COMMITMENTS AND CONTINGENCIES

3 Months Ended

Mar. 31, 2022

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

(6) COMMITMENTS AND CONTINGENCIES

(a) Lease Obligations

The Company has entered into agreements to lease its warehouses and distribution centers and certain office space under operating leases. The Company recognizes lease expense for these leases on a straight-line basis over the lease term. Right-of-use (“ROU”) assets and lease liabilities are recorded on the balance sheet for all leases, except leases with an initial term of 12 months or less.

The components of lease costs were as follows:

	Three Months ended March 31,
	2022		2021
Operating lease costs	$	48,231	$	20,774
Short-term lease costs		—		29,764
Total lease costs	$	48,231	$	50,538

The weighted-average remaining lease term and discount rate were as follows:

	Three Months ended March 31,
	2022			2021
Operating leases:
Weighted average remaining lease term (years)		1.5			1.1
Weighted average discount rate		5.6	%		9.0	%

Supplemental cash flow information and non-cash activity related to our operating leases are as follows:

	Three Months ended March 31,
	2022		2021
Operating cash flow information:
Amounts included in measurement of lease liabilities	$	48,632	$	20,372
Non-cash activities:
ROU asset obtained in exchange for lease liability	$	—	$	—

The maturity of the Company’s operating lease liabilities as of March 31, 2022 were as follows:

Years ended December 31,
2022 (remainder)	$	101,487
2023		100,673
Total lease payments	$	202,160
Less: imputed interest		(6,071	)
Present value of operating lease liabilities	$	196,089
Operating lease liabilities, current	$	123,891
Operating lease liabilities, noncurrent	$	72,198

The lease extension for the Canton, MA office that was executed in December 2021 is not included in the operating lease liabilities because the commencement date begins on June 1, 2022. The operating lease payments are $32 thousand, $55 thousand, and $23 thousand for the years ending December 31, 2022, 2023, and 2024, respectively. These payments are off-balance sheet obligations until the commencement date of June 1, 2022.

(b) Commitments

The Company is party to a license agreement with Motorola Mobility LLC pursuant to which the Company has an exclusive license to use certain trademarks owned by Motorola Trademark Holdings, LLC for the manufacture, sale and marketing of consumer cable modem products, consumer routers, WiFi range extenders, MoCa adapters, cellular sensors, home powerline network adapters, and access points worldwide through a wide range of authorized sales channels. The license agreement has a term ending December 31, 2025.

In connection with the License Agreement, the Company has committed to reserve a certain percentage of wholesale prices for use in advertising, merchandising and promotion of the related products. Additionally, the Company is required to make quarterly royalty payments equal to a certain percentage of the preceding quarter’s net sales with minimum annual royalty payments as follows:

Years ending December 31,
2022 (remaining)	$	4,950,000
2023		6,850,000
2024		7,100,000
2025		7,100,000
Total	$	26,000,000

Royalty expense under the License Agreement was $1.6 million for the three months ended March 31, 2022 and 2021 and is included in selling and marketing expenses on the accompanying consolidated statements of operations.

(c) Contingencies

The Company is party to various lawsuits and administrative proceedings arising in the ordinary course of business. The Company evaluates such lawsuits and proceedings on a case-by-case basis, and its policy is to vigorously contest any such claims which it believes are without merit.

The Company reviews the status of its legal proceedings and records a provision for a liability when it is considered probable that both a liability has been incurred and the amount of the loss can be reasonably estimated. This review is updated periodically as additional information becomes available. If both of the criteria are not met, the Company reassesses whether there is at least a reasonable possibility that a loss, or additional losses, may be incurred. If there is a reasonable possibility that a loss may be incurred, the Company discloses the estimate of the amount of the loss or range of losses, that the amount is not material, or that an estimate of the loss cannot be made. At March 31, 2022, the Company is not currently a party to any legal proceedings that, if determined adversely to the Company, in management’s opinion, are currently expected to individually or in the aggregate have a material adverse effect on the Company’s business, operating results or financial condition taken as a whole. The Company expenses its legal fees as incurred.

In the ordinary course of its business, the Company is subject to lawsuits, arbitrations, claims, and other legal proceedings in connection with their business. Some of the legal actions include claims for substantial or unspecified compensatory and/or punitive damages. A substantial adverse judgment or other unfavorable resolution of these matters could have a material adverse effect on the Company’s financial condition, results of operations, and cash flows. Management believes that the Company has adequate legal defenses with respect to the legal proceedings to which it is a defendant or respondent and that the outcome of these pending proceedings is not likely to have a material adverse effect on the financial condition, results of operations, or cash flows of the Company. However, the Company is unable to predict the outcome of these matters.