6. Commitments and Contingencies

3 Months Ended

Mar. 31, 2021

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

(a) Lease Obligations

In May 2020, the Company signed a two-year lease agreement for 3,218 square feet 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 being occupied by the research and development group of the Company. Rent expense was $13.2 thousand for the first quarter of 2021.

Upon the completion of the Minim Merger, the Company assumed Minim’s office facility lease located at the 848 Elm Street in Manchester, NH. The two-year facility lease agreement is effective from August 1, 2019 to July 31, 2021 and provides for the lease of 2,656 square feet of office space. Rent expense was $7.5 thousand for the first quarter of 2021.

In June 2019, the Company signed a twelve-month lease agreement for offices at 225 Franklin Street, Boston, MA. The lease for this office expired on June 30, 2020. The Company has elected to apply the short-term lease exception under ASC 842 which does not require the recognition of an operating lease liability or right-of-use asset on the consolidated balance sheet in relation to the lease at 225 Franklin Street. Rent expense was $127 thousand for the first quarter of 2020.

The Company performs most of the final assembly, testing, packaging, warehousing and distribution at an approximately 24,000 square foot production and warehouse facility in Tijuana, Mexico. As of March 31, 2021, the Company is renting the Tijuana facility month-to-month while it negotiates a new lease agreement. On April 16, 2021, the Company signed a lease extension to November 30, 2021. Rent expense was $27 thousand for both the first quarter of 2021 and the first quarter of 2020.

The Company also had a lease for approximately 1,550 square feet in Boston, MA that expired on October 31, 2019 that was terminated effective June 30, 2020. The Company had another lease for approximately 1,500 square feet in Boston 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 which does not require the recognition of an operating lease liability or right-of-use asset on the consolidated balance sheet in relation to this lease. Rent expense for these leases was approximately $35.7 thousand for the first quarter of 2020.

At inception of a lease the Company determines whether that lease meets the classification criteria of a finance or operating lease. Some of the Company’s lease arrangements contain lease components (e.g., minimum rent payments) and non-lease components (e.g., maintenance, labor charges, etc.). The Company generally accounts for each component separately based on the estimated standalone price of each component.

As of March 31, 2021, the Company's estimated future minimum committed rental payments, excluding executory costs, under the operating leases described above to their expiration or the earliest possible termination date, whichever is sooner, are $51 thousand for the remaining of 2021 and $22.8 thousand for 2022. There are no future minimum committed rental payments that extend beyond 2022.

Operating leases are included in operating lease right-of-use assets, operating lease liabilities, and long-term operating lease liabilities on the consolidated balance sheets. These assets and liabilities are recognized at the commencement date based on the present value of remaining lease payments over the lease term using the Company’s secured incremental borrowing rates or implicit rates, when readily determinable. Short-term operating leases, which have an initial term of 12 months or less, are not recorded on the balance sheet.

Lease expense for operating leases is recognized on a straight-line basis over the lease term. Lease expense is included in general and administrative expenses on the consolidated statements of operations.

The following table presents information about the amount and timing of the Company’s operating leases as of March 31, 2021.

	March 31, 2021
Maturity of Lease Liabilities		Lease Payments
2021 (remaining)	$	50,494
2022		22,794
Less: Imputed interest		(3,915	)
Present value of operating lease liabilities	$	69,373
Balance Sheet Classification
Current maturities of operating lease liabilities	$	60,368
Operating lease liabilities, less current maturities		9,005
Total operating lease liabilities	$	69,373
Other Information
Weighted-average remaining lease term for operating leases		1.1
Weighted-average discount rate for operating leases		9.0	%

Cash Flows

During the three months-ended March 31, 2021 and 2020, the operating lease liability was reduced by $18.5 thousand and $25.0 thousand, respectively, and we recorded amortization of our right-of-use assets of $18.9 and $25.0 thousand, respectively.

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

	Three Months Ended March 31,
	2021		2020
Operating cash flow information:
Amounts included in measurement of lease liabilities	$	20,372	$	26,557
Non-cash activities:
Right-of-use assets obtained in exchange for lease obligations	$	-	$	-

(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,
	2021 (remaining)	$	4,762,500
	2022		6,600,000
	2023		6,850,000
	2024		7,100,000
	2025		7,100,000
	Total	$	32,412,500

Royalty expense under the license agreement was $1.6 million for the first quarter of 2021 and $1.1 million for the first quarter of 2020, respectively, 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, 2021, 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.