10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the 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 Transition Period from _________ to _________

Commission file number: 333-150332

DRONE AVIATION HOLDING CORP.

(Exact name of registrant as specified in its charter)

Nevada	46-5538504
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

11651 Central Parkway #118 Jacksonville, FL	32224
(Address of principal executive office)	(Zip Code)

(904) 834-4400

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
None	N/A	N/A

Indicate by check mark whether the registrant (1) has 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 ☐ No ☒

Note: The registrant is a voluntary filer, but has filed all reports it would have been required to file by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months if it was subject to the filing requirements thereof.

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

As of November 14, 2019, there were 27,456,121 shares of registrant’s common stock outstanding.

DRONE AVIATION HOLDING CORP.

INDEX
PART I. FINANCIAL INFORMATION
ITEM 1	Financial Statements (Unaudited)	1
	Consolidated Balance Sheets as of September 30, 2019 (Unaudited) and December 31, 2018	1
	Consolidated Statements of Operations for the three and nine months ended September 30, 2019 and 2018 (Unaudited)	2
	Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the three and nine months ended September 30, 2019 and 2018 (Unaudited)	3
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018 (Unaudited)	4
	Notes to Interim Unaudited Consolidated Financial Statements	5
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	25
ITEM 4.	Controls and Procedures	25
PART II. OTHER INFORMATION
ITEM 1.	Legal Proceedings	26
ITEM 1A.	Risk Factors	26
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
ITEM 3.	Defaults Upon Senior Securities	27
ITEM 4.	Mine Safety Disclosures	27
ITEM 5.	Other Information	27
ITEM 6.	Exhibits	27
SIGNATURES		28

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PART I

FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS (Unaudited)

DRONE AVIATION HOLDING CORP.

CONSOLIDATED BALANCE SHEETS

	9/30/2019			12/31/2018
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash	$	1,624,758		$	2,282,365
Accounts receivable - trade		1,631,414			18,000
Inventory, net		826,647			307,925
Deferred offering costs		174,475			-
Prepaid expenses and deposits		212,841			89,613
Total current assets		4,470,135			2,697,903
PROPERTY AND EQUIPMENT, at cost:		280,981			176,955
Less - accumulated depreciation		(159,052	)		(123,725	)
Net property and equipment		121,929			53,230
OTHER ASSETS:
Right of use leased assets		122,802			-
Goodwill		99,799			99,799
Intangible assets, net		486,667			705,667
Total other assets		709,268			805,466
TOTAL ASSETS	$	5,301,332		$	3,556,599
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade and accrued liabilities	$	486,717		$	485,024
Bank line of credit		2,000,000			2,000,000
Deferred revenue		22,500			-
Operating lease liability		86,070			-
Total current liabilities		2,595,287			2,485,024
LONG TERM LIABILITIES:
Operating lease liability		37,606			-
TOTAL LIABILITIES	$	2,632,893		$	2,485,024
COMMITMENTS AND CONTINGENCIES		-			-
STOCKHOLDERS' EQUITY:
Common stock, $.0001 par value; authorized 300,000,000 shares; 27,556,121 and 23,640,621 shares issued, 27,456,121 and 23, 640,621 outstanding, at September 30, 2019 and December 31, 2018, respectively		2,756			2,364
Treasury stock		(50,000	)		-
Additional paid-in capital		41,662,837			39,541,301
Retained deficit		(38,947,154	)		(38,472,090	)
Total stockholders' equity		2,668,439			1,071,575
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	5,301,332		$	3,556,599

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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DRONE AVIATION HOLDING CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

	For the Three Months Ended						For the Nine Months Ended
	September 30,			September 30,			September 30,			September 30,
	2019			2018			2019			2018
Revenues	$	2,740,337		$	84,815		$	4,120,834		$	995,838
Cost of goods sold		1,364,794			51,587			1,769,606			537,617
Gross profit		1,375,543			33,228			2,351,228			458,221
General and administrative expense		772,642			1,127,266			2,732,430			4,158,194
Income (Loss) from operations		602,901			(1,094,038	)		(381,202	)		(3,699,973	)
Other income (expense)
Interest income		11			-			944			-
Interest expense		(28,616	)		(95,828	)		(94,806	)		(244,283	)
Total other expense		(28,605	)		(95,828	)		(93,862	)		(244,283	)
NET INCOME (LOSS)		574,296			(1,189,866	)		(475,064	)		(3,944,256	)
Weighted average number of common shares outstanding - basic		27,527,860			9,182,470			27,232,357			9,182,470
Weighted average number of common shares outstanding - diluted		32,876,627			9,182,470			27,232,357			9,182,470
Basic net income (loss) per share	$	0.02		$	(0.13	)	$	(0.02	)	$	(0.43	)
Diluted net income (loss) per share	$	0.02		$	(0.13	)	$	(0.02	)	$	(0.43	)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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DRONE AVIATION HOLDING CORP.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) (Unaudited) 

For the Three and Nine Months Ended September 30, 2019 and 2018

													Additional
	Common Stock						Treasury Stock						Paid-in			Accumulated
	Shares			Amount			Shares			Amount			Capital			Deficit			Total
Balance - December 31, 2018		23,640,621		$	2,364			-		$	-		$	39,541,301		$	(38,472,090	)	$	1,071,575
Net Loss - 1Q2019																	(1,103,174	)		(1,103,174	)
Stock Based Compensation - Non-employee Shares														72,500						72,500
Stock Based Compensation - Options and Warrants														15,705						15,705
Common stock issued for cash		4,015,500			402									1,957,348						1,957,750
Balance - March 31, 2019		27,656,121		$	2,766			-		$	-		$	41,586,854		$	(39,575,264	)	$	2,014,356
Net Income - 2Q2019																	53,814			53,814
Stock Based Compensation - Non-employee Shares														(10,000	)					(10,000	)
Stock Based Compensation - Options and Warrants														35,807						35,807
Common stock returned		(100,000	)		(10	)								10						-
Balance - June 30, 2019		27,556,121		$	2,756			-		$	-		$	41,612,671		$	(39,521,450	)	$	2,093,977
Net Income - 3Q2019																	574,296			574,296
Stock Based Compensation - Non-employee Shares														31,250						31,250
Stock Based Compensation - Options and Warrants														18,916						18,916
Treasury stock purchased								(100,000	)		(50,000	)								(50,000	)
Balance - September 30, 2019		27,556,121		$	2,756			(100,000	)	$	(50,000	)	$	41,662,837		$	(38,947,154	)	$	2,668,439

									Additional
	Common Stock				Treasury Stock				Paid-in			Accumulated
	Shares		Amount		Shares		Amount		Capital			Deficit			Total
Balance - December 31, 2017		9,182,470	$	918		-	$	-	$	27,692,067		$	(29,996,777	)	$	(2,303,792	)
Net Loss - 1Q2018													(1,678,290	)		(1,678,290	)
Stock Based Compensation - Non-employee Shares										39,791						39,791
Stock Based Compensation - Options and Warrants										39,405						39,405
Stock Based Compensation - Employee Shares - Vesting for PY issuance										944,300						944,300
Balance - March 31, 2018		9,182,470	$	918		-	$	-	$	28,715,563		$	(31,675,067	)	$	(2,958,586	)
Net Loss - 2Q2018													(1,076,100	)		(1,076,100	)
Stock Based Compensation - Non-employee Shares										(17,291	)					(17,291	)
Stock Based Compensation - Options and Warrants										197,698						197,698
Balance - June 30, 2018		9,182,470	$	918		-	$	-	$	28,895,970		$	(32,751,167	)	$	(3,854,279	)
Net Loss - 3Q2018													(1,189,866	)		(1,189,866	)
Stock Based Compensation - Options and Warrants										443,541						443,541
Balance - September 30, 2018		9,182,470	$	918		-	$	-	$	29,339,511		$	(33,941,033	)	$	(4,600,604	)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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DRONE AVIATION HOLDING CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	For the Nine Months Ended
	9/30/2019			9/30/2018
OPERATING ACTIVITIES:
Net loss	$	(475,064	)	$	(3,944,256	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense		35,327			29,238
Loss on disposal of property, plant, and equipment		-			10,002
Amortization expense of intangible assets		219,000			219,000
Noncash lease expense		66,961			-
Stock based compensation		164,178			1,647,444
Changes in operating assets and liabilities:
Accounts receivable		(1,613,414	)		44,305
Inventory		(518,722	)		(769,966	)
Deferred offering costs		(174,475	)		-
Prepaid expenses and other current assets		(123,228	)		3,238
Operating lease obligation		(66,087	)		-
Accounts payable and accrued expense		1,693			447,943
Deferred revenue		22,500			9,800
Due from related party		-			11,937
Net cash used in operating activities		(2,461,331	)		(2,291,315	)
INVESTING ACTIVITIES:
Cash received from sale of vehicle		-			60,000
Cash paid on fixed assets		(104,026	)		(5,279	)
Net cash provided by (used) in investing activities		(104,026	)		54,721
FINANCING ACTIVITIES:
Proceeds from sale of common stock		1,957,750			-
Acquisition of treasury stock		(50,000	)		-
Proceeds from related party convertible note payable		-			900,000
Proceeds from bank line of credit		-			900,000
Net cash provided by financing activities		1,907,750			1,800,000
NET DECREASE IN CASH		(657,607	)		(436,594	)
CASH, beginning of period		2,282,365			615,375
CASH, end of period	$	1,624,758		$	178,781
Noncash investing and financing activities for the nine months ended September 30:
ROU assets and operating lease obligations recognized	$	189,763		$	-
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the nine months ended September 30:
Interest	$	94,806		$	232,255
Income taxes	$	-		$	-

The accompanying notes are an integral part of these unaudited consolidated financial statements.

4

DRONE AVIATION HOLDING CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

For the Period Ended September 30, 2019

1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

The following unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, such interim financial statements do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete annual financial statements. The information furnished reflects all adjustments, consisting only of normal recurring items which are, in the opinion of management, necessary in order to make the financial statements not misleading. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. The balance sheet as of December 31, 2018 has been derived from the Company’s annual financial statements that were audited by an independent registered public accounting firm but does not include all of the information and footnotes required for complete annual financial statements. The unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and the notes thereto included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2018 filed by Drone Aviation Holding Corp. (“we”, “our”, “the Company”) with the SEC on March 22, 2019. 

Revenue Recognition

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09 (Topic 606), “Revenue from Contracts with Customers.” Topic 606 supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition” and requires entities to recognize revenues when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The principles in the standard are applied in five steps: 1) identify the contract(s) with a customer; 2) identify the performance obligations in the contract; 3) determine the transaction price; 4) allocate the transaction price to the performance obligations in the contract; and 5) recognize revenue when (or as) the entity satisfies a performance obligation. The Company adopted Topic 606 as of January 1, 2018 using the modified retrospective transition method. The Company recognized the cumulative effect of adopting this guidance as an adjustment to our opening balance of retained earnings. Prior periods will not be retrospectively adjusted. The adoption of Topic 606 does not have a material impact to our consolidated financial statements, including the presentation of revenues in our Consolidated Statements of Operations, which were not broken down by revenue stream or geographic areas since the Company only sells within the United States and has only one revenue stream.

Leases

Effective January 1, 2019, the Company adopted ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”) using the required modified retrospective approach. The most significant changes under the new guidance include clarification of the definition of a lease, and the requirements for lessees to recognize a Right of Use (“ROU”) asset and a lease liability for all qualifying leases with terms longer than twelve months in the consolidated balance sheet. In addition, under Topic 842, additional disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. See Footnote #13 below for more detail on the Company’s accounting with respect to lease accounting.

Income (Loss) Per Common Share

Basic net income (loss) per common share is computed by dividing net income (loss) available to common shareholders by the weighted average number of shares outstanding. Diluted net income (loss) per common share is computed similar to basic net income (loss) per common share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. The dilutive effect of the Company’s options and warrants is computed using the treasure stock method.

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The following table sets for the computation of basic and diluted income (loss) per share:

	For the Three Months Ended					For the Nine Months Ended
	Sept 30,		Sept 30,			Sept 30,			Sept 30,
	2019		2018			2019			2018
Numerator:
Net Income (Loss)	$	574,296	$	(1,189,866	)	$	(475,064	)	$	(3,944,256	)
Numerator for basic and diluted EPS - income (loss) available to common Shareholders	$	574,296	$	(1,189,866	)	$	(475,064	)	$	(3,944,256	)
Denominator:
Denominator for basic EPS - Weighted average shares		27,527,860		9,182,470			27,232,357			9,182,470
Dilutive Effect of Warrants and Options		5,348,767		-			-			-
Denominator for diluted EPS - adjusted Weighted average shares and assumed Conversions		32,876,627		9,182,470			27,232,357			9,182,470
Basic and Diluted income (loss) per common share	$	0.02	$	(0.13	)	$	(0.02	)	$	(0.43	)

Stock-Based Compensation

Effective January 1, 2019, the Company adopted ASU No. 2018-07, Compensation – Stock Based Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-7”), which aligns accounting for share-based payments issued to nonemployees to that of employees under the existing guidance of Topic 718, with certain exceptions. This update supersedes previous guidance for equity-based payments to nonemployees under Subtopic 505-50, Equity – Equity-Based Payments to Non-Employees. The adoption of ASU 2018-07 did not have a material impact on the Company’s consolidated financial statements.

2. MANAGEMENT’S LIQUIDITY PLANS

On August 27, 2014, FASB issued ASU 2014-05, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which requires management to assess a company’s ability to continue as a going concern within one year from financial statement issuance and to provide related footnote disclosures in certain circumstances.

The accompanying unaudited consolidated financial statements and notes have been prepared assuming the Company will continue as a going concern. For the nine months ended September 30, 2019, the Company incurred a net loss of $475,064, generated positive cash flow from operations, has an accumulated deficit of $38,947,154 and working capital of $1,874,848.

For the year ended December 31, 2017, the Company disclosed that its ability to continue as a going concern was predicated on the Company’s ability to create and market innovative products, raise capital, reduce debt or renegotiate terms, and to sustain adequate working capital to finance its operations. During 2018, the Company met or exceeded those predications. In 2018, the Company made a strategic decision to focus on its aerostats, WASP and WASP Lite, and opportunities for those products with military and government customers, resulting in an order valued in excess of $3.7 million which was announced in December 2018 and expected to be delivered by the end of 2019. In December 2018 and January 2019, the Company raised over $4,000,000 through stock sales which will provide ample working capital to produce WASP systems. In December 2018, the holders of $5,000,000 in convertible notes exercised their rights to convert to equity, leaving only $2,000,000 in bank debt on the books. As of September 30, 2019, the Company has $1,874,848 in positive working capital, an improvement of $1,661,969 over the working capital balance at the end of 2018 which was $212,879.

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The focus on opportunities for aerostats, the settlement of debt obligations, the funds generated from stock sales and other initiatives contributing to additional working capital should avoid any substantial doubt about the Company’s ability to continue as a going concern as defined by ASU 2014-05. We believe that the actions discussed above mitigate the substantial doubt raised by our recent operating losses and satisfy our estimated liquidity needs twelve months from the issuance of the financial statements. However, we cannot predict, with certainty, the outcome of our actions to generate liquidity and the failure to do so could negatively impact our future operations.

3. RELATED PARTY TRANSACTIONS

The Company accounts for related party transactions in accordance with the FASB’s Accounting Standards Codification (“ASC”) 850, “Related Party Disclosures.” A party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party is also a related party if it can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.  

On November 10, 2017, the Company and Global Security Innovative Strategies, LLC (“GSIS”), a related party, entered in an agreement (the “GSIS Agreement”) pursuant to which GSIS agreed to provide business development support and general consulting services for sales opportunities with U.S. government agencies and other identified prospects and consulting support services for the Company. The GSIS Agreement had an initial term of six months beginning on November 1, 2017. On September 26, 2018, the parties amended the GSIS Agreement to extend the period of service through September 2019 with monthly automatic renewals thereafter. The Company also agreed to issue an option to purchase 100,000 shares of Company stock. This option immediately vested, had a strike price of $1.00, and terminates on September 26, 2022. Pursuant to the GSIS Agreement, the Company pays GSIS a fee of $10,000 per month. In addition, the Company agreed to pay the expenses of GSIS incurred in connection with the performance of its duties under the GSIS Agreement. Either party may terminate or renew the GSIS Agreement at any time, for any reason or no reason, upon at least 30 days’ notice to the other party. David Aguilar, a member of the Company’s board of directors, is a principal at GSIS. GSIS was owed $20,000 for normal monthly retainers at September 30, 2019.

On March 21, 2019, concurrent with the resignation of Kevin Hess, the Company’s Chief Technology Officer, the Company and Cognitive Carbon Corporation (“CCC”), a related party, entered into an agreement pursuant to which CCC agreed to provide Chief Technology Officer services, sales and marketing services and outsourced software and platform development services to be provided personally by Kevin Hess or third-party development firms of his choosing for outsourced development. CCC will receive $19,750 per month for one year for the Chief Technology Officer services and potential bonuses and an amount up to $120,000 for outsourced software and platform development. Felicia Hess, the Company’s Chief Quality Officer, who is married to Kevin Hess, is the President and Director of CCC. CCC was owed $23,000 for normal monthly fees at September 30, 2019.

4. INVENTORIES

Inventories are stated at the net realizable value, using the first-in first-out method. Cost includes materials, labor and manufacturing overhead related to the purchase and production of inventories. We regularly review inventory quantities on hand, future purchase commitments with our supplies, and the estimated utility of our inventory. If the review indicates a reduction in utility below carrying value, we reduce our inventory to a new cost basis through a charge to cost of goods sold. At September 30, 2019, the increase in inventory is primarily related to WASP and WASP Lite systems in production pursuant to announced orders. Inventory consists of the following at September 30, 2019 and December 31, 2018: 

	September 30, 2019			December 31, 2018
Raw Materials	$	565,749		$	136,555
Work in progress		273,337			180,041
Finished Goods		517,521			523,698
In transit		2,409			-
Less valuation allowance		(532,369	)		(532,369	)
Total	$	826,647		$	307,925

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5. PREPAID EXPENSES

Prepaid expenses consisted of the following at September 30, 2019 and December 31, 2018:

	September 30, 2019		December 31, 2018
Prepaid insurance	$	45,694	$	28,828
Prepaid products and services		157,147		54,870
Deferred offering costs		174,475		-
Prepaid rent and security deposit		10,000		5,915
	$	387,316	$	89,613

6. PROPERTY AND EQUIPMENT

Property and equipment is recorded at cost when acquired.  Depreciation is provided principally on the straight-line method over the estimated useful lives of the related assets, which is 3-7 years for equipment, furniture and fixtures, hardware and software and leasehold improvements.   During the nine months ended September 30, 2019, the Company invested $20,133 in computers for new hires. The Company also invested $59,660 in new shop equipment, $1,266 in office furnishings and $22,967 in leasehold improvements, primarily in connection with the opening of a satellite location for aerostat manufacturing. Depreciation expense was $35,327 and $29,238 for the nine months ended September 30, 2019 and 2018, respectively. Property and equipment consists of the following at September 30, 2019 and December 31, 2018:

	September 30, 2019			December 31, 2018
Shop machinery and equipment	$	147,194		$	87,534
Computers and electronics		52,226			32,093
Office furniture and fixtures		39,080			37,814
Leasehold improvements		42,481			19,514
		280,981			176,955
Less - accumulated depreciation		(159,052	)		(123,725	)
	$	121,929		$	53,230

7. INTANGIBLE ASSETS

On July 20, 2015, the Company, through its wholly-owned subsidiary, Drone AFS Corp., purchased substantially all the assets of Adaptive Flight, Inc. (“AFI”), a Georgia corporation. The Company purchased assets, including, but not limited to, intellectual property, licenses and permits, including commercial software licenses for the GUST (Georgia Tech UAV Simulation Tool) autopilot system and other transferable licenses which include flight simulation and fault tolerant flight control algorithms. The Company paid $100,000 in immediately available funds and $100,000 to be held in escrow. In addition, the Company issued 150,000 shares of unregistered common stock valued at $8.40 per share, on a post-October 29, 2015 reverse stock split basis, on the date of agreement, to be held in escrow.

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The Company had a milestone of twelve months to complete a technology integration plan, the non-completion of which could result in the return of the purchased assets and termination of the Company’s obligations to release the escrow cash and shares. Additional milestones included exclusive, no-cost and perpetual licenses to all contributing intellectual property included or related to the purchased assets. As such time as all milestones were met, one-half of the escrow shares were to be released to AFI. Upon termination of the escrow agreement, anticipated to be twelve months from the closing of the asset purchase, if all milestones had been met, the remaining escrow shares would be released to AFI; but if all milestones have not been met, the escrow cash and escrow shares would be released to the Company and the purchased assets would be returned to AFI. According to the terms of the Escrow Agreement, if the escrow share value was less than $1,400,000, the Company must issue an additional number of unregistered shares, not to exceed 50,000 shares. At December 31, 2015, the value of the 150,000 shares was $3.23 per share, or $484,500. The Company recorded $161,500 as an additional liability and expense at December 31, 2015 for the cost of 50,000 shares at $3.23 per share. On June 3, 2016, the Integration Plan was deemed to be completed. At June 3, 2016, the value of the 150,000 shares was $3.01 per share, or $451,150. The additional liability was reduced to $150,500 for the cost of 50,000 shares at $3.01 per share. The Company recorded the $11,000 reduction in the additional liability through the statement of operations at June 3, 2016. The Company began amortizing the $1,460,000 of purchased assets over a sixty-month period on June 3, 2016 in the amount of $24,333 per month. Total amortization expense for the nine months ended September 30, 2019 was $219,000. The remaining unamortized balance of $486,667 is estimated be amortized in the estimated amounts of $73,000 during 2019, $292,000 during 2020 and $121,667 in 2021.

The asset acquisition did not qualify as a business combination under ASC 805-10 and has been accounted for as a regular asset purchase.

8. SUBSCRIPTION NOTES RECEIVABLE, INCLUDING RELATED PARTY

On January 25, 2019, the Company completed the sale of 4,015,500 shares of its common stock pursuant to the Amended and Restated Stock Purchase Agreement (discussed below in Footnote #10 – Shareholders’ Equity) at $0.50 per share for an aggregate of $2,007,750. The aggregate consideration consisted of (1) cash in the aggregate amount of $1,432,750, (2) a promissory note from a single non-affiliate investor in the aggregate principal amount of $500,000, (3) a full-recourse promissory note payable by Daniyel Erdberg, the Company’s President, in the amount of $50,000, and (4) a full-recourse promissory note payable by Kendall Carpenter, the Company’s Executive Vice President and Chief Financial Officer, in the amount of $25,000. Each note bears an interest rate at a fixed rate of 3% per annum and principal and interest under the notes may be prepaid at any time without penalty. The non-affiliate note was fully repaid on February 8, 2019, including $575 in accrued interest. Each of the Erdberg and Carpenter notes has a maturity date of January 25, 2020. The principal amount of the Carpenter note was reduced by $7,500 on January 28, 2019. On April 30, 2019, Kendall Carpenter repaid the remaining principal balance of the $17,500 note, including $134 in accrued interest. On April 30, 2019, Daniyel Erdberg entered into a Stock Redemption and Note Cancellation Agreement whereby the Company redeemed 100,000 shares of common stock paid pursuant to the note described above and cancelled the $50,000 note and the related $267 in accrued interest.

9

9. REVOLVING LINE OF CREDIT

On August 2, 2017, the Company issued a promissory note (the “CNB Note”) to City National Bank of Florida (“CNB”) in the principal amount of $2,000,000, with a maturity date of August 2, 2018. On September 26, 2018, the Company and CNB agreed to extend the maturity date of the CNB Note to August 2, 2019. On August 29, 2019, the Company and CNB agreed to extend the maturity date of the CNB Note to August 2, 2020. The Company evaluated the modification under the Financial Accounting Standards Board’s (the “FASB”) Accounting Standards Codification (“ASC”) 470-50 and determined that it did not qualify as an extinguishment of debt. The CNB Note evidences the CNB Line of Credit with advances that may be requested by the Company until the maturity date of August 2, 2020 so long as no event of default exists under the CNB Note, the Company or Jay H. Nussbaum or his estate, the Company’s former Chairman of the Board and Chief Executive Officer, does not cease doing business, Mr. Nussbaum or his estate does not seek to revoke or modify his guarantee of the CNB Note, the Company does not misapply the proceeds of this loan or CNB in good faith does not believe itself insecure. The initial CNB Note bore an interest rate at a variable rate equal to 0.250 percentage points over the Wall Street Journal Prime Rate payable monthly. At renewal, the variable rate was modified to reflect the average of the interest rates per annum at which United States Dollars are offered in the London Interbank Borrowing Market (“Libor”) for a 30-day period (the “Index”) plus 2.9 percentage points over the Index, or a total of 5.09% annual interest rate as of August 29, 2019. The Company will pay to CNB a late charge of 5.0% of any monthly payment not received by CNB within 10 calendar days after its due date. The Company may prepay the CNB Note at any time without penalty. In the event of a default, the interest rate will increase to the highest lawful rate. The Company is obligated to maintain depository accounts with CNB with a minimum average annual balance of $1,600,000 in the aggregate with Mr. Nussbaum or his estate. In the event the Company does not maintain this account balance, CNB may charge the Company a fee equal to 2% of the deficiency as additional interest under the CNB Note. The CNB Note is personally guaranteed by Mr. Nussbaum and his estate pursuant to a written guarantee in favor of CNB. Mr. Nussbaum and his estate and the Company are obligated to maintain an aggregate unencumbered liquidity of no less than $6,000,000 in the form of cash, repurchase agreements, certificates of deposit or marketable securities acceptable to CNB. In addition, to secure the Company’s obligations under the CNB Note, the Company entered into a security agreement in favor of CNB encumbering all of the Company’s accounts, inventory and equipment along with an assignment of a bank account the Company maintains at CNB with a balance of $120,000. As of September 30, 2019, $2,000,000 has been drawn against the CNB Line of Credit. Accrued interest of $8,097 related to the CNB Line of Credit has been recorded as of September 30, 2019.

Indemnification Agreement

On August 3, 2017, the Company entered into an Indemnification Agreement with Mr. Nussbaum in order to indemnify and defend him to the fullest extent permitted by law for any claim, expense or obligation which might arise as a result of his guarantee of the CNB Note.

10. SHAREHOLDERS’ EQUITY

For the nine months ended September 30, 2019

On September 4, 2019, the Company entered into a Stock Redemption Agreement with Director Robert Guerra concurrent with his resignation from the board of directors. The Company reacquired the 100,000 shares of common stock for $50,000, the same price Mr. Guerra purchased the shares for on January 25, 2019.

On January 25, 2019, the Company completed the sale of 3,915,500 shares of its common stock pursuant to the Amended and Restated Stock Purchase Agreement dated December 21, 2018 at $0.50 per share for an adjusted aggregate of $1,957,750 in cash, described above in Footnote #8.

On October 25, 2018, the Board approved Amendment No. 3 to the August 27, 2014 Independent Contractor Agreements it entered into with Dr. Philip Frost and Steven Rubin who serve as members of the Company’s Strategic Advisory Board (the “SAB Amendments”). The SAB Amendments extend the term of the agreements from November 1, 2018 until October 31, 2019 and provide for the following equity-based compensation: (a) for Dr. Frost, an award of 150,000 shares of the Company’s unregistered restricted Common Stock and (b) for Mr. Rubin, an award of 100,000 shares of the Company’s unregistered restricted Common Stock. The restricted stock vests upon the occurrence of a change of control (as defined in the SAB Amendments). The Company recognized $93,750 expense for the pro rata portion of shares earned by the two members during the nine months ended September 30, 2019, amortizing the expense over the 12 months of the service agreement regardless of the vesting condition. As of September 30, 2019, the Company had unamortized stock compensation of $10,417 related to these two stock awards. 

10

For the nine months ended September 30, 2018

On August 3, 2017, the Company entered into an amendment to the August 24, 2014 Independent Contractor Agreements it entered into with Dr. Philip Frost and Steven Rubin who serve as members of the Company’s Strategic Advisory Board (the “SAB Amendments”). The SAB Amendments extend the term of the agreements from May 1, 2017 until April 30, 2018 and provide for the following equity based compensation: (a) for Dr. Frost, a warrant to purchase 2,000,000 shares of the Company’s Common Stock (the “Frost Warrant”) and an award of 150,000 shares of the Company’s unregistered restricted Common Stock and (b) for Mr. Rubin, an award of 100,000 shares of the Company’s unregistered restricted Common Stock. The restricted stock vests upon the occurrence of a change of control (as defined in the SAB Amendments). The Warrant has a term of five years and exercise price of $1.00 per share subject to proportional adjustment in the event of stock splits, stock dividends and similar corporate events. The Company recognized $22,500 expense for the pro rata portion of shares earned by the two members during the nine months ended September 30, 2018, amortizing the expense over the 12 months of the service agreement regardless of the vesting condition.

In September 2016, the Company issued 1,349,000 shares of restricted common stock outside of the 2015 Equity Plan to Jay Nussbaum, Felicia Hess, Daniyel Erdberg, Kendall Carpenter, Mike Silverman and Reginald Brown pursuant to Stock Award Agreements. The shares will vest upon consummation of a significant equity and/or debt financing of at least $5,000,000 provided that the holder remains engaged by the Company through the vesting date. On August 3, 2017, these awards were modified so that the restrictions set forth in the RSA lapse upon the earlier of (i) consummation of a significant equity and/or debt financing from which the Company receives gross proceeds of at least $7,000,000 or (ii) a change in control (as defined in the RSA Amendment), provided that, in either case, the holder remains engaged by the Company through the date of such event. The Company does not believe the modified vesting conditions are probable of being achieved, and as such, no stock-based compensation expense has been recorded. The Company will reassess whether achievement of the vesting conditions is probable at each reporting date. If it is probable, stock-based compensation will be recognized. 

On March 28, 2018, these awards were modified in recognition of the Company securing a substantial sales order and recent business development activity and vested on that date. On that date, the awards were determined to be probable for vesting and stock-based compensation was recognized based on the fair market value of the stock on March 28, 2018. The Company recorded $944,300 in stock-based compensation for these awards during the nine months ended September 30, 2018.

11. EMPLOYEE STOCK OPTIONS

For the nine months ended September 30, 2019

On March 20, 2019, the Company’s board of directors approved option grants to two employees outside its 2015 Equity Plan. One grant, relating to the option to purchase 30,000 shares of the Company’s common stock, vests after one year, and one grant, relating to the option to purchase 100,000 shares of the Company’s common stock, vests after two years. These stock options have an exercise price of $1.06 per share and expire on March 20, 2023. During the nine months ended September 30, 2019, $29,123 in compensation expense was recognized on these two options with a remaining balance of $60,094 to be recognized over the vesting period as of September 30, 2019.

On March 28, 2018, upon approval of the Company’s board of directors, the Company granted to Robert Guerra, a newly appointed director, an option to purchase 100,000 shares of the Company’s common stock outside its 2015 Equity Plan. The option vests 50% one year after the date of grant and the remaining 50% two years after the date of grant provided the director is still actively involved with the Company. The option has an exercise price of $1.00 per share and expires on March 28, 2022. Mr. Guerra voluntarily resigned as a director on September 4, 2019. The unvested 50,000 options were immediately cancelled. Mr. Guerra did not exercise the 50,000 vested option within 30 days of his termination resulting in a cancelation of that option. During the nine months ended September 30, 2019 and 2018, ($2,789) and $14,599 in compensation expense was recognized, respectively, on this option with a remaining balance of $0 to be recognized.

On May 16, 2018, upon approval of the Company’s board of directors, the Company granted options to purchase shares of its common stock outside its 2015 Equity Plan to four employees. Reginald Brown, Jr. was issued an option to purchase 200,000 shares of common stock, and Kendall Carpenter, the Company’s Executive Vice President and Chief Financial Officer, was issued an option to purchase 130,000 shares of common stock. These options were immediately vested, have an exercise price of $1.00 per share and expire May 16, 2022. Two engineers received options to purchase an aggregate of 130,000 shares of common stock. These options vest 50% after one year and the remaining 50% after two years, have an exercise price of $1.00 per share and expire May 16, 2022. One of the engineers terminated during the first quarter of 2019, before his option relating to 40,000 shares vested, and $7,376 in previously recognized 2018 expense was reversed due to option expiration. During the nine months ended September 30, 2019, $13,344 compensation expense was recognized on the remaining option to purchase 90,000 shares, with a remaining balance of $55,85 to be recognized over the vesting period as of September 30, 2019.

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On December 13, 2017, upon approval of the Company’s board of directors the Company issued outside its 2015 Equity Plan, 100,000 options each to two newly-appointed directors, or a total of 200,000 options. These options vest 50% after one year and the remaining 50% after two years provided the director is still actively involved with the Company. The options are exercisable at an exercise price of $1.00 per share and expire on December 13, 2021. During the nine months ended September 30, 2019 and 2018, $20,136 and $54,638 compensation expense was recognized, respectively, on these 200,000 options with a remaining balance of $5,411 to be recognized over the vesting period as of September 30, 2019.

The Company used the Black-Scholes option pricing model to estimate the fair value on the date of grant of the options to purchase 130,000 shares of common stock granted during the nine months ended September 30, 2019.

The following table summarizes the assumptions used to estimate the fair value of stock options granted during the nine months ended September 30, 2019 on the date of the grant:

	2019
Expected dividend yield		0	%
Expected volatility		90	%
Risk-free interest rate		2.40-2.47	%
Expected life of options		4.0 years

Under the Black-Scholes option pricing model, the fair value of the options to purchase an aggregate of 130,000 shares of common stock granted during the nine months ended September 30, 2019 is estimated at $89,217 on the date of grant.

The following table represents stock option activity as of and for the nine months ended September 30, 2019:

	Number of Options			Weighted Average Exercise Price per Share		Weighted Average Contractual Life in Years		Aggregate Intrinsic Value
Outstanding – December 31, 2018		13,990,000		$	0.61		3.15
Exercisable – December 31, 2018		13,610,000		$	0.59		3.16	$	0
Granted		130,000		$	1.06
Cancelled or Expired		(100,000	)	$	0.95
Outstanding – September 30, 2019		14,020,000		$	0.61		1.85
Exercisable – September 30, 2019		13,745,000		$	0.60		1.83	$	3,796,960

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For the nine months ended September 30, 2018

On September 26, 2018, upon approval of the Company’s board of directors, the Company granted outside its 2015 Equity Plan, 6,000,000 options to five management employees and four directors. Jay Nussbaum was issued 2,350,000 options, Felicia Hess was issued 1,000,000 options, Daniyel Erdberg was issued 1,000,000 options, Kendall Carpenter was issued 425,000 options, Reginald Brown, Jr. was issued 1,000,000 options. Director David Aguilar was issued 150,000 options and Directors John Miller, Timothy Hoechst and Robert Guerra were each issued 25,000 options. The options vest upon the Company receiving an aggregate of $4,000,000 in new orders from a prime government contractor or directly from the U.S. government at any time commencing after the date of issuance. The options are exercisable at an exercise price of $.65 per share and expire September 26, 2022. Of these 6,000,000 options, 5,000,000 options have been accounted for as a modification of the August 22, 2018 options. During the nine months ended September 30, 2018, $360,593 compensation expense was recognized on these 6,000,000 options with a remaining balance of $2,238,087 to be recognized over the assumed vesting period.

On August 22, 2018, upon approval of the Company’s board of directors, the Company granted outside its 2015 Equity Plan, an aggregate of 5,000,000 options to five management employees and four directors. Included in this award were the following grants to Executive Officers and Directors of the Company: 1,950,000 options to Jay Nussbaum, Chief Executive Officer and Chairman of the Board of Directors, 800,000 options to Felicia Hess, Chief Operating Officer, 800,000 options to Daniyel Erdberg, President, 300,000 options to Kendall Carpenter, Chief Financial Officer and the following directors of the Company: 150,000 options to David Aguilar, 25,000 options to John Miller, 25,000 options to Timothy Hoechst and 25,000 options to Robert Guerra. The options vest upon the Company receiving an aggregate of $4,000,000 in new orders from a prime government contractor or directly from the U.S. government at any time commencing after the date of issuance. The options are exercisable at an exercise price of $1.00 per share and expire August 22, 2022. On September 26, 2018, the Board resolved to cancel the Options to purchase 5,000,000 shares of common stock issued on August 22, 2018 that had not vested.

On May 16, 2018, upon approval of the Company’s board of directors, the Company granted outside its 2015 Equity Plan, 460,000 options to four employees. Reginald Brown, Jr. was issued 200,000 options and Kendall Carpenter was issued 130,000 options which were immediately vested, are exercisable at an exercise price of $1.00 per share and expire May 16, 2022. Two engineers received a total of 130,000 shares which vest 50% after one year and the remaining 50% after two years, are exercisable at an exercise price of $1.00 per share and expire May 16, 2022. During the nine months ended September 30, 2018, $165,354 compensation expense was recognized on these 460,000 options with a remaining balance of $36,727 to be recognized over the vesting period.

On March 28, 2018, upon approval of the Company’s board of directors, the Company granted outside its 2015 Equity Plan, 100,000 options each to a newly-appointed director, Robert Guerra. These options vest 50% one year after the date of grant and the remaining 50% two years after the date of grant provided the director is still actively involved with the Company. The options are exercisable at an exercise price of $1.00 per share and expire on March 28, 2022. During the nine months ended September 30, 2018, $14,599 compensation expense was recognized on these 100,000 options with a remaining balance of $23,990 to be recognized over the vesting period.

On December 13, 2017, upon approval of the Company’s board of directors, the Company issued outside its 2015 Equity Plan, 100,000 options each to two newly-appointed directors, or a total of 200,000 options. These options vest 50% after one year and the remaining 50% after two years provided the director is still actively involved with the Company. The options are exercisable at an exercise price of $1.00 per share and expire on December 13, 2021. During the nine months ended September 30, 2018 and twelve months ended December 31, 2017, $54,638 and $3,593, respectively, compensation expense was recognized on these 200,000 options with a remaining balance of $41,558 to be recognized over the vesting period.

During 2016, the Company granted 10,000 options to an employee with two-year vesting and an exercise price of $3.00 and an expiration date of December 6, 2019. The Company recognized $1,105 in compensation for the nine months ended September 30, 2018. No additional compensation was recognized on these options which were cancelled due to the termination of the employee.

On June 1, 2015, the Company issued an option award to an employee for 37,500 shares vesting over three years with an exercise price of $10.80 and expiration date of May 4, 2019. During the nine months ended September 30, 2018, $14,369 compensation expense was recognized on these 37,500 options. No additional compensation was recognized on these options which were cancelled due to the termination of the employee.

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On January 9, 2017, the Company issued an option to purchase 100,000 shares of common stock with an exercise price of $2.90 per share to a director. The option vests 50,000 after one year from grant date and another 50,000 two years from grant date with an expiration date of four years from grant date provided that the Director is still providing service to the Company. During the nine months ended September 30, 2018, $33,836 compensation expense was recognized on these 100,000 options.

The following table summarizes the assumptions used to estimate the fair value of the 11,560,000 stock options granted during the nine months ended September 30, 2018 on the date of grant.

	2018
Expected dividend yield		0	%
Expected volatility		80-97	%
Risk-free interest rate		2.48-2.89	%
Expected life of options		4.00 years

Under the Black-Scholes option pricing model, the fair value of the 11,560,000 options granted during the nine months ended September 30, 2018 is estimated at $2,839,360 on the date of grant. During the nine months ended September 30, 2018, $540,546 compensation expense was recognized on these 11,560,000 options.

The following table represents stock option activity as of and for the nine months ended September 30, 2018:

	Number of Options			Weighted Average Exercise Price per Share		Weighted Average Contractual Life in Years		Aggregate Intrinsic Value
Outstanding – December 31, 2017		7,945,000		$	1.38		3.50
Exercisable – December 31, 2017		7,627,500		$	1.35		3.50	$	0
Granted		11,560,000		$	0.82
Cancelled or Expired		(5,425,000	)	$	1.33
Outstanding – September 30, 2018		14,080,000		$	0.94		3.39	$	0
Exercisable – September 30, 2018		7,600,000		$	1.15		2.92	$	0

12. WARRANTS

For the nine months ended September 30, 2019

On March 20, 2019, the Company issued a warrant to purchase 50,000 shares of the Company’s common stock outside its 2015 Equity Plan to a contractor for services. This warrant has an exercise price of $1.06 per share and an expiration date of March 20, 2023, and vests after one year.

The following table summarizes the assumptions used to estimate the fair value of the warrants granted during the nine months ended September 30, 2019 on the date of grant.

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	September 30, 2019
Expected dividend yield		0	%
Expected volatility		90	%
Risk-free interest rate		2.40	%
Expected life of warrants		4.0 years

Under the Black-Scholes option pricing model, the fair value of the warrant to purchase 50,000 shares of the Company’s common stock granted during the nine months ended September 30, 2019 is estimated at $33,913 on the date of grant. During the nine months ended September 30, 2019, $17,990 in compensation expense was recognized on this warrant with a total of $15,934 to be recognized over the vesting period as of September 30, 2019.

The following table represents warrant activity as of and for the nine months ended September 30, 2019:

	Number of Warrants			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life in Years		Aggregate Intrinsic Value
Outstanding – December 31, 2018		2,280,000		$	0.72		3.44
Exercisable – December 31, 2018		2,280,000		$	0.72		3.44	$	0.00
Granted		50,000		$	1.06
Forfeited or Expired		(60,000	)	$	2.91
Outstanding – September 30, 2019		2,270,000		$	0.67		2.79	$	0.00
Exercisable – September 30, 2019		2,220,000		$	0.66		2.78	$	733,900

The following table represents warrant activity as of and for nine months ended September 30, 2018:

	Number of Warrants			Weighted Average Exercise Price per Share		Weighted Average Contractual Life in Years		Aggregate Intrinsic Value
Outstanding – December 31, 2017		2,232,500		$	1.36		4.34
Exercisable – December 31, 2017		2,232,500		$	1.36		4.34	$	0
Granted		100,000		$	1.00
Forfeited or Expired		(37,500	)	$	10.00
Outstanding – September 30, 2018		2,295,000		$	1.20		3.67	$	0
Exercisable – September 30, 2018		2,295,000		$	1.20		3.67	$	0

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13. LEASES

As of September 30, 2019, the Company has two operating leases for office and manufacturing space which are further described below in Footnote #14 and no financial leases. The impact of ASU No. 2016-02 (“Leases (Topic 842)” on our consolidated balance sheet beginning January 1, 2019 was through the recognition of ROU assets and lease liabilities for operating leases. Amounts recognized at January 1 and March 1, 2019 for operating leases are as follows:

	January 1, 2019
ROU Assets	$	116,876
Lease liability	$	116,876

	March 1, 2019
ROU Assets	$	72,887
Lease liability	$	72,887

The Company elected the practical expedient under ASU 2018-11 “Leases: Targeted Improvements” which allows the Company to apply the transition provision for Topic 842 at the Company’s adoption date instead of at the earlies comparative period presented in the financial statements. Therefore, the Company recognized and measured leases existing at January 1, 2019 but without retrospective application. In addition, the Company elected the optional practical expedient permitted under the transition guidance which allows the Company to carry forward the historical accounting treatment for existing lease upon adoption. No impact was recorded to the income statement or beginning retained earnings for Topic 842.

The leased properties have a remaining lease term of nineteen months to thirty-seven months as of January 1, 2019. Neither lease has an option to extend beyond the stated termination date.

Beginning January 1, 2019, operating ROU assets and operating lease liabilities are recognized based on the present value of lease payments, including annual rent increases, over the lease term at commencement date. Operating leases in effect prior to January 1, 2019 were recognized at the present value of the remaining payments on the remaining lease term as of January 1, 2019. Because neither of our leases included an implicit rate of return, we used our incremental secured borrowing rate based on lease term information available as of the adoption date or lease commencement date in determining the present value of lease payments. The incremental borrowing rate on the Jacksonville lease is 5.9% and the incremental borrowing rate on the Holly Hill lease is 5.5%.

Other information related to our operating leases are as follows:

	September 30, 2019
ROU Asset – January 1, 2019	$	116,876
Increase	$	72,887
Amortization	$	(66,961	)
ROU Asset – September 30, 2019	$	122,802
Lease liability – January 1, 2019	$	116,876
Increase	$	72,887
Amortization	$	(66,087	)
Lease liability – September 30, 2019	$	123,676
Lease liability – short term	$	86,070
Lease liability – long term	$	37,606
Lease liability – total	$	123,676

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As of September 30, 2019, our operating leases had a weighted average remaining lease term of 1.56 years and a weighted average discount rate of 5.70%.

The table below reconciles the fixed component of the undiscounted cash flows for each of the first five years and the total remaining years to the lease liabilities recorded on the Consolidated Balance Sheet as of September 30, 2019:

	Operating Leases
Amounts due within twelve months of September 30,
2019	$	90,020
2020		25,964
2021		13,129
2022		-
2023		-
thereafter		-
Total minimum lease payments		129,113
Less: effect of discounting		5,437
Present Value of future minimum lease payments		123,676
Less: current obligations under leases		86,070
Long-term lease obligations	$	37,606

14. COMMITMENTS AND CONTINGENCIES

On November 17, 2014, the Company entered into a 60-month lease for 5,533 square feet of office and manufacturing space at 11651 Central Parkway, Suite 118, Jacksonville, Florida, with an anticipated lease commencement date of February 1, 2015. The actual commencement date was July 1, 2015 and the lease was amended to 61 months expiring July 31, 2020. The monthly rent, including operating expenses and sales tax, for each year of the initial lease term is estimated to be $5,915.

On March 1, 2019, the Company entered into a 37-month lease for 2,390 square feet of office and aerostat manufacturing space at 700 Ridgewood Avenue, Units 207/208, Holly Hill, Florida with a lease commencement date of March 1, 2019. The monthly rent, including operating expenses and sales tax, for each year of the initial lease term is estimated to be $2,091.

Rent expense for the nine months ended September 30, 2019 and 2018 was $83,914 and $65,995, respectively.

The Company acquired licenses to certain technology of Georgia Tech Research Corporation (“GTRC”) through its purchase of AFI’s assets on July 20, 2015 and through direct license from GTRC. The licenses are perpetual and if the technology is patented, are protected through the expiration date of the patented know-how. Two of the licenses require a minimum royalty of $1,500 per year. Royalties are based on vehicle weight and range from $12.50 to $75.00 per vehicle on one license and $25.00 to $150.00 per vehicle on another license.

On May 16, 2016, Banco Popular North America (“Banco”) filed a lawsuit in Duval County, Florida in the Circuit Court of the Fourth Judicial Circuit against Aerial Products Corporation d/b/a Southern Balloon Works (“Aerial Products”), Kevin M. Hess, the Company’s Chief Technology Officer, Lighter Than Air Systems Corp., a wholly owned subsidiary of the Company (“LTAS”), and the Company to collect on a delinquent Small Business Administration loan that Banco made in 2007 to Aerial Products with Mr. Hess as the personal guarantor. Banco set a hearing on its Motion for Summary Judgment against Kevin Hess and Aerial Products on October 31, 2019 at which time Mr. Hess and Aerial Products Corporation were found jointly and severally liable for the delinquent loan. An order was entered in the case which dismissed all claims against the Company without prejudice.

There are no material claims, actions, suits, proceedings inquiries, labor disputes or investigations pending.

15. SUBSEQUENT EVENT

On November 12, 2019, upon approval of the Company’s board of directors, the Company issued pursuant to its 2015 Equity Plan, 2,300,000 shares of restricted common stock to officers, directors and a consultant for services provided and are subject to a change of control vesting condition. Daniyel Erdberg received 1,000,000 shares, Kendall Carpenter received 400,000 shares, Felicia Hess received 200,000 shares, Reginald Brown received 200,000 shares, Global Security & Innovative Strategies LLC (David Aguilar) received 100,000 shares, Timothy Hoechst received 100,000 shares, John Miller received 100,000 shares and the consultant received 200,000 shares.

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

Certain statements in Management’s Discussion and Analysis (“MD&A”), other than historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements”. Forward-looking statements generally can be identified by the use of forward-looking terminology, such as “may,” “would,” “expect,” “intend,” “could,” “estimate,” “should,” “anticipate,” “believe,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. These statements are subject to a number of risks, uncertainties and developments beyond our control or foresight, including changes in the trends of the advanced aerostats and tethered drone industry, formation of competitors, changes in governmental regulation or taxation, changes in our personnel and other such factors. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. Readers should carefully review the risk factors included under Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the Securities and Exchange Commission (the “SEC”) on March 22, 2019.

The following MD&A is intended to help readers understand the results of our operations and financial condition and is provided as a supplement to, and should be read in conjunction with, our Unaudited Consolidated Financial Statements and the accompanying Notes to Unaudited Consolidated Financial Statements under Part I, Item 1 of this Quarterly Report on Form 10-Q.

Growth and percentage comparisons made herein generally refer to the nine months ended September 30, 2019 compared with the nine months ended September 30, 2018 unless otherwise noted. Unless otherwise indicated or unless the context otherwise requires, all references in this document to “we,” “us,” “our,” the “Company,” and similar expressions refer to Drone Aviation Holding Corp. and, depending on the context, its subsidiaries.

Business Overview

We design, develop, market, sell and provide logistical services for specialized tethered aerial monitoring and communications platforms serving national defense and security customers for use in applications including intelligence, surveillance and reconnaissance (“ISR”) and communications. We focus primarily on the development of a tethered aerostat known as the Winch Aerostat Small Platform (“WASP”) which is principally designed for military and security applications where they can provide secure and reliable aerial monitoring for extended durations while being tethered to the ground via a high strength armored tether.

We have steadfastly pursued a vision that rapid, persistent, mobile access to altitude is a force multiplier for military and national security operations. Our unique WASP technology fills what we believe to be significant gaps in the marketplace between the expensive military drones and large, non-mobile aerostat systems.

As a result of recent capital contributions from a select group of management and non-management investors and the elimination of a majority of our outstanding debt, we believe we are better able to position our business to seize opportunities that lay ahead. This investment also allowed us to provide much-needed increased production capacity, through a strategic relationship with an established ISO 9001-certified manufacturer and new production in Florida through the lease of an additional facility.

Highlighted by a $3.8 million WASP award, followed by $1.1 million award for WASP Lite systems and a recent contract valued at approximately $1.7 million gross revenue from the prime contractor as a follow-on to the $3.8 million contract awarded in December 2018, we have announced in excess of approximately $6.6 million gross revenue in new business in the first nine months of 2019. We have recognized $4.1 million gross revenue through September 30, 2019 and expect to recognize substantially all the remainder by the end of 2019. Assuming receipt of this revenue, this will represent a 144% increase over the approximately $2.7 million gross revenue reported the entire twelve months of 2018. These awards support our belief that the WASP is well positioned to address the challenges facing tier-one end users, including the U.S. Department of Defense and the Department of Homeland Security.

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We have also increased marketing efforts and announced the following:

● On October 2, 2019, we announced that we delivered upgraded real-time video distribution technology for U.S. Army WASP aerostats

● On September 25, 2019, we announced that we delivered additional WASP aerostats in support of the United States Border Patrol: U.S. Customs and Border Protection

● On August 28, 2019, we announced that we received an allowance of patent for Conversion of Battery-Powered Drones into Ground-Powered Tethered Drones

● On August 13, 2019, we announced that we delivered the initial set of WASP aerostats in support of the United States Border Patrol: U.S. Customs and Border Protection

● On July 18, 2019, we announced that we delivered a $1.1 million WASP Lite contract for the U.S. Army to support deployed ground forces which was originally announced on May 7, 2019.

● On June 4, 2019, we announced that we been selected by a prime contractor for an additional $1.7 million award as a follow-on to the order announced on January 8, 2019.

In addition to our plans to organically grow our lighter than air systems through increased marketing and sales, we intend to continue to consider potential strategic transactions, which could involve acquisitions of businesses or assets, joint ventures or investments in businesses, products or technologies that expand, complement or otherwise relate to our current or future business.

Department of Homeland Security and Customs and Border Protection

In July 2018, we entered into an exclusive teaming agreement with a U.S. Government prime contractor which is the recipient of a previously awarded IDIQ (indefinite delivery/indefinite quantity) prime contract from the U.S. Department of Homeland Security (“DHS”), U.S. Customs and Border Protection (“CBP”). Under the terms of the teaming agreement:

● We agreed to work together to propose retrofit and new production of surveillance systems developed under the prime contract; and

● We agreed to provide the WASP aerostat, engineering support for WASP system integration, Field Service Representatives personnel support for WASP aerostat maintenance, training, WASP deployment, retrieval and movement, and warranty for WASP.

In December 2018, the prime contractor awarded us a subcontract valued at $3.8 million for six WASP aerostat systems, which we have previously announced. On June 4, 2019, we announced a $1.7 million follow on order from the prime contractor. These WASP powered surveillance systems are expected to be deployed at a CBP Border Patrol Sector on the southern border of the United States. There are 20 Border Patrol Sectors along U.S. borders, nine of which are located along the U.S. Southern border. We have begun production of the initial units at our facilities in Florida and at our ISO 9001-certified manufacturing partner’s facility. Deliveries began late in the second quarter of 2019 and will continue throughout 2019. We are working closely with the prime contractor to explore additional product and services opportunities in DHS and CBP under our exclusive teaming agreement.

Department of Defense

On May 7, 2019, we announced our first contract award for our newly designed aerostat product, the WASP Lite, from prime contractor ADS, Inc. for delivery to a U.S. Army customer. Under the terms of the award, valued in excess of $1.1 million gross revenue, we will supply multiple WASP Lite aerostat systems capable of enhancing and extending the modern networked battlefield supporting specialized waveform communications equipment and day/night ISR (Intelligence, Surveillance and Reconnaissance) payloads. The WASP Lite employs the same proprietary, advanced tethering technologies found in our WASP tactical aerostat for secure power and data transmission. Deliveries under this award commenced in July 2019.

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Results of Operations

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

Revenues: Revenues of $2,740,337 for the quarter ended September 30, 2019 increased $2,655,522, or 3,131%, from $84,815 for the same period in 2018. Sources of revenue were derived primarily from the delivery of the second two WASP systems to a prime contractor and related field services and from the delivery of four WASP Lite systems, including payloads and sustainment items. The revenue for the quarter ended September 30, 2018 was primarily a result of the delivery of additional aerostats to an existing customer. We expect increased sales in future periods based on a product pipeline developed following our increased marketing efforts discussed in the Business Overview section above, including the order we announced in December 2018, valued in excess of $3.8 million, which is in production, with deliveries expected to be completed by the end of 2019.

Cost of Goods Sold and Gross Profit: Cost of goods sold of $1,364,794 for the quarter ended September 30, 2019 increased $1,313,207, or 2,546%, from $51,587 for the same period in 2018. Costs included materials, parts, labor and overhead associated with the delivery of the second two WASP systems and four WASP Lite systems. The $1,375,543 gross profit for the quarter ended September 30, 2019 was an increase of $1,342,315, or 4,040%, from the $33,228 in gross profit for the same quarter of 2018. Overall gross profit margins were 50% and 39% for the quarters ended September 30, 2019 and 2018, respectively. Margins also vary based on lower margin third-party payloads; therefore, future margins may vary accordingly.

General and Administrative Expense: General and administrative expense primarily consists of payroll and related costs, sales and marketing costs, travel costs, business overhead and costs related to maintaining a public entity. General and administrative expense decreased overall by $354,624, or 31%, to $772,642 in the quarter ended September 30, 2019 from $1,127,266 for the same period in 2018. Contributing to the decrease was non-cash stock-based compensation of $50,166 which decreased $393,375 from $443,541 in the same period of 2018. Travel and meal expenses of $53,434 increased $25,381 and marketing expenses of $43,182 increased $16,829. General and Administrative expenses are expected to increase as the Company grows the labor force to meet product demand. Sales and marketing and travel related expenses are also expected to increase during 2019 in support of increased product demand.

Income from Operations: Income from operations of $602,901 for the quarter ended September 30, 2019 increased $1,696,939, or 155%, from loss from operations of $1,094,038 for the same period in 2018. The increase was primarily due to an increase in gross profit of $1,342,315 and by the decrease of general and administrative expense of $354,624 as discussed above.

Other Expense: Total other expense of $28,605 for the quarter ended September 30, 2019 was $67,223 less than the total other expense of $95,828 in the same period in 2018. This decrease was primarily due to interest expense on the related party notes payable which were settled in December 2018.

Net Income: Net income increased $1,764,162, or 148%, to $574,296 for the quarter ended September 30, 2019 from net loss of $1,189,866 for the same period in 2018. The increase in net income was due to factors discussed above.

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

Revenues: Revenues of $4,120,834 for the nine months ended September 30, 2019 increased $3,124,996, or 314%, from $995,838 for the same period in 2018. Sources of revenue were derived primarily from the delivery of the first four WASP systems to a prime contractor and related field services and the delivery of four WASP lite systems, including payloads and sustainment items. The revenue for the nine months ended September 30, 2018 included delivery of a WASP system valued in excess of $800,000 to the U.S. Army. We expect increased sales in future periods based on a product pipeline developed following our increased marketing efforts discussed in the Business Overview section above, including the order we announced in December 2018, valued in excess of $3.8 million, which is in production with deliveries expected to be completed by the end of 2019.

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Cost of Goods Sold and Gross Profit: Cost of goods sold of $1,769,606 for the nine months ended September 30, 2019 increased $1,231,989, or 229%, from $537,617 for the same period in 2018. Costs included materials, parts, labor and overhead associated with the delivery of the first four WASP systems to a prime contractor and related field services and the delivery of four WASP lite systems, including payloads and sustainment items. The $2,351,228 gross profit for the nine months ended September 30, 2019 was an increase of $1,893,007, or 413%, from the $458,221 in gross profit for the same period in 2018. Overall gross profit margins were 57% and 46% for the nine months ended September 30, 2019 and 2018, respectively. Margins also vary based on lower margin third-party payloads; therefore, future margins may vary accordingly.

General and Administrative Expense: General and administrative expense primarily consists of payroll and related costs, sales and marketing costs, travel costs, business overhead and costs related to maintaining a public entity. General and administrative expense decreased $1,425,764, or 34%, to $2,732,430 for the nine months ended September 30, 2019 from $4,158,194 for the same period in 2018. Contributing to the decrease was non-cash stock-based compensation of $164,178 which decreased $1,483,266 from $1,647,444 in the same period of 2018. Travel and meal expenses of $187,417 increased $17,859 and marketing expenses of $181,685 increased $49,590. General and Administrative expenses are expected to increase as the Company grows the labor force to meet product demand. Sales and marketing and travel related expenses are also expected to increase during 2019 in support of increased product demand. 

Loss from Operations: Loss from operations for the nine months ended September 30, 2019 decreased $3,318,771, or 90%, to $381,202 from loss from operations of $3,699,973 for the same period in 2018. The decrease was primarily due to an increase in gross profit of $1,893,007 and by the decrease of general and administrative expense of $1,425,764 as discussed above.

Other Expense: Total other expense of $93,862 for the nine months ended September 30, 2019 was $150,421 less than the total other expense of $244,283 in the same period in 2018. This decrease was primarily due to interest expense on the related party notes payable which were settled in December 2018.

Net Loss: Net loss decreased $3,469,192, or 88%, to $475,064 for the nine months ended September 30, 2019 from net loss of $3,944,256 for the same period in 2018. The decrease in net loss was due to factors discussed above.

Liquidity and Capital Resources

Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. As of September 30, 2019, the Company had $1,624,758 in cash, compared to $2,282,365 in cash at December 31, 2018, a decrease of $657,607. As of September 30, 2019, the Company had accounts receivable of $1,631,414, compared to $18,000 at December 31, 2018, an increase of $1,613,414 resulting from a sharp increase in revenue in September 2019.

The Company had total current assets of $4,470,135 and total current liabilities of $2,595,287 or working capital of $1,874,848 at September 30, 2019, compared to total current assets of $2,697,903 and total current liabilities of $2,485,024 or working capital of $212,879 at December 31, 2018.

We have historically financed our operations through operating revenues and sales of equity and convertible debt securities. Although as of September 30, 2019 we have cash of $1,624,758 and working capital of $1,874,848, we incurred a net loss of $475,064. Furthermore, the Company has a history of negative cash flow from operations, primarily due to historically heavy investment in research and development and costs associated with maintaining a public entity. We expect a substantial increase in revenues for the remainder of 2019. In 2018, the Company made a strategic decision to focus on its aerostats, WASP and WASP Lite, and opportunities for those products with military and government customers, resulting in an order valued in excess of $3.7 million which was announced in December 2018 and expected to be delivered by the end of 2019. To date in 2019, we have announced a $1.7 million follow on order to the $3.7 million order and a new order from the U.S. Army for $1.1 million. In December 2018 and January 2019, the Company raised over $4,000,000 through stock sales which will provide ample working capital to produce WASP systems. In December 2018, the holders of $5,000,000 in convertible notes exercised their rights to convert to equity leaving only $2,000,000 in bank debt on the books. As of September 30, 2019, the Company has $1,874,848 in positive working capital, an improvement of $1,661,969 over the working capital of $212,879 for the same period in 2018.

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As of the date of this filing, we believe we have sufficient working capital, including cash on hand and accounts receivables, to continue our operations at the same level for the next 12 months. We may have to raise additional funds to effectuate all aspects of our business plan. We potentially will have to issue additional debt or equity or enter into a strategic arrangement with a third party to carry out some aspects of our business plan or potentially curtail some aspects of our future operations. If we need to raise additional funds through the issuance of equity, equity-related or convertible debt securities in the future, these securities may have rights, preferences or privileges senior to those of the rights of holders of our common stock. We cannot predict whether additional financing will be available to us on favorable terms when required, or at all. The issuance of additional common stock may have the effect of further diluting the proportionate equity interest and voting power of holders of our common stock. Historically, we have financed our cash needs by private placements of our securities and loans, bank financing and revenues from sales of our products. There is no assurance that we will be able to obtain financing on terms consistent with our past financings or satisfactory to us, if at all.

Other than the CNB Line of Credit as discussed below, we currently have no agreements, arrangements or understandings with any person to obtain funds through bank loans, lines of credit or any other sources. Consequently, our inability to raise funds to meet our expected working capital requirements will have a severe negative impact on our ability to remain a viable company. We are dependent upon our significant shareholders to provide or loan us funds to meet our working capital needs.

Revolving Line of Credit from City National Bank of Florida.

On August 2, 2017, the Company issued a promissory note to CNB in the principal amount of $2,000,000 (the “CNB Note”) with a maturity date of August 2, 2018. On September 29, 2019, the Company and CNB agreed to extend the maturity date of the promissory note to August 2, 2020. The Company evaluated the modification under the Financial Accounting Standards Board’s (the “FASB”) Accounting Standards Codification (“ASC”) 470-50 and determined that it did not qualify as an extinguishment of debt. The CNB Note evidences the CNB Line of Credit with advances that may be requested by the Company until the maturity date of August 2, 2020 so long as no event of default exists under the CNB Note, the Company or Jay H. Nussbaum or his estate, the Company’s former Chairman of the Board and Chief Executive Officer, does not cease doing business, Mr. Nussbaum or his estate does not seek to revoke or modify his guarantee of the CNB Note, the Company does not misapply the proceeds of this loan or CNB in good faith does not believe itself insecure. The initial CNB Note bore an interest rate at a variable rate equal to 0.250 percentage points over the Wall Street Journal Prime Rate payable monthly. At renewal, the variable rate was modified to reflect the average of the interest rates per annum at which United States Dollars are offered in the London Interbank Borrowing Market (“Libor”) for a 30-day period (the “Index”) plus 2.9 percentage points over the Index, or a total of 5.09% annual interest rate as of August 29, 2019. The Company will pay to CNB a late charge of 5.0% of any monthly payment not received by CNB within 10 calendar days after its due date. The Company may prepay the CNB Note at any time without penalty. In the event of a default, the interest rate will increase to the highest lawful rate. The Company is obligated to maintain depository accounts with CNB with a minimum average annual balance of $1,600,000 in the aggregate with Mr. Nussbaum or his estate. In the event the Company does not maintain this account balance, CNB may charge the Company a fee equal to 2% of the deficiency as additional interest under the CNB Note. The CNB Note is personally guaranteed by Mr. Nussbaum and his estate pursuant to a written guarantee in favor of CNB. Mr. Nussbaum and his estate and the Company are obligated to maintain an aggregate unencumbered liquidity of no less than $6,000,000 in the form of cash, repurchase agreements, certificates of deposit or marketable securities acceptable to CNB. In addition, to secure the Company’s obligations under the CNB Note, the Company entered into a security agreement in favor of CNB encumbering all of the Company’s accounts, inventory and equipment along with an assignment of a bank account the Company maintains at CNB with a balance of $120,000. As of September 30, 2019, $2,000,000 has been drawn against the CNB Line of Credit. Accrued interest of $8,097 related to the CNB Line of Credit has been recorded as of September 30, 2019.

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The accompanying consolidated financial statements and notes have been prepared assuming the Company will continue as a going concern. For the nine months ended September 30, 2019, the Company incurred a net loss of $475,064, generated positive cash flow from operations, has an accumulated deficit of $38,947,154 and working capital of $1,874,848.

The focus on opportunities for aerostats, the settlement of debt obligations, the funds generated from stock sales and other initiatives contributing to additional working capital should avoid any substantial doubt about the Company’s ability to continue as a going concern as defined by FASB Accounting Standards Update (“ASU”) 2014-05. We believe that the actions discussed above mitigate the substantial doubt raised by our recent operating losses and satisfy our estimated liquidity needs twelve months from the issuance of the financial statements. However, we cannot predict, with certainty, the outcome of our actions to generate liquidity and the failure to do so could negatively impact our future operations.

Sources and Uses of Cash

	Nine Months Ended September 30,
	2019			2018
Cash flows used in operating activities	$	(2,461,331	)	$	(2,291,315	)
Cash flows (used in) provided by investing activities		(104,026	)		54,721
Cash flows provided by financing activities		1,907,750			1,800,000
Net decrease in cash and cash equivalents	$	(657,607	)	$	(436,594	)

Operating Activities

Net cash used in operating activities during the nine months ended September 30, 2019 was $2,461,331, which was a decrease of $170,016, or 7%, from $2,291,315 net cash used in operating activities for the same period in 2018. The net loss of $475,064 for the first nine months of 2019 was $3,469,192 less than the same period of 2018, which was a net loss of $3,944,256. In addition to the decreased net loss, the Company recognized $1,483,266 less non-cash stock-based compensation in the first nine months of 2019 than the same period in the 2018. During the first nine months of 2019, the Company’s accounts receivable increased by $1,613,414, inventory decreased by $518,722 and prepaid expenses increased by $297,703, primarily related to the production of WASP and WASP Lite systems that are being delivered between June 2019 and the end of the year.

Investing Activities

Net cash used in investing activities was $104,026 during the nine months ended September 30, 2019 compared to $54,721 net cash provided by investing activities during the nine months ended September 30, 2018. During the nine months ended September 30, 2019, the Company invested $20,133 in computers for new hires. The Company also invested $59,660 in new shop equipment, $1,266 in office furnishings and $22,967 in leasehold improvements, primarily in connection with the opening of a satellite location for aerostat manufacturing. 

Financing Activities

Net cash provided by financing activities was $1,907,750 during the nine months ended September 30, 2019 compared to $1,800,000 net cash provided by debt borrowing for the same period in 2018. The aggregate consideration for the stock sales in January 2019 consisted of (1) cash in the aggregate amount of $1,432,750, (2) a promissory note from a single non-affiliate investor in the aggregate principal amount of $500,000, (3) a full-recourse promissory note payable by Daniyel Erdberg, the Company’s President, in the amount of $50,000, and (4) a full-recourse promissory note payable by Kendall Carpenter, the Company’s Executive Vice President and Chief Financial Officer, in the amount of $25,000. Each note bears an interest rate at a fixed rate of 3% per annum and principal and interest under the notes may be prepaid at any time without penalty. The non-affiliate note was fully repaid on February 8, 2019, including $575 in accrued interest. Each of the Erdberg and Carpenter notes has a maturity date of January 25, 2020. The principal amount of the Carpenter note was reduced by $7,500 on January 28, 2019. On April 30, 2019, Kendall Carpenter repaid the remaining principal balance of the $17,500 note, including $134 in accrued interest. On April 30, 2019, Daniyel Erdberg entered into a Stock Redemption and Note Cancellation Agreement whereby the Company redeemed 100,000 shares of common stock paid pursuant to the note described above and cancelled the $50,000 note and the related $267 in accrued interest.

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Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that materially affect our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.

Critical Accounting Policies and Estimates

The Company’s accounting policies are more fully described in Note 1 of the Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on March 22, 2019. As disclosed therein, the preparation of the Company’s financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ significantly from those estimates. The Company believes that the following discussion addresses the Company’s most critical accounting policies, which are those that are most important to the portrayal of the Company’s financial condition and results of operations and require management’s most difficult, subjective and complex judgments.

Accounts Receivable and Credit Policies:

Accounts receivable-trade consists of amounts due from the sale of WASP tethered aerostat systems, accessories, spare parts, and refurbishments. Such accounts receivable are uncollateralized customer obligations due under normal trade terms requiring payment within 30 days of receipt of the invoice. We provide an allowance for doubtful accounts equal to the estimated uncollectible amounts based on historical collection experience and a review of the current status of trade accounts receivable. At September 30, 2019 and December 31, 2018, none of the Company’s accounts receivable-trade was deemed uncollectible.

Revenue Recognition and Unearned Revenue:

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09 (Topic 606), “Revenue from Contracts with Customers.” Topic 606 supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition” and requires entities to recognize revenues when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The principles in the standard are applied in five steps: 1) identify the contract(s) with a customer; 2) identify the performance obligations in the contract; 3) determine the transaction price; 4) allocate the transaction price to the performance obligations in the contract; and 5) recognize revenue when (or as) the entity satisfies a performance obligation. We adopted Topic 606 as of January 1, 2018 using the modified retrospective transition method. We recognized the cumulative effect of adopting this guidance as an adjustment to our opening balance of retained earnings. Prior periods will not be retrospectively adjusted. The adoption of Topic 606 does not have a material impact to our consolidated financial statements, including the presentation of revenues in our Consolidated Statements of Operations, which were not broken down by revenue stream or geographic areas since the Company only sells within the United States and has only one revenue stream.

Employee Stock-Based Compensation:

We account for stock-based compensation in accordance with Accounting Standards Codification (“ASC”) 718, “Compensation-Stock Compensation.” ASC 718 requires companies to measure the cost of employee services received in exchange for an award of equity instruments, including stock options, based on the grant-date fair value of the award and to recognize it as compensation expense over the period the employee is required to provide service in exchange for the award, usually the vesting period.

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Recently Issued Accounting Pronouncements

Effective January 1, 2019, the Company adopted ASU No. 2018-07, Compensation – Stock Based Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-7”), which aligns accounting for share-based payments issued to nonemployees to that of employees under the existing guidance of Topic 718, with certain exceptions. This update supersedes previous guidance for equity-based payments to nonemployees under Subtopic 505-50, Equity – Equity-Based Payments to Non-Employees. The adoption of ASU 2018-07 did not have a material impact on the Company’s consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases, which will amend current lease accounting to require lessees to recognize (i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the least term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model. This standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The adoption of ASU 2016-02 resulted in $116,876 and $$72,887 initial recognition of ROU assets and lease liabilities as of January 1 and March 1, 2019, respectively. The ending balance of ROU assets and lease liabilities as of September 30, 2019 are $122,802 and $123,676, respectively.

Other than those pronouncements, management does not believe that there are any other recently issued, but not effective, accounting standards which, if currently adopted, would have a material effect on the Company’s financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

As a smaller reporting company, as that term is defined in Item 10(f)(1) of Regulation S-K, we are not required to provide information required by this Item.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act as of the end of the period covered by this Quarterly Report on Form 10-Q. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Management, with the participation of our Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of our disclosure controls and procedures as of September 30, 2019. Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were not effective as of September 30, 2019 for the reasons discussed below. In addition, management identified the following material weaknesses in its assessment of the effectiveness of disclosure controls and procedures as of September 30, 2019:

The Company did not effectively segregate certain accounting duties due to the small size of its accounting staff.

A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis. Notwithstanding the determination that our internal control over financial reporting was not effective, as of December 31, 2018, and that there was a material weakness as identified in this Quarterly Report, we believe that our unaudited consolidated financial statements contained in this Quarterly Report fairly present our financial position, results of operations and cash flows for periods covered thereby in all material respects.

We expect to be dependent upon our Chief Financial Officer, who is knowledgeable and experienced in the application of U.S. Generally Accepted Accounting Principles, to maintain our disclosure controls and procedures and the preparation of our financial statements for the foreseeable future. We plan to increase the size of our accounting staff at the appropriate time for our business and its size to ameliorate our concern that we do not effectively segregate certain accounting duties, which we believe would resolve the material weakness in disclosure controls and procedures, but there can be no assurances as to the timing of any such action or that we will be able to do so.

(b) Changes in internal control over financial reporting.

There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Except as discussed below, we are not currently aware of any such legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition, or operating results.

Banco Popular North America. v Aerial Products Corporation d/b/a Southern Balloon Works, et al. (Fourth Judicial Circuit Court, Duval County Florida-Civil Division) Case No. 16:2016:CA-003343

On May 16, 2016, Banco Popular North America (“Banco”) filed a lawsuit in Duval County, Florida in the Circuit Court of the Fourth Judicial Circuit against Aerial Products Corporation d/b/a Southern Balloon Works (“Aerial Products”), Kevin M. Hess, the Company’s Chief Technology Officer, Lighter Than Air Systems Corp., a wholly owned subsidiary of the Company (“LTAS”), and the Company to collect on a delinquent Small Business Administration loan that Banco made in 2007 to Aerial Products with Mr. Hess as the personal guarantor. Banco set a hearing on its Motion for Summary Judgment against Kevin Hess and Aerial Products on October 31, 2019 at which time Mr. Hess and Aerial Products Corporation were found jointly and severally liable for the delinquent loan. An order was entered in the case which dismissed all claims against the Company without prejudice.

There are no material claims, actions, suits, proceedings inquiries, labor disputes or investigations pending.

Item 1A. Risk Factors

Smaller reporting companies are not required to provide the information required by this Item.

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

On November 12, 2019, upon approval of the Company’s board of directors, the Company issued pursuant to its 2015 Equity Plan, 2,300,000 shares of restricted common stock to officers, directors and a consultant for services provided and are subject to a change of control vesting condition. Daniyel Erdberg received 1,000,000 shares, Kendall Carpenter received 400,000 shares, Felicia Hess received 200,000 shares, Reginald Brown received 200,000 shares, Global Security & Innovative Strategies LLC (David Aguilar) received 100,000 shares, Timothy Hoechst received 100,000 shares, John Miller received 100,000 shares and the consultant received 200,000 shares.

On September 4, 2019, the Company entered into a Stock Redemption Agreement with Director Robert Guerra concurrent with his resignation from the board of directors. The Company reacquired the 100,000 shares of common stock for $50,000, the same price Mr. Guerra purchased the shares for on January 25, 2019.

On January 25, 2019, the Company completed the sale of 4,015,500 shares of its common stock pursuant to the Amended and Restated Stock Purchase Agreement dated December 21, 2018 at $0.50 per share for an aggregate of $2,007,750 in cash and subscription notes receivable. On April 30, 2019, Daniyel Erdberg entered into a Stock Redemption and Note Cancellation Agreement whereby the Company redeemed 100,000 shares of common stock paid pursuant to the note described above and cancelled the $50,000 note and the related $267 in accrued interest.

26

On March 20, 2019, the Company’s board of directors approved option grants to two employees outside its 2015 Equity Plan. One grant, relating to the option to purchase 30,000 shares of the Company’s common stock, vests after one year, and one grant, relating to the option to purchase 100,000 shares of the Company’s common stock, vests after two years. These stock options have an exercise price of $1.06 per share and expire on March 20, 2023.

On March 20, 2019, the Company issued a warrant to purchase 50,000 shares of the Company’s common stock outside its 2015 Equity Plan to a contractor for services. This warrant has an exercise price of $1.06 per share and an expiration date of March 20, 2023, and vests after one year.

The Company issued the securities noted above in reliance upon the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and/or Regulation D promulgated thereunder. Accordingly, the shares are subject to certain restrictions and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act and other applicable securities laws.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

(a) None.

(b) There have been no material changes to the procedures by which security holders may recommend nominees to our Board of Directors since the filing of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2019.

Item 6. EXHIBITS

The following exhibits are filed as a part of this report or incorporated herein by reference:

		Incorporation by Reference				Filed or
Exhibit Number	Exhibit Description	Form	Filing Date	Exhibit Number	SEC File No.	Furnished Herewith
10.1	Amendment to Form of Nonqualified Stock Option Agreement	–	–	–	–	X
10.2	Form of Drone Aviation Holding Corp. Restricted Stock Agreement	–	–	–	–	X
31.1	Certification of the Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	–	–	–	–	X
31.2	Certification of the Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	–	–	–	–	X
32.1	Certifications of the Chief Executive Officer and the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	–	–	–	–	X
101 INS	XBRL Instance Document	–	–	–	–	X
101 SCH	XBRL Taxonomy Extension Schema Document	–	–	–	–	X
101 CAL	XBRL Taxonomy Calculation Linkbase Document	–	–	–	–	X
101 LAB	XBRL Taxonomy Labels Linkbase Document	–	–	–	–	X
101 PRE	XBRL Taxonomy Presentation Linkbase Document	–	–	–	–	X
101 DEF	XBRL Taxonomy Extension Definition Linkbase Document	–	–	–	–	X

27

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.

	DRONE AVIATION HOLDING CORP.
Date: November 14, 2019	By:	/s/ DANIYEL ERDBERG
		Daniyel Erdberg
		Chief Executive Officer (Principal Executive Officer)
Date: November 14, 2019	By:	/s/ KENDALL CARPENTER
		Kendall Carpenter
		Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

28

EX-10.1

Exhibit 10.1

AMENDMENT #___ TO NONQUALIFIED STOCK OPTION AGREEMENT

THIS AMENDMENT TO NONQUALIFIED STOCK OPTION AGREEMENT (the “Amendment”) is made effective as of November ___, 2019 (the “Effective Date”) by and between Drone Aviation Holding Corp., a Nevada corporation (the “Corporation”) and __________________ (the “Holder”) (collectively the “Parties”).

BACKGROUND

A. The Corporation and Holder are the parties to that certain Nonqualified Stock Option Agreement for _______ shares of the Corporation’s Common Stock, par value $0.0001 per share that was granted by the Corporation to the Holder on __________ (the “Option Agreement”); and

B. The Parties desire to amend the Option Agreement, as set forth below.

NOW THEREFORE, in consideration of the execution and delivery of the Amendment and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1. Section 8 (b) – Termination of Employment – is hereby amended as follows: The first two sentences of Section 8(b) are hereby amended and restated in their entirety to provide as follows: “In the event that Optionee is removed as a director, officer or employee by the Company at any time other than for “Cause” or resigns as a director, officer or employee for “Good Reason”, the Option granted to Optionee may be exercised by the Optionee, to the extent the Option was exercisable on the date Optionee ceases to be a director, officer or employee, at any time before the date on which the Option otherwise expires by its terms, at which time the Option shall terminate; provided, however, if the Optionee dies before the Option terminates and is no longer exercisable, the terms and provisions of Section 11 shall control.”

2. Section 10 – Retirement – is hereby amended and restated in its entirety to provide as follows: “If Optionee retires at age 60 or older from the Company and has at least four (4) years of service with the Company, such Option may be exercisable at any time on or before the date on which the Option otherwise expires by its terms. If Optionee retires but does not meet this requirement, the Option may thereafter be exercised to the extent it was exercisable at the time of such Retirement, but may not be exercised after ninety (90) days from the retirement date or the expiration of the stated term in the Option, whichever date is earlier; provided, however, if the Optionee dies before the Option terminates and is no longer exercisable, the terms of Section 11 shall control.”

3. This Amendment shall be deemed part of, but shall take precedence over and supersede any provisions to the contrary contained in the Option Agreement and previous Amendment(s). All initial capitalized terms used in this Amendment shall have the same meaning as set forth in the Option Agreement unless otherwise provided. Except as specifically modified hereby, all of the provisions of the Option Agreement, which are not in conflict with the terms of this Amendment, shall remain in full force and effect.

IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first above written.

DRONE AVIATION HOLDING CORP.		ACCEPTED AND ACKNOWLEDGED:
By:		By:
			Name:
	CEO

EX-10.2

Exhibit 10.2

FORM

DRONE AVIATION HOLDING CORP.

RESTRICTED STOCK AGREEMENT
(Non-Assignable)

________

____ Shares of Restricted Stock of
Drone Aviation Holding Corp.

THIS CERTIFIES that on ____, 20__, _____ (“Holder”) was granted _____ (___) shares of fully paid and non-assessable shares (“Restricted Shares”) of the Common Stock (par value $0.0001 per share) of Drone Aviation Holding Corp. (the “Corporation”), a Nevada corporation. A determination of the Board of Directors of the Corporation (the “Committee”) as to any questions which may arise with respect to the interpretation of the provisions of this award shall be final.

TERMS AND CONDITIONS. It is understood and agreed that the award evidenced by this agreement is subject to the following terms and conditions:

1.       Award and Vesting.

(a)       Award. The shares of Restricted Stock awarded hereunder shall be issued and held by the Corporation’s transfer agent in book entry form, and the Holder’s name shall be entered as the stockholder of record on the books of the Corporation. Thereupon, the Holder shall have all the rights of a stockholder with respect to such shares, including voting and dividend rights, subject, however, to the restrictions and conditions specified in Paragraph 1(b) below. The Holder shall (i) sign and deliver to the Corporation a copy of this Restricted Stock Agreement and (ii) deliver to the Corporation a stock power endorsed in blank if requested by the Corporation.

(b)       Vesting of Restricted Stock. The restrictions and conditions in Paragraphs 7(b) and (c) of this Agreement shall lapse upon the earlier of (i) the Vesting Date or Dates specified in the following schedule or (ii) upon the occurrence of a Change of Control (as hereinafter defined) so long as the Holder in the case of either (i) or (ii) remains a director, officer or employee of, or consultant or advisor to, the Corporation from the date hereof through the applicable Vesting Date. If a series of Vesting Dates is specified, then the restrictions and conditions in Paragraphs 7(b) and (c) shall lapse only with respect to the number of shares of Restricted Stock specified as vested on such date.

Incremental Number of Shares Vested	Vesting Date
[__]  (100 %)	Upon the occurrence of a Change of Control

A "Change of Control" shall be deemed to have occurred if, after the Effective Date, (i) the beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of securities representing more than 30% of the combined voting power of the Corporation is acquired by any "person" as defined in sections 13(d) and 14(d) of the Exchange Act (other than the Corporation, any subsidiary of the Corporation, or any trustee or other fiduciary holding securities under an employee benefit plan of the Corporation), (ii) the merger or consolidation of the Corporation with or into another corporation where the shareholders of the Corporation, immediately prior to the consolidation or merger, would not, immediately after the consolidation or merger, beneficially own (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, shares representing in the aggregate 50% or more of the combined voting power of the securities of the corporation issuing cash or securities in the consolidation or merger (or of its ultimate parent corporation, if any) in substantially the same proportion as their ownership of the Corporation immediately prior to such merger or consolidation, (iii) the sale or other disposition of all or substantially all of the Corporation's assets to an entity, other than a sale or disposition by the Corporation of all or substantially all of the Corporation's assets to an entity, at least 50% of the combined voting power of the voting securities of which are owned directly or indirectly by shareholders of the Corporation, immediately prior to the sale or disposition, in substantially the same proportion as their ownership of the Corporation immediately prior to such sale or disposition, or (iv) during any period of two consecutive years, individuals who at the beginning of such period were members of the Corporation’s Board of Directors ("Incumbent Directors") cease for any reason (other than death) to constitute at least a majority thereof; provided that each new director whose election, or nomination for election by the Corporation's shareholders, was approved by a vote of at least a majority of the directors then still in office who were directors at the beginning of such period shall be deemed an Incumbent Director unless such approval was made directly or indirectly in connection with an actual or threatened election contest with respect to directors or as a result of any other actual or threatened solicitation of proxies or consents by or on behalf of any person other than the Board.

1 

     2.      Regulatory Compliance and Listing. The issuance or delivery of any stock certificates representing Restricted Shares may be postponed by the Corporation for such period as may be required to comply with any applicable requirements under the federal securities laws, any applicable listing requirements of any national securities exchange, any rules, regulations or other requirements under any other law, or any rules or regulations applicable to the issuance or delivery of such Restricted Shares, and the Corporation shall not be obligated to deliver any such Restricted Shares to the Holder if delivery thereof would constitute a violation of any provision of any law or of any regulation of any governmental authority or any national securities exchange.

3.       Investment Representations and Related Matters. The Holder hereby represents that the Restricted Shares awarded pursuant to this agreement are being acquired for investment purposes and not for resale or with a view towards distribution thereof. The Holder acknowledges and agrees that any sale or distribution of Restricted Shares may be made only pursuant to either (a) a registration statement on an appropriate form under the Securities Act of 1933, as amended (“Securities Act”), which registration statement has become effective and is current with regard to the Restricted Shares being sold, or (b) a specific exemption from the registration requirements of the Securities Act that is confirmed in a favorable written opinion of counsel, in form and substance satisfactory to counsel for the Corporation, prior to any such sale or distribution. The Holder hereby consents to such action as the Corporation deems necessary or appropriate from time-to-time to prevent a violation of, or to perfect an exemption from, the registration requirements of the Securities Act or to implement the provisions of this agreement, including but not limited to placing restrictive legends on certificates evidencing Restricted Shares and delivering stop transfer instructions to the Corporation’s stock transfer agent.

2 

4.       No Right To Continued Employment; Forfeiture. This agreement does not confer upon the Holder any right to continued employment by the Corporation or any of its subsidiaries or affiliated companies, nor shall it interfere in any way with the right to the Holder’s employer to terminate employment at any time for any reason or no reason.

5.       Construction. This agreement will be construed by and administered under the supervision of the Committee, and all determinations will be final and binding on the Holder.

6.       Dilution. Nothing in this agreement will restrict or limit in any way the right of the Committee to issue or sell stock of the Corporation (or securities convertible into stock of the Corporation) on such terms and conditions as it deems to be in the best interests of the Corporation, including, without limitation, stock and securities issued or sold in connection with mergers and acquisitions, stock issued or sold in connection with any stock option or similar plan, and stock issued or contributed to any stock bonus or employee stock ownership plan.

7.       Legends and Restrictions.

(a)       The Restricted Shares shall bear a legend in substantially the following form:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR (B) AN OPINION OR COUNSEL, IN A REASONABLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS, OR (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.

(b) Shares of Restricted Stock granted herein may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of by the Holder prior to vesting.

(c) If the Holder’s employment with the Corporation or its subsidiaries is voluntarily terminated for any reason not deemed “For Good Reason” as defined by the Holder’s employment agreement prior to vesting of shares of Restricted Stock granted herein, all shares of Restricted Stock which have not vested shall immediately and automatically be forfeited and returned to the Corporation.

    8.        Tax Withholding. The Holder shall, not later than the date as of which the receipt of this award becomes a taxable event for Federal income tax purposes, pay to the Corporation any Federal, state, and local taxes required by law to be withheld on account of such taxable event. Except in the case where an election is made pursuant to Paragraph 9 below, the Corporation shall have the authority to cause the required minimum tax withholding obligation to be satisfied, in whole or in part, by withholding from shares of Stock to be issued or released by the transfer agent a number of shares of Stock with an aggregate fair market value that would satisfy the minimum withholding amount due.

3 

       9.        Election Under Section 83(b). The Holder and the Corporation hereby agree that the Holder may, within 30 days following the date of this Agreement, file with the Internal Revenue Service and the Corporation an election under Section 83(b) of the Internal Revenue Code. In the event the Holder makes such an election, he or she agrees to provide a copy of the election to the Corporation. The Holder acknowledges that he or she is responsible for obtaining the advice of his or her tax advisors with regard to the Section 83(b) election and that he or she is relying solely on such advisors and not on any statements or representations of the Corporation or any of its agents with regard to such election.

10.       Notices. Any notice hereunder to the Corporation shall be addressed to it at Drone Aviation Holding Corp., 11651 Central Parkway #118, Jacksonville, FL 32224, Attention: CEO, and any notice hereunder to the Holder shall be addressed to the Holder at the last known home address shown in the records of the Corporation, subject to the right of any party hereto to designate another address at any time hereafter in writing.

11.       Counterparts. This agreement may be executed in counterparts each of which taken together shall constitute one and the same instrument.

12.       Governing Law. This agreement shall be governed by, and construed and enforced in accordance with, the internal laws of the State of Florida without reference to principles of conflicts of laws.

IN WITNESS WHEREOF, the Corporation caused this agreement to be executed by a duly authorized officer.

Dated: ______, 20__ DRONE AVIATION HOLDING CORP.
By:  ______________________________ Name: Title:    

ACCEPTED AND ACKNOWLEDGED:
By:
Dated:	______, 20__

4 

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Daniyel Erdberg, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 of Drone Aviation Holding Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15 (f) and 15 (d)-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financing reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect the registrant’s internal control over the financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2019	/s/ Daniyel Erdberg
	Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Kendall Carpenter, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 of Drone Aviation Holding Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15 (f) and 15 (d)-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financing reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect the registrant’s internal control over the financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2019	/s/ Kendall Carpenter
	Executive Vice President and Chief Financial Officer
	(Principal Financial Officer and Principal Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Drone Aviation Holding Corp. (the “Company”) on Form 10-Q for the quarter ended September 30, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Daniyel Erdberg, Chief Executive Officer of the Company, and I, Kendall Carpenter, Executive Vice President and Chief Financial Officer of the Company, certify to the best of my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: November 14, 2019	/s/ Daniyel Erdberg
	Chief Executive Officer
	(Principal Executive Officer)
Dated: November 14, 2019	/s/ Kendall Carpenter
	Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

XML

Consolidated Balance Sheets - USD ($)	Sep. 30, 2019	Dec. 31, 2018
CURRENT ASSETS:
Cash	$ 1,624,758	$ 2,282,365
Accounts receivable - trade	1,631,414	18,000
Inventory, net	826,647	307,925
Deferred offering costs	174,475
Prepaid expenses and deposits	212,841	89,613
Total current assets	4,470,135	2,697,903
PROPERTY AND EQUIPMENT, at cost:	280,981	176,955
Less - accumulated depreciation	(159,052)	(123,725)
Net property and equipment	121,929	53,230
OTHER ASSETS:
Right of use leased assets	122,802
Goodwill	99,799	99,799
Intangible assets, net	486,667	705,667
Total other assets	709,268	805,466
TOTAL ASSETS	5,301,332	3,556,599
CURRENT LIABILITIES:
Accounts payable - trade and accrued liabilities	486,717	485,024
Bank line of credit	2,000,000	2,000,000
Deferred revenue	22,500
Operating lease liability	86,070
Total current liabilities	2,595,287	2,485,024
LONG TERM LIABILITIES:
Operating lease liability	37,606
TOTAL LIABILITIES	2,632,893	2,485,024
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.0001 par value; authorized 300,000,000 shares; 27,556,121 and 23,640,621 shares issued, 27,456,121 and 23, 640,621 outstanding, at September 30, 2019 and December 31, 2018, respectively	2,756	2,364
Treasury stock	(50,000)
Additional paid-in capital	41,662,837	39,541,301
Retained deficit	(38,947,154)	(38,472,090)
Total stockholders' equity	2,668,439	1,071,575
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 5,301,332	$ 3,556,599

XML

Consolidated Statements of Cash Flows (Unaudited) - USD ($)	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
OPERATING ACTIVITIES:
Net loss	$ (475,064)	$ (3,944,256)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense	35,327	29,238
Loss on disposal of property, plant, and equipment		10,002
Amortization expense of intangible assets	219,000	219,000
Noncash lease expense	66,961
Stock based compensation	164,178	1,647,444
Changes in operating assets and liabilities:
Accounts receivable	(1,613,414)	44,305
Inventory	(518,722)	(769,966)
Deferred offering costs	(174,475)
Prepaid expenses and other current assets	(123,228)	3,238
Operating lease obligation	(66,087)
Accounts payable and accrued expense	1,693	447,943
Deferred revenue	22,500	9,800
Due from related party		11,937
Net cash used in operating activities	(2,461,331)	(2,291,315)
INVESTING ACTIVITIES:
Cash received from sale of vehicle		60,000
Cash paid on fixed assets	(104,026)	(5,279)
Net cash provided by (used) in investing activities	(104,026)	54,721
FINANCING ACTIVITIES:
Proceeds from sale of common stock	1,957,750
Acquisition of treasury stock	(50,000)
Proceeds from related party convertible note payable		900,000
Proceeds from bank line of credit		900,000
Net cash provided by financing activities	1,907,750	1,800,000
NET DECREASE IN CASH	(657,607)	(436,594)
CASH, beginning of period	2,282,365	615,375
CASH, end of period	1,624,758	178,781
Noncash investing and financing activities for the nine months ended September 30:
ROU assets and operating lease obligations recognized	189,763
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest	94,806	232,255
Income taxes

XML

Property and Equipment (Details Textual) - USD ($)	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Property and Equipment (Textual)
Depreciation expense	$ 35,327	$ 29,238
Equipment [Member] | Minimum [Member]
Property and Equipment (Textual)
Estimated useful life	3 years
Equipment [Member] | Maximum [Member]
Property and Equipment (Textual)
Estimated useful life	7 years
Furniture and Fixtures [Member] | Minimum [Member]
Property and Equipment (Textual)
Estimated useful life	3 years
Furniture and Fixtures [Member] | Maximum [Member]
Property and Equipment (Textual)
Estimated useful life	7 years
Hardware and Software [Member] | Minimum [Member]
Property and Equipment (Textual)
Estimated useful life	3 years
Hardware and Software [Member] | Maximum [Member]
Property and Equipment (Textual)
Estimated useful life	7 years
Leasehold Improvements [Member]
Property and Equipment (Textual)
Amount invested	$ 22,967
Leasehold Improvements [Member] | Minimum [Member]
Property and Equipment (Textual)
Estimated useful life	3 years
Leasehold Improvements [Member] | Maximum [Member]
Property and Equipment (Textual)
Estimated useful life	7 years
New hires [Member]
Property and Equipment (Textual)
Amount invested	$ 20,133
New Shop Equipment [Member]
Property and Equipment (Textual)
Amount invested	59,660
Office Equipment [Member]
Property and Equipment (Textual)
Amount invested	$ 1,266

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Related Party Transactions (Details) - USD ($)	1 Months Ended		9 Months Ended
	Mar. 21, 2019	Sep. 26, 2018	Sep. 30, 2019
Related Party Transactions (Textual)
Options to purchase of stock		100,000
Options strike price		$ 1.00
Options expiration date		Sep. 26, 2022
Payment for management fee		$ 10,000
Board of directors			$ 20,000
Kevin Hess [Member]
Related Party Transactions (Textual)
Board of directors			$ 23,000
Cognitive Carbon Corporation [Member]
Related Party Transactions (Textual)
Outsourced development	$ 19,750
Outsourced development term	1 year
Outsourced software and platform development	$ 120,000

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Prepaid Expenses

9 Months Ended

Sep. 30, 2019

Prepaid Expenses [Abstract]

PREPAID EXPENSES

5. PREPAID EXPENSES

Prepaid expenses consisted of the following at September 30, 2019 and December 31, 2018:

	September 30, 2019		December 31, 2018
Prepaid insurance	$	45,694	$	28,828
Prepaid products and services		157,147		54,870
Deferred offering costs		174,475		-
Prepaid rent and security deposit		10,000		5,915
	$	387,316	$	89,613

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Revolving Line of Credit

9 Months Ended

Sep. 30, 2019

Revolving Line of Credit [Abstract]

REVOLVING LINE OF CREDIT

9. REVOLVING LINE OF CREDIT

On August 2, 2017, the Company issued a promissory note (the "CNB Note") to City National Bank of Florida ("CNB") in the principal amount of $2,000,000, with a maturity date of August 2, 2018. On September 26, 2018, the Company and CNB agreed to extend the maturity date of the CNB Note to August 2, 2019. On August 29, 2019, the Company and CNB agreed to extend the maturity date of the CNB Note to August 2, 2020. The Company evaluated the modification under the Financial Accounting Standards Board's (the "FASB") Accounting Standards Codification ("ASC") 470-50 and determined that it did not qualify as an extinguishment of debt. The CNB Note evidences the CNB Line of Credit with advances that may be requested by the Company until the maturity date of August 2, 2020 so long as no event of default exists under the CNB Note, the Company or Jay H. Nussbaum or his estate, the Company's former Chairman of the Board and Chief Executive Officer, does not cease doing business, Mr. Nussbaum or his estate does not seek to revoke or modify his guarantee of the CNB Note, the Company does not misapply the proceeds of this loan or CNB in good faith does not believe itself insecure. The initial CNB Note bore an interest rate at a variable rate equal to 0.250 percentage points over the Wall Street Journal Prime Rate payable monthly. At renewal, the variable rate was modified to reflect the average of the interest rates per annum at which United States Dollars are offered in the London Interbank Borrowing Market ("Libor") for a 30-day period (the "Index") plus 2.9 percentage points over the Index, or a total of 5.09% annual interest rate as of August 29, 2019. The Company will pay to CNB a late charge of 5.0% of any monthly payment not received by CNB within 10 calendar days after its due date. The Company may prepay the CNB Note at any time without penalty. In the event of a default, the interest rate will increase to the highest lawful rate. The Company is obligated to maintain depository accounts with CNB with a minimum average annual balance of $1,600,000 in the aggregate with Mr. Nussbaum or his estate. In the event the Company does not maintain this account balance, CNB may charge the Company a fee equal to 2% of the deficiency as additional interest under the CNB Note. The CNB Note is personally guaranteed by Mr. Nussbaum and his estate pursuant to a written guarantee in favor of CNB. Mr. Nussbaum and his estate and the Company are obligated to maintain an aggregate unencumbered liquidity of no less than $6,000,000 in the form of cash, repurchase agreements, certificates of deposit or marketable securities acceptable to CNB. In addition, to secure the Company's obligations under the CNB Note, the Company entered into a security agreement in favor of CNB encumbering all of the Company's accounts, inventory and equipment along with an assignment of a bank account the Company maintains at CNB with a balance of $120,000. As of September 30, 2019, $2,000,000 has been drawn against the CNB Line of Credit. Accrued interest of $8,097 related to the CNB Line of Credit has been recorded as of September 30, 2019.

Indemnification Agreement

On August 3, 2017, the Company entered into an Indemnification Agreement with Mr. Nussbaum in order to indemnify and defend him to the fullest extent permitted by law for any claim, expense or obligation which might arise as a result of his guarantee of the CNB Note.

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Leases

9 Months Ended

Sep. 30, 2019

Leases [Abstract]

LEASES

13. LEASES

As of September 30, 2019, the Company has two operating leases for office and manufacturing space which are further described below in Footnote #14 and no financial leases. The impact of ASU No. 2016-02 ("Leases (Topic 842)" on our consolidated balance sheet beginning January 1, 2019 was through the recognition of ROU assets and lease liabilities for operating leases. Amounts recognized at January 1 and March 1, 2019 for operating leases are as follows:

	January 1, 2019
ROU Assets	$	116,876
Lease liability	$	116,876

	March 1, 2019
ROU Assets	$	72,887
Lease liability	$	72,887

The Company elected the practical expedient under ASU 2018-11 "Leases: Targeted Improvements" which allows the Company to apply the transition provision for Topic 842 at the Company's adoption date instead of at the earlies comparative period presented in the financial statements. Therefore, the Company recognized and measured leases existing at January 1, 2019 but without retrospective application. In addition, the Company elected the optional practical expedient permitted under the transition guidance which allows the Company to carry forward the historical accounting treatment for existing lease upon adoption. No impact was recorded to the income statement or beginning retained earnings for Topic 842.

The leased properties have a remaining lease term of nineteen months to thirty-seven months as of January 1, 2019. Neither lease has an option to extend beyond the stated termination date.

Beginning January 1, 2019, operating ROU assets and operating lease liabilities are recognized based on the present value of lease payments, including annual rent increases, over the lease term at commencement date. Operating leases in effect prior to January 1, 2019 were recognized at the present value of the remaining payments on the remaining lease term as of January 1, 2019. Because neither of our leases included an implicit rate of return, we used our incremental secured borrowing rate based on lease term information available as of the adoption date or lease commencement date in determining the present value of lease payments. The incremental borrowing rate on the Jacksonville lease is 5.9% and the incremental borrowing rate on the Holly Hill lease is 5.5%.

Other information related to our operating leases are as follows:

	September 30, 2019
ROU Asset – January 1, 2019	$	116,876
Increase	$	72,887
Amortization	$	(66,961	)
ROU Asset – September 30, 2019	$	122,802
Lease liability – January 1, 2019	$	116,876
Increase	$	72,887
Amortization	$	(66,087	)
Lease liability – September 30, 2019	$	123,676
Lease liability – short term	$	86,070
Lease liability – long term	$	37,606
Lease liability – total	$	123,676

As of September 30, 2019, our operating leases had a weighted average remaining lease term of 1.56 years and a weighted average discount rate of 5.70%.

The table below reconciles the fixed component of the undiscounted cash flows for each of the first five years and the total remaining years to the lease liabilities recorded on the Consolidated Balance Sheet as of September 30, 2019:

	Operating Leases
Amounts due within twelve months of September 30,
2019	$	90,020
2020		25,964
2021		13,129
2022		-
2023		-
thereafter		-
Total minimum lease payments		129,113
Less: effect of discounting		5,437
Present Value of future minimum lease payments		123,676
Less: current obligations under leases		86,070
Long-term lease obligations	$	37,606

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Basis of Presentation and Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2019

Accounting Policies [Abstract]

Computation of basic and diluted income (loss) per share

	For the Three Months Ended					For the Nine Months Ended
	Sept 30,		Sept 30,			Sept 30,			Sept 30,
	2019		2018			2019			2018
Numerator:
Net Income (Loss)	$	574,296	$	(1,189,866	)	$	(475,064	)	$	(3,944,256	)
Numerator for basic and diluted EPS - income (loss) available to common Shareholders	$	574,296	$	(1,189,866	)	$	(475,064	)	$	(3,944,256	)
Denominator:
Denominator for basic EPS - Weighted average shares		27,527,860		9,182,470			27,232,357			9,182,470
Dilutive Effect of Warrants and Options		5,348,767		-			-			-
Denominator for diluted EPS - adjusted Weighted average shares and assumed Conversions		32,876,627		9,182,470			27,232,357			9,182,470
Basic and Diluted income (loss) per common share	$	0.02	$	(0.13	)	$	(0.02	)	$	(0.43	)

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Employee Stock Options (Tables) - Employee Stock Option [Member]

9 Months Ended

Sep. 30, 2019

Deferred Compensation Arrangement with Individual, Share-based Payments [Line Items]

Schedule of assumptions used to estimate fair value stock options granted

	2019
Expected dividend yield		0	%
Expected volatility		90	%
Risk-free interest rate		2.40-2.47	%
Expected life of options		4.0 years

	2018
Expected dividend yield		0	%
Expected volatility		80-97	%
Risk-free interest rate		2.48-2.89	%
Expected life of options		4.00 years

Schedule of stock option activity

	Number of Options			Weighted Average Exercise Price per Share		Weighted Average Contractual Life in Years		Aggregate Intrinsic Value
Outstanding – December 31, 2018		13,990,000		$	0.61		3.15
Exercisable – December 31, 2018		13,610,000		$	0.59		3.16	$	0
Granted		130,000		$	1.06
Cancelled or Expired		(100,000	)	$	0.95
Outstanding – September 30, 2019		14,020,000		$	0.61		1.85
Exercisable – September 30, 2019		13,745,000		$	0.60		1.83	$	3,796,960

	Number of Options			Weighted Average Exercise Price per Share		Weighted Average Contractual Life in Years		Aggregate Intrinsic Value
Outstanding – December 31, 2017		7,945,000		$	1.38		3.50
Exercisable – December 31, 2017		7,627,500		$	1.35		3.50	$	0
Granted		11,560,000		$	0.82
Cancelled or Expired		(5,425,000	)	$	1.33
Outstanding – September 30, 2018		14,080,000		$	0.94		3.39	$	0
Exercisable – September 30, 2018		7,600,000		$	1.15		2.92	$	0

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Warrants (Details Textual) - USD ($)	1 Months Ended	9 Months Ended
	Mar. 20, 2019	Sep. 30, 2019	Sep. 30, 2018
Warrants (Textual)
Estimated fair value of the options to purchase		$ 89,217	$ 2,839,360
Compensation expense			$ 1,105
Warrant [Member]
Warrants (Textual)
Warrant to purchase	$ 50,000	50,000
Exercise price	$ 1.06
Description of warrants	Expiration date of March 20, 2023, and vests after one year.
Estimated fair value of the options to purchase		33,913
Compensation expense		17,990
Remaining balance to be recognized		$ 15,934

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Employee Stock Options (Details 1) - Employee Stock Option [Member] - USD ($)	9 Months Ended		12 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018	Dec. 31, 2017
Number of Options
Outstanding - Beginning Balance	13,990,000	7,945,000	7,945,000
Exercisable - Beginning Balance	13,610,000	7,627,500	7,627,500
Granted	130,000	11,560,000
Cancelled or Expired	(100,000)	(5,425,000)
Outstanding - Ending Balance	14,020,000	14,080,000	13,990,000	7,945,000
Exercisable - Ending Balance	13,745,000	7,600,000	13,610,000	7,627,500
Weighted Average Exercise Price per Share
Outstanding - Beginning Balance	$ 0.61	$ 1.38	$ 1.38
Exercisable - Beginning Balance	0.59	1.35	1.35
Granted	1.06	0.82
Cancelled or Expired	0.95	1.33
Outstanding - Ending Balance	0.61	0.94	0.61	$ 1.38
Exercisable - Ending Balance	$ 0.60	$ 1.15	$ 0.59	$ 1.35
Weighted Average Contractual Life in Years
Outstanding	1 year 10 months 6 days	3 years 6 months	3 years 1 month 24 days	3 years 4 months 20 days
Exercisable	1 year 9 months 29 days	3 years 6 months	3 years 1 month 27 days	2 years 11 months 1 day
Aggregate Intrinsic Value
Exercisable - Beginning Balance	$ 0	$ 0	$ 0
Exercisable - Ending Balance	$ 3,796,960		$ 0

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Basis of Presentation and Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2019

Accounting Policies [Abstract]

Revenue Recognition

Revenue Recognition

In May 2014, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") No. 2014-09 (Topic 606), "Revenue from Contracts with Customers." Topic 606 supersedes the revenue recognition requirements in Topic 605, "Revenue Recognition" and requires entities to recognize revenues when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The principles in the standard are applied in five steps: 1) identify the contract(s) with a customer; 2) identify the performance obligations in the contract; 3) determine the transaction price; 4) allocate the transaction price to the performance obligations in the contract; and 5) recognize revenue when (or as) the entity satisfies a performance obligation. The Company adopted Topic 606 as of January 1, 2018 using the modified retrospective transition method. The Company recognized the cumulative effect of adopting this guidance as an adjustment to our opening balance of retained earnings. Prior periods will not be retrospectively adjusted. The adoption of Topic 606 does not have a material impact to our consolidated financial statements, including the presentation of revenues in our Consolidated Statements of Operations, which were not broken down by revenue stream or geographic areas since the Company only sells within the United States and has only one revenue stream.

Leases

Leases

Effective January 1, 2019, the Company adopted ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02") using the required modified retrospective approach. The most significant changes under the new guidance include clarification of the definition of a lease, and the requirements for lessees to recognize a Right of Use ("ROU") asset and a lease liability for all qualifying leases with terms longer than twelve months in the consolidated balance sheet. In addition, under Topic 842, additional disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. See Footnote #13 below for more detail on the Company's accounting with respect to lease accounting.

Income Per Common Share

Income (Loss) Per Common Share

Basic net income (loss) per common share is computed by dividing net income (loss) available to common shareholders by the weighted average number of shares outstanding. Diluted net income (loss) per common share is computed similar to basic net income (loss) per common share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. The dilutive effect of the Company's options and warrants is computed using the treasure stock method.

The following table sets for the computation of basic and diluted income (loss) per share:

	For the Three Months Ended					For the Nine Months Ended
	Sept 30,		Sept 30,			Sept 30,			Sept 30,
	2019		2018			2019			2018
Numerator:
Net Income (Loss)	$	574,296	$	(1,189,866	)	$	(475,064	)	$	(3,944,256	)
Numerator for basic and diluted EPS - income (loss) available to common Shareholders	$	574,296	$	(1,189,866	)	$	(475,064	)	$	(3,944,256	)
Denominator:
Denominator for basic EPS - Weighted average shares		27,527,860		9,182,470			27,232,357			9,182,470
Dilutive Effect of Warrants and Options		5,348,767		-			-			-
Denominator for diluted EPS - adjusted Weighted average shares and assumed Conversions		32,876,627		9,182,470			27,232,357			9,182,470
Basic and Diluted income (loss) per common share	$	0.02	$	(0.13	)	$	(0.02	)	$	(0.43	)

Stock-Based Compensation

Stock-Based Compensation

Effective January 1, 2019, the Company adopted ASU No. 2018-07, Compensation – Stock Based Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting ("ASU 2018-7"), which aligns accounting for share-based payments issued to nonemployees to that of employees under the existing guidance of Topic 718, with certain exceptions. This update supersedes previous guidance for equity-based payments to nonemployees under Subtopic 505-50, Equity – Equity-Based Payments to Non-Employees. The adoption of ASU 2018-07 did not have a material impact on the Company's consolidated financial statements.

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Property and Equipment (Tables)

9 Months Ended

Sep. 30, 2019

Property, Plant and Equipment [Abstract]

Schedule of property and equipment

	September 30, 2019			December 31, 2018
Shop machinery and equipment	$	147,194		$	87,534
Computers and electronics		52,226			32,093
Office furniture and fixtures		39,080			37,814
Leasehold improvements		42,481			19,514
		280,981			176,955
Less - accumulated depreciation		(159,052	)		(123,725	)
	$	121,929		$	53,230

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Leases (Details) - USD ($)	Sep. 30, 2019	Mar. 01, 2019	Jan. 01, 2019	Dec. 31, 2018
Lease liability	$ 37,606
Operating Leases [Member]
ROU Assets		$ 72,887	$ 116,876
Lease liability		$ 72,887	$ 116,876

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Employee Stock Options (Details Textual) - USD ($)				1 Months Ended						9 Months Ended		12 Months Ended
	Dec. 13, 2017	Jan. 09, 2017	Jun. 01, 2015	Mar. 20, 2019	Sep. 26, 2018	Aug. 22, 2018	May 16, 2018	May 16, 2018	Mar. 28, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2017	Dec. 31, 2016
Employee Stock Options (Textual)
Description of employee stock options				One grant, relating to the option to purchase 30,000 shares of the Company's common stock, vests after one year, and one grant, relating to the option to purchase 100,000 shares of the Company's common stock, vests after two years. These stock options have an exercise price of $1.06 per share and expire on March 20, 2023.									The Company granted 10,000 options to an employee with two-year vesting and an exercise price of $3.00 and an expiration date of December 6, 2019.
Compensation expense											$ 1,105
Option to purchase										130,000	11,560,000
Estimated fair value of the options to purchase										$ 89,217	$ 2,839,360
Employee Stock Option [Member]
Employee Stock Options (Textual)
Description of employee stock options					The Company's board of directors, the Company granted outside its 2015 Equity Plan, 6,000,000 options to five management employees and four directors. Jay Nussbaum was issued 2,350,000 options, Felicia Hess was issued 1,000,000 options, Daniyel Erdberg was issued 1,000,000 options, Kendall Carpenter was issued 425,000 options, Reginald Brown, Jr. was issued 1,000,000 options. Director David Aguilar was issued 150,000 options and Directors John Miller, Timothy Hoechst and Robert Guerra were each issued 25,000 options. The options vest upon the Company receiving an aggregate of $4,000,000 in new orders from a prime government contractor or directly from the U.S. government at any time commencing after the date of issuance. The options are exercisable at an exercise price of $.65 per share and expire September 26, 2022. Of these 6,000,000 options, 5,000,000 options have been accounted for as a modification of the August 22, 2018 options. During the nine months ended September 30, 2018, $360,593 compensation expense was recognized on these 6,000,000 options with a remaining balance of $2,238,087 to be recognized over the assumed vesting period.	The Company's board of directors, the Company granted outside its 2015 Equity Plan, an aggregate of 5,000,000 options to five management employees and four directors. Included in this award were the following grants to Executive Officers and Directors of the Company: 1,950,000 options to Jay Nussbaum, Chief Executive Officer and Chairman of the Board of Directors, 800,000 options to Felicia Hess, Chief Operating Officer, 800,000 options to Daniyel Erdberg, President, 300,000 options to Kendall Carpenter, Chief Financial Officer and the following directors of the Company: 150,000 options to David Aguilar, 25,000 options to John Miller, 25,000 options to Timothy Hoechst and 25,000 options to Robert Guerra. The options vest upon the Company receiving an aggregate of $4,000,000 in new orders from a prime government contractor or directly from the U.S. government at any time commencing after the date of issuance. The options are exercisable at an exercise price of $1.00 per share and expire August 22, 2022. On September 26, 2018, the Board resolved to cancel the Options to purchase 5,000,000 shares of common stock issued on August 22, 2018 that had not vested.		The Company's board of directors, the Company granted outside its 2015 Equity Plan, 460,000 options to four employees. Reginald Brown, Jr. was issued 200,000 options and Kendall Carpenter was issued 130,000 options which were immediately vested, are exercisable at an exercise price of $1.00 per share and expire May 16, 2022. Two engineers received a total of 130,000 shares which vest 50% after one year and the remaining 50% after two years, are exercisable at an exercise price of $1.00 per share and expire May 16, 2022. During the nine months ended September 30, 2018, $165,354 compensation expense was recognized on these 460,000 options with a remaining balance of $36,727 to be recognized over the vesting period.	The Company's board of directors, the Company granted outside its 2015 Equity Plan, 100,000 options each to a newly-appointed director, Robert Guerra. These options vest 50% one year after the date of grant and the remaining 50% two years after the date of grant provided the director is still actively involved with the Company. The options are exercisable at an exercise price of $1.00 per share and expire on March 28, 2022. During the nine months ended September 30, 2018, $14,599 compensation expense was recognized on these 100,000 options with a remaining balance of $23,990 to be recognized over the vesting period.
Compensation expense											$ 540,546
Option to purchase											11,560,000
2015 Equity Plan [Member]
Employee Stock Options (Textual)
Description of employee stock options	The Company’s board of directors, the Company issued outside its 2015 Equity Plan, 100,000 options each to two newly-appointed directors, or a total of 200,000 options. These options vest 50% after one year and the remaining 50% after two years provided the director is still actively involved with the Company. The options are exercisable at an exercise price of $1.00 per share .						The Company granted options to purchase shares of its common stock outside its 2015 Equity Plan to four employees. Reginald Brown, Jr. was issued an option to purchase 200,000 shares of common stock, and Kendall Carpenter, the Company's Executive Vice President and Chief Financial Officer, was issued an option to purchase 130,000 shares of common stock. These options were immediately vested, have an exercise price of $1.00 per share and expire May 16, 2022. Two engineers received options to purchase an aggregate of 130,000 shares of common stock. These options vest 50% after one year and the remaining 50% after two years, have an exercise price of $1.00 per share and expire May 16, 2022. One of the engineers terminated during the first quarter of 2019, before his option relating to 40,000 shares vested, and $7,376 in previously recognized 2018 expense was reversed due to option expiration.
Compensation expense										13,344
Remaining balance to be recognized										$ 5,585
Option to purchase										90,000
Robert Guerra [Member]
Employee Stock Options (Textual)
Description of employee stock options									The Company granted to Robert Guerra, a newly appointed director, an option to purchase 100,000 shares of the Company's common stock outside its 2015 Equity Plan. The option vests 50% one year after the date of grant and the remaining 50% two years after the date of grant provided the director is still actively involved with the Company. The option has an exercise price of $1.00 per share and expires on March 28, 2022. Mr. Guerra voluntarily resigned as a director on September 4, 2019. The unvested 50,000 options were immediately cancelled. Mr. Guerra did not exercise the 50,000 vested option within 30 days of his termination resulting in a cancelation of that option.
Compensation expense										$ (2,789)	$ 14,599
Remaining balance to be recognized										0
Director [Member]
Employee Stock Options (Textual)
Description of employee stock options		The Company issued an option to purchase 100,000 shares of common stock with an exercise price of $2.90 per share to a director. The option vests 50,000 after one year from grant date and another 50,000 two years from grant date with an expiration date of four years from grant date provided that the Director is still providing service to the Company.
Compensation expense											$ 33,836
Option to purchase											100,000
Director [Member] | 2015 Equity Plan [Member]
Employee Stock Options (Textual)
Description of employee stock options	The Company issued outside its 2015 Equity Plan, 100,000 options each to two newly-appointed directors, or a total of 200,000 options. These options vest 50% after one year and the remaining 50% after two years provided the director is still actively involved with the Company. The options are exercisable at an exercise price of $1.00 per share and expire on December 13, 2021.
Compensation expense										20,136	$ 54,638	$ 3,593
Remaining balance to be recognized	$ 41,558									$ 5,411
Option to purchase										200,000
Employee [Member]
Employee Stock Options (Textual)
Description of employee stock options			The Company issued an option award to an employee for 37,500 shares vesting over three years with an exercise price of $10.80 and expiration date of May 4, 2019.
Compensation expense											$ 14,369
Option to purchase											37,500

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Consolidated Balance Sheets (Parenthetical) - $ / shares	Sep. 30, 2019	Dec. 31, 2018
Statement of Financial Position [Abstract]
Common stock, par value	$ 0.0001	$ 0.0001
Common stock, shares authorized	300,000,000	300,000,000
Common stock, shares issued	27,556,121	23,640,621
Common stock, shares outstanding	27,556,121	23,640,621

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Subsequent Event (Details) - Subsequent Event [Member]	Nov. 12, 2019 shares
Subsequent Event (Textual)
Shares of restricted common stock	2,300,000
Shares issued description	Daniyel Erdberg received 1,000,000 shares, Kendall Carpenter received 400,000 shares, Felicia Hess received 200,000 shares, Reginald Brown received 200,000 shares, Global Security & Innovative Strategies LLC (David Aguilar) received 100,000 shares, Timothy Hoechst received 100,000 shares, John Miller received 100,000 shares and the consultant received 200,000 shares.

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Basis of Presentation and Significant Accounting Policies

9 Months Ended

Sep. 30, 2019

Accounting Policies [Abstract]

BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

The following unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Accordingly, such interim financial statements do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete annual financial statements. The information furnished reflects all adjustments, consisting only of normal recurring items which are, in the opinion of management, necessary in order to make the financial statements not misleading. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. The balance sheet as of December 31, 2018 has been derived from the Company's annual financial statements that were audited by an independent registered public accounting firm but does not include all of the information and footnotes required for complete annual financial statements. The unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and the notes thereto included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2018 filed by Drone Aviation Holding Corp. ("we", "our", "the Company") with the SEC on March 22, 2019. 

Revenue Recognition

In May 2014, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") No. 2014-09 (Topic 606), "Revenue from Contracts with Customers." Topic 606 supersedes the revenue recognition requirements in Topic 605, "Revenue Recognition" and requires entities to recognize revenues when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The principles in the standard are applied in five steps: 1) identify the contract(s) with a customer; 2) identify the performance obligations in the contract; 3) determine the transaction price; 4) allocate the transaction price to the performance obligations in the contract; and 5) recognize revenue when (or as) the entity satisfies a performance obligation. The Company adopted Topic 606 as of January 1, 2018 using the modified retrospective transition method. The Company recognized the cumulative effect of adopting this guidance as an adjustment to our opening balance of retained earnings. Prior periods will not be retrospectively adjusted. The adoption of Topic 606 does not have a material impact to our consolidated financial statements, including the presentation of revenues in our Consolidated Statements of Operations, which were not broken down by revenue stream or geographic areas since the Company only sells within the United States and has only one revenue stream.

Leases

Effective January 1, 2019, the Company adopted ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02") using the required modified retrospective approach. The most significant changes under the new guidance include clarification of the definition of a lease, and the requirements for lessees to recognize a Right of Use ("ROU") asset and a lease liability for all qualifying leases with terms longer than twelve months in the consolidated balance sheet. In addition, under Topic 842, additional disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. See Footnote #13 below for more detail on the Company's accounting with respect to lease accounting.

Income (Loss) Per Common Share

Basic net income (loss) per common share is computed by dividing net income (loss) available to common shareholders by the weighted average number of shares outstanding. Diluted net income (loss) per common share is computed similar to basic net income (loss) per common share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. The dilutive effect of the Company's options and warrants is computed using the treasure stock method.

The following table sets for the computation of basic and diluted income (loss) per share:

	For the Three Months Ended					For the Nine Months Ended
	Sept 30,		Sept 30,			Sept 30,			Sept 30,
	2019		2018			2019			2018
Numerator:
Net Income (Loss)	$	574,296	$	(1,189,866	)	$	(475,064	)	$	(3,944,256	)
Numerator for basic and diluted EPS - income (loss) available to common Shareholders	$	574,296	$	(1,189,866	)	$	(475,064	)	$	(3,944,256	)
Denominator:
Denominator for basic EPS - Weighted average shares		27,527,860		9,182,470			27,232,357			9,182,470
Dilutive Effect of Warrants and Options		5,348,767		-			-			-
Denominator for diluted EPS - adjusted Weighted average shares and assumed Conversions		32,876,627		9,182,470			27,232,357			9,182,470
Basic and Diluted income (loss) per common share	$	0.02	$	(0.13	)	$	(0.02	)	$	(0.43	)

Stock-Based Compensation

Effective January 1, 2019, the Company adopted ASU No. 2018-07, Compensation – Stock Based Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting ("ASU 2018-7"), which aligns accounting for share-based payments issued to nonemployees to that of employees under the existing guidance of Topic 718, with certain exceptions. This update supersedes previous guidance for equity-based payments to nonemployees under Subtopic 505-50, Equity – Equity-Based Payments to Non-Employees. The adoption of ASU 2018-07 did not have a material impact on the Company's consolidated financial statements.

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Intangible Assets (Details) - USD ($)		1 Months Ended	9 Months Ended		12 Months Ended
	Jun. 03, 2016	Jul. 20, 2015	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2015	Dec. 31, 2018
Intangible Assets (Textual)
Additional liability and expense	$ 11,000
Amortizing of purchased assets	1,460,000
Payments to acquire assets per month	$ 24,333
Amortization expense			$ 219,000	$ 219,000
Unamortized balance amount			486,667			$ 705,667
Amortization estimated amounts year for 2019			73,000
Amortization estimated amounts year for 2020			292,000
Amortization estimated amounts year for 2021			121,667
Adaptive Flight Inc [Member]
Intangible Assets (Textual)
Escrow value			$ 1,400,000		$ 484,500
Issued unregistered common stock, shares			50,000		150,000
Unregistered common stock per share					$ 3.23
Additional liability and expense					$ 161,500
Cost of shares					50,000
Cost of shares price per share					$ 3.23
Georgia Tech Uav Simulation Tool [Member]
Intangible Assets (Textual)
Amount paid among purchase		$ 100,000
Escrow value		$ 100,000
Issued unregistered common stock, shares		150,000
Unregistered common stock per share		$ 8.40
Integration Plan [Member]
Intangible Assets (Textual)
Issued unregistered common stock, shares	150,000
Unregistered common stock per share	$ 3.01
Escrow share value	$ 451,150
Additional liability and expense	$ 150,500
Cost of shares	50,000
Cost of shares price per share	$ 3.01

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Inventories (Details) - USD ($)	Sep. 30, 2019	Dec. 31, 2018
Inventory Disclosure [Abstract]
Raw Materials	$ 565,749	$ 136,555
Work in progress	273,337	180,041
Finished Goods	517,521	523,698
In transit	2,409
Less valuation allowance	(532,369)	(532,369)
Total	$ 826,647	$ 307,925

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Warrants

9 Months Ended

Sep. 30, 2019

Warrants [Abstract]

WARRANTS

12. WARRANTS

For the nine months ended September 30, 2019

On March 20, 2019, the Company issued a warrant to purchase 50,000 shares of the Company's common stock outside its 2015 Equity Plan to a contractor for services. This warrant has an exercise price of $1.06 per share and an expiration date of March 20, 2023, and vests after one year.

The following table summarizes the assumptions used to estimate the fair value of the warrants granted during the nine months ended September 30, 2019 on the date of grant.

	September 30, 2019
Expected dividend yield		0	%
Expected volatility		90	%
Risk-free interest rate		2.40	%
Expected life of warrants		4.0 years

Under the Black-Scholes option pricing model, the fair value of the warrant to purchase 50,000 shares of the Company's common stock granted during the nine months ended September 30, 2019 is estimated at $33,913 on the date of grant. During the nine months ended September 30, 2019, $17,990 in compensation expense was recognized on this warrant with a total of $15,934 to be recognized over the vesting period as of September 30, 2019.

The following table represents warrant activity as of and for the nine months ended September 30, 2019:

	Number of Warrants			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life in Years		Aggregate Intrinsic Value
Outstanding – December 31, 2018		2,280,000		$	0.72		3.44
Exercisable – December 31, 2018		2,280,000		$	0.72		3.44	$	0.00
Granted		50,000		$	1.06
Forfeited or Expired		(60,000	)	$	2.91
Outstanding – September 30, 2019		2,270,000		$	0.67		2.79	$	0.00
Exercisable – September 30, 2019		2,220,000		$	0.66		2.78	$	733,900

The following table represents warrant activity as of and for nine months ended September 30, 2018:

	Number of Warrants			Weighted Average Exercise Price per Share		Weighted Average Contractual Life in Years		Aggregate Intrinsic Value
Outstanding – December 31, 2017		2,232,500		$	1.36		4.34
Exercisable – December 31, 2017		2,232,500		$	1.36		4.34	$	0
Granted		100,000		$	1.00
Forfeited or Expired		(37,500	)	$	10.00
Outstanding – September 30, 2018		2,295,000		$	1.20		3.67	$	0
Exercisable – September 30, 2018		2,295,000		$	1.20		3.67	$	0

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Inventories

9 Months Ended

Sep. 30, 2019

Inventory Disclosure [Abstract]

INVENTORIES

4. INVENTORIES

Inventories are stated at the net realizable value, using the first-in first-out method. Cost includes materials, labor and manufacturing overhead related to the purchase and production of inventories. We regularly review inventory quantities on hand, future purchase commitments with our supplies, and the estimated utility of our inventory. If the review indicates a reduction in utility below carrying value, we reduce our inventory to a new cost basis through a charge to cost of goods sold. At September 30, 2019, the increase in inventory is primarily related to WASP and WASP Lite systems in production pursuant to announced orders. Inventory consists of the following at September 30, 2019 and December 31, 2018: 

	September 30, 2019			December 31, 2018
Raw Materials	$	565,749		$	136,555
Work in progress		273,337			180,041
Finished Goods		517,521			523,698
In transit		2,409			-
Less valuation allowance		(532,369	)		(532,369	)
Total	$	826,647		$	307,925

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Subscription Notes Receivable, Including Related Party

9 Months Ended

Sep. 30, 2019

Receivables [Abstract]

SUBSCRIPTION NOTES RECEIVABLE, INCLUDING RELATED PARTY

8. SUBSCRIPTION NOTES RECEIVABLE, INCLUDING RELATED PARTY

On January 25, 2019, the Company completed the sale of 4,015,500 shares of its common stock pursuant to the Amended and Restated Stock Purchase Agreement (discussed below in Footnote #10 – Shareholders' Equity) at $0.50 per share for an aggregate of $2,007,750. The aggregate consideration consisted of (1) cash in the aggregate amount of $1,432,750, (2) a promissory note from a single non-affiliate investor in the aggregate principal amount of $500,000, (3) a full-recourse promissory note payable by Daniyel Erdberg, the Company's President, in the amount of $50,000, and (4) a full-recourse promissory note payable by Kendall Carpenter, the Company's Executive Vice President and Chief Financial Officer, in the amount of $25,000. Each note bears an interest rate at a fixed rate of 3% per annum and principal and interest under the notes may be prepaid at any time without penalty. The non-affiliate note was fully repaid on February 8, 2019, including $575 in accrued interest. Each of the Erdberg and Carpenter notes has a maturity date of January 25, 2020. The principal amount of the Carpenter note was reduced by $7,500 on January 28, 2019. On April 30, 2019, Kendall Carpenter repaid the remaining principal balance of the $17,500 note, including $134 in accrued interest. On April 30, 2019, Daniyel Erdberg entered into a Stock Redemption and Note Cancellation Agreement whereby the Company redeemed 100,000 shares of common stock paid pursuant to the note described above and cancelled the $50,000 note and the related $267 in accrued interest.

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2019

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

14. COMMITMENTS AND CONTINGENCIES

On November 17, 2014, the Company entered into a 60-month lease for 5,533 square feet of office and manufacturing space at 11651 Central Parkway, Suite 118, Jacksonville, Florida, with an anticipated lease commencement date of February 1, 2015. The actual commencement date was July 1, 2015 and the lease was amended to 61 months expiring July 31, 2020. The monthly rent, including operating expenses and sales tax, for each year of the initial lease term is estimated to be $5,915.

On March 1, 2019, the Company entered into a 37-month lease for 2,390 square feet of office and aerostat manufacturing space at 700 Ridgewood Avenue, Units 207/208, Holly Hill, Florida with a lease commencement date of March 1, 2019. The monthly rent, including operating expenses and sales tax, for each year of the initial lease term is estimated to be $2,091.

Rent expense for the nine months ended September 30, 2019 and 2018 was $83,914 and $65,995, respectively.

The Company acquired licenses to certain technology of Georgia Tech Research Corporation ("GTRC") through its purchase of AFI's assets on July 20, 2015 and through direct license from GTRC. The licenses are perpetual and if the technology is patented, are protected through the expiration date of the patented know-how. Two of the licenses require a minimum royalty of $1,500 per year. Royalties are based on vehicle weight and range from $12.50 to $75.00 per vehicle on one license and $25.00 to $150.00 per vehicle on another license.

On May 16, 2016, Banco Popular North America ("Banco") filed a lawsuit in Duval County, Florida in the Circuit Court of the Fourth Judicial Circuit against Aerial Products Corporation d/b/a Southern Balloon Works ("Aerial Products"), Kevin M. Hess, the Company's Chief Technology Officer, Lighter Than Air Systems Corp., a wholly owned subsidiary of the Company ("LTAS"), and the Company to collect on a delinquent Small Business Administration loan that Banco made in 2007 to Aerial Products with Mr. Hess as the personal guarantor. Banco set a hearing on its Motion for Summary Judgment against Kevin Hess and Aerial Products on October 31, 2019 at which time Mr. Hess and Aerial Products Corporation were found jointly and severally liable for the delinquent loan. An order was entered in the case which dismissed all claims against the Company without prejudice.

There are no material claims, actions, suits, proceedings inquiries, labor disputes or investigations pending.

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Inventories (Tables)

9 Months Ended

Sep. 30, 2019

Inventory Disclosure [Abstract]

Schedule of inventories

	September 30, 2019			December 31, 2018
Raw Materials	$	565,749		$	136,555
Work in progress		273,337			180,041
Finished Goods		517,521			523,698
In transit		2,409			-
Less valuation allowance		(532,369	)		(532,369	)
Total	$	826,647		$	307,925

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Warrants (Tables) - Warrant [Member]

9 Months Ended

Sep. 30, 2019

Class of Warrant or Right [Line Items]

Schedule of assumptions used to estimate fair value warrants granted

	September 30, 2019
Expected dividend yield		0	%
Expected volatility		90	%
Risk-free interest rate		2.40	%
Expected life of warrants		4.0 years

Schedule of warrant activity

The following table represents warrant activity as of and for the nine months ended September 30, 2019:

	Number of Warrants			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life in Years		Aggregate Intrinsic Value
Outstanding – December 31, 2018		2,280,000		$	0.72		3.44
Exercisable – December 31, 2018		2,280,000		$	0.72		3.44	$	0.00
Granted		50,000		$	1.06
Forfeited or Expired		(60,000	)	$	2.91
Outstanding – September 30, 2019		2,270,000		$	0.67		2.79	$	0.00
Exercisable – September 30, 2019		2,220,000		$	0.66		2.78	$	733,900

The following table represents warrant activity as of and for nine months ended September 30, 2018:

	Number of Warrants			Weighted Average Exercise Price per Share		Weighted Average Contractual Life in Years		Aggregate Intrinsic Value
Outstanding – December 31, 2017		2,232,500		$	1.36		4.34
Exercisable – December 31, 2017		2,232,500		$	1.36		4.34	$	0
Granted		100,000		$	1.00
Forfeited or Expired		(37,500	)	$	10.00
Outstanding – September 30, 2018		2,295,000		$	1.20		3.67	$	0
Exercisable – September 30, 2018		2,295,000		$	1.20		3.67	$	0

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Leases (Details 2) - USD ($)	Sep. 30, 2019	Dec. 31, 2018
Commitments and Contingencies Disclosure [Abstract]
2019	$ 90,020
2020	25,964
2021	13,129
2022
2023
thereafter
Total minimum lease payments	129,113
Less: effect of discounting	5,437
Present Value of future minimum lease payments	123,676
Less: current obligations under leases	86,070
Long-term lease obligations	$ 37,606

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Warrants (Details 1) - Warrant [Member] - USD ($)	9 Months Ended		12 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018	Dec. 31, 2017
Number of Warrants
Outstanding - Beginning Balance	2,280,000	2,232,500	2,232,500
Exercisable - Beginning Balance	2,280,000	2,232,500	2,232,500
Granted	50,000	100,000
Forfeited or Expired	(60,000)	(37,500)
Outstanding - Ending Balance	2,270,000	2,295,000	2,280,000	2,232,500
Exercisable - Ending Balance	2,220,000	2,295,000	2,280,000	2,232,500
Weighted Average Exercise Price per Share
Outstanding - Beginning Balance	$ 0.72	$ 1.36	$ 1.36
Exercisable - Beginning Balance	0.72	1.36	1.36
Granted	1.06	1.00
Weighted Average Exercise Price per Share, Forfeited or Expired	2.91	10.00
Outstanding - Ending Balance	0.67	1.20	0.72	$ 1.36
Exercisable - Ending Balance	$ 0.66	$ 1.20	$ 0.72	$ 1.36
Weighted Average Contractual Life in Years
Outstanding	2 years 9 months 14 days	3 years 8 months 2 days	3 years 5 months 9 days	4 years 4 months 2 days
Exercisable	2 years 9 months 11 days	3 years 8 months 2 days	3 years 5 months 9 days	4 years 4 months 2 days
Aggregate Intrinsic Value
Outstanding	$ 0
Exercisable - Beginning Balance	0	$ 0	$ 0
Exercisable - Ending Balance	$ 733,900	$ 0

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Employee Stock Options (Details) - Employee Stock Option [Member]	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Summary of assumptions used to estimate fair value of stock options granted
Expected dividend yield	0.00%	0.00%
Expected volatility	90.00%
Expected life of options	4 years	4 years
Minimum [Member]
Summary of assumptions used to estimate fair value of stock options granted
Expected volatility		80.00%
Risk-free interest rate	2.40%	2.48%
Maximum [Member]
Summary of assumptions used to estimate fair value of stock options granted
Expected volatility		97.00%
Risk-free interest rate	2.47%	2.89%

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2019	Nov. 14, 2019
Document and Entity Information [Abstract]
Entity Registrant Name	DRONE AVIATION HOLDING CORP.
Entity Central Index Key	0001178727
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Document Type	10-Q
Document Period End Date	Sep. 30, 2019
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2019
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Common Stock, Shares Outstanding		27,456,121
Entity Current Reporting Status	No
Entity Shell Company	false
Entity File Number	333-150332
Entity Interactive Data Current	Yes
Entity Incorporation State Country Code	NV

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Leases (Details Textual)	9 Months Ended
	Sep. 30, 2019
Leases (Textual)
Description of incremental borrowing rate	The incremental borrowing rate on the Jacksonville lease is 5.9% and the incremental borrowing rate on the Holly Hill lease is 5.5%.
Weighted average remaining operating lease term	1 year 6 months 21 days
Weighted average discount rate	5.70%

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Consolidated Statements of Changes in Stockholders' Equity (Deficit) (Unaudited) - USD ($)	Common Stock	Treasury Stock	Additional Paid-in Capital	Accumulated Deficit	Total
Balance at Dec. 31, 2017	$ 918		$ 27,692,067	$ (29,996,777)	$ (2,303,792)
Balance, Shares at Dec. 31, 2017	9,182,470			(1,678,290)	(1,678,290)
Stock Based Compensation - Non-employee Shares			39,791		$ 39,791
Stock Based Compensation - Options and Warrants			39,405		39,405
Stock Based Compensation - Employee Shares - Vesting for PY issuance			944,300		944,300
Balance at Mar. 31, 2018	$ 918		28,715,563	$ (31,675,067)	(2,958,586)
Balance, Shares at Mar. 31, 2018	9,182,470
Net Income (Loss)				(1,076,100)	(1,076,100)
Stock Based Compensation - Non-employee Shares			(17,291)		(17,291)
Stock Based Compensation - Options and Warrants			197,698		197,698
Balance at Jun. 30, 2018	$ 918		28,895,970	(32,751,167)	(3,854,279)
Balance, Shares at Jun. 30, 2018	9,182,470
Net Income (Loss)				(1,189,866)	(1,189,866)
Stock Based Compensation - Options and Warrants			443,541		443,541
Balance at Sep. 30, 2018	$ 918		29,339,511	(33,941,033)	(4,600,604)
Balance, Shares at Sep. 30, 2018	9,182,470
Balance at Dec. 31, 2018	$ 2,364		39,541,301	(38,472,090)	1,071,575
Balance, Shares at Dec. 31, 2018	23,640,621
Net Income (Loss)				(1,103,174)	(1,103,174)
Stock Based Compensation - Non-employee Shares			72,500		72,500
Stock Based Compensation - Options and Warrants			15,705		15,705
Common stock issued for cash	$ 402		1,957,348		1,957,750
Common stock issued for cash, Shares	4,015,500
Balance at Mar. 31, 2019	$ 2,766		41,586,854	(39,575,264)	2,014,356
Balance, Shares at Mar. 31, 2019	27,656,121
Net Income (Loss)				53,814	53,814
Stock Based Compensation - Non-employee Shares			(10,000)		(10,000)
Stock Based Compensation - Options and Warrants			35,807		35,807
Common stock returned	$ (10)		10
Common stock returned, shares	(100,000)
Balance at Jun. 30, 2019	$ 2,756		41,612,671	(39,521,450)	2,093,977
Balance, Shares at Jun. 30, 2019	27,556,121
Net Income (Loss)				574,296	574,296
Stock Based Compensation - Non-employee Shares			31,250		31,250
Stock Based Compensation - Options and Warrants			18,916		18,916
Treasury stock purchased		$ (50,000)			(50,000)
Treasury stock purchased, shares		(100,000)
Balance at Sep. 30, 2019	$ 2,756	$ (50,000)	$ 41,662,837	$ (38,947,154)	$ 2,668,439
Balance, Shares at Sep. 30, 2019	27,556,121	(100,000)

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Related Party Transactions

9 Months Ended

Sep. 30, 2019

Related Party Transactions [Abstract]

RELATED PARTY TRANSACTIONS

3. RELATED PARTY TRANSACTIONS

The Company accounts for related party transactions in accordance with the FASB's Accounting Standards Codification ("ASC") 850, "Related Party Disclosures." A party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party is also a related party if it can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.  

On November 10, 2017, the Company and Global Security Innovative Strategies, LLC ("GSIS"), a related party, entered in an agreement (the "GSIS Agreement") pursuant to which GSIS agreed to provide business development support and general consulting services for sales opportunities with U.S. government agencies and other identified prospects and consulting support services for the Company. The GSIS Agreement had an initial term of six months beginning on November 1, 2017. On September 26, 2018, the parties amended the GSIS Agreement to extend the period of service through September 2019 with monthly automatic renewals thereafter. The Company also agreed to issue an option to purchase 100,000 shares of Company stock. This option immediately vested, had a strike price of $1.00, and terminates on September 26, 2022. Pursuant to the GSIS Agreement, the Company pays GSIS a fee of $10,000 per month. In addition, the Company agreed to pay the expenses of GSIS incurred in connection with the performance of its duties under the GSIS Agreement. Either party may terminate or renew the GSIS Agreement at any time, for any reason or no reason, upon at least 30 days' notice to the other party. David Aguilar, a member of the Company's board of directors, is a principal at GSIS. GSIS was owed $20,000 for normal monthly retainers at September 30, 2019.

On March 21, 2019, concurrent with the resignation of Kevin Hess, the Company's Chief Technology Officer, the Company and Cognitive Carbon Corporation ("CCC"), a related party, entered into an agreement pursuant to which CCC agreed to provide Chief Technology Officer services, sales and marketing services and outsourced software and platform development services to be provided personally by Kevin Hess or third-party development firms of his choosing for outsourced development. CCC will receive $19,750 per month for one year for the Chief Technology Officer services and potential bonuses and an amount up to $120,000 for outsourced software and platform development. Felicia Hess, the Company's Chief Quality Officer, who is married to Kevin Hess, is the President and Director of CCC. CCC was owed $23,000 for normal monthly fees at September 30, 2019.

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Property and Equipment

9 Months Ended

Sep. 30, 2019

Property, Plant and Equipment [Abstract]

PROPERTY AND EQUIPMENT

6. PROPERTY AND EQUIPMENT

Property and equipment is recorded at cost when acquired.  Depreciation is provided principally on the straight-line method over the estimated useful lives of the related assets, which is 3-7 years for equipment, furniture and fixtures, hardware and software and leasehold improvements.   During the nine months ended September 30, 2019, the Company invested $20,133 in computers for new hires. The Company also invested $59,660 in new shop equipment, $1,266 in office furnishings and $22,967 in leasehold improvements, primarily in connection with the opening of a satellite location for aerostat manufacturing. Depreciation expense was $35,327 and $29,238 for the nine months ended September 30, 2019 and 2018, respectively. Property and equipment consists of the following at September 30, 2019 and December 31, 2018:

	September 30, 2019			December 31, 2018
Shop machinery and equipment	$	147,194		$	87,534
Computers and electronics		52,226			32,093
Office furniture and fixtures		39,080			37,814
Leasehold improvements		42,481			19,514
		280,981			176,955
Less - accumulated depreciation		(159,052	)		(123,725	)
	$	121,929		$	53,230

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Shareholders' Equity

9 Months Ended

Sep. 30, 2019

Equity [Abstract]

SHAREHOLDERS' EQUITY

10. SHAREHOLDERS' EQUITY

For the nine months ended September 30, 2019

On September 4, 2019, the Company entered into a Stock Redemption Agreement with Director Robert Guerra concurrent with his resignation from the board of directors. The Company reacquired the 100,000 shares of common stock for $50,000, the same price Mr. Guerra purchased the shares for on January 25, 2019.

On January 25, 2019, the Company completed the sale of 3,915,500 shares of its common stock pursuant to the Amended and Restated Stock Purchase Agreement dated December 21, 2018 at $0.50 per share for an adjusted aggregate of $1,957,750 in cash, described above in Footnote #8.

On October 25, 2018, the Board approved Amendment No. 3 to the August 27, 2014 Independent Contractor Agreements it entered into with Dr. Philip Frost and Steven Rubin who serve as members of the Company's Strategic Advisory Board (the "SAB Amendments"). The SAB Amendments extend the term of the agreements from November 1, 2018 until October 31, 2019 and provide for the following equity-based compensation: (a) for Dr. Frost, an award of 150,000 shares of the Company's unregistered restricted Common Stock and (b) for Mr. Rubin, an award of 100,000 shares of the Company's unregistered restricted Common Stock. The restricted stock vests upon the occurrence of a change of control (as defined in the SAB Amendments). The Company recognized $93,750 expense for the pro rata portion of shares earned by the two members during the nine months ended September 30, 2019, amortizing the expense over the 12 months of the service agreement regardless of the vesting condition. As of September 30, 2019, the Company had unamortized stock compensation of $10,417 related to these two stock awards. 

For the nine months ended September 30, 2018

On August 3, 2017, the Company entered into an amendment to the August 24, 2014 Independent Contractor Agreements it entered into with Dr. Philip Frost and Steven Rubin who serve as members of the Company's Strategic Advisory Board (the "SAB Amendments"). The SAB Amendments extend the term of the agreements from May 1, 2017 until April 30, 2018 and provide for the following equity based compensation: (a) for Dr. Frost, a warrant to purchase 2,000,000 shares of the Company's Common Stock (the "Frost Warrant") and an award of 150,000 shares of the Company's unregistered restricted Common Stock and (b) for Mr. Rubin, an award of 100,000 shares of the Company's unregistered restricted Common Stock. The restricted stock vests upon the occurrence of a change of control (as defined in the SAB Amendments). The Warrant has a term of five years and exercise price of $1.00 per share subject to proportional adjustment in the event of stock splits, stock dividends and similar corporate events. The Company recognized $22,500 expense for the pro rata portion of shares earned by the two members during the nine months ended September 30, 2018, amortizing the expense over the 12 months of the service agreement regardless of the vesting condition.

In September 2016, the Company issued 1,349,000 shares of restricted common stock outside of the 2015 Equity Plan to Jay Nussbaum, Felicia Hess, Daniyel Erdberg, Kendall Carpenter, Mike Silverman and Reginald Brown pursuant to Stock Award Agreements. The shares will vest upon consummation of a significant equity and/or debt financing of at least $5,000,000 provided that the holder remains engaged by the Company through the vesting date. On August 3, 2017, these awards were modified so that the restrictions set forth in the RSA lapse upon the earlier of (i) consummation of a significant equity and/or debt financing from which the Company receives gross proceeds of at least $7,000,000 or (ii) a change in control (as defined in the RSA Amendment), provided that, in either case, the holder remains engaged by the Company through the date of such event. The Company does not believe the modified vesting conditions are probable of being achieved, and as such, no stock-based compensation expense has been recorded. The Company will reassess whether achievement of the vesting conditions is probable at each reporting date. If it is probable, stock-based compensation will be recognized. 

On March 28, 2018, these awards were modified in recognition of the Company securing a substantial sales order and recent business development activity and vested on that date. On that date, the awards were determined to be probable for vesting and stock-based compensation was recognized based on the fair market value of the stock on March 28, 2018. The Company recorded $944,300 in stock-based compensation for these awards during the nine months ended September 30, 2018.

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Revolving Line of Credit (Details) - USD ($)			9 Months Ended
	Feb. 08, 2019	Aug. 02, 2017	Sep. 30, 2019	Jan. 28, 2019
Revolving Line of Credit (Textual)
Aggregate principal amount				$ 7,500
Maturity date	Jan. 25, 2020
Security Agreement [Member]
Revolving Line of Credit (Textual)
Minimum average annual balance		$ 120,000
Revolving Credit Facility [Member]
Revolving Line of Credit (Textual)
Aggregate principal amount		$ 2,000,000
Maturity date		Aug. 02, 2018
CNB Note maturity date, description		The CNB Note evidences the CNB Line of Credit with advances that may be requested by the Company until the maturity date of August 2, 2020.
Percentage of interest bears variable rate		0.25%
Monthly payment, description		The Company will pay to CNB a late charge of 5.0% of any monthly payment not received by CNB within 10 calendar days after its due date. The Company may prepay the CNB Note at any time without penalty.
Line of credit drawn			$ 2,000,000
Accrued interest			$ 8,097
Variable rate percentage		5.09%
Additional interest rate on fee		2.00%
Minimum average annual balance		$ 1,600,000
Chief Executive Officer [Member] | Revolving Credit Facility [Member]
Revolving Line of Credit (Textual)
Revolving line of credit, description		The CNB Note is personally guaranteed by Mr. Nussbaum and his estate pursuant to a written guarantee in favor of CNB. Mr. Nussbaum and his estate and the Company are obligated to maintain an aggregate unencumbered liquidity of no less than $6,000,000 in the form of cash, repurchase agreements, certificates of deposit or marketable securities acceptable to CNB.

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Property and Equipment (Details) - USD ($)	Sep. 30, 2019	Dec. 31, 2018
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 280,981	$ 176,955
Less - accumulated depreciation	(159,052)	(123,725)
Property and equipment, net	121,929	53,230
Shop machinery and equipment [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, gross	147,194	87,534
Computers and electronics [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, gross	52,226	32,093
Office furniture and fixtures [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, gross	39,080	37,814
Leasehold improvements [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 42,481	$ 19,514

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Management's Liquidity Plans (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Management's Liquidity Plans (Textual)
Net loss	$ 574,296	$ (1,189,866)	$ (475,064)	$ (3,944,256)
Accumulated deficit	(38,947,154)		(38,947,154)		$ (38,472,090)
Working capital	$ 1,874,848		$ 1,874,848
Going concern, description			The Company made a strategic decision to focus on its aerostats, WASP and WASP Lite, and opportunities for those products with military and government customers, resulting in an order valued in excess of $3.7 million which was announced in December 2018 and expected to be delivered by the end of 2019. In December 2018 and January 2019, the Company raised over $4,000,000 through stock sales which will provide ample working capital to produce WASP systems. In December 2018, the holders of $5,000,000 in convertible notes exercised their rights to convert to equity, leaving only $2,000,000 in bank debt on the books. As of September 30, 2019, the Company has $1,874,848 in positive working capital, an improvement of $1,661,969 over the working capital balance at the end of 2018 which was $212,879.

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Management's Liquidity Plans

9 Months Ended

Sep. 30, 2019

Managements Liquidity Plans [Abstract]

MANAGEMENT’S LIQUIDITY PLANS

2. MANAGEMENT'S LIQUIDITY PLANS

On August 27, 2014, FASB issued ASU 2014-05, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern, which requires management to assess a company's ability to continue as a going concern within one year from financial statement issuance and to provide related footnote disclosures in certain circumstances.

The accompanying unaudited consolidated financial statements and notes have been prepared assuming the Company will continue as a going concern. For the nine months ended September 30, 2019, the Company incurred a net loss of $475,064, generated positive cash flow from operations, has an accumulated deficit of $38,947,154 and working capital of $1,874,848.

For the year ended December 31, 2017, the Company disclosed that its ability to continue as a going concern was predicated on the Company's ability to create and market innovative products, raise capital, reduce debt or renegotiate terms, and to sustain adequate working capital to finance its operations. During 2018, the Company met or exceeded those predications. In 2018, the Company made a strategic decision to focus on its aerostats, WASP and WASP Lite, and opportunities for those products with military and government customers, resulting in an order valued in excess of $3.7 million which was announced in December 2018 and expected to be delivered by the end of 2019. In December 2018 and January 2019, the Company raised over $4,000,000 through stock sales which will provide ample working capital to produce WASP systems. In December 2018, the holders of $5,000,000 in convertible notes exercised their rights to convert to equity, leaving only $2,000,000 in bank debt on the books. As of September 30, 2019, the Company has $1,874,848 in positive working capital, an improvement of $1,661,969 over the working capital balance at the end of 2018 which was $212,879.

The focus on opportunities for aerostats, the settlement of debt obligations, the funds generated from stock sales and other initiatives contributing to additional working capital should avoid any substantial doubt about the Company's ability to continue as a going concern as defined by ASU 2014-05. We believe that the actions discussed above mitigate the substantial doubt raised by our recent operating losses and satisfy our estimated liquidity needs twelve months from the issuance of the financial statements. However, we cannot predict, with certainty, the outcome of our actions to generate liquidity and the failure to do so could negatively impact our future operations.

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Commitments and Contingencies (Details Textual) - USD ($)		1 Months Ended	9 Months Ended
	Mar. 01, 2019	Nov. 17, 2014	Sep. 30, 2019	Sep. 30, 2018
Commitments and Contingencies (Textual)
Operating lease, description	The Company entered into a 37-month lease for 2,390 square feet of office and aerostat manufacturing space at 700 Ridgewood Avenue, Units 207/208, Holly Hill, Florida with a lease commencement date of March 1, 2019.	The Company entered into a 60-month lease for 5,533 square feet of office and manufacturing space at 11651 Central Parkway, Suite 118, Jacksonville, Florida, with an anticipated lease commencement date of February 1, 2015. The actual commencement date was July 1, 2015 and the lease was amended to 61 months expiring July 31, 2020.
Operating expenses and sales tax	$ 2,091	$ 5,915
Rent expense			$ 83,914	$ 65,995
Description of royalties			Two of the licenses require a minimum royalty of $1,500 per year. Royalties are based on vehicle weight and range from $12.50 to $75.00 per vehicle on one license and $25.00 to $150.00 per vehicle on another license.

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Consolidated Statements of Operations (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Income Statement [Abstract]
Revenues	$ 2,740,337	$ 84,815	$ 4,120,834	$ 995,838
Cost of goods sold	1,364,794	51,587	1,769,606	537,617
Gross profit	1,375,543	33,228	2,351,228	458,221
General and administrative expense	772,642	1,127,266	2,732,430	4,158,194
Income (Loss) from operations	602,901	(1,094,038)	(381,202)	(3,699,973)
Other income (expense)
Interest income	11		944
Interest expense	(28,616)	(95,828)	(94,806)	(244,283)
Total other expense	(28,605)	(95,828)	(93,862)	(244,283)
NET INCOME (LOSS)	$ 574,296	$ (1,189,866)	$ (475,064)	$ (3,944,256)
Weighted average number of common shares outstanding - basic	27,527,860	9,182,470	27,232,357	9,182,470
Weighted average number of common shares outstanding - diluted	32,876,627	9,182,470	27,232,357	9,182,470
Basic net income (loss) per share	$ 0.02	$ (0.13)	$ (0.02)	$ (0.43)
Diluted net income (loss) per share	$ 0.02	$ (0.13)	$ (0.02)	$ (0.43)

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Intangible Assets

9 Months Ended

Sep. 30, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

INTANGIBLE ASSETS

7. INTANGIBLE ASSETS

On July 20, 2015, the Company, through its wholly-owned subsidiary, Drone AFS Corp., purchased substantially all the assets of Adaptive Flight, Inc. ("AFI"), a Georgia corporation. The Company purchased assets, including, but not limited to, intellectual property, licenses and permits, including commercial software licenses for the GUST (Georgia Tech UAV Simulation Tool) autopilot system and other transferable licenses which include flight simulation and fault tolerant flight control algorithms. The Company paid $100,000 in immediately available funds and $100,000 to be held in escrow. In addition, the Company issued 150,000 shares of unregistered common stock valued at $8.40 per share, on a post-October 29, 2015 reverse stock split basis, on the date of agreement, to be held in escrow.

The Company had a milestone of twelve months to complete a technology integration plan, the non-completion of which could result in the return of the purchased assets and termination of the Company's obligations to release the escrow cash and shares. Additional milestones included exclusive, no-cost and perpetual licenses to all contributing intellectual property included or related to the purchased assets. As such time as all milestones were met, one-half of the escrow shares were to be released to AFI. Upon termination of the escrow agreement, anticipated to be twelve months from the closing of the asset purchase, if all milestones had been met, the remaining escrow shares would be released to AFI; but if all milestones have not been met, the escrow cash and escrow shares would be released to the Company and the purchased assets would be returned to AFI. According to the terms of the Escrow Agreement, if the escrow share value was less than $1,400,000, the Company must issue an additional number of unregistered shares, not to exceed 50,000 shares. At December 31, 2015, the value of the 150,000 shares was $3.23 per share, or $484,500. The Company recorded $161,500 as an additional liability and expense at December 31, 2015 for the cost of 50,000 shares at $3.23 per share. On June 3, 2016, the Integration Plan was deemed to be completed. At June 3, 2016, the value of the 150,000 shares was $3.01 per share, or $451,150. The additional liability was reduced to $150,500 for the cost of 50,000 shares at $3.01 per share. The Company recorded the $11,000 reduction in the additional liability through the statement of operations at June 3, 2016. The Company began amortizing the $1,460,000 of purchased assets over a sixty-month period on June 3, 2016 in the amount of $24,333 per month. Total amortization expense for the nine months ended September 30, 2019 was $219,000. The remaining unamortized balance of $486,667 is estimated be amortized in the estimated amounts of $73,000 during 2019, $292,000 during 2020 and $121,667 in 2021.

The asset acquisition did not qualify as a business combination under ASC 805-10 and has been accounted for as a regular asset purchase.

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Employee Stock Options

9 Months Ended

Sep. 30, 2019

Share-based Payment Arrangement [Abstract]

EMPLOYEE STOCK OPTIONS

11. EMPLOYEE STOCK OPTIONS

For the nine months ended September 30, 2019

On March 20, 2019, the Company's board of directors approved option grants to two employees outside its 2015 Equity Plan. One grant, relating to the option to purchase 30,000 shares of the Company's common stock, vests after one year, and one grant, relating to the option to purchase 100,000 shares of the Company's common stock, vests after two years. These stock options have an exercise price of $1.06 per share and expire on March 20, 2023. During the nine months ended September 30, 2019, $29,123 in compensation expense was recognized on these two options with a remaining balance of $60,094 to be recognized over the vesting period as of September 30, 2019.

On March 28, 2018, upon approval of the Company's board of directors, the Company granted to Robert Guerra, a newly appointed director, an option to purchase 100,000 shares of the Company's common stock outside its 2015 Equity Plan. The option vests 50% one year after the date of grant and the remaining 50% two years after the date of grant provided the director is still actively involved with the Company. The option has an exercise price of $1.00 per share and expires on March 28, 2022. Mr. Guerra voluntarily resigned as a director on September 4, 2019. The unvested 50,000 options were immediately cancelled. Mr. Guerra did not exercise the 50,000 vested option within 30 days of his termination resulting in a cancelation of that option. During the nine months ended September 30, 2019 and 2018, ($2,789) and $14,599 in compensation expense was recognized, respectively, on this option with a remaining balance of $0 to be recognized.

On May 16, 2018, upon approval of the Company's board of directors, the Company granted options to purchase shares of its common stock outside its 2015 Equity Plan to four employees. Reginald Brown, Jr. was issued an option to purchase 200,000 shares of common stock, and Kendall Carpenter, the Company's Executive Vice President and Chief Financial Officer, was issued an option to purchase 130,000 shares of common stock. These options were immediately vested, have an exercise price of $1.00 per share and expire May 16, 2022. Two engineers received options to purchase an aggregate of 130,000 shares of common stock. These options vest 50% after one year and the remaining 50% after two years, have an exercise price of $1.00 per share and expire May 16, 2022. One of the engineers terminated during the first quarter of 2019, before his option relating to 40,000 shares vested, and $7,376 in previously recognized 2018 expense was reversed due to option expiration. During the nine months ended September 30, 2019, $13,344 compensation expense was recognized on the remaining option to purchase 90,000 shares, with a remaining balance of $55,85 to be recognized over the vesting period as of September 30, 2019.

On December 13, 2017, upon approval of the Company's board of directors the Company issued outside its 2015 Equity Plan, 100,000 options each to two newly-appointed directors, or a total of 200,000 options. These options vest 50% after one year and the remaining 50% after two years provided the director is still actively involved with the Company. The options are exercisable at an exercise price of $1.00 per share and expire on December 13, 2021. During the nine months ended September 30, 2019 and 2018, $20,136 and $54,638 compensation expense was recognized, respectively, on these 200,000 options with a remaining balance of $5,411 to be recognized over the vesting period as of September 30, 2019.

The Company used the Black-Scholes option pricing model to estimate the fair value on the date of grant of the options to purchase 130,000 shares of common stock granted during the nine months ended September 30, 2019.

The following table summarizes the assumptions used to estimate the fair value of stock options granted during the nine months ended September 30, 2019 on the date of the grant:

	2019
Expected dividend yield		0	%
Expected volatility		90	%
Risk-free interest rate		2.40-2.47	%
Expected life of options		4.0 years

Under the Black-Scholes option pricing model, the fair value of the options to purchase an aggregate of 130,000 shares of common stock granted during the nine months ended September 30, 2019 is estimated at $89,217 on the date of grant.

The following table represents stock option activity as of and for the nine months ended September 30, 2019:

	Number of Options			Weighted Average Exercise Price per Share		Weighted Average Contractual Life in Years		Aggregate Intrinsic Value
Outstanding – December 31, 2018		13,990,000		$	0.61		3.15
Exercisable – December 31, 2018		13,610,000		$	0.59		3.16	$	0
Granted		130,000		$	1.06
Cancelled or Expired		(100,000	)	$	0.95
Outstanding – September 30, 2019		14,020,000		$	0.61		1.85
Exercisable – September 30, 2019		13,745,000		$	0.60		1.83	$	3,796,960

For the nine months ended September 30, 2018

On September 26, 2018, upon approval of the Company's board of directors, the Company granted outside its 2015 Equity Plan, 6,000,000 options to five management employees and four directors. Jay Nussbaum was issued 2,350,000 options, Felicia Hess was issued 1,000,000 options, Daniyel Erdberg was issued 1,000,000 options, Kendall Carpenter was issued 425,000 options, Reginald Brown, Jr. was issued 1,000,000 options. Director David Aguilar was issued 150,000 options and Directors John Miller, Timothy Hoechst and Robert Guerra were each issued 25,000 options. The options vest upon the Company receiving an aggregate of $4,000,000 in new orders from a prime government contractor or directly from the U.S. government at any time commencing after the date of issuance. The options are exercisable at an exercise price of $.65 per share and expire September 26, 2022. Of these 6,000,000 options, 5,000,000 options have been accounted for as a modification of the August 22, 2018 options. During the nine months ended September 30, 2018, $360,593 compensation expense was recognized on these 6,000,000 options with a remaining balance of $2,238,087 to be recognized over the assumed vesting period.

On August 22, 2018, upon approval of the Company's board of directors, the Company granted outside its 2015 Equity Plan, an aggregate of 5,000,000 options to five management employees and four directors. Included in this award were the following grants to Executive Officers and Directors of the Company: 1,950,000 options to Jay Nussbaum, Chief Executive Officer and Chairman of the Board of Directors, 800,000 options to Felicia Hess, Chief Operating Officer, 800,000 options to Daniyel Erdberg, President, 300,000 options to Kendall Carpenter, Chief Financial Officer and the following directors of the Company: 150,000 options to David Aguilar, 25,000 options to John Miller, 25,000 options to Timothy Hoechst and 25,000 options to Robert Guerra. The options vest upon the Company receiving an aggregate of $4,000,000 in new orders from a prime government contractor or directly from the U.S. government at any time commencing after the date of issuance. The options are exercisable at an exercise price of $1.00 per share and expire August 22, 2022. On September 26, 2018, the Board resolved to cancel the Options to purchase 5,000,000 shares of common stock issued on August 22, 2018 that had not vested.

On May 16, 2018, upon approval of the Company's board of directors, the Company granted outside its 2015 Equity Plan, 460,000 options to four employees. Reginald Brown, Jr. was issued 200,000 options and Kendall Carpenter was issued 130,000 options which were immediately vested, are exercisable at an exercise price of $1.00 per share and expire May 16, 2022. Two engineers received a total of 130,000 shares which vest 50% after one year and the remaining 50% after two years, are exercisable at an exercise price of $1.00 per share and expire May 16, 2022. During the nine months ended September 30, 2018, $165,354 compensation expense was recognized on these 460,000 options with a remaining balance of $36,727 to be recognized over the vesting period.

On March 28, 2018, upon approval of the Company's board of directors, the Company granted outside its 2015 Equity Plan, 100,000 options each to a newly-appointed director, Robert Guerra. These options vest 50% one year after the date of grant and the remaining 50% two years after the date of grant provided the director is still actively involved with the Company. The options are exercisable at an exercise price of $1.00 per share and expire on March 28, 2022. During the nine months ended September 30, 2018, $14,599 compensation expense was recognized on these 100,000 options with a remaining balance of $23,990 to be recognized over the vesting period.

On December 13, 2017, upon approval of the Company's board of directors, the Company issued outside its 2015 Equity Plan, 100,000 options each to two newly-appointed directors, or a total of 200,000 options. These options vest 50% after one year and the remaining 50% after two years provided the director is still actively involved with the Company. The options are exercisable at an exercise price of $1.00 per share and expire on December 13, 2021. During the nine months ended September 30, 2018 and twelve months ended December 31, 2017, $54,638 and $3,593, respectively, compensation expense was recognized on these 200,000 options with a remaining balance of $41,558 to be recognized over the vesting period.

During 2016, the Company granted 10,000 options to an employee with two-year vesting and an exercise price of $3.00 and an expiration date of December 6, 2019. The Company recognized $1,105 in compensation for the nine months ended September 30, 2018. No additional compensation was recognized on these options which were cancelled due to the termination of the employee.

On June 1, 2015, the Company issued an option award to an employee for 37,500 shares vesting over three years with an exercise price of $10.80 and expiration date of May 4, 2019. During the nine months ended September 30, 2018, $14,369 compensation expense was recognized on these 37,500 options. No additional compensation was recognized on these options which were cancelled due to the termination of the employee.

On January 9, 2017, the Company issued an option to purchase 100,000 shares of common stock with an exercise price of $2.90 per share to a director. The option vests 50,000 after one year from grant date and another 50,000 two years from grant date with an expiration date of four years from grant date provided that the Director is still providing service to the Company. During the nine months ended September 30, 2018, $33,836 compensation expense was recognized on these 100,000 options.

The following table summarizes the assumptions used to estimate the fair value of the 11,560,000 stock options granted during the nine months ended September 30, 2018 on the date of grant.

	2018
Expected dividend yield		0	%
Expected volatility		80-97	%
Risk-free interest rate		2.48-2.89	%
Expected life of options		4.00 years

Under the Black-Scholes option pricing model, the fair value of the 11,560,000 options granted during the nine months ended September 30, 2018 is estimated at $2,839,360 on the date of grant. During the nine months ended September 30, 2018, $540,546 compensation expense was recognized on these 11,560,000 options.

The following table represents stock option activity as of and for the nine months ended September 30, 2018:

	Number of Options			Weighted Average Exercise Price per Share		Weighted Average Contractual Life in Years		Aggregate Intrinsic Value
Outstanding – December 31, 2017		7,945,000		$	1.38		3.50
Exercisable – December 31, 2017		7,627,500		$	1.35		3.50	$	0
Granted		11,560,000		$	0.82
Cancelled or Expired		(5,425,000	)	$	1.33
Outstanding – September 30, 2018		14,080,000		$	0.94		3.39	$	0
Exercisable – September 30, 2018		7,600,000		$	1.15		2.92	$	0

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Prepaid Expenses (Details) - USD ($)	Sep. 30, 2019	Dec. 31, 2018
Prepaid Expenses [Abstract]
Prepaid insurance	$ 45,694	$ 28,828
Prepaid products and services	157,147	54,870
Deferred offering costs	174,475
Prepaid rent and security deposit	10,000	5,915
Prepaid expenses, net	$ 387,316	$ 89,613

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Basis of Presentation and Significant Accounting Policies (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Numerator:
Net Income (Loss)	$ 574,296	$ (1,189,866)	$ (475,064)	$ (3,944,256)
Numerator for basic and diluted EPS - income (loss) available to common Shareholders	$ 574,296	$ (1,189,866)	$ (475,064)	$ (3,944,256)
Denominator:
Denominator for basic EPS - Weighted average shares	27,527,860	9,182,470	27,232,357	9,182,470
Dilutive Effect of Warrants and Options	$ 5,348,767
Denominator for diluted EPS - adjusted Weighted average shares and assumed Conversions	32,876,627	9,182,470	27,232,357	9,182,470
Basic and Diluted income (loss) per common share	$ 0.02	$ (0.13)	$ (0.02)	$ (0.43)

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Subscription Notes Receivable, Including Related Party (Details) - USD ($)		1 Months Ended
	Feb. 08, 2019	Apr. 30, 2019	Jan. 25, 2019	Jan. 28, 2019
Subscription Notes Receivable, Including Related Party (Textual)
Common stock issued, shares		100,000
Accrued interest	$ 575
Maturity date	Jan. 25, 2020
Reduce principal amount				$ 7,500
Accrued interest on the related party notes		$ 267
Common stock issued value		50,000
Kendall Carpenter [Member]
Subscription Notes Receivable, Including Related Party (Textual)
Leaving a principal balance		17,500
Accrued interest on the related party notes		$ 134
Common Stock [Member]
Subscription Notes Receivable, Including Related Party (Textual)
Common stock issued, shares			4,015,500
Common stock per price			$ 0.50
Aggregate amount			$ 2,007,750
Aggregate consideration, description			(1) cash in the aggregate amount of $1,432,750, (2) a promissory note from a single non-affiliate investor in the aggregate principal amount of $500,000, (3) a full-recourse promissory note payable by Daniyel Erdberg, the Company's President, in the amount of $50,000, and (4) a full-recourse promissory note payable by Kendall Carpenter, the Company's Executive Vice President and Chief Financial Officer, in the amount of $25,000. Each note bears an interest rate at a fixed rate of 3% per annum and principal and interest under the notes may be prepaid at any time without penalty.

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Leases (Tables)

9 Months Ended

Sep. 30, 2019

Leases [Abstract]

Schedule of operating leases

	January 1, 2019
ROU Assets	$	116,876
Lease liability	$	116,876

	March 1, 2019
ROU Assets	$	72,887
Lease liability	$	72,887

Schedule of other information related to our operating leases

	September 30, 2019
ROU Asset – January 1, 2019	$	116,876
Increase	$	72,887
Amortization	$	(66,961	)
ROU Asset – September 30, 2019	$	122,802
Lease liability – January 1, 2019	$	116,876
Increase	$	72,887
Amortization	$	(66,087	)
Lease liability – September 30, 2019	$	123,676
Lease liability – short term	$	86,070
Lease liability – long term	$	37,606
Lease liability – total	$	123,676

Schedule of total remaining years to lease liabilities operating leases

	Operating Leases
Amounts due within twelve months of September 30,
2019	$	90,020
2020		25,964
2021		13,129
2022		-
2023		-
thereafter		-
Total minimum lease payments		129,113
Less: effect of discounting		5,437
Present Value of future minimum lease payments		123,676
Less: current obligations under leases		86,070
Long-term lease obligations	$	37,606

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Subsequent Event

9 Months Ended

Sep. 30, 2019

Subsequent Events [Abstract]

SUBSEQUENT EVENT

15. SUBSEQUENT EVENT

On November 12, 2019, upon approval of the Company's board of directors, the Company issued pursuant to its 2015 Equity Plan, 2,300,000 shares of restricted common stock to officers, directors and a consultant for services provided and are subject to a change of control vesting condition. Daniyel Erdberg received 1,000,000 shares, Kendall Carpenter received 400,000 shares, Felicia Hess received 200,000 shares, Reginald Brown received 200,000 shares, Global Security & Innovative Strategies LLC (David Aguilar) received 100,000 shares, Timothy Hoechst received 100,000 shares, John Miller received 100,000 shares and the consultant received 200,000 shares.

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Prepaid Expenses (Tables)

9 Months Ended

Sep. 30, 2019

Prepaid Expenses [Abstract]

Schedule of prepaid expenses

	September 30, 2019		December 31, 2018
Prepaid insurance	$	45,694	$	28,828
Prepaid products and services		157,147		54,870
Deferred offering costs		174,475		-
Prepaid rent and security deposit		10,000		5,915
	$	387,316	$	89,613

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Warrants (Details) - Warrant [Member]	9 Months Ended
	Sep. 30, 2019
Summary of assumptions used to estimate fair value of stock warrants granted
Expected dividend yield	0.00%
Expected volatility	90.00%
Risk-free interest rate	2.40%
Expected life of warrants	4 years

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Shareholders' Equity (Details) - USD ($)			1 Months Ended		9 Months Ended
	Sep. 04, 2019	Aug. 03, 2017	Oct. 25, 2018	Sep. 30, 2016	Sep. 30, 2019	Sep. 30, 2018	Jan. 25, 2019	Dec. 31, 2018
Shareholders' Equity (Textual)
Stock based compensation					$ 164,178	$ 1,647,444
Recognized total expense						22,500
Gross proceeds from equity		$ 7,000,000
Common stock, shares issued					27,556,121			23,640,621
Stock Award Agreements [Member]
Shareholders' Equity (Textual)
Stock based compensation						$ 944,300
Unamortized stock compensation					$ 10,417
Expense					$ 93,750
Stock Redemption Agreement [Member]
Shareholders' Equity (Textual)
Gross proceeds from equity	$ 50,000
Common stock, shares issued	100,000
Strategic Advisory Board Amendments [Member]
Shareholders' Equity (Textual)
Warrant term		5 years
Description of equity based compensation		The SAB Amendments extend the term of the agreements from May 1, 2017 until April 30, 2018 and provide for the following equity based compensation: (a) for Dr. Frost, a warrant to purchase 2,000,000 shares of the Company's Common Stock (the "Frost Warrant") and an award of 150,000 shares of the Company's unregistered restricted Common Stock and (b) for Mr. Rubin, an award of 100,000 shares of the Company's unregistered restricted Common Stock. The restricted stock vests upon the occurrence of a change of control (as defined in the SAB Amendments). The Warrant has a term of five years and exercise price of $1.00 per share subject to proportional adjustment in the event of stock splits, stock dividends and similar corporate events. The Company recognized $22,500 expense for the pro rata portion of shares earned by the two members during the nine months ended September 30, 2018, amortizing the expense over the 12 months of the service agreement regardless of the vesting condition.	The SAB Amendments extend the term of the agreements from November 1, 2018 until October 31, 2019 and provide for the following equity-based compensation: (a) for Dr. Frost, an award of 150,000 shares of the Company's unregistered restricted Common Stock and (b) for Mr. Rubin, an award of 100,000 shares of the Company's unregistered restricted Common Stock. The restricted stock vests upon the occurrence of a change of control (as defined in the SAB Amendments). The Company recognized $93,750 expense for the pro rata portion of shares earned by the two members during the nine months ended September 30, 2019, amortizing the expense over the 12 months of the service agreement regardless of the vesting condition. As of September 30, 2019, the Company had unamortized stock compensation of $10,417 related to these two stock awards.
Stock Compensation Plan [Member]
Shareholders' Equity (Textual)
Aggregate shares of common stock				1,349,000
Restricted common stock, description				The Company issued 1,349,000 shares of restricted common stock outside of the 2015 Equity Plan to Jay Nussbaum, Felicia Hess, Daniyel Erdberg, Kendall Carpenter, Mike Silverman and Reginald Brown pursuant to Stock Award Agreements. The shares will vest upon consummation of a significant equity and/or debt financing of at least $5,000,000 provided that the holder remains engaged by the Company through the vesting date. On August 3, 2017, these awards were modified so that the restrictions set forth in the RSA lapse upon the earlier of (i) consummation of a significant equity and/or debt financing from which the Company receives gross proceeds of at least $7,000,000 or (ii) a change in control (as defined in the RSA Amendment), provided that, in either case, the holder remains engaged by the Company through the date of such event.
Shares vest upon consummation of equity and/or debt financing				$ 5,000,000
Amended and Restated Stock Purchase Agreement [Member]
Shareholders' Equity (Textual)
Common stock, shares issued							3,915,500
Common stock per price								$ 0.50
Cash and notes receivable								$ 1,957,750

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Leases (Details 1) - USD ($)	9 Months Ended
	Sep. 30, 2019	Mar. 01, 2019	Jan. 01, 2019	Dec. 31, 2018
ROU Asset - January 1, 2019	$ 116,876
Increase	72,887
Amortization	(66,961)
ROU Asset - September 30, 2019	122,802
Lease liability - short term	86,070
Lease liability - long term	37,606
Lease liability - total	123,676
Operating Leases [Member]
ROU Asset - January 1, 2019	116,876
Increase	72,887
Amortization	(66,961)
ROU Asset - September 30, 2019	$ 122,802
Lease liability - long term		$ 72,887	$ 116,876