Company Quick10K Filing
Astro Aerospace
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 70 $23
S-1 2019-11-25 Public Filing
10-Q 2019-11-19 Quarter: 2019-09-30
10-Q 2019-09-30 Quarter: 2019-06-30
10-Q 2019-06-24 Quarter: 2019-03-31
S-1 2019-01-07 Public Filing
10-K 2019-04-15 Annual: 2018-12-31
10-Q 2018-11-19 Quarter: 2018-09-30
10-Q 2018-09-14 Quarter: 2018-06-30
10-Q 2018-05-15 Quarter: 2018-03-31
10-K 2018-03-29 Annual: 2017-12-31
10-Q 2017-11-14 Quarter: 2017-09-30
10-Q 2017-08-10 Quarter: 2017-06-30
10-Q 2017-05-12 Quarter: 2017-03-31
10-K 2017-03-24 Annual: 2016-12-31
10-Q 2016-11-14 Quarter: 2016-09-30
10-Q 2016-08-15 Quarter: 2016-06-30
10-Q 2016-05-16 Quarter: 2016-03-31
10-K 2016-03-30 Annual: 2015-12-31
10-Q 2010-05-14 Quarter: 2010-03-31
10-K 2010-04-15 Annual: 2009-12-31
8-K 2019-09-17 Officers
8-K 2019-08-26 Enter Agreement, Sale of Shares, Exhibits
8-K 2019-06-21 Other Events
8-K 2018-11-27 Enter Agreement, Off-BS Arrangement, Sale of Shares, Exhibits
8-K 2018-05-08 Enter Agreement, M&A, Exhibits
8-K 2018-04-30 Enter Agreement, M&A, Exhibits
8-K 2018-04-30 Officers
8-K 2018-03-27 Amend Bylaw, Exhibits
8-K 2018-03-15 Other Events
8-K 2018-03-14 Control, Officers
ASDN 2019-09-30
Part II - Other Information
Note 1 - Nature of Operations
Note 2 - Sale of Common Stock of Majority Stockholders and Resignation and Election of The Board of Directors
Note 3 - Sale of Custom Pool
Note 4 - Acquisition of Assets From Confida Aerospace, Ltd.
Note 5 - Summary of Significant Accounting Policies
Note 6 - Recent Accounting Pronouncements
Note 7 - Concentrations of Credit Risk
Note 8 - Fair Value Estimates
Note 9 - 8% Senior Secured Convertible Promissory Note
Note 10 - Default and Forbearance on The 8% Senior Secured Convertible Promissory Note
Note 11 - Convertible Promissory Notes
Note 12 - Promissory Note From Maab
Note 13 - Convertible Preferred Stock
Note 14 - Warrants
Note 15 - Equity Purchase Agreement and Registration Rights Agreement
Note 16 - 2014 Stock Awards Plan
Note 17 - Section 16(A) Beneficial Ownership Reporting Compliance
Note 18 - Commitments and Contingencies
Note 19 - Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31 exhibit31.htm
EX-32 exhibit32.htm

Astro Aerospace Earnings 2019-09-30

ASDN 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
BCDA 23 3 5 0 -0 -15 -15 23 -7% -1.6 -538%
BRTI 23 11 19 0 0 -26 -14 23 95% -1.6 -242%
BHAC 23 9 4 0 0 -2 -2 14 -6.7 -22%
PVCT 23 3 24 0 0 -7 -6 22 -3.6 -261%
NUKK 23 0 1 19 0 -0 -0 23 2% -46.5 -136%
ASDN 23 0 0 -9 -8 23 -3.0 850,352,200%
TDNT 23 5 25 3 1 -10 -7 21 27% -2.9 -186%
CNNB 23 206 183 0 0 2 5 11 2.3 1%
AXON 23 101 72 0 0 -105 -96 -21 0.2 -104%

10-Q 1 astro10q3q19v7.htm FORM 10-Q Astro Aerospace Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

[x]     Quarterly Report Pursuant to Section 13 or 15(d) Securities Exchange Act of 1934 for Quarterly Period Ended September 30, 2019

-OR-

[ ]     Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transaction period from _________ to________

 

Commission File Number 333-149000

 

ASTRO AEROSPACE LTD.

 (Exact name of registrant as specified in its charter)

 

 

 

 

Nevada

 

98-0557091

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification)

 

320 W. Main Street, Lewisville, TX 75057

(Address of principal executive offices, including zip code)

 

972-221-1199

 (Registrant's telephone number, including area code)

 

Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes [x]   No [ ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes [x]   No [ ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerate filer, or a small reporting company (as defined by Rule 12b-2 of the Exchange Act):

 

 

 

 

 

 

 

Large accelerated filer        [  ]

 

Non-accelerated filer             [  ]

Accelerated filer                 [  ]

 

Smaller reporting company   [x]

 

 

Emerging growth company   [  ]

 

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

 

The number of outstanding shares of the registrant's common stock as of November 19, 2019: 72,710,623


ASTRO AEROSPACE LTD.

FORM 10-Q

 

INDEX

 

 

Item 1.  Condensed Consolidated Financial Statements

 

 

 

 

 

   Condensed Consolidated Balance Sheets at September 30, 2019 (Unaudited) and December 31, 2018

 

3

   Condensed Consolidated Statements of Operations for the Three Months Ended September 30, 2019 and 2018 (Unaudited)

 

4

   Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended September 30, 2019 and 2018(Unaudited)

 

5

   Condensed Consolidated Statements of Operations for the Nine Months Ended September 30, 2019 and 2018 (Unaudited)

 

6

   Condensed Consolidated Statements of Comprehensive Loss for the Nine Months Ended September 30, 2019 and 2018(Unaudited)

 

7

   Condensed Consolidated Statement of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2019 and 2018 (Unaudited)

 

8

   Condensed Consolidated Statements of Cash Flow for the Nine Months Ended September 30, 2019 and 2018 (Unaudited)

 

9

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

10

Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations

 

28

Item 3.  Quantitative and Qualitative Disclosure About Market Risk

 

36

Item 4.  Controls and Procedures

 

36

 

PART II - OTHER INFORMATION

 

Item 1.  Legal Proceedings

 

38

Item 1A. Risk Factors

 

38

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

 

38

Item 3.  Defaults Upon Senior Securities

 

38

Item 4.  Mine Safety Disclosures

 

38

Item 5.  Other Information

 

38

Item 6.  Exhibits

 

38

 

 

 

SIGNATURES

 

39


2


 

Astro Aerospace Ltd. and Subsidiaries

Condensed Consolidated Balance Sheets

 

 

September 30,

December 31,

 

2019

2018

 

(unaudited)

 

Assets

 

 

Cash

$1,155  

$55,129  

Other Receivables

56,003  

32,657  

Prepaids

623  

19,190  

 Total Current Assets

57,781  

106,976  

 

 

 

Acquired In-Process Research and Development

871,000  

871,000  

Deposits

3,000  

14,199  

Deferred Offering Costs, Net

45,984  

 

 Total Assets

$977,765  

$992,175  

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

Current Liabilities

 

 

Accounts Payable and Accrued Liabilities

$206,420  

$93,952  

8% Senior Secured Convertible Promissory Note, net of

 discounts of $436,851 at September 30, 2019 and

 $592,932 at December 31, 2018

566,673  

108,886  

 Total Current Liabilities

773,093  

202,838  

 

 

 

Long Term Liabilities

 

 

Promissory Note from MAAB

630,430  

591,439  

 Total Liabilities

1,403,523  

794,277  

 

 

 

Commitments and Contingencies (Notes 1, 18 and 19)

 

 

 

 

 

Stockholders' (Deficit) Equity

 

 

Series A Convertible Preferred Stock, $0.0001 par value,

 50,000,000 Shares Authorized, 1,562,500 shares Issued and

 Outstanding at September 30, 2019 and December 31, 2018

156  

156  

 

 

 

Series B Convertible Preferred Stock, $0.001 par value, 10,000

 Shares Authorized, 10,000 Shares Issued and Outstanding  at

 September 30, 2019 and December 31, 2018

10  

10  

 

 

 

Common Stock, $0.001 par value, 250,000,000 Shares Authorized,

 72,410,623 and 69,308,946 shares Issued and Outstanding at

 September 30, 2019 and December 31, 2018

72,411  

69,309  

 

 

 

Additional Paid-in Capital:

 

 

Series A Convertible Preferred Stock

124,844  

124,844  

Series B Convertible Preferred Stock

7,156,204  

7,156,204  

Common Stock

1,995,627  

836,473  

Accumulated Other Comprehensive Income

12,690  

22,704  

Accumulated Deficit

(9,787,700) 

(8,011,802) 

 Total Stockholders' (Deficit) Equity

(425,758) 

197,898  

 Total Liabilities and Stockholders' (Deficit) Equity

$977,765  

$992,175  

 

The accompanying Notes are an integral part of the condensed consolidated financial statements


3


Astro Aerospace Ltd. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

 

Three Months Ended September 30,

 

2019

2018

Revenue

$ 

$ 

 

 

 

Operating Expenses:

 

 

 

 

 

Sales and Marketing

92,374  

9,258  

General and Administrative

73,875  

80,553  

Research and Development

80,166  

156,996  

Impairment Expense

 

(25,000) 

 

 

 

Total Operating Expenses

246,415  

221,807  

Loss from Operations

(246,415) 

(221,807) 

 

 

 

Other (Income) Expense

 

 

Interest Expense, Net

97,632  

12,672  

Bank and Filing Fees

893  

10,108  

Miscellaneous Income

(176,474) 

 

Total Other (Income) Expense

(77,949) 

22,780  

 

 

 

Loss Before Income Tax

(168,466) 

(244,587) 

 

 

 

Income Tax

 

 

Current

 

 

Deferred

 

 

Total Income Tax Expense

 

 

 

 

 

Net Loss

(168,466) 

(244,587) 

Less: Preferred Stock Dividends

2,500  

2,500  

Net Loss Available to Common Stockholders

$(170,966) 

$(247,087) 

 

 

 

Net Loss per Common Share:

 

 

Basic

$(0.00) 

$(0.00) 

Diluted

$(0.00) 

$(0.00) 

 

 

 

Weighted Average Number of Common

Shares Outstanding - Basic

72,176,927  

69,270,060  

 

 

 

Weighted Average Number of Common

Shares Outstanding - Diluted

72,176,927  

69,270,060  


4


Astro Aerospace Ltd. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)

 

 

Three Months Ended September 30,

 

2019

2018

 

 

 

Net Loss

$(168,466) 

$(244,587) 

Foreign Currency Translation Gain (Loss)

17,180  

(716) 

Comprehensive Loss

(151,286) 

(245,303) 


5


Astro Aerospace Ltd. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

 

Nine Months Ended September 30,

 

2019

2018

Revenue

$ 

$ 

 

 

 

Operating Expenses:

 

 

Sales and Marketing

223,253  

18,284  

General and Administrative

200,433  

101,128  

Research and Development

426,422  

427,816  

Impairment Expense

 

6,285,214  

 

 

 

Total Operating Expenses

850,108  

6,832,442  

Loss from Operations

(850,108) 

(6,832,442) 

 

 

 

Other Expense (Income)

 

 

Interest Expense, Net

1,094,959 

19,314  

Bank and Filing Fees

9,225  

18,660  

Miscellaneous Income

(178,394) 

(10,000) 

Total Other Expense

925,790  

27,974  

 

 

 

Loss Before Income Tax

(1,775,898) 

(6,860,416) 

 

 

 

Income Tax

 

 

Current

 

 

Deferred

 

 

Total Income Tax Expense

 

 

Loss from Continuing Operations, Net

(1,775,898) 

(6,860,416) 

 

 

 

Discontinued Operations:

 

 

Income from Discontinued Operations

 

178,300  

Income Tax

 

(37,367) 

Income from Discontinued Operations, Net

 

140,933  

 

 

 

Net Loss

(1,775,898) 

(6,719,483) 

Less: Preferred Stock Dividends

7,500  

7,500  

Net Loss Available to Common Stockholders

$(1,783,398) 

$(6,726,983) 

 

 

 

Net Loss per Common Share:

 

 

Net Loss From Continuing Operations per Common Share:

 

 

Basic

$(0.03) 

$(0.09) 

Diluted

$(0.03) 

$(0.09) 

 

 

 

Net Earnings From Discontinued Operations per Common Share:

 

 

Basic

$ 

$ 

Diluted

$ 

$ 

 

 

 

Net Loss per Common Share:

 

 

Basic

$(0.03) 

$(0.09) 

Diluted

$(0.03) 

$(0.09) 

 

 

 

Weighted Average Number of Common Shares

Outstanding - Basic

70,819,765  

75,278,368  

 

 

 

Weighted Average Number of Common  Shares

 Outstanding - Diluted

70,819,765  

75,278,368  


6


Astro Aerospace Ltd. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)

 

 

Nine Months Ended September 30,

 

2019

2018

 

 

 

Net Loss

$(1,775,898) 

$(6,719,483) 

Foreign Currency Translation Loss

(10,014) 

(716) 

Comprehensive Loss

(1,785,912) 

(6,720,199) 

 

The accompanying Notes are an integral part of the condensed consolidated financial statements


7


Astro Aerospace Ltd. and Subsidiaries

Condensed Consolidated Statement of Stockholders’ Equity (Deficit)

Three and Nine Months Ended September 30, 2019 and 2018

 

 

Series A

Preferred Stock

Series B

Preferred Stock

Common Stock

Additional

Paid - In

Capital

Series A

Additional

Paid - In

Capital

Series B

Additional

Paid - In

Capital

Accumulated

Other

Comprehensive

(Loss)

Retained

Earnings

(Accumulated

Total

Stockholders'

Equity

 

Shares

Amount

Shares

Amount

Shares

Amount

Preferred

Preferred

Common

Income

Deficit)

(Deficit)

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2017

1,562,500   

$ 156   

-   

$ -   

82,938,960   

$ 82,939   

$ 124,844   

$ -   

$ 229,744   

$ -   

$ 277,467   

$ 715,150   

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of 10% Convertible

Promissory Notes (Unaudited)

-   

-   

-   

-   

-   

-   

-   

-   

(50,000)  

-   

-   

(50,000)  

Preferred Stock Dividend

(Unaudited)

-   

-   

-   

-   

-   

-   

-   

-   

 

-   

(2,500)  

(2,500)  

Stock Option Expense (Unaudited)

-   

-   

-   

-   

-   

-   

-   

-   

2,283   

-   

-   

2,283   

Net Income (Unaudited)

-   

-   

-   

-   

-   

-   

-   

-   

-   

-   

178,820   

178,820   

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2018

(Unaudited)

1,562,500   

$ 156   

-   

-   

82,938,960   

$ 82,939   

124,844   

$ -   

$ 182,027   

$ -   

$ 453,787   

$ 843,753   

Acquisition of Common Stock for

Common Stock of Subsidiaries

(Unaudited)

-   

-   

-   

-   

(13,668,900)  

(13,669)  

-   

-   

(202,601)  

-   

(660,171)  

(876,441)  

Issuance of Series B Convertible

Preferred Stock (unaudited)

-   

-   

10,000   

10   

-   

-   

-   

7,156,204   

-   

-   

-   

7,156,214   

Stock Option Expense (Unaudited)

-   

-   

-   

-   

-   

-   

-   

-   

20,574   

-   

-   

20,574   

Net Loss (Unaudited)

-   

-   

-   

-   

-   

-   

-   

-   

-   

-   

(6,653,716)  

(6,653,716)  

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2018

(Unaudited)

1,562,500   

$ 156   

10,000   

$ 10   

69,270,060   

$ 69,270   

$ 124,844   

$ 7,156,204   

$ -   

$ -   

$ (6,860,100)  

$ 490,384   

Conversion into Common Stock of

the 10% Convertible Promissory

Notes with Accrued Interest

(Unaudited)

-   

-   

-   

-   

-   

-   

-   

-   

52,534   

-   

-   

52,534   

Foreign Currency Translation Loss

(Unaudited)

-   

-   

-   

-   

-   

-   

-   

-   

-   

(716)  

-   

(716)  

Net Loss (Unaudited)

-   

-   

-   

-   

-   

-   

-   

-   

-   

-   

(244,587)  

(244,587)  

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2018

(Unaudited)

1,562,500   

$ 156   

10,000   

$ 10   

69,270,060   

$ 69,270   

$ 124,844   

$ 7,156,204   

$ 52,534   

$ (716)  

$ (7,104,687)  

$ 297,615   

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2018

1,562,500   

$ 156   

10,000   

$ 10   

69,308,946   

$ 69,309   

$ 124,844   

$ 7,156,204   

$ 836,473   

$ 22,704   

$ (8,011,802)  

$ 197,898   

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of Inducement common

shares (Unaudited)

-   

-   

-   

-   

156,250   

156   

-   

-   

(156)  

-   

-   

-   

Partial Conversion of 8% Senior

Secured Convertible Promissory

Notes (Unaudited)

-   

-   

-   

-   

365,054   

365   

-   

-   

93,655   

-   

-   

94,020   

Fair Value of Warrants Issued with

8% Senior Secured Convertible

Promissory Note - 2nd Tranche

(Unaudited)

-   

-   

-   

-   

-   

-   

-   

-   

121,320   

-   

-   

121,320   

Fair Value of Beneficial Conversion

Feature of the 8% Senior Secured

Convertible Promissory Note - 2nd

Tranche (Unaudited)

-   

-   

-   

-   

-   

-   

-   

-   

403,689   

-   

-   

403,689   

Foreign Currency Translation Gain

(Unaudited)

-   

-   

-   

-   

-   

-   

-   

-   

-   

665   

 

665   

Net Loss (Unaudited)

-   

-   

-   

-   

-   

-   

-   

-   

-   

-   

(696,623)  

(696,623)  

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2019

(Unaudited)

1,562,500   

$ 156   

10,000   

$ 10   

69,830,250   

$ 69,830   

$ 124,844   

$ 7,156,204   

$ 1,454,981   

$ 23,369   

$ (8,708,425)  

$ 120,969   

Partial Conversions of 8% Senior

Secured Convertible Promissory

Notes (Unaudited)

-   

-   

-   

-   

1,830,373   

1,831   

-   

-   

447,566   

-   

-   

449,397   

Foreign Currency Translation Loss

(Unaudited)

-   

-   

-   

-   

-   

-   

-   

-   

-   

(27,859)  

-   

(27,859)  

Net Loss (Unaudited)

-   

-   

-   

-   

-   

-   

-   

-   

-   

-   

(910,809)  

(910,809)  

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2019

(Unaudited)

1,562,500   

$ 156   

10,000   

$ 10   

71,660,623   

$ 71,661   

$ 124,844   

$ 7,156,204   

$ 1,902,547   

$ (4,490)  

$ (9,619,234)  

$ (368,302)  

Partial Conversions of 8% Senior

Secured Convertible Promissory

Notes (Unaudited)

-   

-   

-   

-   

750,000   

750   

-   

-   

93,080   

-   

-   

93,830   

Foreign Currency Translation Gain

(Unaudited)

-   

-   

-   

-   

-   

-   

-   

-   

-   

17,180   

-   

17,180   

Net Loss (Unaudited)

-   

-   

-   

-   

-   

-   

-   

-   

-   

-   

(168,466)  

(168,466)  

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2019

(Unaudited)

1,562,500   

$ 156   

10,000   

$ 10   

72,410,623   

$ 72,411   

$ 124,844   

$ 7,156,204   

$ 1,995,627   

$ 12,690   

$ (9,787,700)  

$ (425,758) 

 

 

 

The accompanying Notes are an integral part of the condensed consolidated financial statements


8


Astro Aerospace Ltd. and Subsidiaries

Condensed Consolidated Statements of Cash Flow

(Unaudited)

 

Nine Months Ended September 30,

 

2019

2018

Cash Flow from Operating Activities:

 

 

Net loss

$(1,775,898) 

$(6,719,483) 

 

 

 

Adjustments to Reconcile Net Loss to Net Cash Used In Operating Activities:

 

 

 Impairment Expense

 

6,285,214  

 Interest Paid in Common Stock

 

2,534  

 Amortization of Note Discounts

1,020,043  

 

 Amortization of Deferred Offering Costs

2,316  

 

 

 

 

(Decrease) Increase in Cash from change in:

 

 

 Other Receivables

(23,346) 

(19,277) 

 Prepaids

18,567  

(10,000) 

 Deposits

11,199  

(20,494) 

 Deferred Offering Costs

(48,300) 

 

 Overdraft at Banks

 

3,833  

 Accounts Payable and Accrued Expenses

112,468  

123,065  

 Discontinued Operations, net

 

(358,355) 

 

 

 

Net Cash Used In Operating Activities

(682,951) 

(712,963) 

 

 

 

 

 

 

Cash Flow from Financing Activities:

 

 

 Preferred Stock Dividend

 

(2,500) 

 Promissory Note from MAAB

38,991  

498,758  

 8% Senior Secured Convertible Promissory Note

600,000  

 

 

 

 

Net Cash Provided By Financing Activities

638,991  

496,258  

 

 

 

 Effect of Foreign Currency Translation Loss

(10,014) 

(716) 

 

 

 

Net Decrease in Cash

$(53,974) 

$(217,421) 

 

 

 

Cash at the Beginning of the Period

$55,129  

$217,421  

Cash at the End of the Period

$1,155  

$ 

 

 

 

Supplemental Disclosures of Cash Flow Information:

 

 

Cash Paid During the Period for:

 

 

   Interest

$1,699  

$9,232  

   Taxes

$ 

$24,930  

 

 

 

Supplemental Disclosures of Non-Cash Information:

 

 

 10% Convertible Promissory Notes Issued in Exchange for Stock Options

$ 

$50,000  

 Common Stock Received in Sale of Discontinued Operations

$ 

$876,440  

 Assets Sold in Discontinued Operations for Common Stock

$ 

$1,941,259  

 Liabilities Sold in Discontinued Operations for Common Stock

$ 

$(1,064,818) 

 Series B Preferred Stock Issued in Acquisition of Assets

$ 

$7,156,214  

 Acquired In-Process Research and Development

$ 

$7,181,214  

 Accounts Payable and Accrued Liabilities Assumed in Acquisition of Assets

$ 

$25,000  

 Conversion into Common Stock of the 10% Convertible Promissory Notes

   with Accrued Interest

$ 

$52,534  

 Conversion of 8% Senior Secured Convertible Promissory Notes into Common Stock

$637,247  

$ 

 Discounts Issued with 8% Senior Secured Convertible Promissory Notes

$606,827  

$ 

 Discounts Issued in Connection with Forbearance Agreement for 8% Senior

   Secured Convertible Promissory Notes

$257,135  

$ 

 Amortization to Interest Expense of the Debt Discount from the 8% Senior Secured

   Convertible Promissory Note

$1,020,043  

$ 

 

The accompanying Notes are an integral part of the condensed consolidated financial statements


9


ASTRO AEROSPACE LTD. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 1 – NATURE OF OPERATIONS

 

Astro Aerospace Ltd. (“Astro” or the “Company”) and its wholly-owned subsidiary, is a developer of self-piloted and autonomous, manned and unmanned, eVTOL (Electric Vertical Take Off and Landing) aerial vehicles. The Company intends to provide the market with a mainstream mode of everyday, aerial transportation for both humans and cargo. Astro currently has a working prototype and is making engineering and mechanical improvements to it.

 

Astro is the successor corporation to CPSM, Inc., which through its subsidiaries, Custom Pool and Spa Mechanics, Inc. (“Custom Pool and Spa”), and Custom Pool Plastering, Inc. (“CPP”) collectively (“Custom Pool”) were primarily engaged in the provision of full line pool and spa services, specializing in pool maintenance and service, repairs, leak detection, renovations, decking and remodeling.  The primary market area included Martin, Palm Beach, St Lucie, Indian River and Brevard counties, Florida.

 

On March 14, 2018, MAAB Global Limited (“MAAB”), the majority stockholder and parent of Astro, acquired control of CPSM, Inc. and on April 30, 2018, Custom Pool was sold to the Lawrence & Loreen Calarco Family Trust, an entity controlled by Lawrence Calarco and Loreen Calarco, former officers and directors of the CPSM (See Note 2, “Sale of Common Stock of Majority Stockholders and Resignation and Election of the Board of Directors” and Note 3, “ Sale of Custom Pool”).

 

On March 24, 2018 the articles of incorporation were amended to change the name of the Company from CPSM, Inc. to Astro Aerospace Ltd. As of September 30, 2019, the Company has one subsidiary, Astro Aerospace Ltd. (Canada), which is incorporated in Canada and is used mainly for refunds of the Goods and Services Tax in Canada.

 

Going Concern

 

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 nine months ended September 30, 2019 the Company had a net loss of $1,775,898 and used $682,951 cash in operations, and at September 30, 2019, had negative working capital of $715,312, current assets of $57,781, and an accumulated deficit of $9,787,700. 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.

 

The Company acknowledges that its current cash position is insufficient to maintain the current level of operations and research and development, and that the Company will be required to raise substantial additional capital to continue its operations and fund its future business plans. The Company has continued to raise funds through its parent, MAAB, and the outstanding note payable balance was $630,430 and there is $119,570 available under the terms of the note at September 30, 2019. The Company has also raised funds through independent capital sources, of which the Company has a Senior Secured Convertible Promissory Note (See Note 9, “8% Senior Secured Convertible Promissory Note”) with an outstanding balance of $1,003,524 at September 30, 2019. Astro plans to raise additional capital in the private and public securities markets in 2019.


10


ASTRO AEROSPACE LTD. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 2 – SALE OF COMMON STOCK OF MAJORITY STOCKHOLDERS AND RESIGNATION AND ELECTION OF THE BOARD OF DIRECTORS

 

On March 14, 2018, Lawrence and Loreen Calarco, officers and directors of the Company, the Lawrence & Loreen Calarco Family Trust and the Lawrence and Loreen Calarco Trust of June 3, 2014, majority stockholders controlled by Lawrence and Loreen Calarco, sold 51,711,571 common shares and 1,562,500 preferred shares to MAAB Global Limited, a non-affiliate of the Company, paid from Bruce Bent, officer and director of MAAB Global Limited’s personal funds resulting in a change of control of the Company.  The stock was transferred to MAAB Global Limited effective March 14, 2018.  The 51,711,571 common shares and 1,562,500 preferred shares represented 62.35% and 100% of the issued and outstanding common and preferred stock of the Company.

 

On March 14, 2018, Lawrence Calarco, Loreen Calarco and Charles Dargan II resigned as officers and directors of the Company.  Additionally, on March 14, 2018, Jeffrey Michel and Randy Sofferman resigned as directors of the Company.

 

On March 14, 2018, Bruce Bent, age 62, was appointed as Chief Executive Officer and Director of the Company. He will stand for re-election at the next annual meeting of the shareholders.  There are no material arrangements to which Mr. Bent is a party, and there is no family relationship between him and any other party connected to the Company.

 

NOTE 3 – SALE OF CUSTOM POOL

 

On April 30, 2018, pursuant to a Share Exchange Agreement dated April 16, 2018, the Company sold all of the issued and outstanding common shares of Custom Pool & Spa Mechanics, Inc. and Custom Pool Plastering, its wholly owned subsidiaries, for 13,668,900 common shares of the Company held by the Lawrence & Loreen Calarco Family Trust, an entity controlled by Lawrence Calarco and Loreen Calarco, former officers and directors of the Company.  The Board of Directors subsequently authorized the cancellation of those common shares.  After said cancellation, the total issued and outstanding common shares is 69,270,060.  The Share Exchange Agreement was approved by the Board of Directors and written consent of shareholders holding 62.35% of the voting securities of the Company as of April 16, 2018.

 

The Company determined that there would be no gain or loss on the sale in accordance with Accounting Standards Codification 505-30-10, “Equity – Nonreciprocal Transfers with Owners”. Essentially the transaction is similar to a spin-off or reorganization since the Company acquired shares of its own common stock for the common shares of Custom Pool & Spa Mechanics, Inc. and Custom Pool Plastering, its wholly owned subsidiaries. As such, the transaction is accounted for at the recorded (book value) amount. The book value of the net assets was $876,440.

 

Custom Pool is presented as a discontinued operation in the condensed consolidated financial statements. The following is a reconciliation of the major line items constituting income from discontinued operations, net that are presented in the accompanying condensed consolidated statements of operations:


11


ASTRO AEROSPACE LTD. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 3 – SALE OF CUSTOM POOL (Continued)

 

 

Nine

Months Ended

September 30,

 

2019

2018

Major Classes of Line Items Constituting Pre-Tax Income on Discontinued Operations:

 

 

    Revenue

$- 

$1,786,911  

    Cost of Services

- 

1,208,619  

    General and Administrative

- 

338,877  

    Other Operating Expenses

- 

51,370  

Total Operating Expenses

- 

1,598,866  

Operating Income

- 

188,045  

     Other Expense

- 

9,745  

Total Pre-Tax Loss from Discontinued Operations

- 

178,300  

 Income Tax Expense

- 

(37,367) 

Loss from Discontinued Operations, Net

$- 

$140,933  

 

NOTE 4 – ACQUISITION OF ASSETS FROM CONFIDA AEROSPACE, LTD.

 

On May 8, 2018, the Company entered into an Asset Purchase Agreement with Confida Aerospace Ltd. Pursuant to the Asset Purchase Agreement, the Company purchased in-process research and development (“IPRD”) consisting of inventory, hardware designs, software designs, and a trademark all pertaining to passenger drone design and use from Confida Aerospace Ltd. As consideration for the Asset Purchase Agreement, the Company issued Confida Aerospace Ltd., 10,000 of the Company’s Series B preferred shares (See Note 11, “Convertible Preferred Stock”).  Each preferred share is convertible into 1,333 common shares and 1,333 warrants.  Each warrant is exercisable into one of the Company’s common shares at an exercise price of $.75.  The warrants have an exercise period of five years upon conversion. Additionally, the Company assumed $50,000 of debts incurred by Confida Aerospace Ltd. related to drone development.

 

All of the authorized shares of the Series B Convertible Stock were issued for the assets and $50,000 of accrued liabilities were assumed. The fair market value of the preferred stock was $7,131,214 as determined by an independent third party valuation firm. The fair market value was arrived at using an equivalent conversion into the common stock of Astro, which is trading in the Over-The-Counter Market. Appropriate restrictions and marketability discounts were applied, including using the 40 day volume weighted average price of $0.46 per share. The fair value of the common stock equivalent was $3,753,271. As well, the warrants issued in conjunction with the common stock were valued using the Black Scholes Model. The inputs used were a 40 day volume weighted average price of $0.46 per share, exercise price of $0.75 per share, a ten year term, a risk free rate of 2.97%, a volatility of 51% and no dividend yield. The fair value of the warrants was $3,377,943.

 

The Company determined the fair value of the IPRD based on the fair market value of the consideration paid for the IPRD: 10,000 shares of Series B Convertible Preferred Stock, each share of which is convertible into 1,333 shares of common stock and 1,333 common stock warrants. The drone prototype is in an early development stage and the fair value is not determinable using cash flow projections and such projections were not available. It is anticipated that the drone will be marketable in 2020 and at that time material net cash flows are expected to commence.


12


ASTRO AEROSPACE LTD. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 4 – ACQUISITION OF ASSETS FROM CONFIDA AEROSPACE, LTD. (Continued)

 

Further analysis of the IPRD determined that the recoverability of the fair value carrying amount was not probable and an impairment expense of $6,310,214 was incurred to reduce the carrying value of the net assets to $871,000, which approximates cost.

 

After the initial 90 day period for the assumption of liabilities, the Company determined that it would most likely only assume $25,000 of liabilities and adjusted the condensed consolidated financial statements accordingly. As of September 30, 2019, the expenses related to the liabilities have been incurred.

 

NOTE 5 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Principles of Consolidation

 

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.

 

Basis of Presentation

 

The accompanying unaudited, condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information, and the Securities and Exchange Commission ("SEC") rules for interim financial reporting. Certain information and footnote disclosures normally included in the condensed consolidated financial statements prepared in accordance with GAAP have been omitted pursuant to such rules and regulations. However, in the opinion of management, the accompanying interim condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the Company's condensed consolidated financial position as of September 30, 2019 and the condensed consolidated results of operations and cash flows for the periods presented. The condensed consolidated results of operations for interim periods are not necessarily indicative of the results of operations to be expected for any subsequent interim period or for the fiscal year ended December 31, 2019. The accompanying unaudited, condensed consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2018, included in the Company's Form 10-K, which was filed with the SEC on April 15, 2019.

 

Cash

 

All highly liquid investments with original maturities of three months or less or money market accounts held at financial institutions are considered to be cash. Substantially all of the cash is placed with one financial institution. From time to time during the year the cash accounts are exposed to credit loss for amounts in excess of insured limits of $250,000 in the event of non-performance by the institution, however, it is not anticipated that there will be non-performance.


13


ASTRO AEROSPACE LTD. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 5 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Intangible Assets – Acquired In-Process Research and Development

 

Acquired in-process research and development consists of acquired drone technology and engineering and trademarks. The Company reviews the IPRD, which currently has an indefinite useful life, for impairment at least annually or more frequently if an event occurs creating the potential for impairment, until such time as the research and development efforts are completed or abandoned.  If the research and   development efforts are abandoned, the related costs will be written off in the period of such determination. If the research and development efforts are completed successfully, the related assets will be amortized over the estimated useful life of the underlying products. The Company will amortize the cost of identified intangible assets using amortization methods that reflect the pattern in which the economic benefits of the intangible assets are consumed or otherwise realized. There was no impairment expense incurred in the three and nine month periods ended September 30, 2019. There was an impairment expense of $6,285,214 in the nine month period ended September 30, 2018.

 

Revenue Recognition

 

The Company does not currently have any revenue. In discontinued operations, revenue was recognized when the pool service was completed and the collectability was reasonably assured. For pool resurfacing and remediation work, revenue was recognized at the time of completion of the job.

 

Stock-Based Compensation

 

The Company accounts for stock-based compensation under the fair value recognition provisions of GAAP which requires the measurement and recognition of compensation for all stock-based awards made to employees and directors including stock options and restricted stock issuances based on estimated fair values.

 

In accordance with GAAP, the fair value of stock-based awards is generally recognized as compensation expense over the requisite service period, which is defined as the period during which an employee is required to provide service in exchange for an award. The Company uses a straight-line attribution method for all grants that include only a service condition. Compensation expense related to all awards is included in operations.

 

Warrants

 

Warrants issued with the 8% Senior Secured Convertible Promissory Note are accounted for under the fair value and relative fair value method.

 

The warrant is first analyzed per its terms as to whether it has derivative features or not. If the warrant is determined to be a derivative and not qualify for equity treatment, then it is measured at fair value using the Black Scholes option model, and recorded as a liability on the condensed consolidated balance sheet. The warrant is re-measured at its then current fair value at each subsequent reporting date (it is “marked-to-market”).


14


ASTRO AEROSPACE LTD. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 5 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

If the warrant is determined to not have derivative features, it is recorded into equity at its fair value using the Black Scholes option model, however, limited to a relative fair value based upon the percentage of its fair value to the total fair value including the fair value of the convertible note.

 

The convertible promissory note is recorded at its fair value, limited to a relative fair value based upon the percentage of its fair value to the total fair value including the fair value of the warrant. Further, the convertible promissory note is examined for any intrinsic beneficial conversion feature (“BCF”) of which the convertible price of the note is less than the closing common stock price on date of issuance. If the relative fair value method is used to value the convertible promissory note and there is an intrinsic BCF, a further analysis is undertaken of the BCF using an effective conversion price which assumes the conversion price is the relative fair value divided by the number of shares the convertible debt is converted into by its terms. The BCF value is accounted for as equity.

 

The warrant and BCF relative fair values are also recorded as a discount to the convertible promissory notes. As present, these equity features of the convertible promissory notes have recorded a discount to the convertible notes that is substantially equal to the proceeds received.

 

Research and Development

 

Research and development costs are expensed as incurred.

 

Income Taxes

 

The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of asset and liabilities.  Deferred tax assets and liabilities are determined based on the differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.  The effect on deferred tax asset and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

 

The Company accounts for uncertainties in income tax law under a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns as prescribed by GAAP.  Under GAAP, the tax effects of a position are recognized only if it is “more-likely-than-not” to be sustained by the taxing authority as of the reporting date.  If the tax position is not considered “more-likely-than-not” to be sustained, then no benefits of the position are recognized.  Management believes there are no unrecognized tax benefits or uncertain tax positions as of September 30, 2019 and December 31, 2018.

 

The Company assessed its earnings history, trends and estimates of future earnings and determined that the deferred tax asset could not be realized as of September 30, 2019. Accordingly, a valuation allowance was recorded against the net deferred tax asset. The Company recognizes interest and penalties on income taxes as a component of income tax expense, should such an expense be realized.


15


ASTRO AEROSPACE LTD. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 5 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Basic and Diluted Net Loss per Share

 

The Company computes loss per share in accordance with “ASC-260”, “Earnings per Share” which requires presentation of both basic and diluted loss per share on the face of the condensed consolidated statements of operations. Basic loss per share is computed by dividing net loss available to common shareholders by the weighted average number of outstanding common shares during the period. Diluted loss per share gives effect to all dilutive potential common shares outstanding during the period, computed using the treasury stock method for outstanding stock options and warrants and the if converted method for convertible notes and preferred stock. Dilutive loss per share excludes all potential common shares if their effect is anti-dilutive. Common stock equivalents are anti-dilutive for the three and nine months ended September 30, 2019 due to the net loss during the periods. The common stock equivalents are comprised of stock options, warrants, convertible promissory note and the Series A and Series B Convertible Preferred Stock.

 

Further, the Company has presented its discontinued operations in accordance with ASC 205-20, “Presentation of Financial Statements, Discontinued Operations”, which requires the presentation of both basic and diluted loss per share from continuing operations and the basic and diluted net loss per share from discontinued operations in addition to the basic and diluted net loss per share.


16


ASTRO AEROSPACE LTD. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 5 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

For the three and nine months ended September 30, 2019 and 2018, the basic and diluted net loss per share from continuing operations, the basic and diluted net income from discontinued operations and the basic and diluted net loss per share were computed as follows:

 

Three Months Ended

Nine Months Ended

 

September 30,

September 30,

 

2019

2018

2019

2018

Loss from Continuing

 Operations, net

$(168,466) 

$(244,587) 

$(1,775,898) 

$(6,860,416) 

Income from Discontinued

 Operations, net

$ 

$ 

$ 

$140,933  

Net Loss Available to Common

 Stockholders  and Assumed

 Conversions

$(168,466) 

$(244,587) 

$(1,775,898) 

$(6,719,483) 

Series A Preferred Stock

 Dividends

2,500  

2,500  

7,500  

7,500  

Net Loss Available to

 Common Stockholders

$(170,966) 

$(247,087) 

$(1,783,398) 

$(6,726,983) 

 

 

 

 

 

Weighted Average Shares - Basic

72,176,927  

69,270,060  

70,819,765  

75,278,368  

Effective Dilutive

 Securities – Stock Options

 

 

 

 

Shares Issuable Upon Conversion

 of Convertible Promissory Notes

 

 

 

 

Shares Issuable Upon Conversion

 of Preferred Stock – Series A

 

 

 

 

Shares Issuable Upon Conversion

 of Preferred Stock – Series B

 

 

 

 

Weighted Average Shares –

 Diluted

72,176,927  

69,270,060  

70,819,765  

75,278,368  

Net Loss Per Common Share

 from Continuing Operations:

 

 

 

 

   Basic

$(0.00) 

$(0.00) 

$(0.03) 

$(0.09) 

   Diluted

$(0.00) 

$(0.00) 

$(0.03) 

$(0.09) 

Net Earnings Per Common Share

 from Discontinued Operations:

 

 

 

 

   Basic

$ 

$ 

$ 

$ 

   Diluted

$ 

$ 

$ 

$ 

Net Loss Per Common Share:

 

 

 

 

   Basic

$(0.00) 

$(0.00) 

$(0.03) 

$(0.09) 

   Diluted

$(0.00) 

$(0.00) 

$(0.03) 

$(0.09) 


17


ASTRO AEROSPACE LTD. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 5 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Comprehensive Loss

 

Comprehensive loss consists of net loss plus the foreign currency translation loss.

 

Foreign Currency Translation

 

The translation of assets and liabilities for the Company’s foreign subsidiary is made at period end exchange rates, while revenue and expense accounts are translated at the average exchange rates during the period transactions occurred.

 

Fair Value Measurement

 

GAAP establishes a hierarchy to prioritize the inputs of valuation techniques used to measure fair value. The hierarchy gives the highest ranking to the fair values determined by using unadjusted quoted prices in active markets for identical assets (Level 1) and the lowest ranking to fair values determined using methodologies and models with unobservable inputs (Level 3). Observable inputs are those that market participants would use in pricing the assets based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company’s assumptions about inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The Company has determined the appropriate level of the hierarchy and applied it to its financial assets and liabilities. At September 30, 2019 and December 31, 2018 there were no assets or liabilities carried or measured at fair value.

 

Use of Estimates and Assumptions

 

The preparation of condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

NOTE 6 – RECENT ACCOUNTING PRONOUNCEMENTS

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-2, Leases (Topic 842) which will require lessees to recognize on the condensed consolidated balance sheet the assets and liabilities for the rights and obligations created by those leases with term of more than twelve months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease.  The new ASU will require both types of leases to be recognized on the condensed consolidated balance sheet. The ASU also will require disclosures to help investors and other condensed consolidated financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements, providing additional information about the amounts recorded in the condensed consolidated financial statements. The ASU was effective for fiscal years beginning after December 15, 2018 and for interim periods within those fiscal years. The ASU had no effect on the Company’s condensed consolidated financial statements.


18


ASTRO AEROSPACE LTD. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 6 – RECENT ACCOUNTING PRONOUNCEMENTS (Continued)

 

In June 2018, the FASB issued ASU No. 2018-07, “Compensation – Stock Compensation (Topic 718) – Improvements to Nonemployee Share-Based Payment Accounting,” to include share based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers. The amendments in this update become effective for annual periods and interim periods within those annual periods beginning after December 15, 2018 but no earlier than an entity’s adoption date of Topic 606. The Company evaluated the impact of adopting the new guidance on the condensed consolidated financial statements, but it does not have a material impact.

 

NOTE 7 – CONCENTRATIONS OF CREDIT RISK

 

Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of cash. The Company maintains its cash with high-credit quality financial institutions. At September 30, 2019 and December 31, 2018, the Company did not have any cash balances in excess of federally insured limits.

 

NOTE 8 – FAIR VALUE ESTIMATES

 

The Company measures financial instruments at fair value in accordance with ASC 820, which specifies a valuation hierarchy based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s own assumptions.

 

Management believes the carrying amounts of the Company's cash, accounts receivable, accounts payable and accrued liabilities as of September 30, 2019 and December 31, 2018 approximate their respective fair values because of the short-term nature of these instruments. The Company measures its notes payable in accordance with the hierarchy of fair value based on whether the inputs to those valuation techniques are observable or unobservable. The hierarchy is:

 

Level 1 – Quoted prices for identical instruments in active markets;

 

Level 2 – Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and

 

Level 3 – Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.


19


ASTRO AEROSPACE LTD. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 8 – FAIR VALUE ESTIMATES (Continued)

 

The estimated fair value of the cash and notes payable at September 30, 2019 and December 31, 2018, were as follows:

 

 

Quoted Prices

In Active

Markets for

Identical

Assets

 

 

Significant

Other

Observable

Inputs

 

 

 

Significant

Unobservable

Inputs

 

 

 

(Level 1)

 

(Level 2)

 

(Level 3)

Carrying

Value

At September 30, 2019:

 

 

 

 

Assets

 

 

 

 

 Cash

$   1,155

-

-

$     1,155

Liabilities

 

 

 

 

 8% Senior Secured Convertible

   Promissory Note

-

-

$  566,673

$ 566,673

 Promissory Note from MAAB

-

-

$  630,430

$ 630,430

 

 

 

 

 

At December 31, 2018:

 

 

 

 

Assets

 

 

 

 

 Cash

$  55,129

-

-

$   55,129

Liabilities  

 

 

 

 

 8% Senior Secured Convertible

   Promissory Note

-

-

$ 108,886

$ 108,886

 Promissory Note from MAAB

-

-

$ 591,439

$ 591,439


20


ASTRO AEROSPACE LTD. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 9 – 8% SENIOR SECURED CONVERTIBLE PROMISSORY NOTE

 

On November 21, 2018, the Company issued an 8% Senior Secured Convertible Promissory Note in the aggregate principal amount of $1,383,636 in exchange for a total investment of $1,200,000, less commissions and expenses, payable in two tranches. The first tranche was payable upon the closing of the agreement, and the second tranche was payable within ten (10) business days of the Investor receiving written notice confirming the effectiveness of the initial registration statement. The first tranche principal of $701,818 was issued, with an Original Issue Discount (“OID”) of $81,818, a $20,000 financing fee for the lender’s transactional expenses that was expensed and the Company received proceeds of $600,000. The second tranche was issued on February 12, 2019 in the principal amount of $681,818, with an OID of $81,818 and the Company received proceeds of $600,000. Each tranche matures 6 months after the issue date, the first tranche matured on May 21, 2019 and the second tranche matured on August 12, 2019 (See Note 10, “Default And Forbearance On The 8% Senior Secured Convertible Promissory Note”).

 

The note is convertible into common shares of the Company at a price equal to 75% of the lowest market value in the thirty trading days prior to the conversion date.  The Company is subject to certain penalties if the shares are not issued within two business days of receiving the conversion notice.  Pursuant to a Security Agreement between the Company and the Investor (the “Security Agreement”), the Company has granted to the Investor a security interest in its assets to secure repayment of the Notes. The Company must reserve an amount of shares equal to 500% of the total amount of shares issuable upon full conversion of the promissory note. The Company meets this requirement since it has 250,000,000 common shares authorized and as of October 30, 2019, 96,164,018 shares available to be issued.

 

As additional consideration for the investment, the Company issued 156,250 shares of its common stock to the Investor, valued at $89,531 at the date of issuance, plus warrants to acquire up to an aggregate 344,029 shares of the Company’s common stock at an exercise price of $0.51 per share. Upon the closing of the second tranche in February 2019, the Company issued additional warrants to acquire up to an aggregate 421,656 shares of the Company’s common stock at an exercise price of $0.40 per share. Each Warrant is exercisable by the Investor beginning on the Effective Date through the fifth year anniversary thereof.  

 

The Note has a beneficial conversion feature for both tranches, which were valued, along with the warrants, on a relative fair value method. In the first tranche, the warrant fair value (See Note 14, “Warrants”) was $171,121 and the beneficial conversion feature fair value was $523,326 for a total debt discount of $694,447. However, adding the OID and the inducement shares to the debt discount, made final total debt discount $865,796, larger than the principal amount of the Note. Consequently, $163,978 of the debt discount was expensed. Additionally, $108,886 of the debt discount was amortized to interest expense for the year ended December 31, 2018, with an additional $504,910 amortized to interest in the nine months ended September 30, 2019, bringing the debt discount to $88,022 at September 30, 2019.

 

In the second tranche, the warrant fair value (See Note 14, “Warrants”) was $121,320 and the beneficial conversion feature fair value was $403,689 for a debt discount of $525,009. Including the $81,818 of OID, the total debt discount is $606,827. In the nine months ended September 30, 2019, $498,402 of the debt discount was amortized into interest expense, bringing the debt discount to $108,425 at September 30, 2019. However, the forbearance agreement increased the principal amount, and the debt discount, which were allocated to the second tranche, so there was a net increase in the principal and the debt discount in the second tranche as of September 30, 2019 (See Note 10, “Default and Forbearance on the 8% Senior Secured Convertible Promissory Note”).


21


ASTRO AEROSPACE LTD. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 9 – 8% SENIOR SECURED CONVERTIBLE PROMISSORY NOTE (Continued)

 

On February 22, 2019, the Investor converted $55,387 in principal amount of the Notes into 215,054 shares of the Company’s common stock. Likewise, on March 19, 2019, the Investor converted $38,633 in principal amount of the Note into 150,000 shares of the Company’s common stock. However, the conversion share calculation was incorrect for the March 19, 2019 conversion of the $38,633 in principal amount of the Note and was 26,712 shares less than what it should have been. These shares were added to a subsequent conversion in April 2019.

 

In the second quarter ended June 30, 2019, the Investor converted $449,397 in principal amount of the Note into 1,830,373 shares of the Company’s common stock.

 

In the third quarter ended September 30, 2019 the Investor converted $93,830 in principal amount of the Note into 750,000 shares of the Company’s common stock. The Company has accrued interest on the Note of $63,440 through September 30, 2019.

 

NOTE 10 – DEFAULT AND FORBEARANCE ON THE 8% SENIOR SECURED CONVERTIBLE PROMISSORY NOTE

 

On May 21, 2019, six months after the issuance of the first tranche of the 8% Senior Secured Convertible Promissory Note, the Note matured with $307,798 in principal outstanding and approximately $24,118 in accrued interest. The Company was unable to repay the principal and accrued interest and therefore was in default of the Note. The Note has default provisions permitting default interest of 18% to be charged on the Note as well as to charge a default amount of 150% of the unpaid principal and interest.

 

The Note was issued with two $600,000 tranches of cash payments. Since both tranches are in one Note, both tranches are in default as of May 21, 2019.

 

The Company and the Investor promptly began negotiations on a Forbearance Agreement and on September 11, 2019, the Company and the Investor agreed to a Forbearance Agreement. Pursuant to this agreement, the Investor is willing to postpone pursuing its rights and remedies under the agreements, in particular and without limitation with respect to the acceleration of the promissory note and the immediate payment of the default amount and reduce the balance of the promissory note to the pre-default balance plus accrued non-default interest of $1,062,784 on the following terms: 1) subject to the Company’s compliance with the forbearance agreement, the forbearance shall commence on the effective date and will expire on June 30, 2020.  2) Should the Company fail to abide by any of the terms and conditions of the forbearance agreement, fail to comply with the terms of the other agreements, or fail to timely make the payments required under the promissory notes, or should the Company trigger an event of default, the forbearance period will immediately terminate.  3) Subject to the Company’s compliance with the forbearance period, the repayment of the promissory note will be reduced from 35% to 0%.

 

The Company’s outstanding principal amount of the Note, after conversions, and the accrued interest as of the Forbearance Agreement date of September 11, 2019, was $805,649. The Forbearance Agreement for the outstanding principal amount and accrued interest of $1,062,784 produces a forbearance penalty of $257,135. This amount increased both the principal balance of the Note and increased the debt discount by the same amount. The $257,135 penalty is being amortized over the new maturity of the Note, June 30, 2020, and resulted in a $16,731 amortization expense in the three and nine months periods ended September 30, 2019. The outstanding principal amount of the Note is $1,003,524 at September 30, 2019.


22


ASTRO AEROSPACE LTD. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 11 – CONVERTIBLE PROMISSORY NOTES

 

On March 14, 2018, 1,500,000 stock options were cancelled and two 10% Convertible Promissory Notes (“Notes”) with a six month maturity were issued to the former option holders. The principal amount was $25,000 each and there was no prepayment penalty. The Notes were convertible into the Company’s common stock based upon the average of the previous ten trading days’ closing price of the stock, at the maturity date of the Notes. Upon conversion of the notes, Bruce Bent or MAAB Global Limited had the option to purchase the common stock issued at a 5% discount to the average closing price of the stock over the previous 10 trading days. The option to purchase expired ten days after the issuance of the common stock. The option was not exercised.

 

On September 18, 2018, at the maturity of the Notes, the entire outstanding balance was converted into 38,886 shares of common stock of the Company, which included $2,534 of accrued interest. The Company issued the shares of common stock on October 22, 2018.

 

NOTE 12 – PROMISSORY NOTE FROM MAAB

 

On March 14, 2018, MAAB, the parent of Astro, issued a Promissory Note for monetary advances to the Company of up to $750,000. The Promissory Note matures on February 28, 2021. The Promissory Note has an interest charge of 10%, compounded monthly. Interest accrues on the principal amount or portion thereof which remains unpaid from time to time as well as any interest outstanding, from the date the principal amount is advanced until and including the date upon which the principal amount and all interest due under this promissory note shall be fully paid. The principal amount advanced under the Promissory Note is $630,430 through September 30, 2019. The Company has accrued interest expense of $72,764 at September 30, 2019. A portion of the proceeds from the 8% Senior Secured Convertible Promissory Note was used to repay a portion of the Promissory Note from MAAB in the nine month period ended September 30, 2019.

 

NOTE 13 – CONVERTIBLE PREFERRED STOCK

 

In December 2015, the Company authorized 50,000,000 shares of Series A Preferred Stock, with a $0.0001 par value and no liquidation value. The Series A Preferred has an 8% dividend paid quarterly, and is convertible into one share of common stock. The Series A Preferred is senior to the common stock as to dividends, and any liquidation, dissolution or winding up of the Company. The Series A Preferred also has certain voting and registration rights.

 

In January 2016, the Company issued 1,562,500 shares of the Series A Preferred Stock to Lawrence and Loreen Calarco, former officers and directors of the Company.

 

On March 14, 2018, Lawrence and Loreen Calarco, officers and directors of the Company, the Lawrence & Loreen Calarco Family Trust and the Lawrence and Loreen Calarco Trust of June 3, 2014, sold all 1,562,500 preferred shares to MAAB, a non-affiliate of the Company. Cumulative undeclared Series A Preferred dividends were $15,000 at September 30, 2019.

 

On May 4, 2018, the Board of Directors of Astro Aerospace Ltd. authorized 10,000 shares of the Series B Convertible Preferred Stock (“Preferred”), par value $0.001 per share. The Preferred is entitled to a dividend, when declared by the Board of Directors, votes with all other classes of stock as a single class of stock on all actions to be voted on by the stockholders of the Company, and each share of Preferred is convertible into 1,333 shares of common stock and a five year warrant to purchase 1,333 shares of common stock at an exercise price of $0.75 per share. On May 8, 2018, the Company issued all of the 10,000 authorized Series B Preferred shares in the acquisition of certain assets from Confida Aerospace Ltd.


23


ASTRO AEROSPACE LTD. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 13 – CONVERTIBLE PREFERRED STOCK (Continued)

 

Upon any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the holders of the shares of the Series B Preferred Stock shall share pro rata with the holders of the common stock, on an as if converted basis.

 

NOTE 14 - WARRANTS

 

As part of the 8% Senior Secured Convertible Promissory Note issuance, the Company issued warrants in the first tranche to acquire up to an aggregate 344,029 shares of the Company’s common stock at an exercise price of $0.51 per share. These warrants were fair valued using the Black Scholes Model with the following inputs: stock price on November 21, 2018, date of issuance, $0.57, strike price $0.51, time to expiration, five years, five year Treasury constant maturity rate, 2.33%, volatility 253% and no dividend yield. The result was a fair value of $0.5676 per warrant or $195,271 in aggregate. This fair value was reduced with the relative fair value method when including the beneficial conversion feature of the convertible note (See Note 9, “8% Senior Secured Convertible Promissory Note”) to $171,121. The warrant relative fair value was added to additional paid in capital – common stock.

 

In the second tranche, the Company issued warrants to acquire up to an aggregate 421,656 shares of the Company’s common stock at an exercise price of $0.40 per share. These warrants were fair valued using the Black Scholes Model with the following inputs: stock price on February 12, 2019, date of issuance, $0.33, strike price $0.40, time to expiration, five years, five year Treasury constant maturity rate, 2.34%, volatility 173% and no dividend yield. The result was a fair value of $0.35 per warrant or $147,580 in aggregate. This fair value was reduced with the relative fair value method when including the beneficial conversion feature of the convertible note (See Note 9, “8% Senior Secured Convertible Promissory Note”) to $121,320. The warrant relative fair value was added to additional paid in capital – common stock. A summary of the subsequent warrant activity is as follows:

 

Warrants

outstanding

Exercise price

per share

Price per

Share on Date

of Issuance

 

Balance, December 31, 2017

 

-

-

 

-

Granted – Confida Acquisition (May 8, 2018)

 

13,330,000

$0.75

$

1.00

Convertible Promissory Note (Nov. 21, 2018)

 

344,029

0.51

 

0.57

Expired

 

-

-

 

-

 

 

 

 

 

 

Balance, December 31, 2018

 

13,674,029

0.51 – 0.75

 

0.57 – 1.00

Granted – Convertible Promissory Note

 

421,656

0.40

 

0.33

Expired

 

-

-

 

-

Balance – September 30, 2019

 

14,095,685

0.40 – 0.75

 

0.33 – 1.00


24


ASTRO AEROSPACE LTD. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 15 - EQUITY PURCHASE AGREEMENT AND REGISTRATION RIGHTS AGREEMENT

 

On August 26, 2019, the Company entered into an Equity Purchase Agreement and Registration Rights Agreement with the same Investor who provided the funding with the 8% 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 filed with the U.S. Securities and Exchange Commission and subject to certain limitations and conditions set forth in the Equity Purchase Agreement.

 

Following effectiveness of the Registration Statement, and subject to certain limitations and conditions set forth in the Equity Purchase Agreement, the Company shall have the discretion to deliver put notices to the Investor and the Investor will be obligated to purchase shares of the Company’s common stock, par value $0.001 per share based on the investment amount specified in each put notice. The maximum amount that the Company shall be entitled to put to the Investor in each put notice shall not exceed the lesser of $500,000 or one hundred fifty percent (150%) of the average daily trading volume of the Company’s Common Stock during the ten (10) trading days preceding the put notice. Pursuant to the Equity Purchase Agreement, the Investor and its affiliates will not be permitted to purchase and the Company may not put shares of the Company’s Common Stock to the Investor that would result in the Investor’s beneficial ownership of the Company’s outstanding Common Stock exceeding 9.99%. The price of each put share shall be equal to eighty five percent (85%) of the Market Price (as defined in the Equity Purchase Agreement). Puts may be delivered by the Company to the Investor until the earlier of (i) the date on which the Investor has purchased an aggregate of $5,000,000 worth of Common Stock under the terms of the Equity Purchase Agreement, (ii) August 26, 2022, or (iii) written notice of termination delivered by the Company to the Investor, subject to certain equity conditions set forth in the Equity Purchase Agreement.

 

On August 26, 2019, in connection with its entry into the Equity Purchase Agreement and the Registration Rights Agreement, the Company committed to issue 600,000 Commitment Shares (as defined in the Equity Purchase Agreement) to the Investor.  These shares are initially being issued pursuant to the Section 4(a)(2) exemption and will be registered pursuant to the Registration Rights Agreement. Subsequent to the Agreement and prior to the issuance of the Commitment Shares, the Company renegotiated the payment to 300,000 shares of common stock. The fair value of the Commitment Shares as of August 26, 2019 was $48,300. Another 300,000 shares of common stock are to be issued once the Company has drawn greater than $2,500,000 pursuant to this agreement.  This is recorded as a deferred offering cost and is being amortized over the life of the agreement, which is three years. For the three and nine months ended September 30, 2019, $2,316 has been amortized into expense.

 

As of September 30, 2019, the Company has not issued any stock under the Equity Purchase Agreement.

 

The Registration Rights Agreement provides that the Company shall (i) file with the Commission the Registration Statement by November 25, 2019; and (ii) use its best efforts to have the Registration Statement declared effective by the Commission at the earliest possible date (in any event, within 120 days after the execution date of the definitive agreements).


25


ASTRO AEROSPACE LTD. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 16 – 2014 STOCK AWARDS PLAN

 

In November 2014, the board of directors of Custom Pool approved the adoptions of a Stock Awards Plan. A total of 7,000,000 shares was authorized to be issued under the plan. For incentive stock options, at the grant date the stock options exercise price is required to be at least 110% of the fair value of the Company’s common stock. The Plan permits the grants of common stock or options to purchase common stock. As plan administrator, the Board of Directors has sole discretion to set the price of the options. Further, the Board of Directors may amend or terminate the plan.

 

On March 14, 2018, the Company cancelled all 3,250,000 outstanding stock options under the 2014 Stock Awards Plan, with 1,500,000 of the stock options exchanged for two 10% Convertible Promissory Notes with a six month maturity (see Note 11, “Convertible Promissory Notes”). Consequently, there are 7,000,000 shares available for issuance at September 30, 2019.

 

The Company has not issued any new stock options since the cancellation of the outstanding stock options in 2018.

 

A summary of the stock option activity over the nine months ended September 30, 2019 and 2018 is as follows:

 

 

Number of Options

Weighted Average Exercise Price

Weighted Average Remaining Contractual Term

Aggregate Intrinsic Value

Outstanding at Dec. 31, 2017

3,250,000

$  0.0367

3.3 Years

$ 56,125

Options Cancelled

(3,250,000)

-

-

-

Outstanding at September 30,

2018

-

-

-

-

Exercisable at September 30,

2018

-

-

-

-

 

 

 

 

 

Outstanding at December 31, 2018

-

-

-

-

Outstanding at September 30, 2019

-

-

-

-

 

The Company expensed $22,857 of stock option compensation for the nine months ended September 30, 2018.

 

NOTE 17 - SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

Under Section 16(a) of the Securities Exchange Act of 1934, as amended, an officer, director, or greater-than-10% shareholder of the Company must file a Form 4 reporting the acquisition or disposition of Company’s equity securities with the Securities and Exchange Commission no later than the end of the second business day after the day the transaction occurred unless certain exceptions apply.  Transactions not reported on Form 4 must be reported on Form 5 within 45 days after the end of the Company’s fiscal year.  Such persons must also file initial reports of ownership on Form 3 upon becoming an officer, director, or greater-than-10% shareholder.  Mr. Bruce Bent, the Company’s Chief Executive Officer, is currently up to date in meeting these requirements and has notified the Company that he is now compliant.  On August 30, 2019, pursuant to Section 16(a), Mr. Bent disgorged short swing profits of $178,394 to the Company, which was recorded as miscellaneous income and a reduction of the debt owed to MAAB, the parent of the Company.


26


ASTRO AEROSPACE LTD. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 18 – COMMITMENTS AND CONTINGENCIES

 

The Company does not have any significant or long term commitments. The Company is not currently subject to any litigation.

 

NOTE 19 - SUBSEQUENT EVENTS

 

The Company has evaluated subsequent events from the condensed consolidated balance sheet date through November 19, 2019 (the condensed consolidated financial statement issuance date) and noted the following disclosures:

 

The Company issued 300,000 shares of common stock on October 30, 2019 in satisfaction of the commitment fee for the Equity Purchase Agreement (See Note 15, “Equity Purchase Agreement and Registration Rights Agreement”).


27


ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

Corporate Events

 

Sale of Common Stock of Majority Stockholders

 

On March 14, 2018, Lawrence and Loreen Calarco, officers and directors of the Company, the Lawrence & Loreen Calarco Family Trust and the Lawrence and Loreen Calarco Trust of June 3, 2014, majority stockholders controlled by Lawrence and Loreen Calarco, sold 51,711,571 common shares and 1,562,500 preferred shares to MAAB Global Limited (“MAAB”), a non-affiliate of the Company, paid from Bruce Bent, officer and director of MAAB’s personal funds resulting in a change of control of the Company.  The stock was transferred to MAAB effective March 14, 2018.  The 51,711,571 common shares and 1,562,500 preferred shares represented 62.35% and 100% of the then issued and outstanding common and preferred stock of the Company, respectively.

 

Resignation of Directors and Election of Directors

 

On March 14, 2018, Lawrence Calarco, Loreen Calarco and Charles Dargan II resigned as officers and directors of the Company.  Additionally, on March 14, 2018, Jeffrey Michel and Randy Sofferman resigned as directors of the Company.

 

On March 14, 2018, Bruce Bent, age 62, was appointed as Chief Executive Officer and Director of the Company.  He will stand for re-election at the next annual meeting of the shareholders.  There are no material arrangements to which Mr. Bent is a party, and there is no family relationship between him and any other party connected to the Company.

 

Sale of Custom Pool and Spa Mechanics, Inc. and Custom Pool Plastering, Inc.

 

On April 30, 2018, pursuant to a Share Exchange Agreement dated April 16, 2018, the Company exchanged all of the issued and outstanding common shares of Custom Pool & Spa Mechanics, Inc. and Custom Pool Plastering, its wholly owned subsidiaries, for 13,668,900 common shares of the Company held by the Lawrence & Loreen Calarco Family Trust, an entity controlled by Lawrence & Loreen Calarco, former officers and directors of the Company. The Board of Directors subsequently authorized the cancellation of those common shares.  After said cancellation, the total issued and outstanding common shares was 69,270,060.  The Share Exchange Agreement was approved by the Board of Directors and written consent of shareholders holding 62.35% of the voting securities of the Company as of April 16, 2018.

 

Authorization of the Series B Convertible Preferred Stock

 

On May 4, 2018, the Board of the Company authorized 10,000 shares of the Series B Convertible Preferred Stock, par value $0.001 per share. The Preferred is entitled to a dividend, when declared by the Board of Directors, votes with all other classes of stock as a single class of stock on all actions to be voted on by the stockholders of the Company, and each share of Preferred is convertible into 1,333 shares of common stock and a five-year warrant to purchase 1,333 shares of common stock at an exercise price of $0.75 per share.

 

Asset Purchase Agreement with Confida Aerospace Ltd.

 

On May 8, 2018, the Company entered into an Asset Purchase Agreement with Confida Aerospace Ltd. Pursuant to the Asset Purchase Agreement, the Company purchased in-process research and development (“IPRD”) consisting of inventory, hardware designs, software designs, and a trademark all pertaining to passenger drone design and use from Confida Aerospace Ltd. As consideration for the Asset Purchase Agreement, the Company issued Confida Aerospace Ltd., 10,000 of the registrant’s Series B preferred shares. Each preferred share is convertible into 1,333 common shares and 1,333 warrants.  Each warrant is exercisable into one of the Company’s common shares at an exercise price of $.75.  The warrants have an


28


exercise period of five years upon conversion. Additionally, the Company assumed $25,000 of debts incurred by Confida Aerospace Ltd. related to drone development.

 

Current Operations – Astro Aerospace, Ltd.

 

Astro Aerospace Ltd. (“Astro” or the “Company) has acquired the software, firmware and hardware for Version 1.0 of a manned drone which 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 Electrical Vertical Take-Off and Landing (eVTOL) aircraft available to the mass market anywhere. Astro is currently working on Version 2.0 of the drone product which will feature design changes which enhance the top speed and length of time the drone can stay in the air and also adding additional 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 Paterson Composites Inc., 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 drone 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.

 

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. It's newly designed modular structure allows the Astro Top Frame 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. We refer to it as the Swiss Army Knife of the VTOL world.  Along with recent Avionics and Control system upgrades this modularity opens the door to the ever growing opportunities that (eVTOLS) electric take-off and landing short haul vehicles bring.  

 

Astro anticipates the new prototype to be completed and flying by the end of the first quarter, 2020. We have completed the engineering and firmware for the prototype and are now beginning work on the body for the new prototype.

 

Overview – Discontinued Operation, Custom Pool

 

The Company’s discontinued operation, Custom Pool, historically was a full-service pool maintenance, resurfacing and repair company whose main service area is the Martin, Palm Beach, St. Lucie, Indian River and Brevard counties of Florida.  The Company earned revenue by charging service fees in the pool service business and by payments under contracts in the pool resurfacing business.  The Company managed its operating margins of the businesses by controlling personnel costs, chemical and material purchases and other service costs such as motor vehicle and insurance costs.  Personnel were critical to the business since customers choose those companies who have the most experience and perform the service in a timely and professional manner.

 

Custom Pool competed in its markets on the basis of price and the quality of the service.  There are many pool service companies in the market and throughout Florida.  However, this also presented an opportunity for the Company since many of its competitors are smaller and lack the infrastructure and depth of the Company.  This allowed the Company to compete through offering a larger range of services with a lower


29


cost structure and to pursue growth opportunities either through internal growth or through opportunistic acquisitions.

 

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. The first tranche of $600,000 was received in November 2018 and the second tranche of $600,000 was received in February 2019.

 

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. The maximum amount that the Company shall be entitled to put to the investor in each put notice shall not exceed the lesser of $500,000 or one hundred fifty percent (150%) of the average daily trading volume of the Company’s Common Stock during the ten (10) trading days preceding the put.

 

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 September 30, 2019 compared to The Three Months Ended September 30, 2018

 

For the three months ended September 30, 2019, the Company did not have any revenue. It is developing an eVTOL aircraft and expects that it will be marketing the aircraft sometime in 2020. Astro did incur $246,415 in operating expenses, which the majority of the expenses was from $73,875 in general and administrative expenses and $80,166 in research and development. There was also $92,374 in sales and marketing. Other expenses were $98,575 and consisted mainly of banking and filing fees and interest expense. Other expense was offset by $176,474 in miscellaneous income, of which the substantial majority came from the disgorgement of short swing profits of $178,394 under Section 16(a) of the Securities and Exchange Act of 1934 (offset by $1,920 of miscellaneous expense). The Company expects to incur operating losses until the eVTOL aircraft is marketable and has passed government and safety regulations.

 

For the three months ended September 30, 2018, the Company did not have any revenue Astro did incur $221,807 in operating expenses, similar to the same period in 2019. The majority of the expenses was from $156,996 in research and development expenses from the design and engineering of the eVTOL aircraft . The Company also $80,553 in general and administrative expense and $9,258 in sales and marketing. There was a slight offset of $25,000 in a reduction of the impairment expense. Other expenses were $22,780 and consist of banking and filing fees and interest expense.

 

Net Loss

 

The Company had a net loss of $168,466 in the three months ended September 30, 2019 versus a net loss of $244,587 in the three months ended September 30, 2018, largely comprised of the eVTOL aircraft operations. The reduction in the loss between 2019 and 2018 is largely due to the short swing profit disgorgement of $178,394 and a reduction of research and development spending. This was offset somewhat by the increase in interest expense from the $1,383,636 principal amount of the 8% Senior Secured Convertible Promissory Note issued on November 21, 2018. There was also an undeclared preferred dividend of $2,500, in both the 2019 and 2018 periods, which made the net loss available to common stockholders of $170,966 in 2019 and $247,087 in 2018.


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Astro also had a foreign currency translation gain of $17,180 from the difference in the Canadian dollar and U.S. dollar exchange rates, which produced a comprehensive loss of $151,286 in the three months ended September 30, 2019. In the comparable 2018 period, Astro had a foreign currency translation loss of $716 which produced a comprehensive loss of $245,303.

 

The Nine Months Ended September 30, 2019 compared to The Nine Months Ended September 30, 2018

 

For the nine months ended September 30, 2019, the Company did not have any revenue. It is developing an eVTOL aircraft and expects that it will be marketing the aircraft sometime in 2020. Astro did incur $850,107 in operating expenses, which the majority of the expenses was from $223,253 in sales and marketing and $426,422 in research and development. There was also $200,432 in general and administrative expenses. Other expenses were $925,790 and consisting mainly of banking and filing fees and interest expense. The interest expense of $1,094,959 includes $1,020,043 of amortization of the debt discount. Other expense was offset by $178,394 in miscellaneous income, all of which came from the disgorgement of short swing profits  under Section 16(a) of the Securities and Exchange Act of 1934.The Company expects to incur operating losses until the eVTOL aircraft is marketable and has passed government and safety regulations.

 

For the nine months ended September 30, 2018, the Company did not have any revenue. Astro did incur $6,832,442 in operating expenses, which the majority of the expenses was from an impairment of the assets acquired from Confida Aerospace of $6,285,214. The Company also incurred $427,816 in research and development expenses from the design and engineering of the eVTOL aircraft. There was $119,412 in sales and marketing and general and administrative expenses. Other expenses were $27,974 and consist of banking and filing fees and interest expense.

 

Discontinued Operations

 

The discontinued operations of Custom Pool are not comparable in the nine months ended September 30, 2019 and 2018 since Custom Pool was sold on April 30, 2018 and therefore only had operations in the 2018 period. Custom Pool had a pre-tax income of $178,300 on revenue of $1,786,911 during the nine months ended September 30, 2018.  The pre-tax income is a result of revenue at the resurfacing business having rebounded from a poor fourth quarter in 2017. This also improved the operating margin. Some of the improvement was offset in general and administrative expenses due to higher compensation and more employees hired in the office. Additionally, this created a higher allocation of employee expenses, such as health and workers compensation insurance.

 

Net Loss

 

The Company had a net loss of $1,775,898 in the nine months ended September 30, 2019 versus a net loss of $6,719,483 in the nine months ended September 30, 2018, largely comprised of the eVTOL aircraft operations. The reduction in the loss between 2019 and 2018 is largely due to the impairment expense of $6,285,214 incurred in 2018. The reduction is also due to the short swing profit disgorgement of $178,394 in the 2019 period. This was offset somewhat by the increase in interest expense from the $1,383,636 principal amount of the 8% Senior Secured Convertible Promissory Note issued on November 21, 2018. There was also an undeclared preferred dividend of $7,500, in both the 2019 and 2018 periods, which made the net loss available to common stockholders of $1,783,398 in 2019 and $6,726,983 in 2018.

 

Astro also had a foreign currency translation loss of $10,014 from the difference in the Canadian dollar and U.S. dollar exchange rates, which produced a comprehensive loss of $1,785,912 in the nine months ended September 30, 2019. In the comparable 2018 period, Astro had a foreign currency translation loss of $716 which produced a comprehensive loss of $6,720,199.

 

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 $630,430 and there is


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$119,570 available under the terms of the note at June 30, 2019. 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. The first tranche of $600,000 was received in November 2018 and the second tranche of $600,000 was received in February 2019.

 

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. The maximum amount that the Company shall be entitled to put to the investor in each put notice shall not exceed the lesser of $500,000 or one hundred fifty percent (150%) of the average daily trading volume of the Company’s Common Stock during the ten (10) trading days preceding the put.

 

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 Company has prepared its condensed consolidated financial statements for the three and nine months ended September 30, 2019 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 condensed consolidated financial statements, for the nine months ended September 30, 2019 the Company had a net loss of $1,775,898  and used $682,951 in cash in operations, and at September 30, 2019, had negative working capital of $715,312, current assets of $57,781, and an accumulated deficit of $9,787,700. 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 Loss (“NOL”) for tax purposes due to the net loss from the year ended December 31, 2018 and the continuing net loss in the nine months ended September 30, 2019, 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 $1,000,000 in the next six months and then another $1,000,000 in the subsequent six months on the development of the eVTOL aircraft.

 

In December 2015, the Company authorized 50,000,000 shares of Series A Preferred Stock, with a $0.0001 par value. The Series A Preferred has an 8% dividend paid quarterly, and is convertible into one share of common stock. The Series A Preferred is senior to the common stock as to dividends, and any liquidation, dissolution or winding up of the Company. The Series A Preferred also has certain voting and registration rights.

 

On March 14, 2018, Lawrence and Loreen Calarco, officers and directors of the Company, the Lawrence & Loreen Calarco Family Trust and the Lawrence and Loreen Calarco Trust of June 3, 2014, sold all 1,562,500 preferred shares to MAAB, a non-affiliate of the Company.

 

On March 14, 2018, 1,500,000 stock options were cancelled and two 10% Convertible Promissory Notes (“Notes”) with a six month maturity were issued to the former option holders. The principal amount was $25,000 each and there was no prepayment penalty. The Notes were convertible into the Company’s common stock based upon the average of the previous ten trading days’ closing price of the stock, at the maturity date of the Notes. Upon conversion of the notes, Bruce Bent or MAAB had the option to purchase the common stock issued at a 5% discount to the average closing price of the stock over the previous 10 trading days. The option to purchase expired ten days after the issuance of the common stock.


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On September 18, 2018, at the maturity of the Notes, the entire outstanding balance was converted into 38,886 shares of common stock of the Company, which included $2,534 of accrued interest. The Company issued the shares of common stock on October 22, 2018

 

On May 4, 2018, the Board of Directors of the Company authorized 10,000 shares of the Series B Convertible Preferred Stock, par value $0.001 per share. The Preferred is entitled to a dividend, when declared by the Board of Directors, votes with all other classes of stock as a single class of stock on all actions to be voted on by the stockholders of the Company, and each share of Preferred is convertible into 1,333 shares of common stock and a five year warrant to purchase 1,333 shares of common stock at an exercise price of $0.75 per share. On May 8, 2018, the Company issued all of the 10,000 authorized Series B Preferred shares in the acquisition of certain assets from Confida Aerospace Ltd.

 

On March 14, 2018, MAAB Global Limited, the parent of Astro, issued a Promissory Note for monetary advances to the Company of up to $750,000. The Promissory Note matures on February 28, 2021. The Promissory Note has an interest rate of 10%, compounded monthly.

 

Interest accrues on the principal amount or portion thereof which remains unpaid from time to time as well as any interest outstanding, from the date the principal amount is advanced until and including the date upon which the principal amount and all interest due under this promissory note shall be fully paid. The principal amount advanced under the Promissory Note is $630,430 through September 30, 2019. The Company has accrued interest expense of $72,764 at September 30, 2019.

 

On November 21, 2018, the Company issued an 8% Senior Secured Convertible Promissory Note in the aggregate principal amount of $1,383,636 in exchange for a total investment of $1,200,000, less commissions and expenses, payable in two tranches. The first tranche was payable upon the closing of the agreement, and the second tranche was payable within ten (10) business days of the Investor receiving written notice confirming the effectiveness of the initial registration statement. The first tranche principal of $701,818 was issued, with an  Original Issue Discount (“OID”) of $81,818, a $20,000 financing fee for the lender’s transactional expenses that was expensed and the Company received proceeds of $600,000. The second tranche was issued on February 12, 2019 in the principal amount of $681,818, with an OID of $81,818 and the Company received proceeds of $600,000. Each tranche matures 6 months after the issue date, the first tranche matured on May 21, 2019 and the second tranche matured on August 12, 2019 (See Note 10, “Default and Forbearance on the 8% Senior Secured Convertible Promissory Note”).

 

The note is convertible into common shares of the Company at a price equal to 75% of the lowest market value in the thirty trading days prior to the conversion date.  The Company is subject to certain penalties if the shares are not issued within two business days of receiving the conversion notice.  Pursuant to a Security Agreement between the Company and the Investor (the “Security Agreement”), the Company has granted to the Investor a security interest in its assets to secure repayment of the Notes. The Company must reserve an amount of shares equal to 500% of the total amount of shares issuable upon full conversion of the promissory note. The Company meets this requirement since it has 250,000,000 common shares authorized and as of October 30, 2019, 96,164,018 available to be issued.

 

As additional consideration for the investment, the Company issued 156,250 shares of its common stock to the Investor, valued at $89,531 at the date of issuance, plus warrants to acquire up to an aggregate 344,029 shares of the Company’s common stock at an exercise price of $0.51 per share. Upon the closing of the second tranche in February 2019, the Company issued additional warrants to acquire up to an aggregate 421,656 shares of the Company’s common stock at an exercise price of $0.40 per share. Each Warrant is exercisable by the Investor beginning on the Effective Date through the fifth year anniversary thereof.  

 

The Note has a beneficial conversion feature for both tranches, which were valued, along with the warrants, on a relative fair value method. In the first tranche, the warrant fair value was $171,121 and the beneficial conversion feature fair value was $523,326 for a total debt discount of $694,447. However, adding the OID and the inducement shares to the debt discount, made final total debt discount $865,796, larger than the principal amount of the Note. Consequently, $163,978 of the debt discount was expensed. Additionally,


33


$108,886 of the debt discount was amortized to interest expense for the year ended December 31, 2018, with an additional $504,910 amortized to interest in the nine months ended September 30, 2019, bringing the debt discount to $88,022 at September 30, 2019.

 

In the second tranche, the warrant fair value was $121,320 and the beneficial conversion feature fair value was $403,689 for a debt discount of $525,009. Including the $81,818 of OID, the total debt discount is $606,827. In the nine months ended September 30, 2019, $498,402 of the debt discount was amortized into interest expense, bringing the debt discount to $108,425 at September 30, 2019.

 

On February 22, 2019, the Investor converted $55,387 in principal amount of the Notes into 215,054 shares of the Company’s common stock. Likewise, on March 19, 2019, the Investor converted $38,633 in principal amount of the Note into 150,000 shares of the Company’s common stock. However, the conversion share calculation was incorrect for the March 19, 2019 conversion of the $38,633 in principal amount of the Note and was 26,712 shares less than what it should have been. These shares were added to a subsequent conversion in April 2019.

 

In the second quarter ended June 30, 2019, the Investor converted $449,397 in principal amount of the Note into 1,830,373 shares of the Company’s common stock.

 

In the third quarter ended September 30, 2019 the Investor converted $93,830 in principal amount of the Note into 750,000 shares of the Company’s common stock. The Company has accrued interest on the Note of $63,440 through September 30, 2019.

 

On May 21, 2019, six months after the issuance of the first tranche of the 8% Senior Secured Convertible Promissory Note, the Note matured with $307,798 in principal outstanding and approximately $24,118 in accrued interest. The Company was unable to repay the principal and accrued interest and therefore was in default of the Note. The Note has default provisions permitting default interest of 18% to be charged on the Note as well as to charge a default amount of 150% of the unpaid principal and interest.  

 

The Note was issued with two $600,000 tranches of cash payments. Since both tranches are in one Note, both tranches are in default as of May 21, 2019.

 

The Company and the Investor promptly began negotiations on a Forbearance Agreement and both parties have continued to account for the Note as if it was not in default. On September 11, 2019, the Company and the Investor agreed to a Forbearance Agreement. Pursuant to this agreement, the Investor is willing to postpone pursuing its rights and remedies under the agreements, in particular and without limitation with respect to the acceleration of the promissory note and the immediate payment of the default amount and reduce the balance of the promissory note to the pre-default balance plus accrued non-default interest of $1,062,784 on the following terms: 1) subject to the Company’s compliance with the forbearance agreement, the forbearance shall commence on the effective date and will expire on June 30, 2020.  2) Should the Company fail to abide by any of the terms and conditions of the forbearance agreement, fail to comply with the terms of the other agreements, or fail to timely make the payments required under the promissory notes, or should the Company trigger an event of default, the forbearance period will immediately terminate.  3) Subject to the Company’s compliance with the forbearance period, the repayment of the promissory note will be reduced from 35% to 0%.

 

The Company’s outstanding principal amount of the Note, after conversions, and the accrued interest as of the Forbearance Agreement date of September 11, 2019, was $805,649. The Forbearance Agreement for the outstanding principal amount and accrued interest of $1,062,784 produces a forbearance penalty of $257,135. This amount increased both the principal balance of the Note and increased the debt discount by the same amount. The $257,135 penalty is being amortized over the new maturity of the Note, June 30, 2020, and resulted in a $16,731 amortization expense in the three and nine months periods ended September 30, 2019. The outstanding principal amount of the Note is $1,003,524 at September 30, 2019.

 

For the Nine Months Ended September 30, 2019 compared to the Nine Months Ended September 30, 2018.  


34


For the nine months ended September 30, 2019, the Company had a net loss of $1,775,898. The Company had the following adjustments to reconcile net loss to cash flows from operating activities: an increase of $1,020,043 due to the amortization of the Senior Secured Convertible Promissory Note discounts and an increase of $2,316 due to the amortization of deferred offering costs.

 

The Company had the following changes in operating assets and liabilities: an increase of $23,346 in other receivables, a decrease of $18,567 in prepaid expenses, a decrease of $11,199 in deposits, an increase of $48,300 in deferred offering costs and an increase of $112,468 in accounts payable and accrued expenses.

 

As a result, the Company had net cash used in operating activities of $682,951 for the nine months ended September 30, 2019 which is largely due to the continued development of the eVTOL aircraft.

 

For the nine months ended September 30, 2018, we had a net loss of $6,719,483. We had the following adjustments to reconcile net loss to cash flows from operating activities: an increase of $6,285,214 due to an impairment expense and an increase of $2,534 due to interest paid in common stock.

 

We had the following changes in operating assets and liabilities: an increase of $19,277 in other receivables, an increase of $10,000 in prepaid expenses, an increase of $20,494 in deposits, an increase of $3,833 in overdrafts at the bank, and increase of $123,065 in accounts payable and accrued expenses, and a decrease of $358,355 from the discontinued operations.

 

As a result, we had net cash used in operating activities of $712,963 for the nine months ended September 30, 2018 which is largely due to the continued development of the eVTOL aircraft.

 

For the nine months ended September 30, 2019, the Company borrowed $38,991 on the Promissory Note from MAAB and received $600,000 from the issuance of a second tranche of the Senior Secured Convertible Promissory Note. As a result, the Company had net cash provided by financing activities of $638,991 for the nine months ended September 30, 2019.

 

For the nine months ended September 30, 2018, we accrued a preferred stock dividend of $2,500, and received $498,758 from a Promissory Note from MAAB. As a result, we had net cash provided by financing activities of $496,258 for the nine months ended September 30, 2018.

 

For the nine months ended September 30, 2019, the Company had loss on the net change in the foreign currency translation of $10,014. For the nine months ended September 30, 2018, the Company had loss on the net change in the foreign currency translation of $716.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Under Section 16(a) of the Securities Exchange Act of 1934, as amended, an officer, director, or greater-than-10% shareholder of the Company must file a Form 4 reporting the acquisition or disposition of Company’s equity securities with the Securities and Exchange Commission no later than the end of the second business day after the day the transaction occurred unless certain exceptions apply.  Transactions not reported on Form 4 must be reported on Form 5 within 45 days after the end of the Company’s fiscal year.  Such persons must also file initial reports of ownership on Form 3 upon becoming an officer, director, or greater-than-10% shareholder.  Mr. Bruce Bent, the Company’s Chief Executive Officer, is currently up to date in meeting these requirements and has notified the Company that he is now compliant.  On August 30, 2019, pursuant to Section 16(a), Mr. Bent disgorged short swing profits of $178,394 to the Company.

 

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 accounting principles generally accepted in the United States of America.  The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported


35


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 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 6 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 September 30, 2019.

 

Contractual Obligations

The registrant has no material contractual obligations

 

The long term debt repayments are as follows:

 

 

2019

2020

2021

2022

2023

Thereafter

Total

Promissory Note - MAAB

-

-

$630,430

-

-

-

$630,430

8% Senior Secured Convertible Promissory Note

-

$1,003,524

-

-

-

-

$1,003,524

Total Repayments

-

$1,003,524

$630,430

$   -

-

$     -

$1,633,954

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

 

Not applicable for smaller reporting companies.

 

Item 4.  Controls and Procedures

 

During period since the change in control of the Company on March 14, 2018, the Company has undergone operational and management changes, specifically with the sale of the discontinued operations and the acquisition of the new eVTOL aircraft in-process research and development and trademarks. In light of these changes management has assessed its internal controls and procedures.

 

Evaluation of Disclosure Controls and Procedures

 

We carried out an evaluation as required by paragraph (b) of Rule 13a-15 and 15d-15 of the Exchange Act, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer (who are the same person), of the effectiveness of our disclosure, controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of September 30, 2019.

 

A material weakness can be defined as an insufficiency of internal controls that may result in a more than remote likelihood that a material misstatement will not be prevented, detected or corrected in a company’s financial statements.

 

Based upon that evaluation, our Chief Executive Officer /Chief Financial Officer concluded that as of September 30, 2019, our disclosures and controls and procedures were not effective, based on the following deficiencies:


36


Weaknesses in Accounting and Finance Personnel: We have a small accounting staff and we do not have the robust employee resources and expertise needed to meet complex and intricate GAAP and SEC reporting requirements of a U.S. public company. Additionally, numerous adjustments and proposed adjustments have been noted by our auditors. This is deemed by management to be a material weakness in preparing financial statements.

 

We do not have written accounting policies and control procedures, and do not have sufficient staff to implement the related controls. Management had determined that this lack of written accounting policies and control procedures and the lack of the implantation of segregation of duties, represents a material weakness in our internal controls.

 

Internal control has as its core a basic tenant of segregation of duties. Due to our limited size and economic constraints, the Company is not able to segregate for control purposes various asset control and recording duties and functions to different employees. This lack of segregation of duties had been evaluated by management and has been deemed to be a material control deficiency.

 


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PART II – OTHER INFORMATION

 

Item 1.   Legal Proceedings

 

None

 

Item 1A.  Risk Factors  

 

Not applicable for smaller reporting companies

 

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds

 

None

 

Item 3.   Defaults Upon Senior Securities.

 

None

 

Item 4.   Mine Safety Disclosures

 

Not Applicable

 

Item 5.   Other Information

 

None

 

Item 6.   Exhibits

 

Exhibit 31* - Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 32* - Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS**   XBRL Instance Document

101.SCH**   XBRL Taxonomy Extension Schema Document

101.CAL**   XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF**.  XBRL Taxonomy Extension Definition Linkbase Document

101.LAB**   XBRL Taxonomy Extension Label Linkbase Document

101.PRE**   XBRL Taxonomy Extension Presentation Linkbase Document

 

*  Filed herewith

**XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.


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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Dated: November 19, 2019

 

ASTRO AEROSPACE LTD.

 

By:  /s/Bruce Bent

Bruce Bent

Chief Executive Officer

Chief Financial Officer


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