 ·
              Shares
                  of Series A Preferred may be redeemed, in whole or in part, by
                  the Company
                  out of funds lawfully available therefore from the holders of then
                  outstanding shares of Series A Preferred on a pro rata basis, at
                  any time
                  by providing written notice to the holders of the Series A Preferred
                  owned
                  by each holder, that number of outstanding shares of Series A Preferred
                  owned by each holder, that number of outstanding shares of Series
                  A
                  Preferred that the Company has elected to purchase for the following
                  consideration: (i) an amount equal to a price per share equal to
                  the $4.00
                  plus any accrued and unpaid dividends multiplied by the number
                  of shares
                  of Series A Preferred being redeemed from such holder and (ii)
                  the
                  issuance of the number of shares of common stock equal to seventeen
                  and
                  one-half percent (17.5%) of the shares of common stock then issuable
                  upon
                  conversion of the shares of Series A Preferred being redeemed from
                  such
                  holder. A cash payment will be provided in lieu of any fractional
                  shares
                  of common stock.
  **Common
        Stock Issuances - 2006**
 
 During
        2006, Aero issued to an officer and director of the Company 2,452,254 shares
        of
        Common Stock as settlement of accrued compensation at December 31, 2005 of
        $245,227 and 1,447,720 shares of common stock for stock based compensation
        of
        $144,773 for the year ended December 31, 2006.
 
 **Stock
        Issuances - 2007**
 
 During
        2007, holders of Debentures converted $754,660 plus accrued interest of $222,386
        into 6,533,003 shares of common stock in accordance with the Debentures
        agreement.
 
 During
        2007, the Company issued 3,144,734 shares of common stock to various consultants
        and recorded a charge of $2,423,316 representing the approximate fair value
        of
        the issued capital stock on the date of issuance.
 
 During
        2007, the Company issued 320,000 of shares of common stock for services valued
        at $336,000 of which $26,000 was charged to lease hold improvements and the
        remaining $310,000 was charged as non-employee stock-based compensation.
 
 During
        2007, the Company issued 7,490,000 shares of common stock and 6,400,000 shares
        of its Series A Preferred Stock to various officers and directors for
        compensation due under various employment agreements. The Company recorded
        a
        charge of approximately $18,329,800.
 
 During
        2007, 9,392,471 of warrants were exercised to purchase 7,274,930 shares of
        common stock under the terms of cash-less exercise provision.
 
 During
        2007, a note holder converted $250,000 of principal into 500,000 shares of
        common stock in accordance with the note payable agreement.
 
 During
        2007, the Company issued 57,400 shares of TADS’ common stock for financial
        advisory services.
 
 **Sale
        of Stock**
 
 Pursuant
        to a 2007 Securities Purchase Agreement, in September 2007, TADS sold to
        four
        investors 382,663 shares of the TAD’s common stock at a purchase price of $0.30
        per share. The gross proceeds of this offering totaled $114,781. Under the
        terms
        of the Securities Purchase Agreement, TADS is offering to sell a total of
        3,333,333 shares, which can be increased to 4,000,000 shares at the sole
        discretion of TADS. The share purchase price carries certain anti-dilution
        rights whereby the share purchase price may be amended as follows: if the
        average closing price, as quoted in the Wall Street Journal, of the shares,
        during the 30-day period following the closing of the offering, is less than
        the
        share purchase price, then the new share purchase price shall become the
        anti-dilution reference price, and additional shares shall be issued to reflect
        the new share purchase price. Notwithstanding any of the above, the new,
        share
        purchase price shall not be less than $0.15. 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.
  19




**TACTICAL
      AIR DEFENSE SERVICES, INC.**


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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**YEARS
      ENDED IN DECEMBER 31, 2007 AND 2006**





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 $.15 per share. Additionally, a fee of $14,500 and
      114,800 shares of Common Stock was paid to an introducing agent as an
      introduction and expense fee.




**7
      - STOCKHOLDERS' EQUITY (Continued):**





**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.





**Warrants**





At
      December 31, 2007 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
            
            $
            0.20Potential
                Proceeds Assuming all Exercised at December 31, 2007
            
            $
            5,340,000





**Earnings
      per Share**





Securities
      that could potentially dilute basic earnings per share (" EPS **** ")
      in the
      future that were not included in the computation of diluted EPS because to
      do so
      would have been anti-dilutive for the periods presented consist of the following
      at December 31, 2007 and 2006:





December
      31, 2007:





Principal and Interest
            
            Additional
                Number
              of
                Potential Common Shares if Converted/ExercisedDebentures
            
            $
            6,757,290
            
            $
            32,341,327Convertible
                notes
            
            
            4,130,246
            
            
            8,260,492Warrants
                to purchase common stock
            
            
            -
            
            
            26,473,876Preferred
                stock convertible into common stock
            
            
            N/A
            
            
            4,800,000Accrued
                consulting fees
            
            
            N/A
            
            
            600,000Total
                at December 31, 2007
            
            $
            300,000
            
            $
            72,475,695




20




**TACTICAL
        AIR DEFENSE SERVICES, INC.**
 **(A
        Development Stage Company, Commencing January 1, 2006)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **YEARS
        ENDED IN DECEMBER 31, 2007 AND 2006**
  **NOTE
        7 - STOCKHOLDERS' DEFICIENCY (Continued):**





December
      31, 2006:


Principal
              and
              Interest
            
            Additional Number
              of Potential
              Common Shares if
                Converted/ExercisedDebentures
            
            $
            5,590,062
            
            $
            30,547,043Notes
                payable
            
            
            4,057,246
            
            
            8,099,493Warrants
                to purchase common stock
            
            
            N/A
            
            
            23,968,315Accrued
                consulting fees
            
            
            300,000
            
            
            600,000Total
                at December 31, 2006
            
            $
            -
            
            $
            63,214,851





Issuances
                after December 31, 2007:New
                convertible debt
            
            
            -Warrants
                issued with new convertible debt
            
            
            -Proceeds
                from sale from common stock
            
            
            -Shares
                issued in connection with settlement agreement
            
            
            -Shares
                issued for legal services
            
            
            -Shares
                issued in connection with financial advisory services
            
            
            -





**NOTE
      8 – COMMITMENTS:**





**Periodic
      Filings**





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





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





**Compensation
      Agreements**





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





21




**TACTICAL
        AIR DEFENSE SERVICES, INC.**
 **(A
        Development Stage Company, Commencing January 1, 2006)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **YEARS
        ENDED IN DECEMBER 31, 2007 AND 2006**




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


**NOTE
      8 - COMMITMENTS (Continued):**





**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.





**Resignation
      of Executive Officer**





On
      August
      17, 2007 Mr. John Farley an executive officer resigned from all positions with
      the Company to pursue other business ventures. In satisfaction of all past
      due
      compensation to Mr. Farley, the Company entered into a Resignation and Release
      Agreement with Mr. Farley providing for the issuance of 100,000 shares of
      restricted common stock and payment of $11,250 to Mr. Farley in exchange for
      an
      unconditional release of all amounts owed to him. In addition the Company agreed
      to indemnify Mr. Farley as a former executive officer for all actions brought
      against him in such capacity. As of December 31, 2007, the Company has paid
      $6,000 and issued 100,000 shares of common stock under the terms of this
      separation agreement.





**Resignation
      of Director**





On
      December 7, 2007, Mr. Donald Goldstein, a director of the Company, resigned
      from
      all positions within the Company.





**Legal
      Proceedings**





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


22




**TACTICAL
        AIR DEFENSE SERVICES, INC.**
 **(A
        Development Stage Company, Commencing January 1, 2006)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **YEARS
        ENDED IN DECEMBER 31, 2007 AND 2006**


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





**NOTE
      8 - COMMITMENTS (Continued):**





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.





Agreement





On
      October 29, 2007, the Company signed an exclusive lease agreement with Air
      Support Systems, LLC., for the use of its ILyushin IL-76 aircraft, an aerial
      firefighting supertanker. The agreement with Air Support Systems, LLC for the
      exclusive use of its IL-76, is for an initial five year term, renewable for
      two
      subsequent and exclusive five year terms. The Agreement provides for hourly
      usage payments of $8,000 per hour of engine usage to Air Support Systems, LLC
      in
      connection with contracts that do not call for a fixed fee to make the aircraft
      available, or, for contracts that do entail a fixed availability fee (an
“Availability Fee Contract”), the Company shall pay to Air Support Systems, LLC
      half of such availability fee, and, after deducting and retaining for the
      Company the first


$2,000
      of
      any hourly usage fees received in addition to the availability fee, the Company
      shall pay to AirSupport Systems, LLC half of the remaining hourly usage fee.
      Air
      Support Systems, LLC is required to cover the cost of spare parts, with ordinary
      operational maintenance costs, fuel, oil, landing fees, and similar operational
      expenses paid for by the Company.





**NOTE
      9 - SUBSEQUENT EVENTS:**





**Departures
      of Directors or Principal Officers; Elections of Directors; Appointments of
      Principal Officers**





On
      March
      4, 2008, Mr. Peter C. Maffitt was appointed to serve on the Board of Directors
      of TADS ,by the majority of the Series A Preferred shares, to fill the vacancy
      left by the departure of Mr. Donald Goldstein. Mr. Maffitt joined Mr. Alexis
      Korybut and Mr. Fred Daniels as Directors of TADS.




On
      March
      4, 2008, Mr. Alexis Korybut resigned as President, Chief Executive Officer
      and
      Principal Accounting Officer, and as a Director of TADS. Mr. Korybut continues
      to serve the Company as its director of finance and administration.




On
      March
      4, 2008, a majority of the Board of Directors of TADS appointed Mr. Michael
      Cariello as President and Chief Executive Officer of the Company, and appointed
      Mr. Fred Daniels as Treasurer of the Company in addition to his role as
      Secretary and Director of the Company.




On
      March
      7, 2008, a majority of the Board of Directors of TADS accepted the resignation
      of Mr. Fred Daniels as Secretary and Treasurer of the Company, and appointed
      Mr.
      Peter C. Maffitt to serve as Secretary and Treasurer of the Company in addition
      to his role as Director of the Company. Mr. Fred Daniels continues to serve
      as a
      Director of TADS.




On
      March
      15, 2008, a majority of the Board of Directors of the Company removed Mr.
      Michael Cariello as President and Chief Executive Officer of TADS, and appointed
      Mr. Mark Daniels as President and Chief Executive Officer of TADS. Mr. Mark
      Daniels is the founder of AeroGroup Incorporated, was previously the President
      and Chief Executive Officer of TADS, and is the son of Mr. Fred Daniels, a
      Director of the Company.




On
      April
      14, 2008, Mr. Charles DeAngelo was appointed by the Board of Directors of TADS
      to serve on the Board of Directors of TADS, to fill the vacancy left by the
      departure of Mr. Alexis Korybut. Mr. DeAngelo joined Mr. Peter C. Maffitt and
      Mr. Fred Daniels as a Director of TADS.


23




**TACTICAL
        AIR DEFENSE SERVICES, INC.**
 **(A
        Development Stage Company, Commencing January 1, 2006)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **YEARS
        ENDED IN DECEMBER 31, 2007 AND 2006**




**Debt
      Issuances Subsequent to December 31, 2007**





During
      the period January 1, 2008 through April 15, 2008, the Company received loan
      proceeds of $532,149.89 in connection with various loans, entered into with
      an
      unrelated party. The loans provide for interest at an annual rate of 12%. The
      loans are due within three years of issuance. The loans are convertible
      into 10,642,998 shares of common stock at a conversion rate of $0.05 per
      share and provide for warrants to purchase 10,642,998 shares of common
      stock at an exercise price $0.05 per share.




**Common
      Stock Issuances Subsequent to December 31, 2007**





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. However, Mr. Korybut has agreed to return
      21,000,000 of said shares to the Company for rescission. No registration rights
      were issued in connection with these shares.




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. No registration rights were issued in
      connection with these shares.





The
      Company issued an aggregate of 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. No registration rights were issued in
      connection with these shares




**Recent
      Share Pledges**





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





During
      the nine months ended December 31, 2007, the Company has conditionally placed
      into escrow 45,000,000 shares in the name of International Tactical
      Training Center, Inc., an entity affiliated with Mr. Daniels, the Company’s
      former executive officer and director, in contemplation of a proposed joint
      venture, 30,000,000 of which shares were deposited for purposes of
      negotiating and collateralizing a possible secured financing
      transaction.  As the Company has not received any proceeds from financing
      or a financing commitment yet from any prospective investors, or otherwise
      entered into definitive transaction documents that require such a pledge, the
      Company intends to rescind this issuance.  No definitive agreement has
      been entered into with respect to this transaction and no assurance can be
      made
      that one will be entered into.





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





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




24




**Item
      8A. CONTROLS AND PROCEDURES**




(a)
            Evaluation
                of disclosure controls and
                procedures





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




(b)
            Management’s
                Report on Internal Control Over Financial
                Reporting





Management
      is responsible for establishing and maintaining adequate internal control over
      financial reporting, as such term is defined in Exchange Act Rule 13a-15(f)
      under the Securities Exchange Act of 1934.  Under the supervision and
      with the participation of the Chief Executive Officer, the Chief Operating
      Officer and the Chief Accounting Officer, we conducted an evaluation of the
      effectiveness of our control over financial reporting based on the framework
      in *Internal
      Control-Integrated Framework* issued
      by
      the Committee of Sponsoring Organizations of the Treadway Commission
      (“COSO”).  Based on our evaluation under the framework, management has
      concluded that our internal control over financial reporting was effective
      as of
      December 31, 2007.





This
      annual report does not include an attestation report of the Company’s registered
      public accounting firm regarding internal control over financial
      reporting.  Management’s report was not subject to attestation by the
      Company’s registered public accounting firm pursuant to temporary rules of the
      Securities and Exchange Commission that permit the Company to provide only
      management’s report in this annual report.





(c)
            Changes
                in Internal Control over Financial
                Reporting





There
      have not been any changes in the Company’s internal controls or in other factors
      that occurred during the Company’s last fiscal quarter ended December 31, 2007
      that have materially affected or are reasonably likely to materially affect
      the
      Company’s internal control over financial reporting.





**Item
      8B. Other Information**





**Prohibited
      Termination of Director and Principal Officer; Prohibited Election of Director;
      Prohibited Appointments of Principal Officer**





Beginning
      on or about February 10, 2008, management of the Company concluded that the
      Company was the target of a improper scheme to procure a controlling interest
      in
      the Company, and to mislead shareholders and creditors of the Company, as
      follows:




On
      February 10, 2008, Mr. Victor Miller, having 2,400,000 Preferred Class A shares,
      which equals 60,000,000 share voting rights, in conjunction with an additional
      70,799,800 shares of common voting rights, improperly attempted to terminate
      Mr.
      Alexis Korybut as a member of the Board of Directors of the Company, in
      violation of the laws of Nevada which require a super-majority of 2/3’s of the
      issued and outstanding capital shares of a company to terminate a director
      of a
      Nevada corporation.




Additionally,
      on February 10, 2008, Mr. Victor Miller, having 2,400,000 Preferred Class A
      shares, which is a minority of the 6,400,000 outstanding Preferred Class A
      shares, attempted to elect Mr. Christopher Beck, an alleged resident of Costa
      Rica, as a Director of the Company. However, as a majority of the Preferred
      Class A shares are required to exercise the right to appoint a member of the
      Board of Directors of the Company, the action was improper and not permissible.




32




Thereafter,
      on February 10, 2008, Mr. Christopher Beck, acting as a member of the Board
      of
      Directors of the Company (although not properly appointed) attempted to
      terminate Mr. Alexis Korybut as Chief Executive Officer, President, Secretary,
      Treasurer, and any and all other capacities representing the
      Company.




Additionally,
      on February 10, 2008, Mr. Christopher Beck, , acting as a member of the Board
      of
      Directors of the Company (although not properly appointed) attempted to have
      himself elected and appointed as Chief Executive Officer, President and
      Treasurer of the Company, and on March 3, 2008, Mr. Christopher Beck, , acting
      as a member of the Board of Directors of the Company (although not properly
      appointed) attempted to have himself elected and appointed as Secretary of
      the
      Company.




Additionally,
      on February 10, 2008, Mr. Christopher Beck, , acting as a member of the Board
      of
      Directors of the Company (although not properly appointed) attempted to cancel
      any employment agreements or any other agreements with Mr. Alexis Korybut,
      Mr.
      John Farley, Mr. Donald Goldstein, Mr. Jamie Goldstein, Mr. Gary Fears, Mr.
      Joel
      Ramsden, and Mr. Lawrence Cusack / Whitwell.




On
      March 4, 2008, Mr. Christopher Beck, acting as a member of the Board of
      Directors of the Company (although not properly appointed) improperly and
      without authority issued a Form 8-K in an attempt to discredit and slander
      Mr.
      Alexis Korybut and various creditors of the Company by questioning past stock,
      note, and warrant issuances. The Company has reviewed said past stock, note,
      and
      warrant issuances, and has determined that all issuances are legitimate, valid,
      and were issued for proper consideration to the Company. The Company also
      reiterates that it is a fully reporting company and that all past stock, note,
      and warrant issuances have been fully audited by a certified independent
      auditor, that the Company is not contemplating restating financial results
      for
      prior periods, and that said Form 8-K improperly filed by Mr. Christopher Beck
      be disregarded in its entirety.




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.




33




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.




Departures
      of Directors or Principal Officers; Elections of Directors; Appointments of
      Principal Officers.





On
      January 8, 2007, Mr. Fred Daniels was appointed to serve as a Director of the
      Company.





On
      January 8, 2007, Mr. Victor Miller was appointed to serve as a Director of
      the
      Company.





On
      August
      3, 2007 Mr. Mark Daniels, a Director and Officer of the Company and Mr. Victor
      Miller, a Director and Officer of the Company each resigned from all positions
      with the Company to pursue other ventures. Mr. Mark Daniels continued to assist
      the Company as an independent consultant.





On
      August
      3, 2007, Mr. Donald Goldstein was appointed as a director of the Company,
      joining Mr. Fred Daniels on the Board of Directors. Additionally, Mr. John
      Farley, our Vice President at the time of resignation of the above individuals,
      was also appointed as Principal Accounting Officer.





On
      August
      17, 2007 Mr. John Farley, an Officer of TADS, resigned from all positions with
      the Company.





On
      August
      17, 2007, Mr. Alexis Korybut was appointed as a director of the Company, joining
      Mr. Donald Goldstein and Mr. Fred Daniels on the Board of Directors of TADS.
      Additionally, Mr. Korybut was also appointed as President, Chief Executive
      Officer and Principal Accounting Officer of the Company.





On
      December 7, 2007 Mr. Donald Goldstein a Director of the Company, resigned from
      all positions with the Company.





Recent
      Additional Departures
      of Directors or Principal Officers; Elections of Directors; Appointments of
      Principal Officers





On
      March
      4, 2008, Mr. Peter C. Maffitt was appointed to serve on the Board of Directors
      of TADS ,by the majority of the Series A Preferred shares, to fill the vacancy
      left by the departure of Mr. Donald Goldstein. Mr. Maffitt joined Mr. Alexis
      Korybut and Mr. Fred Daniels as Directors of TADS.





On
      March
      4, 2008, Mr. Alexis Korybut resigned as President, Chief Executive Officer
      and
      Principal Accounting Officer, and as a Director of TADS. Mr. Korybut continues
      to serve the Company as its director of finance and administration.





On
      March
      4, 2008, a majority
      of the Board of Directors of TADS appointed Mr. Michael Cariello as President
      and Chief Executive Officer of the Company, and appointed Mr. Fred Daniels
      as
      Treasurer of the Company in addition to his role as Secretary and Director
      of
      the Company.





34




On
      March
      7, 2008, a majority
      of the Board of Directors of TADS accepted the resignation of Mr. Fred Daniels
      as Secretary and Treasurer of the Company, and appointed Mr. Peter C. Maffitt
      to
      serve as Secretary and Treasurer of the Company in addition to his role as
      Director of the Company. Mr. Fred Daniels continues to serve as a Director
      of
      TADS.





On
      March
      15, 2008, a majority of the Board of Directors of the Company removed Mr.
      Michael Cariello as President and Chief Executive Officer of TADS, and appointed
      Mr. Mark Daniels as President and Chief Executive Officer of TADS. Mr. Mark
      Daniels is the founder of AeroGroup Incorporated, was previously the President
      and Chief Executive Officer of TADS, and is the son of Mr. Fred Daniels, a
      Director of the Company.





On
      April
      14, 2008, Mr. Charles DeAngelo was appointed
      by the Board of Directors of TADS to serve on the Board of Directors of TADS,
      to
      fill the vacancy left by the departure of Mr. Alexis Korybut. Mr. DeAngelo
      joined Mr. Peter C. Maffitt and Mr. Fred Daniels as a Director of
      TADS.




Entry
      Into Definitive Material Agreement


On
      October 29, 2007, the Company signed an exclusive lease agreement with Air
      Support Systems, LLC., for the use of its ILyushin IL-76/78 aircraft, an aerial
      fire-fighting supertanker. The agreement with Air Support Systems, LLC for
      the
      exclusive use of its IL-76/78, is for an initial five year term, renewable
      for
      two subsequent and exclusive five y ear terms.





The
      Company recently took delivery of the IL-76/78 aircraft at its Grayson County
      Airport facility in Grayson County, Texas. This aircraft is currently
      operational in the United States and is believed to be the only one of its
      kind
      in the U.S.





The
      Company intends to operate its IL-76/78 supertanker to solicit contracts for
      aerial fire-fighting and mid-air refueling. The IL-76/78 supertanker is a
      Russian military designed aircraft specifically designed for military
      applications and aerial firefighting, and has already been successfully utilized
      for firefighting in Greece, Russia and Indonesia, and caries a greater water
      payload then other commonly used aerial firefighting aircraft.





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





Entry
      Into Definitive Material Agreement


On
      May 2,
      2007, the Company entered into a joint-venture agreement with various parties,
      including various related parties, including: International Tactical Training
      Center, Inc., GJJ, LLC, Air Support Systems, LLC, Mark Daniels, Victor Miller,
      Paul Parmar, and Pegasus Defense Corporation, Inc., contingent upon the
      performance of certain duties, functions, and obligations by and for the mutual
      benefit of all parties.





On
      May
      13, 2007, the Company entered into a second joint-venture agreement with various
      parties, including various related parties, including: International Tactical
      Training Center, Inc., GJJ, LLC, Air Support Systems, LLC, Mark Daniels, Victor
      Miller, Paul Parmar, Pegasus Defense Corporation, Inc., AeroGroup Incorporated,
      Air 1 Flight support, Inc., and Air 1 Maintenance Partnership, contingent upon
      the performance of certain duties, functions, and obligations by and for the
      mutual benefit of all parties.




35




On
      April
      23, 2007 and July 23, 2007, the Company conditionally placed into escrow an
      aggregate of 45,000,000 shares of Common Stock of the Company in the name of
      International Tactical Training Center, Inc., an entity affiliated with Mr.
      Daniels, Mr. Miller, and at the time, Mr. Parmar. 30,000,000 of said escrowed
      shares were deposited in contemplation of collateralizing a possible
      secured financing transaction, and 15,000,000 of said escrowed shares were
      deposited in contemplation of the successful performance by the other parties
      to
      the joint-venture agreement.





Because
      the company has not received any proceeds from financing or a financing
      commitment yet from any prospective investors as contemplated in the
      joint-venture agreement or otherwise entered into any definitive transaction
      document that would require such a pledge of shares of Common Stock of the
      Company, the Company intends on rescinding the said issuance of the
      30,000,000 shares of Common Stock. Additionally,
      as a result of the failure of International
      Tactical Training Center, Inc., Paul
      Parmar, and Pegasus Defense Corporation, Inc., to perform their duties,
      functions, and obligations described in the joint-venture agreements, on August
      29, 2007, the Company served Paul Parmar and Pegasus Defense Corporation, Inc.
      with notice of Default and Termination of the joint-venture agreements, and the
      Company intends on rescinding the said issuance of the 15,000,000 shares of
      Common Stock.





In
      addition, on July 23, 2007, the Company issued 10,000,000 shares into
      escrow with Pegasus Defense Corporation, Inc. in anticipation of, among
      other things, an acquisition of a partial ownership interest
      in Pegasus Defense Corporation, Inc. and to facilitate a possible financing
      transaction and joint venture with them conditioned on consummation of a
      financing for the Company.  No definitive agreement has been entered
      into with respect to this transaction and we believe that one will not be
      entered into in the future with Pegasus Defense Corporation, Inc. with respect
      to this transaction, and the Company intends on rescinding the said
      issuance of the 10,000,000 shares of Common Stock.





Additionally,
      on August 15, 2007, the Company improperly issued 10,000,000 shares of
      Common Stock of the Company in the name of Air 1 Flight Support, Inc., an entity
      affiliated with Mr. Daniels, Mr. Miller, and at the time, Mr. Parmar, and the
      Company intends on rescinding said issuance of the 10,000,000 shares of
      Common Stock.




**Item
      9. Directors, Executive Officers, Promoters and Control Persons; Compliance
      with
      Section 16(a) of the Exchange Act**





The
      following table sets forth certain information regarding our directors and
      executive officers as of December 31, 2007. To facilitate the AeroGroup
      Acquisition and resulting change of control,




**Name**
            
            **Age**
            
            **Position**Alexis
                C. Korybut
            
            42
            
            Director,
                Treasurer, Principal Financial Officer and Principal Executive Officer
                and
                President, since August 17, 2007.Victor
                Miller
            
            42
            
            Director
                (Resigned, August 3, 2007)Fred
                Daniels
            
            66
            
            DirectorMark
                Daniels
            
            41
            
            Director,
                Treasurer, Principal Financial Officer and Principal Executive Officer
                and
                President (Resigned, August 3, 2007)Donald
                Goldstein
            
            62
            
            Director
                (Resigned, December 7, 2007)





36




**Alexis
      C. Korybut.** Additionally,
      as of August 17, 2007, Mr. Alexis Korybut was appointed as a director of the
      Company, joining Donald Goldstein on the Board of Directors (the “Board”).
      Additionally, Mr. Korybut was also appointed as President, Chief Executive
      Officer and Principal Accounting Officer. Mr. Korybut is the principal of
      Plumtree Consulting Group, LLC an advisory firm providing management and
      financial consulting services to high-growth public companies, and is a manager
      and owner of the General Partner of Innovation Strategies LP, a special
      situation investment fund investing in small cap public and private
      entities . founded
      by Mr. Korybut in 2006. From 1999 through 2004, Mr. Korybut held the position
      of
      President and Member of the Board of Directors of Sterling Financial Group
      of
      Companies, Inc, a Florida-based financial services firm with offices throughout
      the United States, Europe, and Latin America. While at Sterling Financial,
      Mr.
      Korybut founded the investment banking and equity research divisions, which
      focused on performing consulting, advisory and investment banking services
      for
      small cap public and private companies. During the five years prior to
      Sterling Financial, he was a Vice President of Salomon Smith Barney, Inc. in
      New
      York City, where he structured financing transactions with both private and
      public companies to raise capital through the international debt and equity
      markets. Mr. Korybut received a BA from Georgetown University in 1988 and an
      MBA
      in finance from the University of Michigan Business School in 1994.




**Fred
      Daniels** . 
On January 8, 2007, Fred Daniels was appointed to serve as a Director of the
      Company. Mr. Fred Daniels has been involved in aviation over 40 years, having
      been employed by General Dynamics from 1960 through 1972. At General Dynamics,
      Mr. Fred Daniels was involved with projects such as the F-111 and F-16 program.
      Over the last 5 years, Mr. Fred Daniels has also acted as a consultant in
      connection with the acquisition of aircrafts, and served as a consultant to
      AeroGroup Incorporated from 2002 through 2007. Mr. Fred Daniels is the father
      of
      our President, Secretary and Treasurer, Mark Daniels.





**Donald
      Goldstein** .
      As of
      August 3, 2007, Mr. Donald Goldstein was appointed as a director of the Company,
      joining Fred Daniels on the Board of Directors. Mr. Donald Goldstein, age 65,
      has over 40 years of life insurance sales and agency management experience
      and
      has come out of early retirement to assist the Company. Prior to 2004 and since
      1997 Mr. Goldstein was President and founder of Reliance Financial and
      Investment Group, Inc., and his related corporate entities that marketed
      financial alternatives to a national professional life insurance sales force,
      with headquarters in Florida. Prior to such time and since 1994 Mr. Goldstein
      was President of American Benefits Group, Inc. which was a publicly traded
      company subject to the reporting requirements of the Securities Exchange of
      1934, as amended, at the time. Prior to such time and since 1968, Mr. Goldstein
      served in various life insurance sales and management capacities for a number
      of
      life insurance companies namely, First Capital Life, Old Republic Life,
      Commercial Union Life. Mr. Goldstein received an Associates Degree from Staten
      Island Community College. Mr. Goldstein will not receive compensation as a
      member of the Board.





**Mark
      Daniels.** Mr. Mark
      Daniels was appointed as the sole director and Chairman of the Company and
      as
      its Secretary and Treasurer on August 22, 2006 and was appointed as President
      as
      of January 1, 2007. Currently, and since 2002, Mr. Daniels has been the sole
      board member, President and the Chief Executive officer of AeroGroup. Prior
      to
      that time, and since 1998, Mr. Daniels was Vice President and a Manager of
      Global Aviation Associates, Inc., a Florida based aircraft leasing company
      that
      leased military and non-military aircraft to government and commercial
      contractors. Between 1988 and 1998, Mr. Daniels was President and founder of
      National Search Services, Inc, an investigative services company. Between 1989
      and 2001, Mr. Daniels was elected as a director of the National Aviation Museum,
      a Not-For-Profit corporation located in Oklahoma, where Mr. Daniel’s primary
      responsibility was the acquisition and importation of military fighter aircraft.
      Mr. Mark Daniels is primarily responsible for the development of AeroGroup’s
      business as an aviation government contractor to outsource fighter aircraft
      for
      training and other purposes to the U.S. Government and other countries. Mr.
      Daniels is also an inventor, having authored numerous patents directly related
      to utility and methods of military type aircraft. Certain of these patents
      are
      owned by AeroGroup and were acquired as part of the AeroGroup Acquisition.
      Mr.
      Daniels resigned from all positions as an Officer and as a Director on August
      3,
      2007




37




**Victor
      Miller** .  On January 8, 2007, Victor Miller was appointed to serve as a
      Director of the Company. Mr. Miller has over 21 years of aviation management
      experience. As a civilian pilot, Victor has logged many flight hours in various
      military high performance jet fighters. Mr. Miller served as maintenance
      director of Million Air, a nationally known chain of fixed base operators,
      from
      1987 through 1996. Mr. Miller also served as President of his own aviation
      company, Victor Aviation Inc, from 1996 through 2002. From 2002 through 2007
      Mr.
      Miller served as a Director at AeroGroup Incorporated where Mr. Miller assisted
      with forming a viable company to fulfill the business case of outsourcing
      commercial companies to support the U.S. Military. Mr. Miller resigned from
      all
      positions as an Officer and as a Director on August 3, 2007





The
      directors of the Company do not receive any compensation for their services
      as
      members of the Board of Directors, but are entitled to reimbursement for
      expenses incurred in connection with their attendance at Board of Directors’
meetings. Our by-laws also provide that they may be paid a fee for their
      services as directors, although we do not currently pay such fees. Officers
      are
      appointed by the Board of Directors and serve at the discretion of the
      Board.





**Audit
      Committee**





Because
      we are not an issuer listed on a national securities exchange or listed in
      an
      automated inter-dealer quotation system of a national securities association,
      we
      are not required to have an audit committee. Although we hope to have an audit
      committee established at some time in the near future, we have not done so
      yet.
      Since we have not established such a committee, we have not identified any
      member of such a committee as a financial expert. Our board of directors
      currently consists of one member, Mr. Mark Daniels. Accordingly, we do not
      have
      any audit committee financial expert or independent person on our board of
      directors.





**Family
      Relationships**





There
      are
      no family relationships among our officers, directors, or affiliates, except
      that Mr. Fred Daniels is the father of Mark Daniels.





**Involvement
      in Certain Legal Proceedings** .





Except
      as
      set forth herein, no officer or director of the Company has, during the last
      five years: (i) been convicted in or is currently subject to a pending a
      criminal proceeding; (ii) been a party to a civil proceeding of a judicial
      or
      administrative body of competent jurisdiction and as a result of such proceeding
      was or is subject to a judgment, decree or final order enjoining future
      violations of, or prohibiting or mandating activities subject to any federal
      or
      state securities or banking laws including, without limitation, in any way
      limiting involvement in any business activity, or finding any violation with
      respect to such law, nor (iii) has any bankruptcy petition been filed by or
      against the business of which such person was an executive officer or a general
      partner, whether at the time of the bankruptcy of for the two years prior
      thereto.





**Compliance
      with Section 16(a) of the Exchange Act**





Section
      16(a) of the Exchange Act requires our directors and executive officers, and
      persons who beneficially own more than 10% of a registered class of our equity
      securities, to report their initial beneficial ownership and any subsequent
      changes in that beneficial ownership of our securities to the Commission.
      Directors, executive officers and beneficial owners of more than 10% of our
      Company’sCommon Stock are required by SEC regulations to furnish us with copies
      of all Section 16(a) forms that they file.




38




Messrs.
      Daniels has timely filed a Form 3 upon appointment to his respective officer
      position in August of 2006.




**Code
      of Ethics**





To
      date,
      we have not adopted a Code of Ethics as described in Item 406 of Regulation
      S-B.
      Given our recent acquisition of AeroGroup’s assets, we have not yet had the
      opportunity to adopt a code of ethics. However, we intend to adopt a code of
      ethics as soon as practicable.




**Item
      10. EXECUTIVE COMPENSATION**




**EXECUTIVE
      COMPENSATION**


**DISCLOSURE
      HANDBOOK**




**TABLE
      OF CONTENTS FOR TABLES**


**PageNo.*****Appendix
                  C: Executive and Director Compensation
                  Tables***[FISCAL
                  YEAR] SUMMARY COMPENSATION TABLE
              40[FISCAL
                  YEAR] GRANTS OF PLAN-BASED AWARDS TABLE (*Please
                  note this table will be update by the SEC*.)
              41[FISCAL
                  YEAR] OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE
              42[FISCAL
                  YEAR] OPTION EXERCISES AND STOCK VESTED TABLE
              43[FISCAL
                  YEAR] PENSION BENEFITS TABLE
              44[FISCAL
                  YEAR] NONQUALIFIED DEFERRED COMPENSATION TABLE
              45[FISCAL
                  YEAR] DIRECTOR COMPENSATION TABLE
              46***Appendix
                  D: Optional Supplementary Compensation
                  Tables***[FISCAL
                  YEAR] ALL OTHER COMPENSATION TABLE
              47[FISCAL
                  YEAR] PERQUISITES TABLE
              48[FISCAL
                  YEAR] POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
                  TABLE
              49




39




**[FISCAL
      YEAR] SUMMARY COMPENSATION TABLE**


**Name and Principal Position**
              
              **Year**
              
              **Salary ($)**
              
              **Bonus ($)**
              
              **Stock**
                **Awards**
                **($)**
              
              **Option**
                **Awards**
                **($)**
              
              **Non-Equity**
                **Incentive Plan**
                **Compensation**
                **($)**
              
              **Change in**
                **Pension**
                **Value and**
                **Nonqualified**
                **Deferred**
                **Compensation**
                **Earnings**
                **($)**
              
              **All Other**
                **Compensation**
                **($)**
              
              **Total**
                **($)**CEOAlexis
                    C. Korybut
              
              
              2007
              
              
              300,000
              
              
              0
              
              
              0
              
              
              0
              
              
              0
              
              
              0
              
              
              0
              
              
              300,000CFOAlexis
                    Korybut
              
              
              2007
              
              
              0
              
              
              0
              
              
              0
              
              
              0
              
              
              0
              
              
              0
              
              
              0
              
              
              0Mark
                  DanielsCEO
              
              
              2007
              
              
              250,000
              
              
              0
              
              
              
              
              
              0
              
              
              0
              
              
              0
              
              
              0SecretaryFred
                    Daniels
              
              
              2007
              
              
              0
              
              
              0
              
              
              200,000
              
              
              0
              
              
              0
              
              
              0
              
              
              0
              
              
              200,000CDEF




40


***Please
        note: Based on the SEC changes effective December 29, 2006, this table will
        be
        changed. Updated table to be distributed once the SEC has issued the new
        table.***




**[FISCAL
      YEAR] GRANTS OF PLAN-BASED AWARDS TABLE**


**Number of**
                **Non-Equity**
                **Incentive**
                **Plan**
                **Units**
              
              **Estimated Future Payouts**
                **Under**
                **Non-Equity Incentive Plan**
                **Awards**
              
              **Estimated Future Payouts**
                **Under**
                **Equity Incentive Plan**
                **Awards**
              
              **All Other**
                **Stock Awards:**
                **Number**
                **of**
                **Shares of**
                **Stock or**
              
              **All Other**
                **Option Awards:**
                **Number of**
                **Securities**
                **Underlying**
              
              **Exercise**
                **or**
                **Base**
                **Price**
                **of**
                **Option**
              
              **Closing**
                **Price****on**
                **Grant****Name**
              
              **Grant**
                **Date**
              
              **Approval**
                **Date**
              
              **Granted**
                **(#)**
              
              **Threshold**
                **($)**
              
              **Target**
                **($)**
              
              **Maximum**
                **($)**
              
              **Threshold**
                **(#)**
              
              **Target**
                **(#)**
              
              **Maximum**
                **(#)**
              
              **Units**
                **(#)**
              
              **Options**
                **(#)**
              
              **Awards**
                **($ / Sh)**
              
              **Date**
                **($ / Sh)**PEOPFOABCDEF





*  Columns
      indicated by red are supplementary columns that companies must include to the
      extent applicable. If these columns are not applicable to your company, please
      delete these columns before submitting the files.




41




**[FISCAL
      YEAR] OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE**


**Option
                  Awards**
              
              **Stock
                  Awards****Number**
                **of**
                **Securities**
                **Underlying**
                **Unexercised**
                **Options**
                **(#)**
              
              **Number**
                **of**
                **Securities**
                **Underlying**
                **Unexercised**
                **Options**
                **(#)**
              
              **Equity**
                **Incentive**
                **Plan Awards:**
                **Number**
                **of**
                **Securities**
                **Underlying**
                **Unexercised**
                **Unearned**
                **Options**
                **(#)**
              
              **Option**
                **Exercise**
                **Price**
                **($)**
              
              **Option**
                **Expiration**
                **Date**
              
              **Number**
                **of**
                **Shares**
                **or**
                **Units of**
                **Stock****That**
                **Have**
                **Not**
                **Vested**
                **(#)**
              
              **Market**
                **Value**
                **of**
                **Shares**
                **or**
                **Units**
                **of**
                **Stock**
                **That**
                **Have**
                **Not**
                **Vested**
                **($)**
              
              **Equity**
                **Incentive**
                **Plan**
                **Awards:**
                **Number of**
                **Unearned**
                **Shares,**
                **Units**
                **or Other**
                **Rights**
                **That**
                **Have Not**
                **Vested**
                **(#)**
              
              **Equity**
                **Incentive**
                **Plan Awards:**
                **Market**
                **or**
                **Payout**
                **Value**
                **of**
                **Unearned**
                **Shares,**
                **Units**
                **or Other**
                **Rights**
                **That**
                **Have**
                **Not**
                **Vested**
                **($)****Name**
              
              **Exercisable**
              
              **Unexercisable**PEOPFOABCDEF




42




**[FISCAL
      YEAR] OPTION EXERCISES AND STOCK VESTED TABLE**




**Option
                Awards**
            
            **Stock
                Awards****Name**
            
            **Number of Shares**
              **Acquired on Exercise**
              **(#)**
            
            **Value Realized**
              **on Exercise**
              **($)**
            
            **Number of Shares**
              **Acquired on Vesting**
              **(#)**
            
            **Value Realized**
              **on Vesting**
              **($)**PEOPFOABCDEF




43


**[FISCAL
      YEAR] PENSION BENEFITS TABLE**




**Name**
            
            **Plan Name**
            
            **Number of Years**
              **Credited Service**
              **(#)**
            
            **Present Value**
              **of Accumulated**
              **Benefit**
              **($)**
            
            **Payments During Last**
              **Fiscal Year**
              **($)**PEOPFOABCDEF




44


**[FISCAL
      YEAR] NONQUALIFIED DEFERRED COMPENSATION TABLE**




**Name**
            
            **Executive Contributions**
              **in Last Fiscal Year**
              **($)**
            
            **Registrant**
              **Contributions**
              **in Last**
              **Fiscal Year**
              **($)**
            
            **Aggregate Earnings**
              **in Last Fiscal**
              **Year**
              **($)**
            
            **Aggregate**
              **Withdrawals /**
              **Distributions**
              **($)**
            
            **Aggregate Balance**
              **at**
              **Last Fiscal**
              **Year-End**
              **($)**PEOPFOABCDEF




45




**[FISCAL
      YEAR] DIRECTOR COMPENSATION TABLE**




**Name**
            
            **Fees Earned or
                Paid in Cash**
              **($)**
            
            **Stock Awards**
              **($)**
            
            **Option Awards**
              **($)**
            
            **Non-Equity**
              **Incentive
                Plan**
              **Compensation**
              **($)**
            
            **Change**
              **in Pension**
              **Value
                and Nonqualified Deferred Compensation Earnings**
              **($)**
            
            **All Other
                Compensation**
              **($)**
            
            **Total**
              **($)**ABCDEF




46


**[FISCAL
      YEAR] ALL OTHER COMPENSATION TABLE**




**Name**
            
            **Year**
            
            **Perquisites**
              **and
                Other Personal Benefits**
              **($)**
            
            **Tax
                Reimbursements ($)**
            
            **Insurance
                Premiums**
              **($)**
            
            **Company
                Contributions to Retirement and 401(k)
                Plans**
              **($)**
            
            **Severance
                Payments / Accruals**
              **($)**
            
            **Change
                in Control Payments / Accruals**
              **($)**
            
            **Total**
              **($)**PEOPFOABCDEF




47


**[FISCAL
      YEAR] PERQUISITES TABLE**




**Name**
            
            **Year**
            
            **Personal Use of
                Company**
              **Car/Parking**
            
            **Financial Planning/**
              **Legal Fees**
            
            **Club Dues**
            
            **Executive Relocation**
            
            **Total Perquisites and
                Other Personal Benefits**PEOPFOABCDEF




48


**[FISCAL
      YEAR] POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL TABLE**




**Name**
            
            **Benefit**
            
            **Before
                Change in Control Termination w/o Cause or for Good
                Reason**
            
            **After
                Change**
              **in
                Control Termination**
              **w/o
                Cause**
              **or****for**
              **Good
                Reason**
            
            **Voluntary**
              **Termination**
            
            **Death**
            
            **Disability**
            
            **Change**
              **in**
              **Control**PEOPFOABCDEF




**Item
      11. Security Ownership of Certain Beneficial Owners and
      Management**





The
      following table sets forth certain information regarding Common Stock
      beneficially owned on December 31, 2007 for (i) each stockholder known by the
      Company to be the beneficial owner of five (5%) percent or more of our issued
      and outstanding Common Stock, (ii) each executive officer and director, and
      (iii) all executive officers and directors as a group. Prior to closing the
      AeroGroup Acquisition, there were 3,925,855 shares of TADS Common Stock issued
      and outstanding. As of June 13, 2007 there were 49,188,198 shares of our Common
      Stock issued and outstanding. In addition, there are 6,400,000 shares of
      restricted, non-trading Series A Preferred Stock outstanding, which are
      convertible into 12,800,000 shares of common stock.




49




**Name
                and Address**
              **of
                Beneficial Owner**
            
            **Amount
                and**
              **Nature
                of**
              **Beneficial**
              **Ownership
                (1)**
            
            **Percent
                of**
              **Class**Mark
                Daniels(2)
            
            
            26,789,800
            (3)(4)
            
            51.14
            %Fred
                Daniels(2)
            
            
            405,000
            (5)
            
            1.2
            %Victor
                Miller (2)
            
            
            4,810,000
            (6)
            
            9.40
            %Alexis
                Korybut
            
            
            350,000
            (7)
            
            .08*
            %-0-Officers
                and Directors as a Group (per person)
            
            
            
            
            
            62.00
            %





*Indicates
      ownership of under 5%.





(1)
        In general, a person is considered a beneficial owner of a security if
      that person has or shares the power to vote or direct the voting of such
      security, or the power to dispose of such security. A person is also considered
      to be a beneficial owner of securities which the person has the right to acquire
      beneficial ownership within of (60) days. In computing the number of shares
      beneficially owned by a person and the percentage of ownership of that person,
      we have included all shares of common stock owned or beneficially owned by
      that
      person, and the number of shares of common stock issuable upon conversion or
      exercise of all convertible securities owned or beneficially owned by
      such person. Those shares, however, are not deemed outstanding for the purpose
      of computing the percentage ownership of any other person. All Series A
      Preferred Stock vote on a 25 to 1 basis with the Common Stock holders for all
      matters submitted to vote of shareholders. In addition, the holders of the
      Series A Preferred Stock are entitled to appoint a designee to the board of
      directors.





(2)
        Addresses c/o AeroGroup Incorporated, 5501 Airport Drive, Denison Texas
      75020.





(3)
        Indicates shares indirectly beneficially owned by Mr. Daniels which
      shares were issued to AeroGroup upon closing of the AeroGroup
      Acquisition.




**Item
      12. Certain Relationships and Related Transactions, and Director
      Independence.**





*The
      AeroGroup Acquisition*





At
      the
      time we and the AeroGroup negotiated and entered into the Asset Purchase
      Agreement, Mr. Daniels was not an officer, director or affiliate of TADS. After
      execution of and entry into the Asset Purchase Agreement, Mr. Daniels became
      a
      director and officer on August 22, 2006 in order for us to secure the government
      licenses required to be obtained as a condition to closing the AeroGroup
      Acquisition. At the time of the AeroGroup Acquisition on December 15, 2006,
      Mark
      Daniels, a controlling shareholder of AeroGroup, was serving as our sole
      director and as Secretary and Treasurer.





As
      a
      result of the Aero Group Acquisition, AeroGroup acquired a controlling interest
      in TADS. Mr. Daniels is a controlling shareholder in AeroGroup and has voting
      and dispositive control over its TADS stock. As a result, Mr. Daniels is the
      beneficial owner of AeroGroup's TADS stock and owns a 81% indirect beneficial
      interest in TADS as of the closing of the AeroGroup
      Acquisition.




As
      consideration for the AeroGroup Acquisition, TADS assumed notes and warrants
      held by Mr. Daniels as follows:


·
              TADS
                  assumed the Secured Daniels
                  Note;





·
              TADS
                  entered into the Daniels Security
                  Agreement;





·
              TADS
                  assumed Investor Notes held by Mr. Daniels in the aggregate original
                  principal amount of
                  $366,602.04;





50




·
            TADS
                assumed Warrants to acquire stock in AeroGroup, which Warrants will
                now be
                exercisable for the acquisition of 2,444,014 shares of Common Stock.
                The
                Warrants are exercisable at an exercise price of $.15 per share.
                They are
                immediately exercisable and have a warrant exercise term of five
                years.
                The warrants were issued between April 1, 2003 and November 12,
                2005.





The
      terms
      and conditions of the foregoing instruments and agreements are described above
      under the heading “Material Agreements Entered Into”.





51






·
            TADS
                assumed Warrants to acquire stock in AeroGroup, which Warrants will
                now be
                exercisable for the acquisition of 2,444,014 shares of Common Stock.
                The
                Warrants are exercisable at an exercise price of $.15 per share.
                They are
                immediately exercisable and have a warrant exercise term of five
                years.
                The warrants were issued between April 1, 2003 and November 12,
                2005.





The
      terms
      and conditions of the foregoing instruments and agreements are described above
      under the heading “Material Agreements Entered Into”.





Mr.
      Daniels is a majority stockholder of AeroGroup Incorporated. As a result of
      the
      AeroGroup Acquisition, TADS assumed AeroGroup’s obligations to issue shares of
      AeroGroup common stock pursuant to the convertible notes and warrants of
      AeroGroup. Conversion of those convertible securities prior to the Closing
      Date
      would have resulted in a dilution of Mr. Daniels stock in AeroGroup,
      Incorporated, which will no longer be the case.





Mr.
      Daniels also owns a controlling interest of 51% of the issued and outstanding
      stock of International Tactical Training Center, Inc. who is the Sublandord
      in
      the Sublease. The remaining 49% of International Tactical Training Center,
      Inc.
      is owned by Mr. Victor Miller. Mr. Miller was not an officer or director of
      TADS
      at the time of this assumption or the time of the AeroGroup Acquisition in
      December 2006.





*Acquisition
      of Aircraft and Simulator Assets from Entities owned by Mr.
      Daniels.*





In
      June
      of 2006, AeroGroup acquired substantially all of the assets of three limited
      liability companies owned by Mr. Daniels, OneSource Financial Holdings, LLC,
      Genesis Capital Services, LLC, and Resource Financial Holdings, LLC. These
      assets (the “Daniels Assets”) included two MiG 29 fighter jets and four full
      motion aircraft flight simulators. The Daniels Assets were acquired by AeroGroup
      in exchange for the assumption by the AeroGroup Subsidiaries of certain
      indebtedness incurred by Daniels in connection with his acquisition of these
      assets and certain other consideration. These assets were appraised by a
      certified aircraft appraiser and AeroGroup believes that the acquisition of
      these assets from Daniels was on terms that were no less favorable to it then
      if
      the Company had attempted to acquire these assets in the open
      market.




The
      Daniels Assets are part of the AeroGroup Assets acquired by the Company in
      the
      AeroGroup Acquisition.





We
      currently have an employment agreement in place with Mr. Korybut.





We
      believe that we have executed the AeroGroup Acquisition and all of the related
      transactions set forth above on terms no less favorable to us than we could
      have
      obtained from unaffiliated third parties on an arms-length transaction.
      Additionally, all of the foregoing transactions have been approved by both
      a
      majority of the board and a majority of disinterested directors. It is our
      intention to ensure that all future transactions including loans or any other
      transactions or commitments between us, our officers and directors and their
      affiliates are approved by a majority of the board of disinterested board
      members, and are on terms obtained at an arms-length transactions that are
      no
      less favorable to us than we could obtain from unaffiliated third parties.
      Moreover, it is our intention to obtain estimates from unaffiliated third
      parties for similar goods or services to ascertain whether such transactions
      with affiliates are on terms that are no less favorable to us than are otherwise
      available from unaffiliated third parties.





**Issuance
      of Shares of Common Stock and Preferred Stock to Executive
      Management**





In
      January of 2007 the Company entered into employment agreements with Messers.
      Fred Daniels, Mark Daniels. In lieu of cash compensation for salary and bonus
      payments through December of 2007, the Company issued:




·
            3,200,000
                shares of Common Stock and 4,000,000 shares of Series A Preferred
                Stock
                (which convert into 6,400,000 shares of Common Stock) to Mr. Mark
                Daniels,




·
            810,000
                shares of Common Stock and 2,000,000 shares of Series A Preferred
                Stock
                (which convert into 4,000,000 shares of Common Stock), to Mr. Victor
                Miller




·
            405,000
                shares of Common Stock to Mr. Fred
                Daniels.




52




See
      the
“Series A Preferred Stock” section above for additional rights relating to these
      shares of preferred stock. . The compensation under these employment contracts
      and related share issuances were not approved by independent directors or
      shareholders.




**Item
      13. Exhibits.**




**Exhibits**
            
            **Description**2.1
            
            Amendment
                No. 3 dated December 14, 2006, to Asset Purchase Agreement dated
                of July
                14, 2006 by and among Tactical Air Defense Services, Inc., Resource
                Aviation Financial Holdings, Inc., Genesis Aviation Acquisition,
                Inc. and
                OneSource Aviation Acquisition, Inc., as purchasers, and AeroGroup
                Incorporated, Resource Financial Holding Acquisition, Inc. and OneSource
                Acquisition, Inc., as sellers.*3.1
            
            Articles
                of Amendment To Articles of incorporation increasing capitalization
                to
                300,000,000 shares of Common Stock and 50,000,000 shares of blank
                check
                preferred stock.*3.2
            
            Certificate
                of Designation, with Respect to Series A Preferred Stock, dated March
                21,
                200710.1
            
            Assignment
                and Assumption of Lease, and lease agreement with respect to hangar,
                at
                Grayson County Airport.*10.2
            
            Form
                of Investor Notes (duties, conversion prices and maturity dates may
                vary).*10.3
            
            Form
                of Additional Note (duties and conversion prices only may
                vary).*10.4
            
            Form
                of warrant issued to noteholders (duties, exercise prices and
                expiration dates may vary).*10.5
            
            Secured
                Promissory Note in principal amount of $1,100,000 issued to Mark
                Daniels.*10.6
            
            Security
                Agreement with respect to secured Promissory Note issued to Mark
                Daniels.*10.7
            
            Solicitation,
                Offer and Award, between U.S. Army Research, Development and Engineering
                Command Acquisition Center and AeroGroup Incorporated, with respect
                to
                providing flight training at Townsend Range and Savannah Combat Readiness
                Training Center.*


10.8
            
            Convertible
                Promissory Note to Chris Beck in principal amount of
                $250,000.*10.9
            
            Employment
                Agreement, dated as of January 3, 2007, between the Company and Mark
                Daniels.10.10
            
            Employment
                Agreement, dated as of January 3, 2007, between the Company and Mark
                Daniels.10.11
            
            Employment
                Agreement, dated as of January 3, 2007, between the Company and Mark
                Daniels.31.1
            
            Certification
                by Chief Executive Officer, required by Rule 13a-14(a) or Rule 15d-14(a)
                of the Exchange Act, promulgated pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.31.2
            
            Certification
                by Chief Financial Officer, required by Rule 13a-14(a) or Rule 15d-14(a)
                of the Exchange Act, promulgated pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.32.1
            
            Certification
                by Chief Executive Officer, required by Rule 13a-14(b) or Rule 15d-14(b)
                of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of
                the
                United States Code, promulgated pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002.32.2
            
            CertificCertification
                by Chief Financial Officer, required by Rule 13a-14(b) or Rule 15d-14(b)
                of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of
                the
                United States Code, promulgated pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002.




*
      Incorporated by reference to the Issuer’s Form 8-K/A filed on December 21,
      2006.





53




**Item
      14. Principal Accountant Fees and Services.**





**Appointment
      of Auditors**




Our
      Board
      of Directors selected Larry Scharfman 7 Co. P.A., as our auditors for the year
      ended December 31, 2007.





**Audit
      Fees**





We
      are
      paying Larry Scharfman & Co. P.A., our independent auditors for fiscal 2007,
      fees of $25,000 for the 2007 10KSB.





We
      are
      not using Marcum and Kliegman, LLP, the independent auditors of our past
      financial statements, billed us $100,000 in fees for our quarterly audits
      through the third quarter of 2007.


**Audit-Related
      Fees**




We
      did
      not pay any fees to Marcum and Kliegman, LLP for assurance and related services
      that are not reported under Audit Fees above, during our fiscal years ending
      December 31, 2006 and December 31, 2005.





**Tax
      and All Other Fees**




We
      did
      not pay any fees to Marcum and Kliegman, LLP, for tax compliance, tax advice,
      tax planning or other work during our fiscal years ending December 31, 2006
      and
      December 31, 2005.





**Pre-Approval
      Policies and Procedures**





We
      have
      implemented pre-approval policies and procedures related to the provision of
      audit and non-audit services. Under these procedures, our board of directors
      pre-approves all services to be provided by Larry Scharfman & Co. P.A., the
      estimated fees related to these services.





With
      respect to the audit of our financial statements as of December 31, 2007, and
      for the year then ended, none of the hours expended on Larry Scharfman & Co.
      P.A, engagement to audit those financial statements were attributed to work
      by
      persons other than Larry Scharfman & Co. P.A, full-time, permanent
      employees.




Pursuant
      to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant
      has duly caused this report to be signed on its behalf by the undersigned on
      September 5, 2008 thereunto duly authorized.




**TACTICAL
                AIR DEFENSE SERVICES,**
              **INC.**By:
            /s/
                Mark
                DanielsName:
                Mark DanielsTitle:
                President and Chairman (Principal
              Executive
                and Principal Accounting
              Officer)





Pursuant
      to the requirements of the Securities Exchange Act of 1934, as amended, this
      report has been signed below by the following persons on behalf of the
      registrant and in the capacities indicated.





54


**Signatures**
            
            **Title**
            **Date***/s/
                Mark Daniels*
            
            President,
                Treasurer and Chairman of the Board of Directors
            September
                5, 2008Mark
                Daniels




55