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TADF > SEC Filings for TADF > Form 10-Q on 15-Mar-2013All Recent SEC Filings

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Form 10-Q for TACTICAL AIR DEFENSE SERVICES, INC.


15-Mar-2013

Quarterly Report


MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

FORWARD-LOOKING STATEMENTS

This discussion and analysis in this Quarterly Report on Form 10-Q should be read in conjunction with the accompanying Consolidated Financial Statements and related notes. Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of any contingent liabilities at the financial statement date and reported amounts of revenue and expenses during the reporting period. We review our estimates and assumptions on an on-going basis. Our estimates are based on our historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results are likely to differ from those estimates under different assumptions or conditions, but we do not believe such differences will materially affect our financial position or results of operations. Our critical accounting policies, the policies we believe are most important to the presentation of our financial statements and require the most difficult, subjective and complex judgments, are outlined below in ''Critical Accounting Policies,'' and have not changed significantly.

In addition, certain statements made in this report may constitute forward-looking statements. These forward-looking statements involve known or unknown risks, uncertainties and other factors that may cause the actual results, performance, or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Specifically, but not limited to, 1) our ability to obtain necessary regulatory approvals for our products; and 2) our ability to increase revenues and operating income, is dependent upon our ability to develop and sell our products, general economic conditions, and other factors. You can identify forward-looking statements by terminology such as "may," "will," "should," "expects," "intends," "plans," "anticipates," "believes," "estimates," "predicts," "potential," "continues" or the negative of these terms or other comparable terminology. We base these forward-looking statements on our expectations and projections about future events, which we derive from the information currently available to us. Such forward-looking statements relate to future events or our future performance. Although we believe that the expectations reflected-in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Forward-looking statements are only predictions. The forward-looking events discussed in this Quarterly Report, the documents to which we refer you, and other statements made from time to time by us or our representatives, may not occur, and actual events and results may differ materially and are subject to risks, uncertainties, and assumptions about us.
For these statements, we claim the protection of the "bespeaks caution" doctrine. The forward-looking statements speak only as of the date hereof, and we expressly disclaim any obligation to publicly release the results of any revisions to these forward-looking statements to reflect events or circumstances after the date of this filing.

OVERVIEW AND PLAN OF OPERATION

Tactical Air Defense Services, Inc. ("TADS" or the "Company") is a Nevada public corporation that offers air-combat training, aircraft maintenance training, and other Aerospace/Defense services to the United States and Foreign militaries. The Company is currently a developmental stage company with uncertain viability and current revenue generating business operations limited to agreements with a joint-venture partner, Tactical Air Support, Inc.

The Company's executive offices are located at 123 West Nye Lane, Suite 517, Carson City, Nevada, 89706 and the Company's phone number is (775) 888-6744.

TADS Corporate History

TADS was incorporated in the State of Nevada on July 9, 1998 under the name Natalma Industries, Inc. Originally, TADS operated as a junior mining company engaged in the exploration of mining properties. We were unsuccessful in locating a joint venture partner to assist us in the development of our mining claims. As a result, TADS was unable to pay for and perform the exploration and development required in its agreement with the owners of its properties and lost our rights to the mining claims. Our management at the time, therefore determined that it was in the best interest of our shareholders that we seek potential operating businesses and business opportunities with the intent to acquire or merge with another business, which led to the purchase substantially all of the assets of AeroGroup Incorporated ("AeroGroup") on December 15, 2006 (the "AeroGroup Acquisition"). The complete terms of the AeroGroup Acquisition were disclosed in our Form 8-K filed with the SEC on December 18, 2006. AeroGroup Incorporated originally commenced its operations and business plan as a contractor of military flight training as AeroGroup International Corporation in January 2002, and eventually merged with and acquired AeroGroup Incorporated.


Current Business Operations

As a result of the U.S. Base Foreclosure Act, the overall downsizing of the armed forces of the U.S. and its foreign allies, and the advanced age of the U.S. military air fleet, there was insufficient equipment and personnel to meet demands for combat air training and air refueling training. The wars in Iraq and Afghanistan and various regional conflicts and terrorist's acts, have only added to this crisis. The private-sector is now being asked to fill a role once the exclusive domain of the military, and the capabilities of civilian contractors are well recognized, and are frequently proven superior and more efficient than public-sector contractors. In addition, due to the escalating wild fires in the Western U.S., and the financial and environmental costs associated with this crisis, fire-fighting preparedness and capability have become a top priority at both the State and Federal levels of government. Again, the private sector is being asked to provide services that were previously the domain of the public-sector.

In order to meet present and future military, environmental, and financial threats, the United States and its allies has been forced to continue to commit billions of dollars to training, preparedness, and execution. These needs cannot be met without the support of the private-sector. We believe that there is currently no other private-sector contractor which has the potential capabilities to adequately fulfill these diverse and urgent demands, and we believe that TADS, through its current management and business contacts and relationships, has the potential ability to negotiate future contracts and business relationships in order to provide access to the aircraft, personnel, and operational skills necessary to claim a portion of this rapidly growing and highly-profitable market for diverse air support services. Although the Company believes it has the potential ability to negotiate such future contracts and business relationships, the Company does not currently have any such active contracts and it cannot be assured that it will be awarded any such contracts in the future.

We are currently pursuing and negotiating for the acquisition of air training and other aerial services contracts, as both a prime contractor and as sub-contractor through certain teaming agreements, with both the United States Department of Defense and various foreign militaries, but for security purposes, cannot disclose the countries with which we are engaged in discussions or bids. The contracts we are pursuing can be executed with or without planes or other physical assets, but the acquisition of additional planes and equipment would greatly enhance our ability to capture more and larger contracts, and we are currently exploring opportunities to acquire military aircraft and other military assets in order to further our business strategy.

Air Combat Training

Air combat training exercises are currently conducted by the training commands of the United States Air Force, United States Navy, and of most of our NATO and foreign allies. We believe neither the U. S. Department of Defense (the "DoD") nor its allies have sufficient personnel, support equipment, or access to foreign enemy type aircraft, to meet current demand. In many instances our European allies have neither the facilities nor the extensive airspace required for fighter combat training or fighter bomber training that we hope to provide.

TADS believes it will be able to provide the armed forces of the U.S. and its allies with a vast array of training services and support functions including, but not limited to air combat instruction and tactical training, actual aggressor simulated combat, classroom instruction, and airspace scheduling, fueling, aircraft spare parts support, aircraft maintenance and aircraft maintenance training.

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

Our current proposed flight training services focus on two major components; initial qualification flight training and advanced flight training, both of which consist of ground, and in air flight training. In addition, we are preparing to perform other flight training support services as described herein.

Initial Qualification Flight Training

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


Advanced Flight Training

Advanced flight training focuses on combat and other advanced maneuvers and is conducted after the pilot completes initial qualification training and returns to a "full service" training facility where he is provided refresher or upgrade training to sharpen his or her combat skills. We intend to focus the training venue on approved overseas customers and NATO customers who would use our accessible facilities and ranges to qualify, in some cases, and re-qualify in other cases in specific combat skills like air-to-air, air-to-ground, electronic countermeasure training, air-refueling training, and other advanced maneuvers.

U.S. Military Training

A crucial component to aerial combat training involves training against actual foreign adversary aircraft which are typically Russian, ex-Soviet bloc, or Chinese. However, because the U.S. military has little to no access to "enemy" aircraft, the status-quo has been to use aged U.S. military aircraft operating as the adversarial or "Red Air" aircraft. The status-quo leaves much to be desired because aged U.S. military aircraft do not possess the flying characteristics or capabilities of sophisticated enemy combat aircraft, nor do they emit the same electronic, radar signature, or visual signals.

Through its past and present relationships with companies licensed by the U.S. Department of Justice (BATF) to import foreign weapons of war, TADS believes it can provide unique Red Air aggressor aircraft. These are the aircraft that are the actual fighter aircraft currently used substantially many of the former Soviet bloc countries and non-allied nations.

In connection with contracts to provide adversary combat aircraft to the U.S. military, TADS believes it can supply various support services such as adversary pilots, spare parts, service and maintenance of the adversary aircraft, tactical training, actual aggressor simulated combat, and classroom instruction.

Foreign Air Combat Training

Unlike the training of the U.S. military, air combat training of foreign allied militaries typically entails air combat training techniques and strategies using U.S. military aircraft such as the F-16, which such foreign militaries have already purchased. Although a commercial endeavor, it has been a strategic decision of the U.S. government to supply U.S. fighter aircraft to its allies. However, the ability and resources of the U.S. military to thereafter train the foreign purchasers of its aircraft is extremely limited and sub-par.

As a result, there is a backlog of allied countries that have purchased F-16's and other U.S. fighter aircraft, and that have immediate and ongoing need for air combat training. TADS believes they are able to offer to foreign militaries actual combat training from highly experienced U.S. fighter pilots, classroom training, and parts, service, and maintenance protocols for their aircraft. TADS also believes it has the capability to either train on foreign soil and foreign military bases to fulfill multi-year contracts, or to provide a turn-key solution by hosting foreign militaries on U.S. soil, and therein provide not only pilots, training protocols, and parts, service, and maintenance, but also the air-bases, bombing ranges, fueling services, housing requirements, etc.

Current Business and Asset Status; Contractual Obligations

AeroTech Corporation Acquisition Agreement

On or about July 12, 2012, the Company and AeroTech Corporation, a Florida corporation ("AeroTech") entered into an Acquisition Agreement (the "AeroTech Acquisition Agreement"). A copy of the AeroTech Acquisition Agreement has been attached as an exhibit to our Form 8-K filed on June 20, 2012, the terms of which are hereby incorporated by reference in their entirety. Although executed on or about July 12, 2012, the AeroTech Acquisition Agreement called for certain closing condition which were to be met on or before August 12, 2012.

On or about August 2, 2012, the Company and AeroTech finalized the closing conditions and the AeroTech Acquisition Agreement was closed. Through the acquisition of AeroTech, the Company has acquired 100% of AeroTech's existing business and assets including, but not limited to, five separate teaming agreements, a sole source justification and approval from the United States Army, and AeroTech's pre-transaction management team.

Pursuant to the terms of the AeroTech Acquisition Agreement, the Company has acquired 100% of the equity interest in AeroTech in exchange for the issuance of Five Million shares of the Company's Series C Preferred Stock. The rights, privileges and preferences of the Series C Preferred Stock are outlined in Exhibit B to the AeroTech Acquisition Agreement filed as an exhibit to our Form 8-K filed on June 20, 2012, the terms of which are hereby incorporated by reference in their entirety. Following the closing of the AeroTech Acquisition Agreement, AeroTech will continue its existing business operations as a wholly owned subsidiary of the Company.


As further discussed below in Item 5. "Other Information" "Employment Agreements," pursuant to the terms of the AeroTech Acquisition Agreement, on August 2, 2012, Mr. Mark Daniels was appointed to the position of President and Secretary of AeroTech and Colonel Scott Patterson was appointed to the position of Chief Operating Officer of AeroTech. Concurrent with their appointments, the Company and Mssrs. Daniels and Peterson entered into employment agreements effective as of August 2, 2012. Copies of the Employment Agreements with Mssrs. Daniels and Patterson were attached to our Form 8-K filed with the SEC on August 3, 2012 and incorporated herein by reference in its entirety.

Globalease Corporation Acquisition Letter Of Intent

On August 8, 2012, the Company entered into a Letter of Intent (the "Globalease LOI") with Globalease Corporation ("Globalease"). Pursuant to the terms of the Globalease LOI and subject to further negotiation, the Company will acquire 100% of the equity interest and assets of Globalease, including, but not limited to, two (2) lease-to-purchase agreements which maintain existing leases on, and a subsequent rights to purchase, two (2) Canadair CF-5D aircraft, such that following the transaction, Globalease will become a wholly-owned subsidiary of the Company. In exchange, the existing shareholders of Globalease will be issued One Million Two Hundred Fifty Thousand (1,250,000) shares of TADF's Series C Preferred Stock. The parties have agreed to use their best efforts to close the transaction within 30 days of execution of the Globalease LOI. A copy of the Globalease LOI was attached as an exhibit to our Form 8-K filed with the SEC on August 9, 2012, the terms of which are hereby incorporated by reference in their entirety.

Northrop TF5-1 Corp. Acquisition Agreement

On August 20, 2012, Tactical Air Defense Services, Inc. (the "Company") entered into a Letter of Intent (the "TF5-1 LOI") with Northrop TF5-1 Corp. ("TF5-1") in connection with the Company's acquisition of TF5-1. A copy of the TF5-1 LOI was attached as an exhibit to our Form 8-K filed on August 21, 2012, the terms of which are hereby incorporated by reference in their entirety

On September 27, 2012, the Company entered into an acquisition agreement and closed the acquisition (the "TF5-1 Acquisition Agreement") with TF5-1. Through the TF5-1 Acquisition Agreement the Company acquired: (i) 100% of the equity interest in TF5-1 (the "TF5-1 Shares") such that following the TF5-1 Acquisition Agreement, TF5-1 will continue its existing business operations as a wholly owned subsidiary of the Company; and (ii) 100% of TF5-1's existing business and assets including, but not limited to, one (1) Canadair Ltd. CF-5 aircraft (the "CF-5 Aircraft"). A copy of the TF5-1 Acquisition Agreement has been attached as an exhibit to our Form 8-K filed with the SEC on October 5, 2012, the terms of which are hereby incorporated by reference in their entirety.

Pursuant to and in connection with the TF5-1 Acquisition Agreement the Company:
(i) issued TF5-1's shareholder a secured convertible promissory note in the principle amount of One Million Three Hundred and Fifty Thousand Dollars ($1,350,000) (the "Convertible Note,"); (ii) issued TF5-1's shareholder a secured non-convertible promissory note in the principle amount of Five Hundred Thousand Dollars ($500,000) (the "Note"); (iii) entered into security agreement securing the Notes with the TF5-1 Shares (the "Company Shares Security Agreement"); and (iv) entered into a separate security agreement securing the Notes with the CF-5 Aircraft (the "Aircraft Security Agreement"). A copy of the Convertible Note, the Note, the Company Shares Security Agreement and the Aircraft Security Agreement have been attached as exhibits to our Form 8-K filed with the SEC on October 5, 2012, the terms of which are hereby incorporated by reference in their entirety.

Logos Aviation Services International, Inc. Letter of Intent

On August 24, 2012, Tactical Air Defense Services, Inc. (the "Company") entered into a Letter of Intent (the "Logos LOI") with Logos Aviation Services International, Inc. ("Logos").

Pursuant to the terms of the Logos LOI and subject to further negotiation, the Company will acquire 100% of the equity interest and assets of Logos, including, but not limited to, a Federal Aviation Administration ("FAA") license to conduct business as an approved FAA Part 145 Repair Station, such that following the transaction, Logos will become a wholly owned subsidiary of the Company. In exchange, the existing shareholders of Logos will be issued Eight Hundred and Thirty-Three Thousand Three Hundred and Thirty-Three (833,333) shares of TADF's Series C Preferred Stock. The parties have agreed to use their best efforts to close the Transaction within 90 days of execution of the Logos LOI. A copy of the Logos LOI has been attached as an exhibit to our Form 8-K filed with the SEC on August 27, 2012, the terms of which are hereby incorporated by reference in their entirety.

F-5 Simulator Asset Purchase Agreement

On October 11, 2012, the Company entered into an asset purchase agreement (the "F5 Simulator Purchase Agreement") with Mark Daniels. Through the F5 Simulator Purchase Agreement the Company acquired one F-5 training simulator for the total purchase price of $250,000.00. In consideration of the $250,000.00 purchase price, the Company cancelled the $250,000.00 cash payment due and owing to the Company pursuant to the Daniels Settlement Agreement (as described below in Part II - Item.1 - Legal Proceedings).


RESULTS OF OPERATIONS

Revenues

Nine Month Period
Ended September 30

2012 2011

Total Sales $6,185 $0

We had revenues of $6,185 for the nine month period ended September 30, 2012 as compared to $0 or for the nine month period ended September 30, 2011.

Net Profit (Loss).

Nine Month Period
Ended September 30

2012 2011

Net Profit (Loss) ($315,524) ($1,504,898)

For the nine month period ended September 30, 2012, we sustained net losses of $315,524 as compared with a net loss of $1,504,898 for the nine month period ended September 30, 2011.

Liquidity and Capital Resources

As at September 30, 2012, the Company had total assets of $2,497,157. There were liabilities of $4,213,270 comprised of $213,700 in accounts payable and $3,999,570 in long term debentures. Assets of $2,497,157 and liabilities of $3,999,570 resulted in a total stockholders' deficiency of $1,716,113 at September 30, 2012. We anticipate that our current cash on hand of $157 as of September 30, 2012 is not sufficient to satisfy our cash requirements without additional funding. The Company has funded its operations and met its capital expenditures requirements primarily through cash generated from contributions from the issuance of convertible debt securities and short-term promissory notes. In addition, we will need substantial additional capital during the next 12 months on order to complete our business plan.

During the year ending December 31, 2012, the Company believes that it will expend funds on the following:


Expenses related to the acquisition of potential contracts;


Leasing and refurbishment of certain military aircraft and equipment; and


Hiring of additional employees and independent contractors to fulfill potential contracts.

Total current judgments outstanding against the Company described more fully in Part II; Item 1. Legal Proceedings total approximately $2,025,000 plus accrued interest. Considering the overall current legal proceedings described more fully in Part II; Item 1. Legal Proceedings, the Company has and expects to continue to expend funds on legal expenses. Considering the importance of some of the current litigation to the Company, although it is an expense that we would prefer not to incur, our management believes that it is a necessary expense and we believe we can obtain financing to continue to fund the litigation if necessary. In connection with the Searock judgments against the Company (described more fully in Part II; Item 1. Legal Proceedings), it is the Company's position that it will be overturned on appeal in light of both the evidence and the fact that the Company did not receive proper notice of impending litigation and was not able to present any defense, and as such, until such time as final determinations by the courts have been made, we do not expect these judgments against the Company to affect our liquidity.

Need for Additional Capital

As indicated above, management does not believe that the Company has sufficient capital to sustain its current and execute its proposed operations without raising additional capital. Accordingly, we expect that we will require additional funding through additional equity and/or debt financings. However, there can be no assurance that any additional financing will become available to us, and if available, on terms acceptable to us.


Any financing, if available, may involve restrictive covenants that may impact our ability to conduct our business or raise additional funds on acceptable terms. If we are unable to raise additional capital when required or on acceptable terms, we may have to delay, scale back or discontinue our expansion plans. In the event we are unable to raise additional capital we will not be able to sustain any growth or continue to operate.

Effects of Inflation

Inflation and changing prices have not had a material effect on our business and we do not expect that inflation or changing prices will materially affect our business in the foreseeable future. However, our management will closely monitor the price change and continually maintain effective cost control in operations.

Off Balance Sheet Arrangements

We do not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, and results of operations, liquidity or capital expenditures.

Going Concern

The accompanying financial statements have been prepared assuming we will continue as a going concern. We have had substantial operating losses for the past years and are dependent upon outside financing to continue operations. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. It is management's plan to raise necessary funds from shareholders to satisfy the expense requirements of the Company.

ITEM 3.

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