CONDITION AND RESULTS OF OPERATIONS
Recent Events
COVID-19 Pandemic
The COVID-19 pandemic is currently impacting countries, communities, supply
chains and markets as well as the global financial markets. Governments have
imposed laws requiring social distancing, travel bans and quarantine, and these
laws may limit access to the Company's facilities, customers, management,
support staff and professional advisors. These factors, in turn, may not only
impact the Company's operations, financial condition and demand for the
Company's goods and services, but the Company's overall ability to react timely
to mitigate the impact of this event. Also, it has affected the Company's
efforts to comply with filing obligations with the Securities and Exchange
Commission. Depending on the severity and longevity of the COVID-19 pandemic,
the Company's business and stockholders may experience a significant negative
impact. Currently, the COVID-19 pandemic has limited the Company's ability to
move forward with our operations and has negatively affected our ability to
timely comply with our ongoing filing obligations with the Securities and
Exchange Commission.
Partial Sales, Conversions and Final Disposition of the 8% Senior Secured
Convertible Promissory Note
Refer to Note 6, "8% Senior Secured Convertible Promissory Notes", in the
condensed consolidated financial statements for the final disposition of the
Notes.
Reverse Common Stock Split
On October 8, 2020, the Company's majority stockholder approved a 1-for-15
reverse common stock split ("the Reverse Stock Split"). On February 5, 2021, the
Company effected the Reverse Stock Split, reducing the number of common shares
outstanding. As a result of the Reverse Stock Split, every 15 shares of issued
and outstanding common stock were combined into one issued and outstanding share
of common stock, without any change in the par value per share and common shares
authorized. All current and prior year share amounts and per share calculations
have been retrospectively adjusted to reflect the impact of this reverse stock
split and to provide data on a comparable basis. Such restatements include
calculations regarding the Company's weighted average shares and loss per share.
Operations - Astro Aerospace, Ltd.
In 2018, the Company acquired the software, firmware and hardware for Version
1.0 of a manned drone from Confida Aerospace, Ltd. The drone which is in the
early stage of development, has executed multiple flights. It is Astro's goal to
transform how people and things get from place to place. This will be done by
making safe, affordable user-friendly autonomous manned and unmanned Electric
Vertical Take-Off and Landing (eVTOL) aircraft available to the mass market
anywhere. Astro is currently working on Version 2.0 of the aircraft product
which will feature design changes that enhance performance characteristics and
safety features. The target market will be government, private sector operators
and individuals for a wide range of commercial, logistical and personal uses.
Astro is currently in the flight testing mode of its Passenger Drone Version
1.0, as well as in the development stages of its version 2.0 Passenger Drone
model.
The Company is working with Infly Technology Ltd., our design and manufacturing
partner, who is leading the design and development team with responsibility for
developing the team as well as building the new prototypes for the two new
aircraft models. The Company applied for approval to test the Passenger Drone
1.0 version in Canada in order to display new software, avionics and stability.
The Company received an SFOC (Special Flight Operations Certificate) from
Transport Canada in September 2018, allowing Astro to take to the sky, and put
the Passenger Drone 1.0 "Elroy" through critical elements of integrated flight
testing. The testing culminated on Wednesday, September 19, 2018 with a 4
minute and 30 second flight, reaching heights of over 60 feet and speeds of over
50 km/h. The avionics and flight control systems were put to task with a
multitude of maneuvers and the vehicle remained exceptionally stable, even under
the effects of a couple of unexpected wind gusts.
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Astro's newest prototype focuses on a multitude of applications including
passenger transport, cargo delivery, ambulance and med-evac services, rescue and
disaster assistance, military, and B2B. Its newly designed modular structure
allows the Astro Top Frame (ALTA) to fly independently, as well as in
combination with the individually designed "Astro Pods" for the specific need in
that specific industry. A fly-in and pick-up system will allow the vehicle to
connect, fly, disconnect and repeat, effectively and efficiently, changing from
one application to the next. Astro refers to it as the Swiss Army Knife of the
eVTOL world. Along with recent Avionics and Control system upgrades this
modularity opens the door to the ever growing opportunities that (eVTOL)
electric take-off and landing short haul vehicles bring.
Astro anticipates the new prototype for the frame to be completed and flying by
the end of the second quarter, 2021. The Pods will be completed by the end of
2022. We have completed the engineering and firmware for the prototype and are
now in building the body for the new prototype. Simulations have gone well. The
drone is in an early development stage. The Company expects that it will be
marketing the aircraft sometime in in the second quarter of 2022. To date, no
commercial applications have been found which would accept the product.
Plan of Operations
Management will expand the business through further investment of capital
provided by the controlling shareholder and through additional capital raises
from third party investors. The Company raised an additional $1.2 million of
cash in November 2018 through the issuance of a Senior Secured Convertible
Promissory Note in the principal amount of $1,383,636. In December 2019, the
Company raised an additional $125,000, in the first tranche, through the
issuance of a new 8% Senior Secured Convertible Promissory Note in the principal
amount of $575,682.
On August 26, 2019, the Company entered into an Equity Purchase Agreement and
Registration Rights Agreement with the same investor who provided the Senior
Secured Convertible Promissory Note. Under the terms of the Equity Purchase
Agreement, the investor agreed to purchase from the Company up to $5,000,000 of
the Company's common stock upon effectiveness of a registration statement on
Form S-1.
During the three months ended March 31, 2020, the Company put a total of 36,667
shares of common stock at prices ranging from $0.984 and $1.539 for total
proceeds of $41,881, net of issuance costs. During the three months ended March
31, 2021, the Company put 120,000 shares at prices ranging from $2.44 to $2.85
per share for total proceeds of $314,416, net of insurance costs.
In April 2020, the Company amended the MAAB Promissory Note to increase the
maximum principal amount to $1,250,000 and to extend the maturity date to
February 28, 2022. The principal amount advanced under the Promissory Note was
$963,203 at March 31, 2021.
On March 5, the Company raised $1,250,000, less $25,000 for commissions and
expenses, through the issuance of a new 8% Senior Secured Convertible Promissory
Note.
The Company will continue to keep expenses as low as possible with closely
monitoring working capital, development cost and schedule, while the Company
continues the development of Passenger Drone Version 1.0 and 2.0.
Results of Operations
The Three Months Ended March 31, 2021 compared to The Three Months Ended March
31, 2020
For the three months ended March 31, 2021 and 2020, the Company did not have any
revenue. It is developing an eVTOL aircraft and expects that it will be
marketing the aircraft sometime in in the second quarter of 2022. To date, no
commercial applications have been found which would accept the product.
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In the three months ended March 31, 2021 and 2020, Astro did incur $802,010 and
$180,064 in operating expenses respectively, an increase of $621,946 or 345%.
The increase was mostly due to new spending on the eVTOL aircraft and costs
related to the potential acquisition of Horizon Aircraft, Inc. Also, in the
three months ended March 31, 2020, the spending was significantly reduced due to
the worldwide COVID-19 economic shutdowns.
Sales and marketing expenses increased from $82,425 in the three months ended
March 31, 2020 to $564,040 in the three months ended March 31, 2021, an increase
of $481,615 or 584%. The significant increase is due to increasing the investor
relations support and the hiring of marketing consultants, as well as other
capital markets support. R&D expenses increased $17,622 or 59% in the three
months ended March 31, 2021 versus 2020 as the Company returned to R&D spending
as the COVID-19 pandemic is ebbing. General and administrative expenses
increased in the three months ended March 31, 2021 versus 2020 to $190,579 from
$67,870, largely due to increases in consulting, accounting and legal fees.
Other expenses declined in the three months ended March 31, 2021 versus 2020
from $286,066 to $245,155, a decline of $40,911 or 14%. The largest portion of
the decline is in interest expense, which declined $42,059 or 15%. This is due
to the decline in the amortization of the 8% Senior Secured Convertible
Promissory Notes, as well as a significant portion of the Notes were converted
into the Company's common stock. This was slightly offset by a small increase of
$1,148 in the bank and filing fees.
The Company had a net loss of $1,047,165 versus $466,130 in the three months
ended March 31, 2021 versus 2020, largely due to the increases in sales and
marketing, R&D spending and in general and administrative expense, somewhat
offset by a reduction in interest expense. There was also an undeclared
preferred dividend of $2,500 in both the 2021 and 2020 periods which made the
net loss available to common stockholders of $1,049,665 and $468,630,
respectively.
Astro also had foreign currency translation loss of $32,895 in the three months
ended March 31, 2021 and had a translation gain of $138,665 in the three months
ended March 31, 2020. This is due to the difference in the Canadian dollar and
U.S. dollar exchange rates for those periods. The COVID-19 pandemic greatly
increased the fluctuation of the Canadian and U.S. dollar exchange rate. Astro's
comprehensive loss was $1,080,060 and $327,465 in the three months ended March
31, 2021 and 2020, respectively.
Capital Resources and Liquidity
The Company currently is not profitable and must finance its business through
raising additional capital. The Company is financed through its parent, MAAB,
which has loaned the Company $963,203 and there is $286,797 available under the
terms of the note at March 31, 2021. The note was amended on April 22, 2020 to
increase the maximum principal amount to $1,250,000 and to extend the maturity
to February 28, 2022.
The Company also raised an additional $1.2 million of cash in November 2018
through the issuance of a Senior Secured Convertible Promissory Note in the
principal amount of $1,383,636. On December 2, 2019, the Company issued a new 8%
Senior Secured Convertible Promissory Note and received $125,000 in proceeds. As
of March 12, 2021, both tranches of the Note have been completely converted into
common stock.
On March 5, 2021, the Company issued an 8% Senior Secured Convertible Promissory
Note (the "Note") in the aggregate principal amount of $1,250,000, less
commissions and expenses of $25,000. The Note matures in six months on September
5, 2021.
For more detail, see Note 6 to the condensed consolidated financial statements.
On August 26, 2019, the Company entered into an Equity Purchase Agreement and
Registration Rights Agreement with the same investor who provided the Senior
Secured Convertible Promissory Note. Under the terms of the Equity Purchase
Agreement, the investor agreed to purchase from the Company up to $5,000,000 of
the Company's common stock upon effectiveness of a registration statement on
Form S-1.
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During the three months ended March 31, 2020, the Company put a total of 36,667
shares of common stock at prices ranging from $0.984 and $1.539 for total
proceeds of $41,881, net of issuance costs. During the three months ended March
31, 2021, the Company put 120,000 shares at prices ranging from $2.44 to $2.85
per share for total proceeds of $314,416, net of insurance costs.
Further capital support will come from the parent, and additional capital from
third party sources. There is no assurance that the third party capital will be
available. In the event that additional capital from the private or public
markets is not available, the Company will need to reduce its spending on
development and operations to the level of the capital that is available from
the parent.
The accompanying condensed consolidated financial statements have been prepared
on a going concern basis, which contemplates the realization of assets and the
settlement of liabilities and commitments in the normal course of our business.
As reflected in the accompanying condensed consolidated financial statements,
for the three months ended March 31, 2021 the Company had a net loss of
$1,047,165 and used $972,968 cash in operations, and at March 31, 2021, had
negative working capital of $955,840, current assets of $642,040, and an
accumulated deficit of $12,549,886. The foregoing factors raise substantial
doubt about the Company's ability to continue as a going concern. Ultimately,
the ability to continue as a going concern is dependent upon the Company's
ability to attract significant new sources of capital, attain a reasonable
threshold of operating efficiencies and achieve profitable operations by
licensing or otherwise commercializing products incorporating the Company's
technologies. The condensed consolidated financial statements do not include any
adjustments that might be necessary if the Company is unable to continue as a
going concern
While the Company has Net Operating Losses ("NOL") for tax purposes due to the
net losses through the three months ended March 31, 2021, the Company has taken
a 100% income tax valuation allowance against it resulting in no deferred tax
asset. At this time, it is not known if the Company will become profitable with
the ability to use the NOL.
The Company expects to spend $760,000 in the next six months and then another
$1,500,000 in the subsequent six months on the development and marketing of the
eVTOL aircraft.
See Notes to the condensed consolidated financial statements for Series A
Preferred stock, Series B Preferred stock, promissory note from MAAB, 8% Senior
Secured Convertible Promissory Notes, Equity Purchase Agreement and Registration
Rights Agreement and Forbearance Agreement.
The Three Months Ended March 31, 2021 compared to the Three Months Ended March
31, 2020
For the three months ended March 31, 2021, we had a net loss of $1,047,165. We
had the following adjustments to reconcile net loss to cash flows from operating
activities: an increase of $166,431 due to the amortization of the 8% Senior
Secured Convertible Promissory Note discount and common stock issued for
services of $43,696. We had the following changes in operating assets and
liabilities: a decrease of $36,352 in other receivables, an increase of $275,000
in a promissory note receivable, an increase of $108,117 in deposits, an
increase of $1,688 in other assets, and an increase of $212,522 in accounts
payable and accrued liabilities.
As a result, we had net cash used in operating activities of $972,968 for the
three months ended March 31, 2021, which is largely due to the continued
development of the eVTOL aircraft.
For the three months ended March 31, 2020, the Company had a net loss of
$466,130. The Company had the following adjustment to reconcile net loss to cash
flows from operating activities: an increase of $247,802 due to the amortization
of the 8% Senior Secured Convertible Promissory Notes' discounts. The Company
had the following changes in operating assets and liabilities: a decrease of
$2,773 in other receivables, a decrease of $4,341 in deposits, an increase of
$13,809 in the bank overdraft and an increase of $41,226 in accounts payable and
accrued expenses.
As a result, the Company had net cash used in operating activities of $156,179
for the three months ended March 31, 2020 which is largely due to the continued
development of the eVTOL aircraft.
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For the three months ended March 31, 2021, we repaid $246,147 on the Promissory
Note from the Parent, received $1,225,000 from the issuance of a new 8% Senior
Secured Convertible Promissory Note, and received $314,416 from the puts of
common stock under the Equity Purchase Agreement.
As a result, we had net cash provided by financing activities of $1,293,269 for
the three months ended March 31, 2021.
For the three months ended March 31, 2020, the Company repaid $15,933 on a
Promissory Note from MAAB and received $32,288 from the puts of common stock
under the Equity Purchase Agreement. As a result, the Company had net cash
provided by financing activities of $16,355 for the three months ended March 31,
2020.
For the three months ended March 31, 2021 we had a loss on foreign currency
translation of $32,895 and for the three months ended March 31, 2020, the
Company had a gain from the effect of the foreign currency translation of
$138,665.
Critical Accounting Policies and Estimates
Management's Discussion and Analysis of its Financial Condition and Results of
Operations is based upon our condensed consolidated financial statements, which
have been prepared in accordance with GAAP. The preparation of these condensed
consolidated financial statements requires us to make estimates and judgments
that affect the reported amounts of assets, liabilities, revenue and expenses,
and related disclosure of contingent assets and liabilities. On an on- going
basis, we evaluate our estimates, including those related to the reported
amounts of revenues and expenses and the valuation of our assets and
contingencies. We believe our estimates and assumptions to be reasonable under
the circumstances. However, actual results could differ from those estimates
under different assumptions or conditions. Our condensed consolidated financial
statements are based on the assumption that we will continue as a going concern.
If we are unable to continue as a going concern, we would experience additional
losses from the write-down of assets.
Recent Accounting Pronouncements
See Note 3 to the Condensed Consolidated Financial Statements, "Recent
Accounting Pronouncements", for the applicable accounting pronouncements
affecting the Company.
Off - Balance Sheet Arrangements
We had no material off-balance sheet arrangements as of March 31, 2021.
Contractual Obligations
The Company has no material contractual obligations.
The long term debt repayments as of March 31, 2021 are as follows:
2021 2022 2023 2024 2025 Thereafter Total
Promissory Note - MAAB $ - $ 963,203 $ - $ - $ - $ - $ 963,203
8% Senior Secured $ - $ - $ -
Convertible Promissory
Note $1,250,000 $ - $ - $1,250,000
$ -
Total Repayments $1,250,000 $ 963,203 $ - $ - $ - $2,213,203
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