8.	Commitments

Lease Agreements

The Company rented office space in New York, New York from June 2016 through June 2017 on a month-to-month basis at a monthly rent of approximately $3,000 per month. In July 2017, the Company entered into a one-year lease agreement to rent office space in New York, New York at a monthly rent of approximately $10,000 per month. The lease expires on August 31, 2018. In March of 2018, the Company expanded its space commitment for an added $2,000 per month.

The Company leases its office facilities for WPCS pursuant to a noncancelable operating lease expiring in February 2021.

For the three months ended March 31, 2018 and 2017, rent expense for the Company’s facilities was $43,278 and $9,015, respectively.

Stock to be issued

As of March 31, 2018 and December 31, 2017, the Company has $159,584 and $135,715 of accrued interest, respectively, related to the $4,840,000 of convertible notes payable that were exchanged for the Company’s common shares. This interest is convertible into 27,048 shares of common stock as of March 31, 2018.

Litigation

The Company’s DropCar business is subject to various legal proceedings and claims, either asserted or unasserted, which arise in the ordinary course of business that it believes are incidental to the operation of its business. While the outcome of these claims cannot be predicted with certainty, management does not believe that the outcome of any of these legal matters will have a material adverse effect on its results of operations, financial positions or cash flows.

In February 2018, DropCar was served an Amended Summons and Complaint in the Supreme Court of the City of New York, Bronx county originally served solely on an individual, a former DropCar customer, for injuries sustained by plaintiffs alleging such injuries were caused by either the customer or a DropCar valet operating the customer’s vehicle. DropCar to date has cooperated with the NYC Police Department and no charges have been brought against any employee of DropCar. DropCar has referred the matter to its insurance carrier.

On February 9, 2016, a DropCar employee was transporting a customer’s vehicle when the vehicle caught fire. On November 22, 2016, Metropolitan Group Property and Casualty Insurance Company (as subrogee of the vehicle’s owner) filed for indemnification and subrogation against the Company in the Supreme Court of the State of New York County of New York, Index No. 159816/2016. The case name is Metropolitan Group Property and Casualty Insurance Company, as subrogee of Scott Sherry v. Mercedes-Benz Manhattan and DropCar, Inc. Management believes that it is not responsible for the damage caused by the vehicle fire and that the fire was not due to any negligence on the part of the DropCar and that the Company has sufficient insurance coverage to pay for any potential losses arising from this proceeding, including the cost of litigating same.

As of December 31, 2017, the Company had accrued approximately $96,000 for the potential settlement of multiple employment disputes. During the three months ended March 31, 2018, approximately $44,000 of this amount was settled upon payment. As of March 31, 2018, approximately $52,000 has been accrued for the potential settlement of employment disputes.

Other

On March 23, 2018, DropCar was made aware of an audit being conducted by the New York State Department of Labor (“DOL”) regarding a claim filed by an employee. The DOL is investigating whether DropCar properly paid overtime for which DropCar has raised several defenses. In addition, the DOL is conducting its audit to determine whether the Company owes spread of hours pay (an hour’s pay for each day an employee worked or was scheduled for a period over ten hours in a day). If the DOL determines that monies are owed, the DOL will seek a backpay order, which management believes will not, either individually or in the aggregate, have a material adverse effect on DropCar’s business, consolidated financial position, results of operations or cash flows.