Estimated reading time 14 minutes, 53 seconds.
“Astro Aerospace has positioned themselves to control the market for three years before any competitor!” declares the article on SmallCapExclusive.com. “That is competitive advantage at its greatest!”
Meanwhile, says TraderNose.com, “If you’d bought 1,000 shares of Tesla in 2010 it would be worth $1M. Invest now in Astro and reap the gains . . . share prices have already been going parabolic.”
Both websites present themselves as conventional stock tip sites, using sprinklings of factual information about the emerging electric vertical take-off and landing (eVTOL) industry to make a case for investing in the eVTOL developer Astro Aerospace (OTC: ASDN). But buried on each is a disclaimer that the articles are paid advertisements intended solely to boost the company’s stock price.
“We publish information about profiled issuers because we are compensated to advertise them and not for any other reason,” says TraderNose.com. “The information consists only of positive content. We do not and will not publish any negative information about the profiled issuers.”
SmallCapExclusive.com is even more cynical in its disclaimer, acknowledging: “Astro Aerospace, Inc. is a penny stock that was illiquid (little to no trading volume) prior to our campaign, and therefore these securities are subject to wide fluctuations in trading price and volume. . . . When the campaign ends, the volume and price of the profiled issuer will likely decrease dramatically. As a result, investors who purchase during the campaign and hold shares of the profiled issuer when the campaign ends will probably lose most, if not all, of their investment.”
Investor interest in the emerging eVTOL industry has recently exploded, largely due to special purpose acquisition company (SPAC) deals that have valued eVTOL developers Archer and Joby Aviation, and now Lilium, in the billions of dollars. But retail investors who want to get in early on the market still have relatively few options, with Nasdaq-listed EHang the only major eVTOL developer to have gone public through an initial public offering (IPO).
Now, an aggressive stock promotion on behalf of Astro Aerospace, which aims to uplist to the Nasdaq, is testing the credulity of retail investors who have a fear of missing out on the eVTOL space. Astro boasts of being one of the first companies to fly an eVTOL with a person on board, but it didn’t own the technology at the time of the manned flight in Bulgaria, and Securities and Exchange Commission (SEC) filings suggest that its full-scale prototype hasn’t flown since an unmanned demonstration in September 2018 that lasted less than five minutes.
In the first nine months of 2020, according to its most recent quarterly report, Astro spent just under $99,000 on research and development — less than it spent on sales and marketing. By contrast, EHang, which has been criticized by others in the industry for its comparatively paltry R&D budget, spent nearly $8 million on R&D in the same time period.
On Feb. 18, 2021, one day after revealing its intention to uplist to the Nasdaq with the assistance of Kingswood Capital Markets, Astro announced its plan to acquire Horizon Aircraft, a Canadian startup owned by father and son Brian and Brandon Robinson. Horizon has been pursuing its own media blitz to promote the Cavorite X5, a five-seat eVTOL concept that thus far exists only in renderings and a 1:6 scale model.
Astro and Horizon aren’t unusual among eVTOL hopefuls in having ambitions that far outstrip their achievements. However, very few eVTOL companies have sought public investment at such an early stage of development. With its forceful sales pitch to the capital markets, ASDN is a test case for the extent to which hot air can get an eVTOL off the ground.
From pools to passenger drones
The company that today is known as Astro Aerospace was first listed in 2016 as CPSM, Inc., a holding company for Florida-based Custom Pool & Spa Mechanics and Custom Pool Plastering, owned by Lawrence and Loreen Calarco. In March 2018, the Calarcos sold their shares to Bruce Bent of MAAB Global Limited, who became CEO. Bent changed the name of the company to Astro Aerospace and sold the pool businesses back to the Calarcos, meanwhile acquiring the assets of Confida Aerospace and Infly Technology — specifically, the PassengerDrone.
As detailed in a 2018 Vertiflite article by Kenneth I. Swartz, PassengerDrone was developed by Bulgarian electronics and software experts Boyan Zhelev and Ivaylo Nikolov, who started working in the drone space in 2004. They commenced work on PassengerDrone in 2015, using a gyroplane cockpit from Bulgaria’s Niki Rotor Aviation for the body of the aircraft. The full-scale prototype made its first unmanned flight in April 2017. In September of that year, Zhelev performed the first manned flight in Bulgaria; a video of the milestone was shared to YouTube.
Astro’s PassengerDrone acquisition included the prototype aircraft itself, as well as the rights to its hardware, software and firmware components, designs and trademarks. The aircraft was loaded into crates and shipped to Paterson Composites Inc. in Toronto, Ontario, which was named as Astro’s design and manufacturing partner. As Astro announced the news, the value of its stock skyrocketed from less than $1 to a high of over $48 before beginning a steady decline.
In September 2018, Astro renamed the aircraft “Elroy” and received permission from Transport Canada to conduct unmanned test flights at Markham Airport northeast of Toronto. The final flight, on Sept. 19, lasted four-and-a-half minutes, during which the aircraft reportedly reached heights of over 60 feet (18 meters) and speeds of over 30 miles per hour (50 kilometers per hour). Around the same time, Astro announced its intentions to build a “2.0” version of the Elroy.
More than two years later, with ASDN back in penny stock territory, Elroy 2.0 has yet to materialize; Astro’s most recent quarterly report describes it as in the “development stages.” Also still in development is the modular “Alta” concept that Astro unveiled in January 2020. In its Q3 2020 SEC filing, Astro reported that it has completed the engineering and firmware for the prototype and expects it to be flying by the end of the second quarter in 2021.
Astro’s latest investor deck touts both the Elroy and the Alta, but gives pride of place to the Cavorite X5, the long-range, hybrid-electric VTOL concept developed by Horizon. In a January 2021 interview with Loz Blain of New Atlas, Brandon Robinson described how the X5 grew out of the Robinsons’ concept for a hybrid-electric amphibious aircraft. The X5 has small ducted fans embedded in each wing and the canard; the leading and trailing edges open to reveal the fans during vertical take-offs and landings, then close to improve aerodynamics in forward flight.
Or at least, that’s the idea, as the Cavorite X5 is not yet a real aircraft. Astro’s purchase agreement promises Horizon a minimum first year operating budget of $1.5 million, which the company will use to develop a half-scale working prototype. In January, Brandon Robinson told New Atlas that Horizon was nearing completion of its 1:6 scale demonstrator, but acknowledged that the demonstrator would vary in some important ways besides size from the real thing.
For example, he said the flight control software for the subscale demonstrator “will be the standard self-stabilizing software . . . you just give it the basic dimensions and geometry, and it’s a fancy octacopter.” Robinson this week confirmed in an email to eVTOL.com that “the full-scale software will be substantially more complex.”
That nuance did not make it into Astro’s March 18 press release touting the completion of more than 200 test flights for the subscale demonstrator of the Cavorite X5. The press release did not include a photo or video of the demonstrator and shared no details about the duration of or test cards for the flights; Robinson likewise declined to provide any further information to eVTOL.com. Despite the paucity of any evidence surrounding the subscale flights, Astro CEO Bruce Bent confidently asserted in the press release, “The testing of the Cavorite X5’s subscale prototype has exemplified to the global eVTOL market that Horizon’s engineered design is the new standard.”
Exploiting a knowledge gap
Savvy observers of the eVTOL space could raise various concerns about Astro and Horizon that are applicable to many similar startups. They could question Astro’s ability to certify the Elroy, which evolved out of small drone technology that may not be reliable enough to carry passengers, while also pointing to the technical risk in the Cavorite X5, which is a more complex design than most of its competitors. They might doubt that a combined company with such a shallow talent pool could manage even one aircraft certification program, let alone three. In its investor deck, Astro compares itself favorably to Joby, Archer, EHang, and Lilium, but all of these companies have much larger and better resourced teams focused primarily on a single flagship aircraft.
Those leading eVTOL developers also have comparatively well defined business plans. According to its investor deck, Astro is counting primarily on the Cavorite X5 to serve the passenger air taxi market, but all of its named competitors have determined that hybrid-electric aircraft will be too noisy, polluting, and expensive to achieve urban air mobility operations at scale. Moreover, Horizon is reserving the option to first certify the Cavorite X5 under the experimental amateur-built category to expedite market entry and refine the manufacturing process, Brandon Robinson said, but this will make it ineligible for any commercial passenger-carrying operations until it achieves full certification at an unknown future date.
Private investors generally have the time and expertise to carefully evaluate claims involving unproven technologies, as well as the resources to absorb the occasional bad bet. But how many retail investors — who in some cases may be gambling with their retirement savings — have the specialized knowledge necessary to competently evaluate Astro’s claims? For all of the elaborate, 3,000-word disclaimers on sites like TraderNose.com, presumably no one would advertise there in the first place if they counted on everyone reading them.
Stock promotions aren’t always sponsored by the companies in question; sometimes they’re the work of third parties that stand to benefit from a substantial if temporary increase in share price. TraderNose.com and PersonalIncome.org acknowledge that their articles promoting Astro are paid, but do not clearly identify the sponsor of the article. A post on WonderfulEngineering.com, which repackages a legitimate news story with sly references to Astro and links to its stock information, does not identify the content as sponsored at all.
Promoters also appear to be leveraging social media and the comments sections of legitimate websites — including eVTOL.com — to drive potential investors to the misleading articles. This comment by “Caroline Scott” on an eVTOL.com story about Archer’s SPAC deal is typical: “Thanks for that informative article. After reading your article, I got a little more interested and searched more on eVTOLs. I did learn more here [link to Astro article on TraderNose.com] that the eVTOL has a big market and has this big potential to grow even bigger.” (The comment was not approved by our moderators.)
However, SmallCapExclusive.com acknowledges 900 words into its fine print disclaimer that Astro Aerospace compensated them $30,000 for the promotion, and $100,000 for a campaign that ended in February 2020. A more recent article on the site discloses that Astro paid another $45,000 for a campaign that started on Feb. 17, 2021 — meaning that Astro has given substantially more to SmallCapExclusive.com than its entire R&D spend for the first nine months of 2020.
Regardless of who is paying for a promotion, management of a public company “has the responsibility to dispel unfounded rumors, misinformation or false statements which result in unusual market activity” according to OTC Markets, which lists ASDN on its OTCQB Venture Market. OTC’s policy on stock promotion identifies a number of common characteristics of “misleading and manipulative promotion” that can be found on the TraderNose.com and SmallCapExclusive.com sites, including failure to clearly identify the sponsor of the promotion, use of highly speculative language and grandiose numbers and figures, and exaggerated statements about the stock price and its anticipated trajectory.
For example, SmallCapExclusive.com states in its earlier article that “Astro Aerospace is no stranger to absolutely mind-boggling gains amidst favorable news. In 2018, the stock had gains of over 8,000% and we believe the stock could be positioned for an even more explosive run than last time.” Its most recent article touts that “ASDN could be setting up for a run to $100++ per share.”
When contacted by eVTOL.com, OTC Markets declined to answer specific questions relating to ASDN, confirming only that it added a flag to the security on March 16 to make investors aware that it was the subject of a stock promotion. Astro CEO Bruce Bent did not respond to multiple requests for comment, and Brandon Robinson declined to comment on Astro’s stock promotion activities.
As ever more money pours into the eVTOL space, it seems likely that additional actors will attempt to exploit investor enthusiasm with similarly questionable tactics — which appear to be generally tolerated by stock exchanges and regulators. In such a climate, legally mandated disclaimers may be the naïve investor’s most reliable source of advice. As the one on SmallCapExclusive.com puts it: “If you purchase the securities of the profiled issuers, you should be prepared to lose your entire investment.”