COMMITMENTS AND CONTINGENCIES

12 Months Ended

Dec. 31, 2021

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

(9) COMMITMENTS AND CONTINGENCIES

(a) Lease Obligations

The Company performs most of the final assembly, testing, packaging, warehousing and distribution at two production and warehouse facilities, totaling approximately 24,000 square feet, in Tijuana, Mexico. In November 2021, the Company entered into operating lease agreements extending each lease through November 30, 2023. Lease payments total $9 thousand per month. Rent expense was $105 thousand and $106 thousand for the years ended December 31, 2021 and 2020, respectively.

In May 2020, the Company signed a two-year lease agreement for 3,218 square feet of office space at 275 Turnpike Executive Park in Canton, MA. The agreement includes a one-time option to cancel the second year of lease with three months advance notice. The location is currently utilized by the Company’s research and development group. Rent expense was $53 thousand and $31 thousand for the year ended December 31, 2021, and 2020, respectively. On December 1, 2021, the Company executed an amendment to extend the lease from June 2022 to May 2024 with monthly payments of approximately $5 thousand.

In connection with the Zoom Connectivity Merger, the Company assumed Zoom Connectivity’s office facility lease located at the 848 Elm Street in Manchester, NH. The original facility lease agreement was effective from August 1, 2019 to July 31, 2021 and was renewed for a one year extension until July 31, 2022. The facility lease agreement provides for the lease of 2,656 square feet of office space. Rent expense was $30 thousand and $7 thousand for the year ended December 31, 2021 and for the period from October 9, 2020 to December 31, 2020, respectively. In July 2022, the lease agreement was amended to a month-to-month lease arrangement and may be terminated by either party with a 60-day notice.

The Company also had a lease for approximately 1,550 square feet in Boston, MA that expired on October 31, 2019 and was terminated effective June 30, 2020. The Company had another lease for approximately 1,500 square feet in Boston, MA that was terminated effective July 31, 2020. The Company has elected to apply the short-term lease exception for both of these leases under ASC 842. Rent expense for these leases was $77 thousand for the year ended December 31, 2020.

The components of lease costs were as follows:

	Years ended December 31,
	2021		2020
Operating lease costs	$	152,293	$	144,047
Short-term lease costs		35,604		342,700
Total lease costs	$	187,897	$	486,747

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

	Years ended December 31,
	2021			2020
Operating leases:
Weighted average remaining lease term (years)		1.7			1.3
Weighted average discount rate		4.0	%		9.0	%

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

	Years ended December 31,
	2021		2020
Operating cash flow information:
Amounts included in measurement of lease liabilities	$	145,410	$	143,761
Non-cash activities:
ROU asset obtained in exchange for lease liability	$	299,821	$	120,635

The maturity of the Company’s operating lease liabilities as of December 31, 2021 were as follows:

Years ended December 31,
2022	$	150,120
2023		100,673
Total lease payments	$	250,793
Less: imputed interest		(8,496	)
Present value of operating lease liabilities	$	242,297
Operating lease liabilities, current	$	143,486
Operating lease liabilities, noncurrent	$	98,811

While the lease extension of the Canton, MA office was executed in December 2021, the lease extension 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 June 1, 2022 commencement.

(b) Contingencies

The Company is a 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 either or 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. The Company expenses its legal fees as incurred.

On January 23, 2020, William Schulze filed a complaint, and subsequently filed an amended complaint on April 3, 2020 (collectively the “Schulze Complaint”) as lead plaintiff on behalf of purchasers of Zoom modems in a putative class action lawsuit against Zoom in the U.S. District Court for the District of Massachusetts. The Schulze Complaint alleged that Zoom modems were sold as new despite containing refurbished parts. On July 28, 2020, the lead plaintiff filed a Stipulation of Dismissal that dismissed the Schulze Complaint with prejudice.

In the ordinary course of their business, the Company and its subsidiaries are 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.

(c) 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 ended December 31,
2022	$	6,600,000
2023		6,850,000
2024		7,100,000
2025		7,100,000
	$	27,650,000

Royalty expense under the License Agreement amounted to $6,350,000 and $5,100,000 for the years ended December 31, 2021 and 2020, respectively, and is reported in selling and marketing expense on the accompanying consolidated statements of operations.