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COMMITMENTS AND CONTINGENCIES
 9 Months Ended
Sep. 30, 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:

 

   2022   2021   2022   2021 
  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
   2022   2021   2022   2021 
                 
Operating lease costs  $39,937   $41,507   $121,748   $100,211 
Short-term lease costs   5,400    —    5,400    31,840 
Total lease costs  $45,337   $41,507   $127,148   $132,051 

 

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

 

   Period Ended September 30, 
   2022   2021 
         
Operating leases:          
Weighted average remaining lease term (years)   1.2    0.6 
Weighted average discount rate   4.2%   7.1%

 

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

 

   2022   2021 
   Nine Months ended
September 30,		 
   2022   2021 
Operating cash flow information:          
Amounts included in measurement of lease liabilities  $140,899   $88,523 
Non-cash activities:          
ROU asset obtained in exchange for lease liability  $103,914   $88,523 

 

The maturity of the Company’s operating lease liabilities as of September 30, 2022, were as follows:

 

Years ended December 31,    
2022 (remainder)  $41,133 
2023   155,379 
2024   22,794 
Total lease payments  $219,306 
Less: imputed interest   (6,823)
Present value of operating lease liabilities  $212,483 
Operating lease liabilities, current  $158,468 
Operating lease liabilities, noncurrent  $54,015 

 

 

(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”). 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)  $1,650,000 
2023   6,850,000 
2024   7,100,000 
2025   7,100,000 
Total  $22,700,000 

 

Royalty expense under the License Agreement was $1.7 million and $1.6 million for the three months ended September 30, 2022 and 2021, respectively, and $5.0 million and $4.8 million for the nine months ended September 30, 2022 and 2021, respectively. Royalty expenses are included in selling and marketing expenses on the accompanying consolidated statements of operations.

 

(c) Contingencies

 

The Company is subject 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 September 30, 2022, the Company is not currently a party to any legal proceedings. 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.