Drone Aviation Corp Aquisition of Lighter than Air Systems

12 Months Ended

Dec. 31, 2015

Merger between Macrosolve, inc. and Drone Aviation Holding Corp / Drone Aviation Corp Aquisition of Lighter than Air Systems / Drone Aviation Holding Corp Asset Acquisition of Adaptive, Flight, Inc. [Abstract]

DRONE AVIATION CORP AQUISITION OF LIGHTER THAN AIR SYSTEMS

3. DRONE AVIATION CORP AQUISITION OF LIGHTER THAN AIR SYSTEMS

On March 31, 2014, DAC was incorporated in the state of Nevada. During April and May 2014, investors purchased 34,100,000 shares of DAC common stock for an aggregate purchase price of $653,327. On May 5, 2014, DAC entered into a securities exchange agreement with World Surveillance Group, Inc. (WSGI) to acquire 100% of WSGI’s interest in its subsidiary, Lighter Than Air Systems (LTAS). LTAS provides critical aerial and land-based surveillance and communications solutions to government and commercial customers. DAC paid $335,000 and issued 10,000,000 shares of its common stock valued at the market price on the date of issuance, and the fair value of the shares was determined to be $79,000, or a total of $414,000, to WSGI as consideration for LTAS. Since DAC acquired cash of $30,361 from LTAS, as shown in the following table, the net cash amount DAC paid is $304,639.

In accordance with ASC 805-10 Business Combination and purchase acquisition accounting, DAC initially allocated the consideration to the net tangible and identifiable intangible assets, based on their estimated fair values as of the date of acquisition. Goodwill represents the excess of the purchase price over the fair value of the underlying net tangible and intangible assets. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date.

Property and equipment	$	1,638
Accounts receivable		135,050
Cash in bank		30,361
Due from related party		20,650
Prepaid expenses		1,381
Inventory		109,581
Intangible asset		135,550
Current liabilities		(120,010	)
Goodwill		99,799
Total purchase price	$	414,000

Intangible asset is in relation to the acquired customer list with a useful life of five years. The fair value of the customer list was determined by using a discounted cash flow model and $135,550 was recorded on the date of business combination. The Company recorded $31,941 of amortization expense for the year ended December 31, 2014. The Company recorded another $37,935 amortization expense for the year ended December 31, 2015. After comparing the acquired customer list to the actual customers who placed orders following the acquisition of LTAS, the Company determined that the customer list was impaired at December 31, 2015 and amortized the remaining balance of $65,674 in 2015.

The consolidated financial statements included herein are presented for the period from January 1, 2014 to May 5, 2014 since LTAS is considered Drone’s predecessor. LTAS has a net loss of $39,918 during the period from January 1, 2014 to May 5, 2014.