UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended June 30, 2017March 31, 2018

For the transition period from _____________ to _____________

Commission File Number001-37808

LONG ISLAND ICED TEABLOCKCHAIN CORP.

(Exact Name of Issuer as Specified in Its Charter)

116 Charlotte Avenue, Hicksville,12-1 Dubon Court, Farmingdale, NY 1180111735

(Address of Principal Executive Office)

(855) 542-2832

(Issuer’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) 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 [X] No [  ] No [X]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [X] No [  ] No [X]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting 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.

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. [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [  ] No [X]

As of August 9, 2017, 9,102,074October 4, 2018, 18,239,942 shares of common stock, par value $.0001 per share, were issued and outstanding.

LONG ISLAND ICED TEABLOCKCHAIN CORP.

FORM 10-Q FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2017MARCH 31, 2018

TABLE OF CONTENTS

PART 1 -I – FINANCIAL INFORMATION

Item 1. Financial Statements

ITEM 1. FINANCIAL STATEMENTS

LONG ISLAND ICED TEABLOCKCHAIN CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

The accompanying notes are anintegral part of these condensed consolidated financial statements.

LONG ISLAND ICED TEABLOCKCHAIN CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(unaudited)(Unaudited)

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

LONG BLOCKCHAIN CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THE THREE MONTHS ENDED MARCH 31, 2018

(Unaudited)

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

LONG BLOCKCHAIN CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

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

LONG BLOCKCHAIN CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

The accompanying notes are anintegral part of these condensed consolidated financial statements.

The accompanying notes are anintegral part of these condensed consolidated financial statements.

LONG ISLAND ICED TEABLOCKCHAIN CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 – BUSINESS ORGANIZATION, LIQUIDITY AND GOING CONCERN

Business Organization

Long Blockchain Corp., (formerly known as Long Island Iced Tea Corp,Corp.) a Delaware corporation (“LIIT”LBCC”), was formed on December 23, 2014. LIIT was formed in order to allow forLBCC is the completionparent of mergers between Cullen Agricultural Holding Corp. (“Cullen”) and Long Island Brand Beverages LLC (“LIBB”). On December 31, 2014, LIIT entered into, Cullen Agricultural Holding Corp. (“Cullen”), Long Island Iced Tea Corp., a merger agreement, as amended as of April 23, 2015, with Cullen,Delaware corporation formed on February 12, 2018 (“LIIT”) and Stran Loyalty Group, Inc., a public company, Cullen Merger Sub, Inc.Delaware corporation formed July 26, 2018 (“Cullen Merger Sub”SLGI”), LIBB Acquisition Sub, LLC (“LIBB Merger Sub”), LIBB and the founders of LIBB (“Founders”). Pursuant to the merger agreement, (a) Cullen Merger Sub was merged with and into Cullen, with Cullen surviving and becoming a wholly-owned subsidiary of LIIT and (b) LIBB Merger Sub was merged with and into LIBB, with LIBB surviving and becoming a wholly-owned subsidiary of LIIT (the “Mergers”). As a result of the Mergers which were consummated on May 27, 2015, LIIT consisted of its wholly owned subsidiaries, LIBB (its operating subsidiary) and Cullen and Cullen’s wholly owned subsidiaries (collectively the “Company”).

Under the merger agreement, upon consummation of the Mergers, the former holders of the LIBB membership interests (the “LIBB members”) received 2,633,334 shares of common stock of LIIT (or approximately 63%).

For accounting purposes, the Mergers were treated as an acquisition of Cullen by LIBB and as a recapitalization of LIBB, as the former LIBB members held a large percentage of LIIT’s shares and exercised significant influence over the operating and financial policies of the consolidated entity and Cullen was a public shell company at the time of the transaction. Pursuant to Accounting Standards Codification (“ASC”) 805-10-55-11 through 55-15, the merger or acquisition of a private operating company into a non-operating public shell with nominal assets is considered a capital transaction in substance rather than a business combination. As a result, the condensed consolidated balance sheets, statements of operations, and statements of cash flows of LIBB have been retroactively updated to reflect the recapitalization. Additionally, the historical condensed consolidated financial statements of LIBB are now reflected as those of the Company.

Overview

Since May 27, 2015, the Company’s operations have consisted principally of a beverage business, focused on serving the ready-to-drink segment of the market. On December 21, 2017, the Company announced that it was expanding its attention to include the exploration of, and investment in, opportunities that leverage the benefits of blockchain technology. The Company is a holding company operating throughchanged its wholly-owned subsidiary, LIBB.name from “Long Island Iced Tea Corp.” to “Long Blockchain Corp.” and designatedwww.longblockchain.com as the Company’s web domain. The Company also changed its trading symbol from “LTEA” to “LBCC” in connection with this name change. At such time, the Company announced that it would continue to operate the beverage business.

On February 20, 2018, in connection with the pivot of the Company’s operation toward Blockchain, Mr. Philip Thomas, the Company’s President and Chief Executive Officer (“CEO”) resigned and simultaneously, the Company’s board of directors appointed Mr. Shamyl Malik as CEO. Earlier, on January 2, 2018, Mr. Malik had been appointed to serve on the Company’s Board of Directors. The Company announced at this time that it would seek to spin out the beverage business to the Company’s shareholders (“Beverage Spin Out”). However, the Company also continually evaluates other strategic opportunities for the beverage business as they arise, including the licensing of the product to third parties, raising capital, and a sale of the business, although the board of directors has not determined to pursue any specific opportunity at this time.

At the time of the pivot, the board of directors appointed three of its members to provide oversight of the beverage operations (“Beverage Committee”). The board of directors’ also tasked Mr. Thomas, under the direction of the Beverage Committee, with providing day to day operational control and management of the beverage business, including pursuing strategies to lower the liquidity requirements.

The Blockchain Business

On December 21, 2017, the Company announced that it was expanding its attention to include the exploration of, and investment in, opportunities that leverage the benefits of blockchain technology.

The Company’s management has been and will continue to pursue and evaluate investments, ventures, alliances and other strategic relationships in the blockchain space. During January 2018, the Company had entered into an agreement to purchase equipment for a crypto currency mining operation, however, the Company was not able to raise the capital to consummate this transaction. On March 15, 2018, LBCC entered into an agreement to acquire the outstanding shares of Hashcove Limited (“Hashcove”), an early stage UK-based technology company focused on developing and deploying globally scalable distributed ledger technology solutions (the “Hashcove Agreement”). On September 14, 2018, the Company and Hashcove agreed to terminate the Hashcove Agreement. On March 19, 2018 and March 22, 2018, the Company purchased minority share investments in Stater Blockchain Limited (“SBL”) and TSLC PTE Ltd. (“TSLC”), respectively (See Note 3).

LONG BLOCKCHAIN CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – BUSINESS ORGANIZATION, LIQUIDITY AND GOING CONCERN (CONTINUED)

Loyalty, Incentive, Reward and Gift Card Business

Given the challenges of raising capital for its blockchain business, the Company made the decision to develop an operating business through which the Company could build and exploit blockchain applications. The Company determined that an opportunity existed for such an operating business within the loyalty, incentive, reward and gift card space. On July 27, 2018, the Company announced the formation of a new business, Stran Loyalty Group (“SLG”), to be operated within the Company’s newly formed SLGI subsidiary, focused on providing loyalty, incentive, reward, and gift card programs (“Loyalty Programs”) to a wide variety of corporate and consumer brands. At the same time, the Company entered into an agreement with Stran and Company (“Stran”) to provide certain industry expertise and operating support (See Note 4).

Andrew Shape Appointed as CEO and Chairman of the Board

On July 26, 2018, the Company entered into an employment agreement with Andrew Shape to serve as the Company’s Chief Executive Officer and Chairman of the Board. Mr. Shape is also the President of Stran, and is expected to continue to serve in such role for Stran. The employment agreement with the Company provides for Mr. Shape to receive a base salary of $200,000 per annum, paid in equal, quarterly installments through the issuance of restricted shares of the Company’s common stock, at a per share price equal to 85% of the average closing price for the 10 trading days prior to the end of each such quarter, but in any event not less than $0.30 per share. Such shares will be issued pursuant to the Company’s 2017 Long-Term Incentive Equity Plan. Simultaneously, Mr. Shamyl Malik resigned his positions as CEO and Chairman of the Board (See Note 9).

The Beverage Business

The Company’s beverage business is engaged in the production and distribution of premium Non-Alcoholic ready-to-drink (“NARTD”) iced tea in thebeverages. The beverage industry. The Companybusiness is currently organized under its flagship brand, Long Island Iced Tea, a premium NARTD tea made from a proprietary recipe and with quality components. The Company’s mission is to provide consumers with premiumrecipe.

Through its beverage business, the Company offers iced tea offered at an affordable price.

The Company aspires to be a market leaderand lemonade, in the development ofsweet, lower calorie and diet formulations, and principally in 18oz. bottles. The iced tea beverages thatand lemonade are convenient and appealing to consumers. There are two major target markets for Long Island Iced Tea: “consumers on the go” and “health conscious consumers.” “Consumers on the go” are families, employees, students and other consumers who lead a busy lifestyle. With increasingly hectic and demanding schedules, there is a need for products that are accessible and readily available. “Health conscious consumers” are individuals who are becoming more interested and better educated on what is included in their diets, causing them to shift away from the less healthy options, such as carbonated soft drinks, towards alternative beverages such as iced tea.

LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 – BUSINESS ORGANIZATION, LIQUIDITY AND GOING CONCERN (CONTINUED)

Overview, continued

The Company produces a 100% brewed iced tea, using black tea leaves, purified water and natural cane sugar or sucralose. Flavors change from time to time, and have included lemon, peach, raspberry, guava, mango, diet lemon, diet peach, sweet tea, green tea and honey, half tea and half lemonade. The Company also offers lower calorie iced tea in flavor options that include mango, raspberry and peach. The Company also sells its iced tea in gallon bottles with flavor options including lemon, peach, green tea and honey, sweet tea, mango and unsweetened. In addition, in order to service certain vending contracts, the Company sells snacks and other beverage products on a limited basis.

The Company distributes an aloe vera derived juice beverage (“ALO Juice”) in 500ml and 1.5 liter bottles. ALO Juice is offered in six flavors including original, pomegranate, mango, raspberry, pineapple and coconut.a variety of flavors.

During April 2017, the Company expanded its brand to include lemonade. Lemonade is offered in nine flavors including traditional, lime, pink lemonade, kiwi & strawberry, cherry, peach, watermelon, wild berries and strawberry and is offered at retail in 18oz bottles.

The Company sells its products to regional retail chains and to a mix of independent mid-to-large range distributors who in turn sell to retail outlets, such as big chain supermarkets, mass merchants, convenience stores, restaurants and hotels, principally in the New York, New Jersey, Connecticut and Pennsylvania markets, with expandingadditional distribution in Florida, Virginia, Massachusetts, New Hampshire, Nevada, Rhode Island and parts of the Midwest. As of June 30, 2017,March 31, 2018, the Company’s products are available in 27approximately 16 states, the Caribbean and in Canada and Latin America.

The ALO Juice Business

Asset Purchase Agreement

On December 8, 2016, the Company entered into an asset purchase agreement with The Wilnah International, LLC (“Wilnah”). Pursuant to the agreement, the Company intended to acquire the intellectual property (“IP”) (trade names, formulas, recipes) for ALO Juice. The Company has not yet closed the asset purchase and is currently working with Wilnah to modify the agreement to a licensing arrangement.

Seba Personal Guarantee

On March 14, 2017, Mr. Ponce, former majority owner of Seba Distribution LLC (“Seba”), issued to the Company a personal guarantee in the amount of $467,444 in support of certain obligations of Seba that are owed to the Company.

Canada.

Liquidity and Going Concern

The Company has been focused on the development of its brand and its infrastructure, as well as in the establishment of a network of distributors and qualified direct accounts. From inception, the Company has financed its operations through the issuance of debt and equity, and through utilizing trade credit with its vendors. The Company will require additional capital to fund the operating losses of the existing beverage business, as well as to fund the development of the loyalty and blockchain business.

As of March 31, 2018, the Company had cash of $0. As of March 31, 2018, the Company had a working capital deficit of $2,121,606. The Company incurred a net loss of $2,251,817 for the three months ended March 31, 2018. As of March 31, 2018, the Company’s stockholders’ equity was $6,968,429. As of October 4, 2018, the Company had cash of approximately $480,000.

LONG ISLAND ICED TEABLOCKCHAIN CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 – BUSINESS ORGANIZATION, LIQUIDITY AND GOING CONCERN (CONTINUED)

Liquidity and Going Concern, continued

As of June 30, 2017, the Company had cash of $241,361. As of June 30, 2017, the Company had working capital of $1,145,366. The Company incurred net losses of $4,225,195 and $7,679,717 for the three and six months ended June 30, 2017 respectively. As of June 30, 2017, the Company’s stockholders’ equity was $1,953,410.

On January 27, 2017, the Company sold 376,340 shares of the Company’s common stock in a public offering at an average price of $4.02 per share. Of the shares sold, 300,000 were sold to the public at an offering price of $4.00 while the remaining 76,340 shares were sold to officers and directors of the Company at a price of $4.10 per share. The sale of common stock generated gross proceeds of $1,513,000 and net proceeds of $1,429,740 after deducting commissions and other offering expenses.

On June 14, 2017, the Company sold 256,848 shares of the Company’s common stock in a public offering at an average price of $5.06 per share. Of the shares sold, 231,850 were sold to the public at an offering price of $5.00 while the remaining 24,998 shares were sold to officers and directors of the Company at a price of $5.60 per share. The sale of common stock generated gross proceeds of $1,299,250 and net proceeds of $1,259,415 after deducting commissions and other offering expenses.

On July 6, 2017, the Company sold 448,160 shares of the Company’s common stock in a public offering at a price of $5.00 per share. Of the shares sold, 200,000 were sold to lead investors who, upon the purchase of $500,000 or more in shares, received (i) an additional number of shares of common stock equal to 7% of the total number of shares of common stock purchased by such lead investors in this offering (or an aggregate of 14,000 shares) and (ii) three-year warrants up to that number of shares of common stock equal to 20% of the total number of shares purchased by such lead investors in this offering (or warrants to purchase an aggregate of 40,000 shares). These warrants have an exercise price of $5.50 and are fully vested upon issuance. The sale of common stock generated gross proceeds of $2,240,800 and net proceeds of approximately $2,129,212 after deducting commissions and other offering expenses.

Pursuant to a CreditLoan and SecurityOption Agreement dated December 20, 2017 (the “Credit“2017 Cavendish Loan Agreement”) with Court Cavendish Ltd. (“Cavendish”), on January 15, 2018 and January 30, 2018, the Company has a revolving credit facility inborrowed $750,000 and $500,000, respectively, under this arrangement. On May 3, 2018, the Cavendish Loan Agreement was amended and the Company drew an amount upadditional $1,000,000, with $500,000 available to $3,500,000,borrow, subject to approval byfrom the lender (See Note 5)6).

Historically, the Company has financed its operations through the raising of equity capital and through trade credit with its vendors. The Company’s ability to continue its operations and to pay its obligations when they become due is contingent upon the Company being able to generate cash flows from its operations, as well by obtaining proceeds from additional financing.financings. Management’s plans include raising additional funds through equity offerings, debt financings, or other means.

The Company believes that it will be able to raise sufficient additional capital to finance the Company’s planned operating activities. There are no assurances that the Company will be able to generate cash flow from its operations and/or raise suchrequired capital on terms acceptable to the Company or at all. If the Company is unable to obtain sufficient amounts of additional capital, it may be required to reduce the scope of its planned market development activities,current operations, as well as defer, delay and/or considercurtail its effort to develop the loyalty and blockchain business. These steps may include reductions in personnel costs or other operating costs.cost reductions. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. These condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2017March 31, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.2018. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 20162017 and related notes thereto included in the Company’s Form 10-K filed with the United States Securities and Exchange Commission (“SEC”) on March 30, 2017.

April 13, 2018.

Reclassification

Certain amounts in prior periods have been reclassified to conform to the current period presentation. These reclassifications had no effect on the previously reported net loss.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All inter-company balances and transactions have been eliminated in the accompanying condensed consolidated financial statements. The Company accounts for its investments in equity securities in accordance with ASC Topic No. 321, Investments - Equity Securities , which requires the accounting for equity investments (other than those accounted for using the equity method of accounting) generally be measured at fair value for equity securities with readily determinable fair values. For equity securities without a readily determinable fair value that are not accounted for by the equity method, the Company measures the equity security using cost, less impairment, if any, and plus or minus observable price changes arising from orderly transactions in the same or similar investment from the same issuer. Any unrealized gains or losses will be reported in current earnings.

LONG BLOCKCHAIN CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements, and also affect the amounts of revenues and expenses reported for each period. Actual results could differ from those which result from using such estimates. Management utilizes various other estimates, including but not limited to, assessing the collectability of accounts receivable, accrual of rebates to customers, the valuation of securities, the valuation of inventory, determining the estimated lives of long-lived assets, determining the potential impairment of intangibles, the fair value of warrants issued, the fair value of stock options, the recognition of revenue, and other legal claims and contingencies. The results of any changes in accounting estimates are reflected in the financial statements in the period in which the changes become evident. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the period that they are determined to be necessary.

Revenue Recognition

Beginning on January 1, 2018, the Company recognizes revenue under ASC 606, Revenue from Contracts with Customers. The core principle of the revenue standard is stated netthat a company should recognize revenue to depict the transfer of sales discounts and rebates paidpromised goods or services to customers (See Customer Marketing Programsin an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods and Sales Incentives, below)services transferred to the customer. The following five steps are applied to achieve that core principle:

Step 1: Identify the contract with the customer

Step 2: Identify the performance obligations in the contract

Step 3: Determine the transaction price

Step 4: Allocate the transaction price to the performance obligations in the contract

Step 5: Recognize revenue when the company satisfies a performance obligation

The Company’s performance obligations are satisfied at the point in time when products are received by the customer, which is when the customer has title and the significant risks and rewards of ownership. Therefore, the Company’s contracts have a single performance obligation (shipment of product). NetThe Company primarily receives fixed consideration for sales of product.

The Company does not have any significant contracts with customers requiring performance beyond delivery, and contracts with customers contain no incentives or discounts that could cause revenue to be allocated or adjusted over time other than those discussed in Note 8. Shipping and handling activities are performed before the customer obtains control of the goods and therefore represent a fulfillment activity rather than a promised service to the customer. Revenue and costs of sales are recognized when allcontrol of the following conditionsproducts transfers to our customer, which generally occurs upon delivery to the customer. The Company’s performance obligations are met: (1) the price is fixed and determinable; (2) evidence of a binding arrangement exists (generally, purchase orders); (3) products have been delivered and there is no future performance required; and (4) amounts are collectible under normal payment terms.satisfied at that time.

These conditions typically occur when the products are delivered to or picked upThe following table presents our revenues disaggregated by the Company’s customers. For sales where certain revenue recognition criteria have not been met at the date of delivery, the Company defers recognition of such revenue and accounts receivable until such recognition criteria are met.geographical region:

LONG ISLAND ICED TEABLOCKCHAIN CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Customer Marketing Programs, including Sign On and Sales Incentives

The Company participates in various programs and arrangements with customers designed to incent new distribution, incent the introduction of a new product line, or to increase the sale of its products. Among these programs are arrangements under which allowances can be earned by customers for introducing a product (sign on incentives, for example), for various discounts to the end retailers or for participating in specific marketing programs. The Company believes that its participation in these programs is essential to ensuring volume and revenue growth in a competitive marketplace. Depending upon the program, those incentives are paid in either cash or the issuance of equity instruments. During the three months ended June 30,March 31, 2018 and 2017, and 2016, these allowances resulted in reductions in net sales of $410,326 and $0, respectively. During the six months ended June 30, 2017 and 2016, these allowances resulted in reductions in net sales of $401,182$105,878 and $45,165, respectively. During the three months ended March 31, 2017, allowances resulted in a net increase to net sales, on account of a reversal of a customer’s allowance. Included in these amounts for the three and six months ended June 30,March 31, 2018 and 2017 isare costs of $15,150 and $0, respectively, representing the non-cash costs of a non-cash sign onsign-on incentive, presented net of $257,022 and $257,022, respectively,mark-to-market adjustments for unvested awards related principally to the cost of warrants issued in connection with the signing of a distribution agreement and the first order with Big Geyser Inc. (“Big Geyser”) (See Notes 7 andNote 8).

Shipping and Handling Costs

Shipping and handling costs incurred to move finished goods from the Company’s sales distribution centers to customer locations are included in selling and marketing expenses within the condensed consolidated statements of operations and comprehensive loss and totaled $171,438$78,987 and $161,518,$25,290, for the three months ended June 30,March 31, 2018 and 2017, and 2016, respectively and $196,728 and $201,670 for the six months ended June 30, 2017 and 2016, respectively.

Advertising

The Company expenses advertising costs as incurred. Advertising costs are included in selling and marketing expenses within the condensed consolidated statements of operations and comprehensive loss and totaled $265,122$131,461 and $20,916$51,642 for the three months ended June 30,March 31, 2018 and 2017, and 2016, respectively, and $316,764 and $30,547, for the six months ended June 30, 2017 and 2016, respectively.

Research and Development

Costs related to new product initiatives incurred were included in selling and marketing expenses within the condensed consolidated statements of operations and comprehensive loss and totaled $127,864$0 and $119,187$176,862 for the three months ended June 30,March 31, 2018 and 2017, and 2016, respectively, and $304,726 and $119,587 forrespectively.

Operating Leases

The Company records rent related to its operating leases on a straight line basis over the six months ended June 30, 2017 and 2016, respectively. Other research and development costs were included in general and administrative expenses within the condensed consolidated statementslease term.

Cash

The Company considers all highly liquid instruments with an original maturity of operations and totaled $0 and $0 for the three months ended June 30, 2017 and 2016, respectively and $829 and $46,667 for the six months ended June 30, 2017 and 2016, respectively. The other research and development expenses incurred during the three and six months ended June 30, 2016 were incurred pursuantor less when acquired to a product development agreement which will require the Company to pay $40,000be cash equivalents. Checks outstanding in cash and $40,000 in common stock upon the completionexcess of the arrangement. As of June 30, 2017, $50,000 wasrelated book balances are included in accrued expenses in the accompanying condensed consolidated balance sheet related tosheets. The Company presents the 2016 arrangement.change in these book cash overdrafts as cash flows from operating activities.

LONG ISLAND ICED TEABLOCKCHAIN CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Short-term Investments

The Company accounts for securities in accordance with accounting standards for investments in debt and equity securities. Accounting standards require investments in debt and equity securities to be classified as either “held to maturity”, “trading”, or “available-for-sale.”

The Company holds investments in marketable securities, consisting of U.S. government securities and mutual funds. The Company’s available-for-sale securities are carried at estimated fair value with any unrealized gains and losses, net of taxes, included in accumulated other comprehensive (loss) income in stockholders’ equity when applicable. During the three months ended June 30, 2017 and 2016, the unrealized gain was $18,049 and $0, respectively, and during the six months ended June 30, 2017 and 2016, the unrealized gain was $30,246 and $0, respectively. Unrealized losses are charged against interest and other income/(expense), net, when a decline in fair value is determined to be other-than-temporary. The Company has not recorded any such impairment charge in the periods presented. The Company determines realized gains or losses on sale of marketable securities on a specific identification method, and records such gains or losses as interest and other income/(expense), net.

The following table sets forth the available-for-sale securities, which were fully liquidated during the three months ended June 30, 2017:

The following table classifies the US Government Securities by maturity:

LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Accounts Receivable

The Company sells products to distributors and in certain cases directly to retailers, and extends credit, generally without requiring collateral, based on its evaluation of the customer’s financial condition. While the Company has a concentration of credit risk in the retail sector, it believes this risk is mitigated due to the diverse nature of the customers it serves, including, but not limited to, its type, geographic location, size, and beverage channel. Potential losses on the Company’s receivables are dependent on each individual customer’s financial condition and sales adjustments granted after the balance sheet date. The Company carries its trade accounts receivable at net realizable value. Accounts receivable have terms of ranging from 30 to 75 days and do not bear interest. The Company monitors its exposure to losses on receivables and maintains allowances for potential losses or adjustments. The Company determines these allowances by (1) evaluating the aging of its receivables; (2) analyzing its history of sales adjustments; and (3) reviewing its high-risk customers. Past due receivable balances are written off when the Company’s efforts have been unsuccessful in collecting the amount due. Accounts receivable are stated at the amounts management expects to collect.

Accounts receivable, net, is as follows:

Concentrations of Credit Risk

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash on deposit with financial institutions and accounts receivable. At times, the Company’s cash in banks is in excess of the FDIC insurance limit. The Company has not experienced any loss as a result of these cash deposits. These cash balances are maintained with two banks.one bank. The Company is exposed to credit risk with regard to two customers who accounted for 36%15% and 14%11%, or 50%26% in the aggregate and 46% of the Company’s trade receivablesaccounts receivable, net, as of June 30, 2017March 31, 2018 and two customers who accounted for 18% and 10%, or 28% in the aggregate of accounts receivable, net as of December 31, 2016, respectively.2017. The Company does not generally require collateral or other security to support customer receivables.

The Company monitors its exposure for credit losses and maintains allowances for anticipated losses, as required.

LONG ISLAND ICED TEABLOCKCHAIN CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Inventories

The Company’s inventory includes raw materials such as bottles, sweeteners, labels, flavors and packaging. Finished goods inventory consists of bottled iced tea, lemonade and ALO Juice. As of June 30, 2017March 31, 2018 and December 31, 2016,2017, included in inventory was finished goods inventory with a cost of approximately $186,000$108,000 and $320,000,$201,000, net of inventory reserves, respectively, which washas been delivered to a distributor,one or more of the Company’s distributors and is held in inventory until certain revenue recognition criteria are met.

The Company values its inventories at the lower of cost or market, net of reserves.realizable value. Cost is determined using the first-in, first-out (FIFO) method. As of June 30, 2017March 31, 2018 and December 31, 2016,2017, the Company recorded inventory reserves of $65,196$89,716 and $45,078,$200,775, respectively, to reduce the cost of certain products to estimated net realizable value. The following table summarizes inventories as of the dates presented:

Property and Equipment

Property and equipment is recorded at cost. Major property additions, replacements, and betterments are capitalized, while maintenance and repairs that do not extend the useful lives of an asset or add new functionality are expensed as incurred. Depreciation is recorded using the straight-line method over the respective estimated useful lives of the Company’s assets.

The estimated useful lives typically are 3 years for cold-drink containers, such as reusable fridges, wood racks, vending machines, barrels, and coolers, and are depreciated using the straight-line method over the estimated useful life of each group of equipment, as determined using the group-life method. Under this method, the Company does not recognize gains or losses on the disposal of individual units of equipment when the disposal occurs in the normal course of business. The Company capitalizes the costs of refurbishing its cold-drink containers and depreciates those costs over the estimated period until the next scheduled refurbishment or until the equipment is retired. The estimated useful lives are typically 3 to 5 years for office furniture and equipment and are depreciated on a straight-line basis. The estimated useful lives for trucks and automobiles are typically 3 to 5 years and are depreciated on a straight line basis. For the three months ended June 30,March 31, 2018 and 2017, and 2016, depreciation expense was $35,337$31,389 and $39,004, respectively. For the six months ended June 30, 2017 and 2016, depreciation expense was $76,706 and $77,698,$41,369, respectively.

Intangible Assets

Intangible assets with finite useful lives are amortized over their expected useful life. Intangible assets with useful lives are tested for impairment when circumstances indicate that there could be an impairment. Intangible assets with finite useful lives include website development costs with a net book value of $0 and $2,500 as of June 30, 2017 and December 31, 2016, respectively. The estimated useful life of the capitalized costs of the Company’s website was 3 years and was depreciated on a straight line basis. As of June 30, 2017, the cost of the website development was $15,000 and the accumulated amortization was $15,000. As of December 31, 2016, the cost of the website development was $15,000 and the accumulated amortization was $12,500. For the three months ended June 30, 2017 and 2016, amortization expense was $1,250 and $1,251, respectively, and $2,500 and $2,502 for the six months ended June 30, 2017 and 2016, respectively.

LONG ISLAND ICED TEABLOCKCHAIN CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Income Taxes

The Company recognizes deferredaccounts for income taxes in accordance with FASB ASC 740, “Income Taxes” (“ASC 740”). ASC 740 requires an asset and liability approach for financial accounting and reporting for income taxes and established for all the entities a minimum threshold for financial statement recognition of the benefit of tax liabilitiespositions, and assetsrequires certain expanded disclosures. The provision for the expected future tax consequences of eventsincome taxes is based upon income or loss after adjustment for those permanent items that have been includedare not considered in the financial statements ordetermination of taxable income. Deferred income taxes represent the tax returns. Deferred tax assets and liabilities are determined based on the differenceeffects of differences between the financial statement,reporting and tax basis of the Company’s assets and liabilities usingat the enacted tax rates in effect for the yearyears in which the differences are expected to reverse. The Company estimatesevaluates the degree to whichrecoverability of deferred tax assets and credit carry forwards will result inestablishes a benefit based on expected profitability by tax jurisdiction.

In its interim financial statements, the Company follows the guidance in ASC 270, “Interim Reporting” and ASC 740 “Income Taxes”, whereby the Company utilizes the expected annual effective tax rate in determining its income tax provisions for the interim periods. That rate differs from U.S. statutory rates primarily as a result of valuation allowance related towhen it is more likely than not that some portion or all the Company’s net operating loss carryforward as a result of the historical losses of the Company.

deferred tax assets will not be realized. Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liabilities.liability. In management’s opinion, adequate provisions for income taxes have been made for all years.made. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.

The Company accounts for uncertainTax Cuts and Jobs Act (the “Tax Act”) was enacted on December 22, 2017. The Tax Act reduces the U.S. federal corporate tax positions in accordance with ASC 740 —“Income Taxes”rate from 35% to 21%. No uncertain tax provisions have been identified. The Company accrues interest and penalties, if incurred, on unrecognized tax benefits as componentsAs of the income tax provision in the accompanyingcompletion of these unaudited condensed consolidated financial statements and related disclosures, we have made a reasonable estimate of operations. Our primary tax jurisdictions are our federal, various state, and local taxes.

Generally, Federal, State and Local authorities may examinethe effects of the Tax Act. This estimate incorporates assumptions made based upon the Company’s tax returns for three years fromcurrent interpretation of the dateTax Act, and may change as the Company may receive additional clarification and implementation guidance and as the interpretation of filing.

the Tax Act evolves. In accordance with ASC 740,the Securities and Exchange Commission (the “SEC”) Staff Accounting Bulletin No. 118, the Company evaluates whetherwill finalize the accounting for the effects of the Tax Act no later than the fourth quarter of 2018. Future adjustments made to the provisional effects will be reported as a valuation allowance should be established againstcomponent of income tax expense in the netreporting period in which any such adjustments are determined. Based on the new tax law that lowers corporate tax rates, the Company revalued its deferred tax assets based uponassets. Future tax benefits are expected to be lower, with the considerationcorresponding one time charge being recorded as a component of all available evidence and using a “more likely than not” standard. Significant weight is given to evidence that can be objectively verified. The determination to record a valuation allowance is based on the recent history of cumulative losses and current operating performance. In conducting the analysis, the Company utilizes an approach, which considers the current year loss, including an assessment of the degree to which any losses are driven by items that are unusual in nature and incurred to improve future profitability. In addition, the Company reviews changes in near-term market conditions and any other factors arising during the period, which may impact its future operating results.income tax expense.

Internal Revenue Code Section 382 imposes limitations on the use of net operating loss carryovers (“NOLs”) when the stock ownership of one or more 5% shareholders (shareholders owning 5% or more of the Company’s outstanding capital stock) has increased on a cumulative basis by more than 50 percentage points. The Company’s preliminary analysis indicated that such shares have increased by more than 50% since the last Section 382 limitation on May 27, 2015. The Company is currently evaluating the impact of the new Section 382 limitation.

LONG ISLAND ICED TEABLOCKCHAIN CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Loss per share

Basic net loss per common share is computed by dividing net loss by the weighted-average number of common shares outstanding. Diluted earnings per share reflect, in periods in which they have a dilutive effect, the impact of common shares issuable upon the exercise of stock options, warrants and the conversion. The computation of diluted earnings per share excludes those with an exercise price in excess of the average market price of the Company’s common shares during the periods presented. The computation of diluted earnings per share excludes outstanding options, warrants and other dilutive instruments in periods where the inclusion of such instruments would be antidilutive, as provided below:

Fair Value of Financial Instruments

The carrying amounts of cash, short term investments, accounts receivable, automobile and equipment loans and the UBS Credit Line (See Note 4 below) approximate fair value due to the short-term nature of these instruments. In addition, for notes payable, the Company believes that interest rates approximate prevailing rates.

ASC 820 “Fair Value Measurements and Disclosures” provides the framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements).

Fair value is defined as an exit price, representing the amount that would be received upon the sale of an asset or payment to transfer a liability in an orderly transaction between market participants. Fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability. A three-tier fair value hierarchy is used to prioritize the inputs in measuring fair value as follows:

Level 1 Quoted prices in active markets for identical assets or liabilities.

Level 2 Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable, either directly or indirectly.

Level 3 Significant unobservable inputs that cannot be corroborated by market data.

Fair values for short-term money market investments are determined from quoted prices in active markets for these money market funds, and are considered to be Level 1.

LONG ISLAND ICED TEABLOCKCHAIN CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Fair Value of Financial Instruments, continued

The carrying value of financial instruments in the Company’s condensed consolidated financial statements are as follows:

Stock-based CompensationRecent Accounting Standards

The Company accounts for stock options granted to consultants pursuant to the accounting guidance included in ASC 505-50 “Equity-Based Payments to Non-Employees” (“ASC 505-50”). Stock-based compensation cost is measured at the grant date and at the end of each reporting period for unvested awards, based on the fair value of the award, and is recognized as expense over the consultant’s requisite service period (generally the vesting period of the equity grant). The fair value of the Company’s stock options granted to consultants are estimated using the Black Scholes option-pricing model with the following assumptions: expected volatility, dividend rate, risk free interest rate and the expected life.

In accordance with ASC 505-50, the Company recorded adjustments at the end of each reporting period to reflect the mark-to-market adjustment of the fair value of unvested awards granted to consultants. In connection with the mark-to-market adjustments at June 30, 2017, the Company utilized the closing price of the Company’s common stock, as quoted on the NASDAQ Stock Market LLC (“Nasdaq”), as an input to the Black Scholes option-pricing model for the fair value of its common stock.

Recent Accounting Pronouncements

In January 2016, the Financial Accounting Standards Board (“FASB”), issued Accounting Standards Update (“ASU”) No. 2016-01, “Financial Instruments-OverallFinancial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities,” which amends the guidanceLiabilities. The amendments in U.S. generally accepted accounting principles on the classification and measurement of financial instruments. Changes to the current guidance primarily affect the accounting forthis ASU modify how entities measure equity investments financial liabilities underand present changes in the fair value option,of financial liabilities. Under the new guidance, entities will have to measure equity investments that do not result in consolidation and are not accounted under the presentationequity method at fair value and disclosure requirementsrecognize any changes in fair value in net income unless the investments qualify for financial instruments. In addition, the ASU clarifies guidance relatedpractical expedient exception. An entity may elect to measure an equity security without a readily determinable fair value that does not qualify for the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The new standardpractical expedient to estimate fair value under ASC 820, Fair Value Measurements, and as such these investments may be measured at cost. This ASU is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2017, and areinterim periods within those fiscal years. The Company has adopted this ASU on a prospective basis in the first quarter of 2018 and has determined that investments within the scope of the standard will be recorded at fair value with changes in fair value recognized in earnings which may lead to be adopted by means of a cumulative-effect adjustmentincreased volatility in other expense.

In February 2016, the FASB issued ASU 2016-02—Leases (Topic 842) (“ASU-2016-02”), which requires an entity to therecognize right-of-use assets and lease liabilities on its balance sheet at the beginningand disclose key information about leasing arrangements. ASU 2016-02 offers specific accounting guidance for a lessee, a lessor, and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the firstfinancial statements to assess the amount, timing and uncertainty of cash flows arising from leases. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, in which the guidance is effective. Earlyand requires a modified retrospective adoption, is not permitted except for the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income.with early adoption permitted. The Company is currently evaluating the impact the adoption ofeffect this standardguidance will have on its condensed consolidated financial statements.statements and related disclosure, and anticipates the guidance to result in increases in its assets and liabilities as most of its operating lease commitments will be subject to the new standard and recognized as right-of-use assets and lease liabilities.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) which has subsequently been amended by ASU 2015-14, ASU 2016-08, ASU 2016-10, ASU 2016-12, and ASU 2017-13. These ASUs outline a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The guidance includes a five-step framework that requires an entity to: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when the entity satisfies a performance obligation. In July 2015, the FASB deferred the effective date of ASU 2014-09 to annual reporting periods beginning after December 15, 2017. Early adoption will be permitted as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within those annual periods. A full retrospective or modified retrospective approach is required. In addition, the new guidance will require enhanced disclosures, including revenue recognition policies to identify performance obligations to customers and significant judgments in measurement and recognition.

LONG ISLAND ICED TEABLOCKCHAIN CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Recent Accounting Pronouncements,Standards, continued

In February 2016, the FASB issued new lease accounting guidance (ASU No. 2016-02, Leases). Under the new guidance, at the commencement date, lessees will be requiredThe Company has elected to recognize a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and 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 lease term. The new guidance is not applicable for leases with a term of 12 months or less. Lessor accounting is largely unchanged. Public business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted upon issuance. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lesseesmethod and lessors may not apply a full retrospective transition approach. The Company is currently evaluating the impact the adoption of this standard will havewas determined to be immaterial on itsthe condensed consolidated financial statements.

On March 30, 2016, Accordingly, the FASB issued ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718)”. This update requires that all excess tax benefits and tax deficiencies arising from share-based payment awards should be recognized as income tax expense or benefit on the income statement. The amendment also states that excess tax benefits should be classified along with other income tax cash flows as an operating activity. In addition, an entity can make an entity-wide accounting policy election to either estimate the number of awards expected to vest or account for forfeitures as they occur. The provisions of this update are effective for annual and interim periods beginning after December 15, 2016. The Company adopted thisnew revenue standard effective December 31, 2016. The adoption did not have a material effect on the Company’swas applied prospectively in our condensed consolidated financial statements.statements from January 1, 2018 forward and reported financial information for historical comparable periods will not be revised and will continue to be reported under the accounting standards in effect during those historical periods.

In April 2016, the FASB issued ASU No. 2016-10 “Revenue from Contracts with Customers (Topic 606)”, “Identifying Performance Obligations and Licensing” (“ASU 2016-10”). ASU 2016-10 clarifies the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. The provisions of this update are effective for annual and interim periods beginning after December 15, 2017, with early application permitted. The Company is continuing to evaluatehas performed an analysis and identified its revenues and costs that are within the expected impactscope of thisthe new revenue guidance. The Company is currently preparinghas determined that its assessmentmethods of the full financial impact ofrecognizing revenues will not be significantly impacted by the new revenue recognition guidance, including the method of adoption, and intends to adopt the guidance when it becomes effective for the Company on January 1, 2018.

In May 2016, the FASB issued ASU No. 2016-12 “Revenue from Contracts with Customers (Topic 606)”, “Narrow-Scope Improvements and Practical Expedients” (“ASU 2016-12”). The core principal of ASU 2016-12 is the recognition of revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The provisions of this update are effective for annual and interim periods beginning after December 15, 2017, with early application permitted. The Company is continuing to evaluate the expected impact of this new revenue guidance. The Company is currently preparing its assessment of the full financial impact of the new revenue recognition guidance, including the method of adoption, and intends to adopt the guidance when it becomes effective for the Company on January 1, 2018.

LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Recent Accounting Pronouncements, continued

In August 2016, the FASB issued ASU No. 2016-15 “Statement of Cash Flows (Topic 230)”, “Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). The amendments for this update provide guidance on the eight specific cash flows: debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, distributions received from equity method investees, beneficial interests in securitization transactions, and separately identifiable cash flows and application of the predominance principle. The provisions of this update are effective for annual and interim periods beginning after December 15, 2016, with early application permitted. The Company adopted this standard effective December 31, 2016. The adoption did not have a material effect on the Company’s condensed consolidated financial statements.

In January 2017, the FASB issued ASU 2017-01, “Clarifying the Definition of a Business” (“ASU 2017-01”), which provides guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 requires entities to use a screen test to determine when an integrated set of assets and activities is not a business or if the integrated set of assets and activities needs to be further evaluated against the framework. ASU 2017-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those years. The Company is currently evaluating the impactbelieves that the adoption of this standard willthe ASU may have an impact on the Company as it pursues its condensed consolidated financial statements.strategy to develop its business.

In May 2017,June 2018, the FASB issued ASU No. 2017-09 “Compensation-Stock2018-07 Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting” (“ASU 2017-09”2018-07”). The amendments in this update provide guidance about which changesUpdate expand the scope of Topic 718 to the terms or conditions of ainclude share-based payment award require an entity to apply modification accounting in Topic 718.transactions for acquiring goods and services from nonemployees. An entity should accountapply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the effectsattribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a modification unless all of the following are met: The fair value of the modified awardcontract accounted for under Topic 606, Revenue from Contracts with Customers. ASU 2018-07 is the same as the fair value of the original award immediately before the original award is modified, the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified and the classification of the modified award an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. The provisions of this update are effective for annual and interimreporting periods beginning after December 15, 2017,2018, including interim periods within that reporting period, and requires a modified retrospective adoption, with early adoption permitted. Based upon the Company’s preliminary assessment, the adoption of this new standard is not expected to have a material impact on the Company’s condensed consolidated financial position or its results of operations.

LONG BLOCKCHAIN CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Recent Accounting Standards, continued

In July 2018, the FASB issued ASU 2018-10 Codification Improvements to Topic 842, Leases (Topic 842) (“ASU-2018-10”), which contains amendments (related to Update 2016-02) to the Codification regarding leases. Fourteen areas of improvement where amendments were applied include the following:

ASU 2018-10 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, and requires a modified retrospective adoption, with early adoption permitted. The Company is currently evaluating the impact the adoption ofeffect that this standardguidance will have on its condensed consolidated financial statements.position and its results of operations.

LONG BLOCKCHAIN CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Recent Accounting Standards, continued

In July 2018, the FASB issued ASU 2018-11-Leases (Topic 842) (“ASU-2018-11”), which requires an entity to separate lease components from nonlease components (for example, maintenance services or other activities that transfer a good or service to the customer other than the right to use the underlying asset) in a contract. The lease components shall be accounted for in accordance with the new leases standard. An entity should account for the nonlease components in accordance with other Topics (for example, Topic 606, Revenue from Contracts with Customers, for lessors). The consideration in the contract is allocated to the lease and nonlease components on a relative standalone price basis (for lessees) or in accordance with the allocation guidance in the new revenue standard (for lessors). The new leases standard also provides lessees with a practical expedient, by class of underlying asset, to not separate nonlease components from the associated lease component. If a lessee makes that accounting policy election, it is required to account for the nonlease components together with the associated lease component as a single lease component and to provide certain disclosures. Lessors are not afforded a similar practical expedient. The amendments in this Update address stakeholders’ concerns about the requirement for lessors to separate components of a contract by providing lessors with a practical expedient, by class of underlying asset, to not separate nonlease components from the associated lease component, similar to the expedient provided for lessees. However, the lessor practical expedient is limited to circumstances in which the nonlease component or components otherwise would be accounted for under the new revenue guidance and both (1) the timing and pattern of transfer are the same for the nonlease component(s) and associated lease component and (2) the lease component, if accounted for separately, would be classified as an operating lease. The amendments in this Update also clarify which Topic (Topic 842 or Topic 606) applies for the combined component. Specifically, if the nonlease component or components associated with the lease component are the predominant component of the combined component, an entity should account for the combined component in accordance with Topic 606. Otherwise, the entity should account for the combined component as an operating lease in accordance with Topic 842. An entity that elects the lessor practical expedient also should provide certain disclosures. ASU 2018-11 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, and requires a modified retrospective adoption, with early adoption permitted The Company is currently evaluating the effect that this guidance will have on its condensed consolidated financial position and its results of operations.

Management’s Evaluation of Subsequent Events

The Company evaluates events that have occurred after the balance sheet date but before the financial statements are issued. Based upon the review, other than described in NoteNotes 1, –Business Organization, Liquidity,4, 6, 9, 11 and Management’s Plans, Note 8 – Commitments and Contingencies and Note 11 – Subsequent Events,12, the Company did not identify any other recognized or non-recognized subsequent events that would have required adjustment or disclosure in the financial statements.

NOTE 3- INVESTMENTS

Stater Blockchain

On March 19, 2018, the Company entered into a contribution and exchange agreement (the “Stater Agreement”), with Stater Blockchain Limited (“SBL”), and simultaneously closed the transactions contemplated thereby.

SBL is a New Zealand-based technology company focused on developing and deploying globally scalable blockchain technology solutions in the financial markets. SBL is developing multiple blockchain and digital currency technology solutions, such as its “Smart Settlements” and “Smart KYC” platforms, for the global financial markets where significant disintermediation opportunities exist. SBL owns Stater Global Markets, a United Kingdom-based Financial Conduct Authority regulated prime-of-prime brokerage, which facilitates market access across multiple instruments including foreign exchange, exchange traded futures and contracts for difference.

LONG ISLAND ICED TEABLOCKCHAIN CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)NOTE 3- INVESTMENTS (CONTINUED)

Stater Blockchain, continued

Pursuant to the Stater Agreement, SBL issued to the Company 99 ordinary voting shares in SBL (“SBL Shares”) which, immediately following completion of the transaction contemplated by the Stater Agreement, constituted 9.9% of the total SBL Shares then issued and outstanding, in exchange for 1,135,435 shares of common stock of the Company, which constituted 9.9% of the total LBC Shares then issued and outstanding (the “Exchange”).

Upon closing, the Company, SBL and the majority shareholder of SBL entered into a shareholders’ agreement (the “Stater Shareholders’ Agreement”), governing the management and ownership of SBL. The Stater Shareholders’ Agreement includes the Company’s right to appoint one director of SBL, so long as the Company holds at least 9.9% of the SBL Shares then on issue, certain restrictions on transfer and preemptive rights with respect to the issuance of new securities of SBL.

Upon closing the Company was permitted to have its then CEO join the Stater board. However, no such appointment was ever consummated. Ramy Soliman, SBL’s Chief Executive Officer, was appointed as a director of the Company.

Upon closing, the Company, SBL and Long Island Iced Tea Corp. (“SpinCo”) entered into a voting agreement (the “Voting Agreement”), pursuant to which SBL agreed, if necessary, to vote its LBC Shares (i) in favor of the Beverage Spin Out, and/or (ii) if requested by the Company against any agreement which would prevent the Beverage Spin Out. Additionally, until the earlier of (i) one year from the consummation of the Beverage Spin Out or (ii) the date on which the shares of SpinCo received in the Beverage Spin Out (“SpinCo Shares”) become listed on a national securities exchange, in the event any vote of SpinCo’s stockholders is necessary to effectuate any corporate action, SBL agreed to vote the SpinCo Shares it directly or indirectly receives upon consummation of the Beverage Spin Out (i) in favor of any corporate action recommended by the then existing board of directors of SpinCo and/or (ii) against any action or agreement which would impede, interfere with or prevent any SpinCo Action from being consummated. Pursuant to the Voting Agreement, SBL also agreed to appoint the Company or SpinCo as the Stockholder’s proxy to vote SBL’s LBC Shares or SpinCo Shares, as applicable, if so requested by the Company. The voting requirements set forth in the Voting Agreement shall expire if the Spinoff is not consummated by November 13, 2018 or if prior to such date, the Company’s board of directors unanimously decides not to proceed with the Beverage Spin Out.

The Company has adopted ASU 2016-01 during the first quarter 2018 and determined that the equity securities that were received from SBL are without a readily determinable fair value because these securities are privately held, not traded on any public exchanges and not an investment in a mutual fund or similar investment. As a result, management has elected to alternatively measure this investment at cost, less impairment, adjusted for subsequent observable price changes to estimate fair value. The Company will make a “reasonable effort” to identify any observable price changes for identical or similar investments with the issuer that are known are can be reasonably known. The adoption of ASU 2016-01 was done on a prospective basis and any changes in the carrying value of the equity securities will be reported in our current earnings as other expense, net.

Consideration for the purchase of the SBL securities was through the issuance of shares of the Company’s common stock. Accordingly, the cost basis of the investment of $3,201,927 was based upon the fair value of LBCC’s shares to SBL on the date such shares were issued to SBL. Based upon the LBCC’s qualitative assessment, LBCC has concluded that there should not be any adjustment to the carrying amount of the investment at March 31, 2018.

LONG BLOCKCHAIN CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 33- INVESTMENTS (CONTINUED)

Agreement with CASHe

On March 22, 2018, the Company entered into and closed on a contribution and exchange agreement (the “CASHe Agreement”), with TSLC.

TSLC is the parent company of CASHe, a leading provider of digital money and short-term financial products to young millennials across India. TSLC also owns all of the intellectual property developed by CASHe and has the worldwide rights outside of India to the application of its intellectual property for its lending and money transfer platform.

CASHe provides short-term financial products using technology combined with analytics and proprietary algorithms to map young professionals across the country based on their mobile, digital footprint and their social behaviour patterns to rate their credit worthiness. CASHe has also implemented distributed ledger enabled digital tokens using smart contracts on its lending platform. The distributed ledger technology allows the platform to record transactions in a secure and transparent manner by creating an audit trail. Further, a smart contract-based distributed ledger records all lending transactions in an open and transparent manner.

Pursuant to the CASHe Agreement, TSLC issued the Company 1,145,960 shares of its voting capital stock (the “TSLC Capital Stock”), equal to 7.00% of the TSLC Capital Stock on a fully diluted basis, in exchange for (i) 1,949,736 shares of the Company’s common stock, equal to 17.00% of the Company’s total common stock issued and outstanding as of the date of the CASHe Agreement, and (ii) the right to receive, if a Material Adverse Effect (as defined in the CASHe Agreement) occurs with respect to the Company within ninety (90) days of the date of the CASHe Agreement, an additional 332,602 shares of the company’s common stock, equal to 2.90% of the Company’s total issued and outstanding common stock as of the date of the CASHe Agreement. As of April 12, 2018, the Company was delisted from NASDAQ, which triggered the Material Adverse Effect under the CASHe Agreement, and an obligation of LBCC to issue to TSLC an additional 332,602 shares of its common stock.

Pursuant to the CASHe Agreement, one person from TSLC may be appointed to the Company’s board of directors. On April 23^,2018, Mr. Sanjay Sachdev was appointed to the Company’s board of directors.

Pursuant to the CASHe Agreement, TSLC agreed to vote its Company common stock received pursuant to the CASHe Agreement (i) in favor of the Company’s previously announced Spinoff of our beverage business, and/or (ii) if requested by us against any agreement which would prevent the Spinoff. Additionally, until the earlier of (i) one year from the consummation of the Spinoff or (ii) the date on which the shares of the spun off business (the “SpinCo Shares”) become listed on a national securities exchange, in the event any vote of the stockholders of the spun off business is necessary to effectuate any corporate action, TSLC agreed to vote the SpinCo Shares it directly or indirectly receives upon consummation of the Spinoff (i) in favor of any corporate action recommended by the then existing board of directors of the spun off business (each a “SpinCo Action”) and/or (ii) against any action or agreement which would impede, interfere with or prevent any SpinCo Action from being consummated.

Pursuant to the CASHe Agreement, TSLC granted the Company the rights to develop the business of CASHe in the Latin American market, subject to the parties entering into a mutually acceptable license agreement having terms customary for such agreements, including, without limitation, those relating to payment of license fees and royalties by us to TSLC (which terms have not yet been negotiated).

LONG BLOCKCHAIN CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3- INVESTMENTS IN EQUITY SECURITIES (CONTINUED)

Agreement with CASHe, continued

The Company has agreed (a) to use its reasonable best efforts to file a registration statement to register the resale of the Company’s common stock issued pursuant to the CASHe Agreement as soon as practicable and have such registration statement declared effective as soon as possible thereafter and, (b) file any necessary notices with the OTC Markets, relating to the Company’s common stock as soon as reasonably possible to allow shares issued pursuant to the TSLC Agreement to be traded on the OTC.

The Company determined that the equity securities that were received from TSLC are without a readily determinable fair value because these securities are privately held, not traded on any public exchanges and not an investment in a mutual fund or similar investment. As a result, management has elected to alternatively measure this investment at cost, less impairment, adjusted for subsequent observable price changes to estimate fair value. The Company will make a “reasonable effort” to identify any observable price changes for identical or similar investments with the issuer that are known are can be reasonably known. The adoption of ASU 2016-01 was done on a prospective basis and any changes in the carrying value of the equity securities will be reported in our current earnings as other expense, net.

Consideration for the purchase of the TSLC securities was through the issuance of shares of the Company’s common stock. Accordingly, the cost basis of the investment of $5,634,737 was based upon the fair value of the Company’s shares on the date issued to TSLC. Based upon the LBCC’s qualitative assessment, LBCC has concluded that there should not be any adjustment to the carrying amount of the investment at March 31, 2018.

LONG BLOCKCHAIN CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 – FORMATION OF THE STRAN LOYALTY GROUP

In furtherance to the Company’s formation of its Loyalty Programs business, on July 26, 2018, SLGI entered into a twelve month agreement with Stran & Company, Inc. (“Stran”), pursuant to which Stran and its affiliates will provide services in connection with the Loyalty Programs business (the “Stran Agreement”). The principal owner of Stran is also a stockholder of the Company. Pursuant to the Stran Agreement, Stran has transferred to SLGI its sole Loyalty Programs customer account. Stran shall provide to SLGI management, sales, accounting, operations, administrative and other services, as well as office space, equipment, software and utilities for employees of SLGI, as necessary for the operation of the loyalty programs. The services of Stran shall be provided to SLGI at Stran’s cost. SLGI shall be the principal for accounting purposes for the Loyalty Programs business. The Company believes that its relationship with Stran will help to accelerate its development of customers and solutions that will help it to grow its loyalty and blockchain business.

Upon the inception of the Stran Agreement, the Company issued to Stran 2,500,000 shares of its common stock, which vest based upon performance, as an incentive to Stran for its efforts to develop SLGI’s Loyalty Programs business (the “Stran Shares). Upon issuance, the Stran Shares have a restrictive legend, are subject to lockups and are being held in escrow until such time that the restrictions can be released upon performance, as outlined in the table below. The Stran Shares shall be earned based upon SLGI having achieved the performance levels for revenue, net of allowances (“Net Revenue”) and Adjusted Earnings before Income Taxes, Depreciation and Amortization (“Adjusted EBITDA”), divided by Net Revenue (“Adjusted EBITDA Margin”) for each of the two one year periods following the effective date of the Stran Agreement, each as further defined with the Stran Agreement. Furthermore, Stran is eligible to earn shares in addition to the Stran Shares, based upon the performance as outlined below.

Vesting of the Stran Shares (Year One)

LONG BLOCKCHAIN CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 – FORMATION OF THE STRAN LOYALTY GROUP (CONTINUED)

Vesting of the Stran Shares (Year Two)

LONG BLOCKCHAIN CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 – FORMATION OF THE STRAN LOYALTY GROUP (CONTINUED)

Loyalty, Incentive, Reward and Gift Card Business, continued

In connection with the execution of the Stran Agreement, Andrew Stranberg, a controlling person of Stran, entered into a subscription agreement with the Company, pursuant to which Mr. Stranberg purchased 1,500,000 shares of the Company’s common stock for $0.40 per share, or an aggregate of $600,000. The Company also issued to Mr. Stranberg a three-year warrant to purchase 450,000 shares of its common stock at an exercise price of $0.50 per share. In addition, Stran and its affiliates will have the option to purchase, at any time prior to July 31, 2019, up to an additional 1,500,000 shares of the Company’s common stock, at a price of $0.40 per share, for a total additional purchase price of up to $600,000.

NOTE 5 – EQUIPMENT LOAN

On November 23, 2015, the Company entered into a reimbursement agreement with Magnum Vending Corp. (“Magnum”), an entity managed by Philip Thomas, the Company’s former Chief Executive Officer and a director of the Company, and certain of his family members. In exchange for the exclusive right to stock vending machines owned by Magnum, the Company agreed to reimburse Magnum for the cost of products to stock the machines and the costs that Magnum incurred to acquire the machines including machines which were purchased with an equipment loan. The total principal amount of the payments underlying the agreement upon inception was $117,917. The reimbursements will be made in 35 monthly payments of principal and interest in the amount of $3,819 with an interest rate of 10%. Upon completion of these payments in October 2018, Magnum will transfer ownership of the vending machines to the Company. In addition, in exchange for the right to stock certain other vending machines that the Company has the right to use, the Company agreed to purchase the products required to be displayed in those vending machines from Magnum, at a price equal to Magnum’s cost for such products (See Note 10).products. The Company may terminate the agreement and all obligations to make future payments on ten days’ written notice to Magnum. As of June 30, 2017March 31, 2018 and December 31, 2016,2017, the outstanding balance on the equipment loan was $60,056$27,620 and $76,474,$36,495, respectively.

LONG BLOCKCHAIN CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 46 – UBS CREDIT LINELINES

Radium2 Capital Inc.

On OctoberNovember 27, 2016,2017, the Company entered into a credit linecompleted the Radium Agreement with UBS (The “UBS Credit Line”Radium2 Capital Inc. (“Radium”). Pursuant to the Radium Agreement, the Company received cash of $750,000, less $7,500 of fees and expenses. The UBS Credit Line has aRadium borrowing capacity determined by the level of the collateral pledged and bears interestis repaid at a floating rate, depending on the time requested for the borrowing. The interest isminimum amount per week, based on the ICE Swap Rate plus a margin of between 0.40% and 0.70%. As of June 30, 2017, the interest rate on the UBS Credit Line was 3.732 %. The UBS Credit Line, when drawn, is collateralized by certainupon 15% of the Company’s short-term investments.gross sales, until the Company has repaid a total of $986,250. The Radium Agreement was accounted for as a borrowing, with the difference between the repayment obligation and the net amount funded being recorded as an original issue discount, amortized using the interest method over the expected term of the arrangement. As of June 30, 2017March 31, 2018, the balance of the obligation, net of the discount was $543,434, and December 31, 2016,was presented as note payable, current, within the outstanding balance oncondensed consolidated financial statements. Since the line of credit was $0 and $1,280,275, respectively. As of June 30, 2017 and December 31, 2016,repayment terms are based upon the Company’s borrowing capacity underactual future sales, which are not fixed, the UBS Credit lineCompany classified the obligation as a current liability. During the three months ended March 31, 2018, accreted discount amortization was $0$93,721, and $19,725, respectively. Aswas reflected as interest expense within the condensed consolidated statements of July 21, 2017, the credit line has been closed.

NOTE 5 – LINE OF CREDIT – RELATED PARTIESoperations and comprehensive loss.

Brentwood LIIT Corp.Court Cavendish Ltd.

On November 23, 2015, LIIT and LIBBDecember 20, 2017, the Company entered into a Creditthe 2017 Cavendish Loan Agreement with Cavendish. The 2017 Cavendish Loan Agreement provided for the availability of an initial $2,000,000 (“Initial Facility Amount”), for two extensions of $1,000,000 each (“Extended Facility Amount”, and Security Agreement (the “Credit Agreement”together with the Initial Facility Amount, the “Facilities”), by and among LIBB,as long as the borrower, LIITCompany continued moving towards specific ventures related to the blockchain technology, to increase the Facilities to $4,000,000 subject to Cavendish’s approval. Interest on the Facilities shall accrue monthly, at a rate of 12.5% per annum, on the unpaid principal balance commencing on the date of the first drawdown and LIIT (NZ) Ltd. (the “Lender”). The Lender is controlled by a related party, Eric Watson, who beneficially owned approximately 17.0%shall be due and payable, without demand or notice, at the Company’s election quarterly in cash or in shares of the Company asvalued at the lower of June 30, 2017. The Credit$3.00 or the closing price per share on the preceding date the interest payment is due. All principal and accrued interest under the Facilities is due and payable on December 21, 2018. On such date, at Cavendish’s election, the Company shall repay the outstanding amount together with accrued interest either in cash or in shares of the Company at the lower of $3.00 or the closing price per share on such date, but not lower than $2.00 per share. See below regarding the effect of an amendment to the 2017 Cavendish Loan Agreement, provides forwhich impacted the conversion and other terms of the agreement. In connection with the 2017 Cavendish Loan Agreement, a revolving credit facility in an amountfee of up to $3,500,000, subject to approval by5% (“Original Issue Discount” or “OID”) of each of the lender. The Available Amount may be increased, in increments of $500,000, up to theInitial Facility Amount and LIBB may obtain further advances, subject to the approvalExtended Facility Amount is payable on the date of the Lender.first drawdown under each such facility and payable in either cash or stock. The facility fee on the Initial Facility Amount of $100,000 was withheld from the proceeds of the initial $750,000 funding under the 2017 Cavendish Loan Agreement.

LONG BLOCKCHAIN CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 – CREDIT LINES (CONTINUED)

Court Cavendish Ltd., continued

In connection with the Initial Facility Amount, the Company issued to Cavendish a warrant to purchase 100,000 shares of the Company’s common stock with a three year life and an exercise price of $3.00 per share. This warrant had a gross fair value of $165,645, using the Black-Scholes option pricing model.

The $100,000 fee and the warrant to issue 100,000 shares of the Company’s common stock were considered costs of the Initial Facility Amount.

For the Initial Facility Amount, the $100,000 fee was charged in full as a cost of the facility and the warrant was charged on a relative fair value basis, or in the amount of $152,363. These costs were initially charged to deferred financing costs, since these costs were associated with the Initial Facility Amount and not to a single funding. Thereafter, these deferred costs shall be charged on a pro rata basis as a direct offset against the fundings as they occur, and such costs would be amortized using the interest method over the term of each funding loan.

The Company received an additional drawdown of $750,000 of the Initial Facility Amount on January 15, 2018. The Company received the final drawdown of $500,000 of the Initial Facility Amount on January 30, 2018. On April 12, 2018, upon the Company’s delisting from NASDAQ (See Note 9), Cavendish notified the Company that the remaining amount under the Extended Facility Amount would no longer be available to the Company.

The Company evaluated the January 15, 2018 funding transaction to determine whether or not there was a beneficial conversion feature. Accordingly, the Company determined that after the effect of the OID attributed to this funding and the warrant, that the effective conversion price was $2.13 per share. With a market price of the Company’s common stock on December 20, 2017, of $2.44, the Company determined that there was a beneficial conversion with a value of $94,636. The beneficial conversion feature was accounted for as a credit to additional paid in capital and a direct offset to the funded loan amount, with such costs amortized using the interest method over the term of each funding loan.

The Company evaluated the January 20, 2018 funding transaction to determine whether or not there was a beneficial conversion feature. Accordingly, the Company determined that after the effect of the OID attributed to this funding and the warrant, that the effective conversion price was $2.13 per share. With a market price of the Company’s common stock on December 20, 2017, of $2.44, the Company determined that there was a beneficial conversion with a value of $63,090. The beneficial conversion feature was accounted for as a credit to additional paid in capital and a direct offset to the funded loan amount, with such costs amortized using the interest method over the term of each funding loan.

During the three months ended March 31, 2018, amortization of debt discount in connection with the 2017 Court Cavendish loans was $57,773.

On May 3, 2018, the Company and Cavendish entered into an amendment to the 2017 Cavendish Loan Agreement (the “Cavendish Restated Facility”). Pursuant to the Cavendish Restated Facility, Cavendish agreed to make available a first extension of $1,500,000 (“First Extension”), of which $1,000,000 was drawn upon on May 8, 2018. The Company may make a request for a second extension for up to an additional $500,000. On the date of the first drawdown of the First Extension, the Company paid to Cavendish a facility fee of 7%, which the Company elected to pay in 262,500 shares of the Company’s common stock valued at $0.40 per share, which were issued on August 6, 2018.

LONG BLOCKCHAIN CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 – CREDIT LINES (CONTINUED)

Court Cavendish Ltd., continued

In connection with the First Extension under the Cavendish Restated Facility, the Company agreed to issue Cavendish a warrant to purchase 1,200,000 shares to the Company’s common stock. This warrant has an exercise price of $0.50, expires four years from the date of issuance, and has a cashless exercise feature. Upon each drawdown under the second extension, a warrant to purchase 0.8 shares of common stock per dollar of the drawdown will be issued with the same terms as the warrant issued under the First Extension.

Interest under both the First Extension and the Initial Facility Amount will continue to accrue at 12.5% per annum and is payable quarterly in cash or shares of the Company’s common stock valued at $0.40 per share.

Pursuant to the terms of the Restated Cavendish Facility, Cavendish has the option, at the maturity date or any time prior to the maturity date, to convert all amounts owed under the Cavendish Restated Facility and the Initial Facility Amount into shares of the Company’s common stock at a price per share such that the average conversion price of all shares issued to Cavendish upon conversion, including shares previously issued upon conversion of the initial $750,000 advanced under the Initial Facility Amount, is $0.40 per share.

NOTE 7 – STOCKHOLDERS’ (DEFICIT) EQUITY

20172018 Issuances

On January 3, 2017,March 9, 2018, the Company issued 1,790 shares to a product broker. The shares had a fair value of $7,500.

On January 17, 2017, the Company issued 41,96587,546 shares of common stock to members of the advisory board and board of directors of the Company. The shares were issued in satisfaction of accrued director fees and had a fair value of $175,000.$265,119.

On January 30, 2017,March 9, 2018, the Company issued 61,20839,266 shares of the Company’s common stock to employees and consultants of the CompanyCompany. These shares were issued in satisfaction of accrued obligations and as a retainer for services to be provided.accounts payable. The shares were valued based upon the value of such services. The fair value was $213,550. As of June 30, 2017, $75,351 is included within prepaid expensesservices provided and other current assets in the condensed consolidated balance sheets.

On March 27, 2017, the Company’s Board of Directors approved the issuance of 5,000 and 25,000 shares of the Company’s common stock to directors and consultants, respectively, in consideration of services provided. Thehad an aggregate fair value of these shares was $112,853.$116,227.

On March 27, 2017, the Company’s Board of Directors approved the issuance of 111,457 shares of the Company’s common stock to consultants of the Company in consideration of services provided. The fair value of these shares was $437,598.

On April 17, 2017, the Company issued 25,000 shares of the Company’s common stock, valued at $100,751, to an employee of the Company in consideration for services provided prior to their being employed by the Company.

NOTE 78 – STOCK-BASED COMPENSATION

Long-Term Equity Incentive Plans

On May 27, 2015, the Company’s board of directors adopted the 2015 Long-Term Incentive Equity Plan (“2015 Stock Option Plan”). The 2015 Stock Option Plan provides for the grant of stock options, stock appreciation rights, restricted stock and other stock-based awards to, among others, the officers, directors, employees and consultants of the Company. During January 2017, the 2015 Stock Option Plan was amended to increase the aggregate number of shares authorized for issuance by 283,333 shares to 750,000 shares.

On April 14, 2017, the Company’s board of directors adopted the 2017 Long-Term Incentive Equity Plan (“2017 Stock Option Plan”), which was approved by the Company’s stockholders on August 9, 2017. The 2017 Stock Option Plan provides for the grant of stock options, stock appreciation rights, restricted stock and other stock-based awards to, among others, the officers, directors, employees and consultants of the Company. The total number of shares reservedauthorized under the 2017 Stock Option Plan is 850,000.

LONG BLOCKCHAIN CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 – STOCK-BASED COMPENSATION (CONTINUED)

Stock Options

On January 5, 2017,February 19, 2018, the Company issuedCompany’s board of directors approved the issuance of stock options to various officers, directors, and employees options to purchase an aggregate of 220,86722,250 shares of the Company’s common stock, under the 2015 Stock Option Plan.stock. The options expire five years from the date of grant, have an exercise price of $5.00,$3.23 per share, and vest quarterly over two years, beginningone-third on April 5, 2017. The options have a fair value of $440,698.

LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 7 – STOCK-BASED COMPENSATION (CONTINUED)

Stock Options, continued

On January 30, 2017, pursuant to his consulting agreement, Mr. Davidson, the Company’s Executive Chairman, was granted an option to purchase 71,686 shares of the Company’s common stock (See Note 8). The option expires four and a half years from the date of grant, has an exercise price of $4.09, and vests in three equal installments on January 30, 2017, July 28, 2017, and July 28, 2018. The option has a fair value of $131,240.

On March 10, 2017, in connection with his amended and restated employment agreement, Mr. Thomas, the Company’s Chief Executive Officer (“CEO”), was granted an option to purchase 75,000 shares of the Company’s common stock, under the 2015 Stock Option Plan. The option expires five years from the date of grant and has an exercise priceone-third on each of $4.50 per share. The option will vest in three annual installments beginning on theFebruary 19, 2019 and February 19, 2020. These options have a grant date of grant. The option has a fair value of $128,062.

On March 27, 2017, as compensation, the Company issued to a director an option to purchase 70,000 shares of the Company’s common stock. The option will expire five years from the date of grant, has an exercise price of $4.50 per share, and vests in three annual installments beginning on the date of grant. The option has a fair value of $130,266.

On April 17, 2017, the Company issued to various officers, directors, and employees options to purchase an aggregate of 127,500 shares of the Company’s common stock under the 2015 Stock Option Plan and 187,647 shares of the Company’s common stock under the 2017 Stock Option Plan. The options will expire five years from the date of grant, have an exercise price of $4.50 per share, and vest in three annual installments beginning on the date of grant. The options have a fair value of $404,600.

During May 2017, options for the purchase of 29,147 shares were forfeited.$51,156.

The Company determined the fair value of stock options granted based upon the assumptions as provided below.

LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 7 – STOCK-BASED COMPENSATION (CONTINUED)

Stock Options, continued

The following table summarizes the stock option activity of the Company:

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock options and the fair value of the Company’s common stock.

As of June 30, 2017,March 31, 2018, there was a total of $1,027,951$51,086 of unrecognized compensation expense related to unvested stock options. This cost is expected to be recognized through 2019 over2020 with a weighted average periodremaining life of 1.271.42 years.

The Company accounts for all stock-based compensation as an expense in the financial statements and associated costs are measured at the fair value of the award or the fair value of the service provided whichever is most readily determinable.

Stock Warrants

On March 29, 2017, in consideration for a prior commitment for financing the Company through March 31, 2018 from a stockholder, the Company’s Board of Directors issued to this stockholder a warrant to purchase 165,000 shares of the Company’s common stock at an exercise price of $4.18 per share. This warrant has a term of one year and was fully vested upon issuance. The warrant had a grant date fair value of $172,526, which was fully charged to general and administrative expense during the three months ended March 31, 2017. The fair value of the warrant was determined utilizing the Black-Scholes option pricing model, based upon a common stock price of $4.00 per share, dividend yield of 0%, expected volatility of 70%, risk free interest rate of 1.00%, and an expected life in years of 1.00.

On May 12, 2017, in consideration for a prior commitment for financing the Company through May 15, 2018 from a stockholder, the Company’s Board of Directors issued to this stockholder a warrant to purchase 20,000 shares of the Company’s common stock at an exercise price of $4.90 per share. This warrant has a term of one year and was fully vested upon issuance. The warrant had a grant date fair value of $22,039, which was fully charged to general and administrative expense during the three months ended June 30, 2017. The fair value of the warrant was determined utilizing the Black-Scholes option pricing model, based upon a common stock price of $4.87 per share, dividend yield of 0%, expected volatility of 57%, risk free interest rate of 1.11%, and an expected life in years of 1.00.

LONG ISLAND ICED TEABLOCKCHAIN CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 78 – STOCK-BASED COMPENSATION (CONTINUED)

Stock Warrants continued

On April 24, 2017, in connection with a distribution agreement with Big Geyser (the “Big Geyser Distribution Agreement”) (see Note 8), the Company issued a warrant to purchase 85,000 shares of the Company’s common stock at an exercise price of $4.50 per share. The warrant vests depending on certain sales levels achieved by that distributor. The warrant has an expiration date of April 23, 2022. The warrant had a grant date fair value of $226,134. For the three and six months ended June 30, 2017,March 31, 2018, the Company recognized expensea reversal of $4,284 and $4,284, respectively,revenue reduction of $18,975 related to this warrant.warrant as the required sales levels will not be achieved.

On April 24, 2017, in connection with the same distribution agreement,Big Geyser Distribution Agreement, the Company issued a second warrant to purchase 95,000 shares of the Company’s common stock at an exercise price that will be equal to the average of the closing prices of the common stock for the thirty consecutive trading days ending on April 23, 2018 (or the 30 days preceding the beginning of the measurement period for this warrant). The warrant vests depending on certain sales levels achieved by that distributor during the period April 24, 2018 through April 23, 2019. The warrant has an expiration date of April 23, 2022. The initial valuation of this warrant will not occur until the measurement period begins on April 24, 2018.

On April 24, 2017, in connection with the same distribution agreement,Big Geyser Distribution Agreement, the Company issued a warrant to purchase 145,000 shares of the Company’s common stock at an exercise price of $4.50 per share. The warrant vests as follows for certain milestones being achieved: 95,000 shares upon the receipt of the first purchase order of the Company’s iced tea products (vested on June 5, 2017), 25,000 shares upon the receipt of the first purchase order of the Company’s lemonade products (vested on March 13, 2018), and 25,000 shares upon the receipt of the first purchase order for half-gallon containers of the Company’s products. The warrant has an expiration date of April 23, 2022. The warrant had a grant date fair value of $385,758. For the three and six months ended June 30, 2017,March 31, 2018, the Company recorded expensea reduction of $252,738 and $252,738, respectively,revenue of $34,125 related to this warrant.

LONG BLOCKCHAIN CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 – STOCK-BASED COMPENSATION (CONTINUED)

Stock Warrants, continued

The following table summarizes the common stock warrant activity of the Company:

LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 7 – STOCK-BASED COMPENSATION (CONTINUED)

Stock-Based Compensation Expense

The following tables summarize total stock-based compensation costs recognized for the three and six months ended June 30, 2017March 31, 2018 and 2016:2017:

The total amount of stock-based compensation was reflected within the statements of operations and comprehensive loss as:

LONG BLOCKCHAIN CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 89 – 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 Company’s 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 August 1, 2014,February 20, 2018, Mr. Davidson, informed the Company that he was seeking compensation as part of his December 2017 separation from the Company. The Company does not believe that any outstanding compensation is due to Mr. Davidson and has informed him accordingly.

On March 12, 2018, an action was filed by LIBBMr. Davidson in the SupremeDistrict Court infor the StateSouthern District of New York entitled Julian Davidson v. Long Island Brand Beverages LLC v. Revolution Marketing, LLC (“Revolution”) and Ascent Talent, Model Promotion Ltd. LIBBBlockchain Corp. Mr. Davidson is seeking damagesto 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 $10,000,000 for severalstock options which he claims including breach of contract and fraud occurring during 2014. Revolution has filed a counterclaim for breach of contract and related causes of action, claiming damages inwas agreed to by the sum of $310,880, and seeking punitive damages of $5,000,000. Ascent has filed a pre-answer motion to dismiss LIBB’s complaint. LIBB filed papers in opposition and the motion was submitted by March 9, 2015. In addition, Revolution has filed a motion to amend its answer to include cross-claims against Ascent which were not asserted in its original answer of record. On February 5, 2016, the Court rendered a decision. The motion to dismiss was denied with the exception of two claims which the Court dismissed. In the same decision, the Court granted a separate motion filed by Revolution to amend its answer to include cross-claims against Ascent. On June 23, 2017, both defendants filed motions to dismiss based upon delays in producing documents, which were fully submitted. On August 7, 2017, oral arguments were held.Company. The Company’s management and legal counsel believe it is too early to determine the probable outcome of this matter.

NASDAQ Delisting are awaiting

On February 15, 2018, Long Blockchain Corp. received a decisionnotice from the judge.Listing Qualifications Department of NASDAQ stating that NASDAQ had determined to delist the Company’s 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 Company’s 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 Company’s 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 Company’s common stock became eligible for trading and quotation on the Pink Current Information tier by the OTC Markets Group Inc. (the “OTC”). The Company’s 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 SEC’s 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.

LONG BLOCKCHAIN CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 89 – COMMITMENTS AND CONTINGENCIES (Continued(CONTINUED))

Brokerage Arrangements