Recent Events

Acquisition of Horizon Aircraft, Inc.

On February 17, 2021, the Company entered into a binding letter of intent to acquire all of the issued and outstanding securities of Horizon Aircraft Inc. ("Horizon"). Pursuant to the Share Exchange Agreement which closed May 28, 2021, the Company acquired all of the issued and outstanding common shares of Horizon in exchange for 5,000,000 common shares of the Company. The Company intends to deliver the required shares the week after September 27, 2021. The Company is accounting for this purchase as business combination.

If, following the Closing, Horizon develops a 1:2 scale test prototype of an eVTOL aircraft that can fly in accordance with mutually agreed upon parameters (a "Working Prototype"), then (X) if the Working Prototype is developed within 12 months following Closing, the Company shall issue the current shareholders of Horizon an additional 2,000,000 common shares of the Company or (Y) if the Working Prototype is developed within 18 months following Closing, the Company shall issue the current shareholders of Horizon an additional 1,500,000 common shares of the Company.

The Company will provide Horizon with a minimum of USD $1,500,000 to be used as a first year operating budget. As of September 29, 2021, the Company has provided $765,000.

Horizon shareholders have entered into customary lock-up agreements whereby they agree not to sell of dispose of the Company's common shares received in the exchange for varying periods of time. The Company agrees to include the Company's common shares held by E. Brandon Robinson and Seaview Capital in any registration filed by the Company under applicable Canadian securities laws or U.S. securities laws.

The Company has entered in employment agreements with certain key employees of Horizon. Additionally, the Company has appointed Brandon Robinson as President of the Company and to the Company's board of directors.

The Company has recorded the acquisition of specific Horizon assets and liabilities at a value of $16,227,753 based on the value of the shares of the Company at the time of the acquisition. The value is inclusive of in-process research and development of $2,169,000, non-compete agreements of $433,800 and goodwill of $14,011,720. The Company had an independent third party company prepare a valuation of the transaction. As part of that valuation, Astro recorded an impairment expense of all of the goodwill in the three and six months ended June 30, 2021.

COVID-19 Pandemic

The COVID-19 pandemic is currently impacting countries, communities, supply chains and markets as well as the global financial markets. Governments have imposed laws requiring social distancing, travel bans and quarantine, and these laws may limit access to the Company's facilities, customers, management, support staff and professional advisors. These factors, in turn, may not only impact the Company's operations, financial condition and demand for the Company's goods and services, but the Company's overall ability to react timely to mitigate the impact of this event. Also, it has affected the Company's efforts to comply with filing obligations with the SEC. Depending on the severity and longevity of the COVID-19 pandemic, the Company's business and stockholders may experience a significant negative impact. Currently, the COVID-19 pandemic has limited the Company's ability to move forward with our operations and has negatively affected our ability to timely comply with our ongoing filing obligations with the SEC.

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Partial Sales, Conversions and Final Disposition of the 8% Senior Secured Convertible Promissory Notes

Refer to Note 7, "8% Senior Secured Convertible Promissory Notes", in the condensed consolidated financial statements for the final disposition of the Notes.

Reverse Common Stock Split

On October 8, 2020, the Company's majority stockholder approved a 1-for-15 reverse common stock split ("the Reverse Stock Split"). On February 5, 2021, the Company effected the Reverse Stock Split, reducing the number of common shares outstanding. As a result of the Reverse Stock Split, every 15 shares of issued and outstanding common stock were combined into one issued and outstanding share of common stock, without any change in the par value per share and common shares authorized. All current and prior year share amounts and per share calculations have been retrospectively adjusted to reflect the impact of this reverse stock split and to provide data on a comparable basis. Such restatements include calculations regarding the Company's weighted average shares and loss per share.

Operations - Astro Aerospace, Ltd.

In 2018, Astro Aerospace Ltd. ("Astro" or the "Company) acquired the software, firmware and hardware for Version 1.0 of a manned electric vertical take-off and landing aircraft ("eVTOL") from Confida Aerospace, Ltd. The eVTOL which is in the early stage of development, has executed multiple flights. It is Astro's goal to transform how people and things get from place to place. This will be done by making safe, affordable user-friendly autonomous manned and unmanned eVTOL aircraft available to the mass market anywhere. Astro is currently working on Version 2.0 of the aircraft product which will feature design changes that enhance performance characteristics and safety features. The target market will be government, private sector operators and individuals for a wide range of commercial, logistical and personal uses. Astro is currently in the flight testing mode of its Passenger Drone Version 1.0, as well as in the development stages of its version 2.0 Passenger Drone model.

The Company is working with Infly Technology Ltd., our design and manufacturing partner, who is leading the design and development team with responsibility for developing the team as well as building the new prototypes for the two new aircraft models. The Company applied for approval to test the Passenger Drone 1.0 version in Canada in order to display new software, avionics and stability. The Company received an SFOC (Special Flight Operations Certificate) from Transport Canada in September 2018, allowing Astro to take to the sky, and put the Passenger Drone 1.0 "Elroy" through critical elements of integrated flight testing. The testing culminated on Wednesday, September 19, 2018 with a 4 minute and 30 second flight, reaching heights of over 60 feet and speeds of over 50 km/h. The avionics and flight control systems were put to task with a multitude of maneuvers and the vehicle remained exceptionally stable, even under the effects of a couple of unexpected wind gusts.

Astro's newest prototype focuses on a multitude of applications including passenger transport, cargo delivery, ambulance and med-evac services, rescue and disaster assistance, military, and B2B. Its newly designed modular structure allows the Astro Top Frame (ALTA) to fly independently, as well as in combination with the individually designed "Astro Pods" for the specific need in that specific industry. A fly-in and pick-up system will allow the vehicle to connect, fly, disconnect and repeat, effectively and efficiently, changing from one application to the next. Astro refers to it as the Swiss Army Knife of the eVTOL world. Along with recent Avionics and Control system upgrades this modularity opens the door to the ever growing opportunities that (eVTOL) electric take-off and landing short haul vehicles bring.

Astro anticipates the new prototype for the frame to be completed and flying by the end of the second quarter, 2022. The Pods will be completed by the end of 2022. The Company has completed the engineering and firmware for the prototype and is now building the body for the new prototype. Simulations have gone well. The eVTOL aircraft is in an early development stage. The Company expects that it will be marketing the aircraft sometime in the fourth quarter of 2022. To date, no commercial applications have been found which would accept the product.

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To complete an eVTOL aircraft and have it ready to market, Astro completed the acquisition of Horizon, who develops advanced eVTOL aircrafts. It is expected that Horizon's management and its technology will expedite the development and completion of a marketable eVTOL aircraft.

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.

On August 26, 2019, the Company entered into an Equity Purchase Agreement and Registration Rights Agreement with the same investor who provided the Senior Secured Convertible Promissory Note. Under the terms of the Equity Purchase Agreement, the investor agreed to purchase from the Company up to $5,000,000 of the Company's common stock upon effectiveness of a registration statement on Form S-1.

During the six months ended June 30, 2020, the Company put a total of 120,000 shares of common stock at prices ranging from $0.79 and $1.54 for total proceeds of $108,076, net of issuance costs. During the six months ended June 30, 2021, the Company has put 120,000 shares at prices ranging from $2.44 to $2.85 per share for total proceeds of $314,416, net of issuance costs.

In April 2020, the Company amended the MAAB Promissory Note to increase the maximum principal amount to $1,250,000 and to extend the maturity date to February 28, 2022. On September 13, 2021, the Company again amended the MAAB Promissory Note to increase the maximum principal amount to 2,000,000 and to extend the maturity to February 28, 2023. The principal amount advanced under the Promissory Note was $1,476,664 at June 30, 2021.

On March 5, 2021, the Company raised $1,250,000, less $25,000 for commissions and expenses, through the issuance of a new 8% Senior Secured Convertible Promissory Note.

The Company will continue to keep expenses as low as possible with closely monitoring working capital, development cost and schedule, while the Company continues the development of Passenger Drone Version 1.0 and 2.0.

Results of Operations

The Three Months Ended June 30, 2021 compared to The Three Months Ended June 30, 2020

For the three months ended June 30, 2021 and 2020, the Company did not have any revenue. It is developing an eVTOL aircraft and expects that it will be marketing the aircraft sometime in the second quarter of 2022. To date, no commercial applications have been found which would accept the product.

In the three months ended June 30, 2021 and 2020, Astro incurred $14,770,054 and $124,849 in operating expenses, respectively, an increase of $14,645,205. The increase was substantially due to a goodwill impairment expense of $14,011,720 related to the acquisition of Horizon. Additional new spending on the eVTOL aircraft and costs related to the acquisition of Horizon also contributed to the increase in operating expenses. Further, in the three months ended June 30, 2020 the spending was significantly reduced due to the worldwide COVID-19 economic shutdowns.

Sales and marketing expenses increased from $18,220 in the three months ended June 30, 2020 to $466,003 in the three months ended June 30, 2021, an increase of $447,783 or 2,458%. The significant increase is due to increasing the investor relations support and the hiring of marketing consultants, as well as other capital markets marketing support. R&D expenses increased $32,121 or 79% in the three months ended June 30, 2021 versus 2020 as the Company returned to R&D spending as the COVID-19 pandemic is ebbing. General and administrative expenses increased in the three months ended June 30, 2021 versus 2020 to $219,446 from $65,865, largely due to increases in consulting, accounting and legal fees. Finally, there was a goodwill




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impairment expense of $14,011,720 in the three months ended June 30, 2021, related to the acquisition of Horizon.

Other expenses increased in the three months ended June 30, 2021 versus 2020, to $647,462 from $215,858, an increase of $431,604 or 200%. The largest portion of the increase is in interest expense which is due to the increase in the amortization of the 8% Senior Secured Convertible Promissory Notes, issued March 5, 2021. There was also a small increase of $5,018 in the bank and filing fees.

The Company had a net loss of $15,417,516 versus $340,707 in the three months ended June 30, 2021 versus 2020, largely due to the goodwill impairment expense from the Horizon acquisition as well as increases in sales and marketing, R&D spending, general and administrative expense, and interest expense. There was also an undeclared preferred dividend of $2,500 in both the 2021 and 2020 quarters which made the net loss available to common stockholders of $15,420,016 and $343,207, respectively.

Astro also had foreign currency translation loss of $16,281 in the three months ended June 30, 2021 and had a translation loss of $63,785 in the three months ended June 30, 2020. This is due to the difference in the Canadian dollar and U.S. dollar exchange rates for those periods. The COVID-19 pandemic greatly increased the fluctuation of the Canadian and U.S. dollar exchange rate. Astro's comprehensive loss was $15,433,797 and $404,492 in the three months ended June 30, 2021 and 2020, respectively.

The Six Months Ended June 30, 2021 compared to The Six Months Ended June 30, 2020

For the six months ended June 30, 2021 and 2020, the Company did not have any revenue. It is developing an eVTOL aircraft and expects that it will be marketing the aircraft sometime in the second quarter of 2022. To date, no commercial applications have been found which would accept the product.

In the six months ended June 30, 2021 and 2020, Astro did incur $15,572,064 and $305,284 in operating expenses respectively, an increase of $15,266,780. The increase was substantially all due to a goodwill impairment expense of $14,011,720 related to the acquisition of Horizon. Also, there was a substantive increase in sales and marketing as the Company expands its sales efforts and capital markets support as the world economies begin to recover from the COVID-19 pandemic.

Sales and marketing expenses increased from $100,645 in the six months ended June 30, 2020 to $1,030,043 in the six months ended June 30, 2021, an increase of $929,398. R&D expenses increased $49,744 or 71% in the six months ended June 30, 2021 versus 2020 as R&D spending is beginning to recover from the COVID-19 pandemic. General and administrative expenses increased in the six months ended June 30, 2021 versus 2020 to $410,025 from $134,107, largely due to increases in consulting, legal and accounting fees. Finally, there was a goodwill impairment expense of $14,011,720 in the six months ended June 30, 2021, related to the acquisition of Horizon.

Other expenses increased in the six months ended June 30, 2021 versus 2020 to $892,617 from $501,553, an increase of $391,064 or 78%. The largest portion of the increase is in interest expense, which increased $384,527 or 78%. This is due to the increase in amortization of the 8% Senior Secured Convertible Promissory Notes, Issued March 5, 2021. There was also a small increase of $6,537 in the bank and filing fees.

The Company had a net loss of $16,464,681 versus $806,837 in the six months ended June 30, 2021 versus 2020, largely due to the impairment expense from the Horizon acquisition as well as increases in sales and marketing, R&D spending, general and administrative expense, and interest expense. There was also an undeclared preferred dividend of $5,000 in both the 2021 and 2020 periods which made the net loss available to common stockholders of $16,469,681and $811,837, respectively.



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Astro also had a foreign currency loss of $49,176 versus a translation gain of $74,880 in the six months ended June 30, 2021 versus 2020. This is from the difference in the Canadian dollar and U.S. dollar exchange rates during the six months ended June 30, 2021 and 2020. Astro's comprehensive loss was $16,513,857 and $731,957 in the six months ended June 30, 2021 and 2020.

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 $1,476,664 and there is $523,336 available under the terms of the note through June 30, 2021. The note was amended on April 22, 2020 to increase the maximum principal amount to $1,250,000 and to extend the maturity to February 28, 2022. On September 13, 2021, the Company again amended the MAAB Promissory Note to increase the maximum principal amount to $2,000,000 and to extend the maturity to February 28, 2023.

On March 5, 2021, the Company issued an 8% Senior Secured Convertible Promissory Note ("Note") in the aggregate principal amount of $1,250,000 less commissions and expenses of $25,000. The Note matures on December 31, 2021.


For more detail, see Note 7 to the condensed consolidated financial statements.

On August 26, 2019, the Company entered into an Equity Purchase Agreement and Registration Rights Agreement with the same investor who provided the Senior Secured Convertible Promissory Note. Under the terms of the Equity Purchase Agreement, the investor agreed to purchase from the Company up to $5,000,000 of the Company's common stock upon effectiveness of a registration statement on Form S-1.

During the six months ended June 30, 2020, the Company put a total of 120,000 shares of common stock at prices ranging from $0.79 and $1.54 for total proceeds of $108,076, net of issuance costs. During the six months ended June 30, 2021, the Company has put 120,000 shares at prices ranging from $2.44 to $2.85 per share for total proceeds of $314,416, net of issuance costs.

Further capital support will come from the parent, and additional capital from third party sources. There is no assurance that the third party capital will be available. In the event that additional capital from the private or public markets is not available, the Company will need to reduce its spending on development and operations to the level of the capital that is available from the parent.

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of our business. As reflected in the accompanying condensed consolidated financial statements, for the six months ended June 30, 2021 the Company had a net loss of $16,464,681 and used $1,542,250 in cash in operations, and at June 30, 2021, had negative working capital of $1,298,142, current assets of $121,920, and an accumulated deficit of $27,967,402. 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.






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While the Company has Net Operating Losses ("NOL") for tax purposes due to the net losses through the six months ended June 30, 2021, the Company has taken a 100% income tax valuation allowance against it resulting in no deferred tax asset. At this time, it is not known if the Company will become profitable with the ability to use the NOL.

The Company expects to spend $760,000 in the next six months and then another $1,500,000 in the subsequent six months on the development and marketing of the eVTOL aircraft.

See Notes to the condensed consolidated financial statements for Series A Preferred stock, Series B Preferred stock, promissory note from MAAB, 8% Senior Secured Convertible Promissory Notes, Equity Purchase Agreement and Registration Rights Agreement and Forbearance Agreement.

The Six Months Ended June 30, 2021 compared to the Six Months Ended June 30, 2020

For the Six months ended June 30, 2021, the Company had a net loss of $16,464,681. The Company had the following adjustments to reconcile net loss to cash flows from operating activities: an increase of $741,331 due to the amortization of the 8% Senior Secured Convertible Promissory Note discount, common stock issued for services of $69,996 and an impairment expense of $14,011,720. The Company had the following changes in operating assets and liabilities: a decrease of $33,389 in other receivables, an increase of $188,982 in deposits, and an increase of $254,977 in accounts payable and accrued liabilities.

As a result, we had net cash used in operating activities of $1,542,250 for the six months ended June 30, 2021, which is largely due to the continued development of the eVTOL aircraft.

For the six months ended June 30, 2020, the Company had a net loss of $806,837. The Company had the following adjustment to reconcile net loss to cash flows from operating activities: an increase of $414,545 due to the amortization of the 8% Senior Secured Convertible Promissory Notes' discounts.

The Company had the following changes in operating assets and liabilities: a decrease of $24,957 in other receivables, a decrease of $623 in prepaids, a decrease of $3,822 in deposits and an increase of $64,513 in accounts payable and accrued liabilities.

As a result, the Company had net cash used in operating activities of $298,377 for the six months ended June 30, 2020 which is largely due to the continued development of the eVTOL aircraft.

For the six months ended June 30, 2021, the Company spent $28,192 to acquire property and equipment and acquired $131,896 as a result of the Horizon acquisition and had cash provided by investing activities of $103,704. The Company did not have any cash from investing activities for the six months ended June 30, 2020.

For the six months ended June 30, 2021, the Company received $267,314 in proceeds from the Promissory Note from the Parent, received $1,225,000 from the issuance of a new 8% Senior Secured Convertible Promissory Note, received $314,416 from the puts of common stock under the Equity Purchase Agreement and received proceeds of $56,250 as a depost from the issuance of common stock.

As a result, the Company had net cash provided by financing activities of $1,487,980 for the six months ended June 30, 2021.

For the six months ended June 30, 2020, the Company received $145,494 in proceeds from the Promissory Note from MAAB and received $87,786 from the puts of common stock under the Equity Purchase Agreement. As a result, the Company had net cash provided by financing activities of $233,280 for the six months ended June 30, 2020.

For the six months ended June 30, 2021 the Company had a loss from the effect of the foreign currency translation of $49,176 and for the six months ended June 30, 2020 the Company had a gain from the effect of the foreign currency translation of $74,880.



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Critical Accounting Policies and Estimates

Management's Discussion and Analysis of its Financial Condition and Results of Operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an on- going basis, we evaluate our estimates, including those related to the reported amounts of revenues and expenses and the valuation of our assets and contingencies. We believe our estimates and assumptions to be reasonable under the circumstances. However, actual results could differ from those estimates under different assumptions or conditions. Our condensed consolidated financial statements are based on the assumption that we will continue as a going concern. If we are unable to continue as a going concern, we would experience additional losses from the write-down of assets.

Recent Accounting Pronouncements

See Note 4 to the Condensed Consolidated Financial Statements, "Recent Accounting Pronouncements", for the applicable accounting pronouncements affecting the Company.

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