4. Commitments and Contingencies

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Commitments and Contingencies

(a)  Contingencies

From time to time 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 that it believes are without merit. The Company's management believes that the ultimate resolution of such matters will not materially and adversely affect the Company's business, financial position, or results of operations.

 The Company does not currently have any pending or outstanding legal proceedings.

(b)  Commitments

In May 2015 Zoom entered into a License Agreement with Motorola Mobility LLC (the “License Agreement”).  The License Agreement provides Zoom with an exclusive license to use certain trademarks owned by Motorola Trademark Holdings, LLC. for the manufacture, sale and marketing of consumer cable modem products in the United States and Canada through certain authorized sales channels.

In August 2016 Zoom entered into an amendment to the License Agreement with Motorola Mobility LLC (the “2016 Amendment”).  The 2016 Amendment expands Zoom’s exclusive license to use the Motorola trademark to a wide range of authorized channels worldwide, and expands the exclusive license from cable modems and gateways to also include consumer routers, WiFi range extenders, home powerline network adapters, and wireless access points.

In August 2017 Zoom entered into an amendment to the License Agreement with Motorola Mobility LLC (the “2017 Amendment”).  The 2017 Amendment expands Zoom’s exclusive license to use the Motorola trademark to a wide range of authorized channels worldwide, and expands the license from cable modems, gateways, consumer routers, WiFi range extenders, home powerline network adapters, and access points to also include MoCA adapters on an exclusive basis and and cellular sensors on a non-exclusive basis. The License Agreement, as amended, has a five-year term beginning January 1, 2016 through December 31, 2020 and increases the minimum royalty payments as outlined below.

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:

Year ending December 31,

2019:	$	4,500,000
2020:	$	5,100,000

Royalty expense under the License Agreement was $1,125,000 for the first quarter of 2019 and $875,000 for the first quarter of 2018, and is included in selling expense on the accompanying condensed consolidated statements of operations. The balance of the committed royalty expense for 2019 amounts to $3,375,000.