NOTE 9  COMMITMENTS AND CONTINGENCIES Legal Proceedings The Company is involved in various claims and legal actions arising from time to time in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters in the ordinary course of business will not have a material adverse effect on the Companys condensed consolidated financial position, results of operations or cash flows. Legal costs related to these matters are expensed as they are incurred. Julian Davidson On February 20, 2018, Mr. Davidson, informed the Company that he was seeking compensation as part of his December 2017 separation from the Company. On March 12, 2018, an action was filed by Mr. Davidson in the District Court for the Southern District of New York entitled Julian Davidson v. Long Blockchain Corp. Mr. Davidson is seeking to enforce a separation agreement that was purportedly reached in relation to his resignation from the Company on December 31, 2017. Mr. Davidson is also seeking compensation, expense reimbursements, and cash bonus, severance, stock and accelerated vesting of stock options which he claims was agreed to by the Company. As of June 30, 2018, $100,000 is included in accrued expenses within the condensed consolidated balance sheets since the Company made a settlement offer to Mr. Davidson of $100,000. The Company has not yet entered into a definitive settlement agreement with Mr. Davidson. NASDAQ Delisting On February 15, 2018, Long Blockchain Corp. received a notice from the Listing Qualifications Department of NASDAQ stating that NASDAQ had determined to delist the Companys securities under the discretionary authority granted to NASDAQ pursuant to NASDAQ Rule 5101. The notification letter stated that NASDAQ believed that the Company made a series of public statements designed to mislead investors and to take advantage of public interest in bitcoin and blockchain technology, thereby raising concerns about the Companys suitability for exchange listing. The notification letter also stated that NASDAQ was revoking its prior notification to the Company that it had regained compliance with the market value of listed securities requirement of Rule 5550(b)(2) (the MVLS Rule). The Company appealed the foregoing delisting to a NASDAQ Hearings Panel, which appeal hearing was held on March 22, 2018. On April 10, 2018, the Company was notified that the NASDAQ Hearings Panel determined to affirm the delisting of the Companys shares from NASDAQ, and suspended trading effective at the open of business on April 12, 2018. The Company applied for its common stock to be quoted on the OTCQB Market. Effective April 12, 2018, the Companys common stock became eligible for trading and quotation on the Pink Current Information tier by the OTC Markets Group Inc. (the OTC). The Companys trading symbol has continued to be LBCC. SEC Subpoena The Company has received a subpoena from the staff of the Securities and Exchange Commission (the SEC), dated July 10, 2018, seeking the production of certain documents. The Company is fully cooperating with the SECs investigation. The Company cannot predict or determine whether any proceeding may be instituted by the SEC in connection with the subpoena or the outcome of any proceeding that may be instituted. Brokerage Arrangements The Company maintains arrangements with sales brokers who help with bringing new distributors and retail outlets to the Company and who manage certain customer accounts for the Company. These sales brokers receive a commission for these services. Commissions to these brokers ranged from 1-5% of collected sales. In addition, the Company sells its products through alternative vending channels. Commissions resulting from sales through these channels were $7,317 and $17,291 for the three months ended June 30, 2018 and 2017, respectively and $17,462 and $31,497 for the six months ended June 30, 2018 and 2017, respectively. Employment Agreements Shamyl Malik Effective February 20, 2018, the Company appointed Shamyl Malik, an existing Director, to the additional role of Chief Executive Officer of the Company. The Company and Mr. Malik entered into a one-year employment agreement, pursuant to which Mr. Malik would receive a base annual salary of $250,000, and for the first six months of his employment, his salary would have been paid in shares of common stock of the Company. On July 27, 2018, the Company entered into a separation agreement with Mr. Malik (Malik Separation Agreement), pursuant to which Mr. Malik waived all rights to compensation earned during the term of his employment. The Malik Separation Agreement provides Mr. Malik with reimbursement of certain expenses incurred by him and release from noncompetition restrictions contained in his employment agreement. In exchange for such benefits, Mr. Malik executed a general waiver and release of claims. The Separation Agreement contains provisions for protection of the Companys confidential information. Phillip Thomas On February 20, 2018, Phillip Thomas terminated his employment agreement with the Company for good reason due to a substantial and material adverse change in Mr. Thomas title, duties and responsibilities, and resigned as a director of the Company. According to Mr. Thomas employment agreement, he is entitled to be paid nine months of his base salary, all valid expense reimbursements and all accrued but unused vacation pay. As of June 30, 2018, the Company included $187,500 in accrued expenses within the condensed consolidated balance sheets related to this obligation. Further, stock options granted to Mr. Thomas became fully vested and may be exercised for up to one year from the termination date. Leases On July 14, 2017, the Company entered into a lease agreement for its principal office and warehouse space in Farmingdale, NY. The lease commenced on August 15, 2017 and extends through September 30, 2022. The Company has the option to extend the lease for an additional three years. Pursuant to the lease agreement, the first months rent is $8,250 per month, with rent for the first month at no cost. The Company is obligated for taxes and an annual escalation of 3%. Rent expense is accounted to on a straight line basis based upon the total expected rent over the lease term. Rent expense for the three months ended June 30, 2018 and 2017 was $27,616 and $11,140, respectively and $56,229 and $22,598 for the six months ended June 30, 2018 and 2017, respectively. Leases, continued Total future minimum payments required under the Farmingdale lease are as follows: Year Ended December 31, 2018 (six months) $ 50,487 2019 102,983 2020 106,073 2021 109,255 2022 83,564 Total $ 452,362 In addition, the Company utilizes public warehouse space for its inventory. Public storage expense for the three months ended June 30, 2018 and 2017 was $7,063 and $3,559, respectively and $14,382 and $12,980 for the six months ended June 30, 2018 and 2017, respectively.