COMMITMENTS AND CONTINGENCIES |
12 Months Ended | ||||||||||||||||
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Dec. 31, 2017 | |||||||||||||||||
| Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||
| Commitments and Contingencies Disclosure [Text Block] | NOTE 10 — COMMITMENTS AND CONTINGENCIES Royalty The Company entered into the initial trademark license agreement with Monster, Inc. (formerly Monster Cable Products, Inc.) effective July 7, 2010. In 2012, the agreement was amended giving the Company exclusive rights to utilize the name “Monster Digital” on memory products for a period of 25 years (expires July 7, 2035) under the following payment schedule of royalties to Monster, Inc. This license agreement contains various termination clauses that include (i) change in control, (ii) breach of contract and (iii) insolvency, among others. The Company is required to remit royalty payments to Monster, Inc. on or before the 30th day following the end of each calendar quarter. At any time during the term of the agreement, a permanent license may be negotiated. The royalty schedule became effective in August 2011 and was further amended in April 2012. As amended, royalties under this contract are as follows:
Effective July 1, 2014, the royalty rate on certain products was reduced from 4% to 2% for a period of 12 months, based on a mutual understanding between the Company and the licensor. For the years ended December 31, 2017 and 2016, royalty expense amounted to approximately $180,000 and $371,000, respectively, which is included as a component of selling and marketing expenses in the accompanying consolidated statements of operations (see also Note 4). The Company reached a settlement related to royalty payments in December 2017 and owes a total of $180,000 at December 31, 2017 which was paid in January 2018. Pursuant to the settlement, the license agreement with Monster was terminated effective December 28, 2017. The Company recognized a gain of approximately $200,000 recorded as gain on extinguishment of debt. Further, the Company recorded a $2,286,000 impairment charge representing the net carrying amount of the trademark on the termination date. Operating Leases The Company occupied executive offices in Simi Valley, CA pursuant to a lease through January 31, 2018. Effective as of March 31, 2017, the Company terminated the lease by mutually accepted and favorable terms with the lessor. Effective April 1, 2017, the Company entered into a one-year lease for warehouse space in Ontario, CA. In January 2018 the Company was granted a lease termination with a return of deposit. Customer payment agreements In July 2015, the Company entered into an agreement with a customer under which the Company will pay the customer a total of $835,000 owed to the customer for promotional and other credits related to sales that occurred in 2014. The credits were accrued as contra-sales in 2014. Under the terms of the agreement, there is no interest and the Company was required to make 12 monthly payments of $65,000 beginning in August 2015, and one final payment of $65,000 in August 2016. There is a balance owed of $57,000 at December 31, 2017, such balance attributed to the Spin Off. In January 2017, the Company entered into an agreement with a customer under which the Company settled an amount due of $1.84 million for $1.5 million, recording a $341,000 deferred gain and recognizing a current period gain of $68,000. The settlement included an initial payment of $250,000 with the remaining balance to be paid in monthly installments through December 2018. The Company and the customer entered into an addendum to the agreement in September 2017 whereby the customer agreed to accept a one-time payment of $600,000. The funds for this payment are from an investor who was offered shares of common stock below market and, as such, were held in escrow pending stockholder approval as one of the proposals in the Company’s proxy statement. The Company obtained the necessary stockholder approval and the obligation is paid in full as of December 31, 2017. The Company recognized a total gain during the year ended December 31, 2017 of approximately $920,000 on settlement of the customer refund. Legal matters The Company is subject to certain legal proceedings and claims arising in connection with the normal course of its business. On February 16, 2016, the Company received a letter from GoPro, Inc., or GoPro, alleging that the Company infringes on at least five U.S. patents held by GoPro, and requesting that confirm in writing that the Company will permanently cease the sale and distribution of its Villain camera, along with any camera accessories, including the waterproof camera case and standard housing. The five patents specifically identified by GoPro in the letter were U.S. Patent No. D710,921: camera housing design, U.S. Patent No. D702,747: camera housing design, U.S. Patent No. D740,875: camera housing design, U.S. Patent No. D737,879: camera design and U.S. Patent No. 721,935: camera design. Based upon the Company’s preliminary review of these patents, the Company believes it has some defenses to GoPro’s allegations, although there can be no assurance that the Company would be successful in defending against these allegations or reaching a business resolution that is satisfactory to the Company. In addition, the Company began marketing and selling the camera under the name “Monster Vision” and phasing out the Villain” name. The Company had no correspondence from GoPro after the Company instituted the name change. The Company has subsequently discontinued new sales of action sports cameras. The supplier of the Company’s Villain camera has contractually represented and warranted that it owns or has paid royalties to any and all intellectual property, designs, software, hardware, packaging, components, manuals and any other portion, part or element that is or may be subject to the Villain and the parts and accessories thereof sourced by the supplier. This supplier has contractually agreed to pay any claims, damages, or costs that the Company suffers as a result of the patent infringement or a violation of international, U.S. or state laws or regulations as detailed in the prior sentence. On September 15, 2017, a putative class action complaint (the “ Class Complaint”) was filed in the United States District Court for the Central District of California against the Company, David H. Clarke, the Company’s then Chief Executive Officer and then a member of the Company’s Board of Directors (“Clarke”), Jonathan Clark (“Clark”), the Company’s then Interim President and then a member of the Company’s Board of Directors, Robert Machinist (“Machinist”), then a member of the Registrant’s Board of Directors, Christopher Miner (“Miner”), then a member of the Company’s Board of Directors and Steven Barre (“Barre”), then a member of the Company’s Board of Directors (Messrs. Clarke, Clark, Machinist, Miner and Barre are hereinafter referred to as the “Individual Defendants”). The Class Complaint sought class status on behalf of all of the Company’s public stockholders and alleged violations by the Company and the Individual Defendants of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and the rules promulgated thereunder, and secondary control person liability against the Individual Defendants under Section 20(a) of the Exchange Act primarily related to the Merger. The Class Complaint sought to enjoin the Company and the Individual Defendants from proceeding with an anticipated stockholder vote on the Merger or consummating the Merger, unless and until the Company disclosed certain alleged material information which the Class Complaint alleges has been omitted from the Company’s proxy statement or in the event the Merger was consummated, to recover an unspecified amount of damages resulting from the Individual Defendants’ alleged violations Sections 14(a) and 20(a) of the Exchange Act. The Class Complaint was withdrawn in November 2017. |